AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION NO. 333-80417
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
SAMCO MORTGAGE SECURITIES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4058702
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 Park Avenue
New York, New York 10167
(212) 272-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
Mr. Samuel Molinaro
Treasurer
SAMCO Mortgage Securities
Corp.
245 Park Avenue
New York, New York 10167
(212) 272-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
Richard F. Kadlick, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALES TO THE
PUBLIC: From time to time after the effective date of this
Registration Statement.
------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. /_/
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED AGGREGATE
SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE(2) REGISTRATION FEE
- --------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shared Appreciation
Mortgage Pass-Through $[ ] 100% $[ ] $[ ]
Certificates...............
</TABLE>
(1) This Registration Statement also registers an indeterminate amount of
securities to be sold by Bear, Stearns & Co. Inc. in market-making
transactions, where required.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a), exclusive of accrued interest, if any, on the
Shared Appreciation Mortgage Pass-Through Certificates.
(3) $278 has previously been paid.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
=============================================================================
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], [1999]
SAMCO MORTGAGE SECURITIES CORP.
DEPOSITOR
[ ] TRUST [1999]-[ ]
SHARED APPRECIATION MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES [1999]-[ ]
$[ ]
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGES-[ ] IN THIS
PROSPECTUS SUPPLEMENT AND PAGE [ ] IN THE PROSPECTUS.
The certificates will represent interests only in the trust created for
Series [1999]-[ ] and will not represent in terests in or obligations of
SAMCO Mortgage Securities Corp., Bear, Stearns & Co. Inc. or any of their
affiliates.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
The [ ] Trust [1999]-[ ] will issue [ ] classes of offered certificates.
Each class of offered certificates will receive distributions of interest,
principal or both. The table on page S-[ ] of this prospectus supplement
contains a list of the classes of offered certificates, including the
principal balance, interest rate and certain special characteristics of
each class.
OFFERED CERTIFICATES
Total principal amount $[ ]
First payment date [ ], [1999]
Interest paid/principal paid [Monthly] (25th)
Last possible payment date [ ], 20[ ]
[The [ ] Trust [1999]-[ ] will also issue [ ] classes of
certificates that will not be offered by this prospectus supplement.
The total principal amount of the private certificates is $[ ].]
The underwriter listed below will offer the offered certificates at varying
prices to be determined at the time of sale. The proceeds to SAMCO Mortgage
Securities Corp. from the sale of the offered certificates will be
approximately [ ]% of the principal balance of the offered certificates
plus accrued interest, before deducting $[ ] in expenses. The underwriter's
commission will be the difference between the price it pays to SAMCO
Mortgage Securities Corp. for the offered certificates and the amount that
it receives from the sale of the offered certificates to the public.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE CERTIFICATES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Underwriter
BEAR, STEARNS & CO. INC.
[ ], [1999]
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail: the accompanying
prospectus, which provides general information, some of which may not apply
to your series of certificates and this prospectus supplement, which
describes the specific terms of your series of certificates.
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS SPECIFIC TO YOUR
CERTIFICATES AND ENHANCES THE MORE GENERAL INFORMATION CONTAINED IN THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROSPECTUS SUPPLEMENT.
If and when included in this prospectus supplement and the accompanying
prospectus or in documents incorporated herein or therein by reference, the
words "expects," "intends," "anticipates," "estimates" and analogous
expressions are intended to identify forward-looking statements. Any such
statements, which may include statements contained in "risk factors,"
inherently are subject to a variety of risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks
and uncertainties include, among others, general economic and business
conditions, competition, changes in foreign political, social and economic
conditions, regulatory initiatives and compliance with governmental
regulations, customer preferences and various other matters, many of which
are beyond SAMCO Mortgage Securities Corp.'s control. These forward-looking
statements speak only as of the date of this prospectus supplement. SAMCO
Mortgage Securities Corp. Expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking
statement contained herein to reflect any change in SAMCO Mortgage
Securities Corp.'s expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
We include cross-references in this prospectus supplement and the
accompanying prospectus 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 provide the pages on
which these captions are located.
SAMCO Mortgage Securities Corp.'s principal offices are located at 245
Park Avenue, New York, New York 10167 and its telephone number is (212)
272-2000.
TABLE OF CONTENTS
Important Notice about Information
Presented in this Prospectus Supplement and
the Accompanying Prospectus................................................S-2
Summary Information........................................................S-4
Risk Factors..............................................................S-10
The Trust.................................................................S-11
Description of the SAM Pools..............................................S-12
General................................................................S-12
The Sellers/Originators................................................S-14
Description of the Certificates...........................................S-15
Book-Entry Registration................................................S-15
Definitive Certificates................................................S-17
Exchangeable Certificates..............................................S-18
Advances...............................................................S-18
Distributions of Interest..............................................S-18
Distributions of Principal.............................................S-18
Subordination and Allocation of
Losses.................................................................S-18
The Class R Certificates...............................................S-19
Available Distribution Amount..........................................S-19
Last Scheduled Distribution to
Certificateholders.....................................................S-20
The Master Servicer....................................................S-20
The Servicer...........................................................S-20
Servicing Compensation, Retained
Yield and Payment of Expenses..........................................S-21
Optional Termination of the Trust......................................S-21
Yield, Appreciation and Prepayment
Considerations.........................................................S-22
Yield Considerations with Respect to
the Adjustable Strip Certificates......................................S-27
Yield Considerations with Respect to
the Appreciation Certificate...........................................S-29
Residual Certificate Yield
Considerations.........................................................S-30
Additional Information.................................................S-31
The Pooling and Servicing Agreement and
Sale and Servicing Agreement..............................................S-31
General................................................................S-31
Representations and Warranties.........................................S-31
Credit Enhancements.......................................................S-31
The Pool Insurance Policy..............................................S-32
The Special Hazard [Insurance
Policy][Reserve Fund] [Letter of
Credit]................................................................S-32
The SAM Repurchase [Reserve
Fund] [Letter of Credit] [Bond]........................................S-34
The Bankruptcy [Reserve Fund]
[Letter of Credit] [Bond]..............................................S-35
Legal Investment Aspects..................................................S-36
ERISA Considerations......................................................S-36
Federal Income Tax Consequences...........................................S-36
Method of Distribution....................................................S-37
Legal Matters.............................................................S-38
Certificate Ratings.......................................................S-38
Glossary of Terms.........................................................S-40
SUMMARY INFORMATION
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT
AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN
MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE
OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS.
THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS
AND OTHER INFORMATION TO AID YOUR UNDERSTANDING AND IS QUALIFIED BY THE
FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND OTHER INFORMATION IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
WHAT YOU OWN
Your certificates represent ownership of a portion of the trust. The trust
contains a pool of shared appreciation mortgage loans secured by
residential properties with original terms to maturity of not more than [ ]
years and certain other assets, as described under "The Trust" in this
prospectus supplement. A shared appreciation mortgage loan is a mortgage
loan in which the mortgagor pays a lower rate of interest than a similarly
situated mortgagor would pay on a mortgage loan with no shared appreciation
feature, because he will be required to also pay a pre-determined
percentage of the appreciation in the value of the underlying mortgaged
property to the related mortgagee or lender under a termination or maturity
of the shared appreciation mortgage loan.
THE OFFERED CERTIFICATES REPRESENT INTERESTS ONLY IN THE ASSETS OF THE
TRUST. ALL PAYMENTS TO YOU WILL COME ONLY FROM THE AMOUNTS RECEIVED IN
CONNECTION WITH THOSE ASSETS.
INFORMATION ABOUT THE MORTGAGE POOLS
The mortgage pool consists of approximately [ ] shared appreciation
mortgage loans with an aggregate principal balance as of [ ], [1999] of
approximately $[ ]. The principal balance of the individual shared
appreciation mortgage loans at origination ranged from a minimum of
approximately $[ ] to a maximum of approximately $[ ], with an average
principal balance of approximately $[ ]. The shared appreciation mortgage
loans have a weighted average remaining term to maturity of approximately [
] months as of [ ], [1999]. At origination, the shared appreciation
mortgage loans had [fixed][adjustable] interest rates ranging from [ ]% to
[ ]% and a weighted average [fixed] interest rate of [ ]% and a weighted
average appreciation share of [ ]%. The index used to compute stated
interest on the shared appreciation mortgage loans is [ ]. The margins
range from [ ]% to [ ]%. [other relevant adjustable rate characteristics]
The range of appreciation shares is from [ ]% to [ ]%. The shared
appreciation mortgage loans are described in the prospectus as [mortgage
subsidy][equity release] shared appreciation mortgage loans.
[For a further description of the shared appreciation mortgage loans,
see "Description of the SAM Pools" in this prospectus supplement.]
THE OFFERED CERTIFICATES
SAMCO Mortgage Securities Corp. will deposit the shared appreciation
mortgage loans into the trust. SAMCO Mortgage Securities Corp. created the
trust for the purpose of issuing the Shared Appreciation Mortgage
Pass-Through Certificates, Series [1999]-[ ]. [The approximate initial
class principal balance, certificate interest rate and type of each class
of the offered certificates will be as follows:
Approximate
Initial Annual
Class Certificat
Principal Interest
Class Balance Rate Type
- ------ ------------- --------- -----
[Index to be used for appreciation certificates]
[In addition to the offered certificates, the trust will issue the [ ]
Certificates. [These private certificates are subordinated to the offered
certificates and provide credit enhancement for the offered certificates.]
[The [ ] Certificates are not being offered by this prospectus supplement.]
CALCULATION OF APPRECIATION SHARE
The following charts set forth an example of how an appreciation share on a
shared appreciation mortgage loan would be payable to the holder of an
appreciation certificate:
- ---------------------------------------------------------
When home When home is
was sold
purchased
- ---------------------------------------------------------
House price/ $125,000 $185,000
value
Loan amount $100,000 $ 82,000
If mortgage N/A $30,000
obtains a 50%
appreciation
share, one-half of
appreciation
that is due to
lender (percentage
of appreciation
share that is due
can vary from
30% - 60%)
- ---------------------------------------------------------
Total N/A $112,500
pay-off due
to lender at
timeof sale
- ---------------------------------------------------------
Proceeds to $72,500
borrower
- ---------------------------------------------------------
- ---------------------------------------------------------
When home When home is
was sold
purchased
- ---------------------------------------------------------
House price/ $125,000 $125,000
value
- ---------------------------------------------------------
Loan amount $100,000 $ 97,470
- ---------------------------------------------------------
If mortgage N/A $ 0
obtains a 50%
appreciation
share, one-half of
appreciation that
is due to lender
(percentage of
appreciation
share that is due
can vary from
30% - 60%)
- ---------------------------------------------------------
Total N/A $ 97,470
pay-off due
to lender at
time of sale
- ---------------------------------------------------------
Proceeds to $27,530
borrower
- ---------------------------------------------------------
INITIAL PRINCIPAL BALANCE OF THE CERTIFICATES
The aggregate principal balance of the certificates issued by the trust is
approximately $[ ], subject to an upward or downward variance of no more
than 5%. [The appreciation certificates do not have a principal amount but
have a notional amount of approximately $[ ].]
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
PRIORITY OF DISTRIBUTIONS
The first distribution date will be [ ], [1999]. Thereafter, distributions
will be made on the 25th day of each month, or if such 25th day is not a
business day, on the next business day. [description of priority of
interest and principal distributions among the certificates]
DISTRIBUTIONS OF INTEREST
General. On each distribution date, monthly distributions of interest will
be made to each class of offered certificates entitled to interest to the
extent of available funds.
[The amount of interest each class of certificates accrues each month will
equal 1/12th of the annual certificate interest rate for that class of
certificates multiplied by the related class principal balance or class
notional amount, as applicable.] [additional description of allocation of
interest among classes, as applicable]
[Additional interest will be paid to holders of appreciation certificates
at the maturity of the shared appreciation mortgage loans.] [additional
description of allocation of additional interest to appreciation
certificate]
[Compensating Interest and Interest Shortfalls. When mortgagors make
prepayments in full, they need not pay a full month's interest. Instead,
they are required to pay interest only to the date of such prepayment. The
[master servicer][servicer] of the shared appreciation mortgage loans
[will/will not] pay compensating interest to the certificateholders to
compensate certificateholders for the shortfall in interest this causes.]
DISTRIBUTIONS OF PRINCIPAL
The certificateholders will receive the principal that the mortgagors pay
on the shared appreciation mortgage loans in the trust. [additional
description of allocation of principal among the classes of certificates,
as applicable]
ALLOCATION OF LOSSES
The [master servicer][servicer] will realize a loss to the trust when it
receives all amounts that it expects to recover from any shared
appreciation mortgage loan and that amount is less than the outstanding
principal balance of such loan and accrued and unpaid interest, including
additional interest, on such balance. LOSSES WILL BE ALLOCATED TO THE
CERTIFICATES BY DEDUCTING SUCH LOSSES FROM THE PRINCIPAL BALANCE OF THE
CERTIFICATES WITHOUT MAKING ANY PAYMENTS TO THE CERTIFICATEHOLDERS.
[description of subordination features, as applicable, and method of
allocation of losses on the shared appreciation mortgage loans among the
certificates]
CREDIT ENHANCEMENTS
[description of credit enhancements, including subordination, if any]
ADVANCES
[description of obligation, if any, of [master
servicer][servicer][originator][seller] of the shared appreciation mortgage
loans, to make advances to cover shortfalls in payments due on shared
appreciation mortgage loans or to make servicing advances]
YIELD, APPRECIATION AND
PREPAYMENT CONSIDERATIONS
The yield to maturity of each class of certificates will depend upon, among
other things:
o the price at which such certificates are purchased;
o the applicable certificate interest rate, if any;
o in the case of appreciation certificates, the amount of appreciation of
the mortgaged properties that secure the shared appreciation mortgage
loans; and
o the rate of prepayments on the shared appreciation mortgage loans.
A higher than anticipated rate of prepayments would reduce the aggregate
principal balance of the shared appreciation mortgage loans more quickly
than expected, thereby reducing the aggregate stated interest payments with
respect to such shared appreciation mortgage loans. Therefore, a higher
rate of principal prepayments could result in a lower than expected yield
to maturity on classes of certificates purchased at a premium. Conversely,
a lower than anticipated rate of principal prepayments could result in a
lower than expected yield to maturity on classes of certificates purchased
at a discount since payments of principal with respect to the shared
appreciation mortgage loans would occur later than anticipated.
A higher than anticipated rate of prepayments would reduce the aggregate
principal balance of the shared appreciation mortgage loans more quickly
than expected and such reduction could also have the effect of reducing the
opportunity for the rate of increase in the value of the related mortgaged
properties to increase. In addition, a mortgagor may choose to prepay a
shared appreciation mortgage loan at a time when real estate values are
declining in order to minimize the amount of appreciation payments. In such
instances, a higher rate of principal prepayments would result in a lower
than expected yield to maturity on the class or classes of certificates
entitled to such additional interest payments, which are defined generally
as appreciation certificates.
Further, the level of appreciation of the mortgaged properties
underlying the shared appreciation mortgaged properties in your trust and,
to a much lesser degree, the rate of change of the index used for
calculating the indexed additional interest for any shared appreciation
mortgage loan that is repurchased from your trust for, or such certificates
will affect the yield earned by holders of, the appreciation certificates.
The level of appreciation of the mortgaged properties underlying the shared
appreciation mortgage loans may be affected by a variety of factors,
including but not limited to:
o economic conditions in the area where the mortgaged property is located;
o the general level of inflation and unemployment in the economy;
o the general level of liquidity in the economy; and
o more specifically the level of liquidity in the residential mortgage market.
You should be aware that if you hold appreciation certificates their yield
may be low, zero or negative, and you should be prepared for the
possibility that you could lose your entire investment in the appreciation
certificates that you have purchased.
Certain classes of certificates will be especially sensitive to the rate of
prepayments and the rate of appreciation on the underlying mortgaged
properties. For a discussion of special yield, prepayment and appreciation
certificate considerations applicable to these classes of certificates, see
"Risk Factors" and "Description of the Certificates--Yield, Appreciation
and Prepayment Considerations" in this prospectus supplement.
BOOK-ENTRY REGISTRATION
[In general, the [ ] certificates will be available only in book-entry
form through the facilities of [The Depository Trust Company]. See
"Description of the Certificates --Book-Entry Registration" in this
prospectus supplement.]
DENOMINATIONS
SAMCO Mortgage Securities Corp. is offering the class [ ] certificates in
minimum denominations of $1,000 and in increments of $1.00 in excess of
$1,000 and the class [ ] certificates in minimum denominations of $25,000
and in increments of $1.00 in excess of $25,000.
RATINGS
This prospectus supplement requires that the offered certificates receive
ratings from [ ] to [ ]. The ratings on the offered certificates address
the likelihood that the holders of offered certificates will receive all
distributions to which they are entitled on the underlying shared
appreciation mortgage loans. They do not address the likely actual rate of
prepayments or appreciation of the underlying mortgaged properties. Such
rate of prepayments or appreciation, if different than originally
anticipated, could adversely affect the yield realized by holders of the
offered certificates or cause certificateholders to fail to recover their
initial investments.
LEGAL INVESTMENT
As of the date of their issuance, the offered certificates [, other than
the class [ ] certificates,] will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. See
"Certain Legal Investment Aspects" in this prospectus supplement for
important information concerning possible restrictions on ownership of the
offered certificates by regulated institutions. Investors should consult
their own legal advisors in determining whether and to what extent the
offered certificates constitute legal investments for such investors.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations"
in this prospectus supplement and in the accompanying prospectus, the [ ]
Certificates may be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts.
TAX STATUS
[A pool of shared appreciation mortgages will be treated as a REMIC, a
FASIT or a grantor trust for federal income tax purposes. Holders of some
types of certificates that are issued will likely be treated as holding
debt instruments with original issue discount. Holders of other types of
certificates will be subject to different federal income tax treatment.]
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information
regarding the tax treatment of the residual certificates, see "Federal
Income Tax Consequences" in this prospectus supplement and in the
accompanying prospectus.
RISK FACTORS
THE OFFERED CERTIFICATES, INCLUDING, BUT NOT LIMITED TO, THE
APPRECIATION CERTIFICATES, ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS.
IN PARTICULAR, NO INVESTOR SHOULD PURCHASE ANY CLASS OF OFFERED
CERTIFICATES UNLESS THE INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE
PREPAYMENT, APPRECIATION OF THE UNDERLYING MORTGAGED PROPERTIES, CREDIT,
LIQUIDITY AND MARKET RISKS ASSOCIATED WITH THAT CLASS.
THE OFFERED CERTIFICATES ARE COMPLEX SECURITIES AND IT IS IMPORTANT THAT
EACH INVESTOR POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT ADVISOR,
THE EXPERTISE NECESSARY TO EVALUATE THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN THE CONTEXT OF
THAT INVESTOR'S FINANCIAL SITUATION.
[discussion, as applicable, of risk factors, including prepayment risk,
legal risks associated with the origination of shared appreciation mortgage
loans, the risk of investing in the appreciation certificates which
represent interests in the appreciation of the mortgaged properties,
subordination and allocation of losses among the certificates,
adjustable-rate shared appreciation interest-only or principal-only
certificates, book-entry system of registration and federal income tax
consequences]
[Risks associated with servicer waiving fees or charges with respect to
delinquent shared appreciation mortgage loans if applicable] [Risks related
to allowing delinquent shared appreciation mortgage loans to remain
delinquent for an extended period of time, if applicable]
THE TRUST
The primary assets in the Trust will consist of SAMs secured by one- to
four-family residential properties [or certificates of interest or
participations]. The Trust will also include:
o [Primary Insurance Policies;]
o [the Pool Insurance Policy issued by [ ] and other
insurance policies related to the SAMs;]
o [an Advance Claims Endorsement][covering up to a specified amount
of certain losses arising from special hazards, certain SAM
repurchase defaults by the [master servicer][servicer] and
mortgagor bankruptcy;]
o [a Special Hazard] [Reserve Fund] [Letter of Credit][Certificate
Insurance][Insurance Policy];
o [a SAM Repurchase] [Reserve Fund] [Letter of Credit] [Bond];
o [a Bankruptcy] [Reserve Fund] [Letter of Credit] [Bond]; and
o [a Fraud][Bond]
o property which secured a SAM and which is acquired by foreclosure
or by deed in lieu of foreclosure after the Cut-Off Date, and
o amounts held from time to time in an account or accounts
established by the [master] servicer.
The SAMs will be assigned to the Trustee, together with all principal and
interest due on the SAMs [other than the Retained Yield] after the Cut-Off
Date. The Trustee will, concurrently with such assignment, authenticate and
deliver the certificates. Each SAM will be identified in the Loan Schedule
which will specify with respect to each SAM, among other things, the
original principal balance and the outstanding principal balance as of the
close of business on the Cut-Off Date, the term of the Mortgage Note and
the stated interest rate and the Appreciation Share, whether such SAM is a
Mortgage Subsidy SAM or Equity Release SAM, the stated maturity of each SAM
and various material information about each mortgagor.
DESCRIPTION OF THE SAM POOLS
Capitalized terms are defined in the Glossary of Terms in the attached
Prospectus or in this Prospectus Supplement.
GENERAL
The SAM Pools will consist of SAMs having an [approximate] aggregate
principal balance outstanding as of [ ], [1999], after deducting payments
due on or before such date. Certain of the risks of loss on the SAMs will
be covered up to specified limits by the following:
o [Primary Insurance Policies;]
o [a Pool Insurance Policy;]
o [an Advance Claims Endorsement;]
o [a Special Hazard] [Reserve Fund] [Letter of Credit] [Insurance
Policy];
o [a SAM Repurchase] [Reserve Fund] [Letter of Credit] [Bond];
o [a Bankruptcy] [Reserve Fund] [Letter of Credit] [Bond]; and
o [a Fraud][Bond].
See "Credit Enhancements" in this prospectus supplement and "Description
of Credit Enhancements" in the prospectus.
The SAMs are secured by the Mortgaged Property. The SAMs will have the
additional characteristics described in this prospectus supplement and in
the prospectus. All of the SAMs will generally be acquired by SAMCO
Mortgage Securities Corp. from EMC Mortgage Corporation. EMC Mortgage
Corporation acquired the SAMs from [list Originators/sellers] under certain
Sale and Servicing Agreements. The SAMs in each SAM Pool will be originated
by Originators and purchased from lending institutions which meet the
requirements set forth in the attached prospectus.
[All of the SAMs will be screened and underwritten in accordance with
standards set forth in the prospectus.] Each SAM will have been originated
during the period from [ ] through [ ], [1999]. Each of the SAMs will have
an original term to maturity of [ ] to [30] years. [The SAM will begin
making periodic payments on [ ].]
As of the Cut-Off Date, the stated rate of interest on each SAM will be
not less than [ ]% and not more than [ ]% per annum. As of the Cut-Off
Date, the weighted average, by principal balance, of the stated interest
rates on the SAMs will be approximately [ ]% per annum. [[ ]% of the SAMs
are adjustable rate SAMs] [description of features of shared appreciation
adjustable-rate mortgage loans, including adjustment date, index, gross
margin, adjustment limits, interest ceilings and floors, method of
establishing initial rate and historical index tables]. [[ ]% of the SAMs
will have been originated as adjustable rate SAMs but converted to fixed
rate SAMs prior to inclusion in the SAM Pools.] [[ ]% of the SAMs will have
been originated as adjustable rate SAMs and may convert to fixed rate SAMs
after inclusion in the SAM Pools.] [[ ]% of the SAMs are Mortgage Subsidy
SAMs.] [[ ]% of the SAMs are Equity Release SAMs.]
At origination, each SAM will have had a principal balance of not less
than $[ ] nor more than $[ ] , and the average principal balance of the
SAMs as of the Cut-Off Date will be approximately $[ ]. All of the SAMs
will have been secured by owner-occupied Mortgaged Properties, based solely
on representations of the mortgagors obtained at the origination of the
related SAMs.
[Each SAM has a Remittance Rate equal to the stated interest rate for
such SAM less the sum of the Retained Yield, the [[Seller][Servicing] Fee
and the Master Servicing Fee] [Servicing Fee and the Certificate
Administrator Fee] for such SAM. As of the Cut-Off Date, the Pass-Through
Rate for each SAM will be not less than [ ]% and not more than [ ]% per
annum. As of the Cut-Off Date, the weighted average, by principal balance,
of the Remittance Rates for the SAMs will be approximately [ ]% per annum.]
Each SAM provides for the payment of additional interest at the earlier
of the maturity date and the occurrence of a Mortgage Termination Event
equal to the Additional Interest Payment. Such Additional Interest Payment
is equal to the Appreciation Share and the amount by which the Settlement
Value of such SAM exceeds the Adjusted Value of such SAM at the earlier of
the maturity date of such SAM and the occurrence of a Mortgage Termination
Event. The index used to compute stated interest on the SAMs is [ ]. The
margins range from [ ]% to [ ]%. [other relevant adjustable rate
characteristics] The range of Appreciation Shares is from [ ]% to [ ]%.
The latest original scheduled maturity of any SAM will be [ ][20 ]. As
of the Cut-Off Date, the weighted average, by principal balance, remaining
term to maturity of the SAMs will be approximately [ ] months.
[At origination, based upon an appraisal of the Mortgaged Property
securing each SAM, approximately [ ]% of the SAMs, by principal balance,
will have had a ratio of the principal balance of the SAM to the value of
the Mortgaged Property greater than or equal to 80%, and approximately [ ]%
of the SAMs (by principal balance) will have had LTVs greater than 80% but
less than or equal to [95]%. [ ]% of the SAMs had a LTV Ratio greater than
[95]%. As of the Cut-Off Date, the weighted average, by principal balance,
of the LTVs of the SAMs will be approximately [ ]%.]
[Approximately [ ]% of the SAMs, by principal balance, will be covered
by Primary Insurance Policies as of the Cut-Off Date.]
[description of other insurance]
No more than [ ]% of the SAMs, by principal balance as of the Cut-Off
Date will be secured by Mortgaged Properties located in any one zip code
area. A geographic distribution of the Mortgaged Properties on a [state by
state][zip code by zip code] basis is attached as [Annex I].
Approximately [ ]% of the SAMs, by principal balance as of the Cut-Off
Date will have been originated for the purpose of refinancing existing
mortgage debt, including cash-out refinancings. [Approximately [ ]% of the
SAMs, by principal balance, will have been originated for the purpose of
refinancing existing SAMs.] Approximately [ ]% of the SAMs, by principal
balance, will have been originated for the purpose of purchasing the
Mortgaged Property.
[additional description of SAMs as applicable, i.e., the number of SAMs
that provide for Balloon Loans, particular characteristics of SAMs, whether
_____SAMs may provide for Negative Amortization and Equity Release SAMs and
any special characterization of SAMs; add charts re: SAMs which were
originated for the purpose of purchasing and refinancing the related
Mortgaged Properties and chart re: mortgagors in specified age groups;
additional chart showing relevant characteristics of SAMs]
[add charts (attached in Annex I) as necessary]
THE SELLERS/ORIGINATORS
[description, as applicable, of [seller's][Originator's] underwriting
criteria and loan documentation standards]
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued to certificateholders under the Pooling
and Servicing Agreement, a form of which is filed as an exhibit to the
Registration Statement of which this prospectus supplement is a part.
Reference is made to the prospectus for important additional information
regarding the terms and conditions of the Pooling and Servicing Agreement
and the certificates. The issuance of the certificates is subject to the
condition that they be rated [" "] by [ ] [and will otherwise qualify as
"mortgage related securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.] [The certificates will be freely
transferable and exchangeable at the office of [ ], the Registrar and
Paying Agent, in [ ] , [ ] . The net proceeds of the offering will be held
in trust by SAMCO Mortgage Securities Corp. for the benefit of
certificateholders, subject to release to SAMCO Mortgage Securities Corp.
simultaneously with receipt by the Trustee of the SAMs.
BOOK-ENTRY REGISTRATION
The certificates, other that the Class R Certificates, will generally be
available only in book-entry form through the facilities of DTC if they are
Participants, or indirectly through organizations which are Participants.
Transfers between Participants will occur in the ordinary way in accordance
with DTC rules. Cede & Co., as nominee of DTC, will hold the global
certificate for each class of Book-Entry Certificates. SAMCO Mortgage
Securities Corp. is offering the Class [ ] Certificates in minimum
denominations of $1,000 and in increments of $1.00 in excess of $1,000 and
the Class [ ] Certificates in minimum denominations of $25,000 and in
increments of $1.00 in excess of $25,000.
DTC has advised SAMCO Mortgage Securities Corp. that it is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the UCC and a "clearing agency" registered under the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for
its Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include Bear, Stearns & Co. Inc.,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access
to the DTC system also is available to other entities, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with an Indirect Participants.
Certificateholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, unless Definitive Certificates are
issued, certificateholders will receive all distributions of principal of
and interest on the Book-Entry Certificates through Participants. Under a
book-entry format, certificateholders will receive payments after the
related Distribution Date, because while payments are required to be
forwarded to Cede & Co., as nominee for DTC, on each such date, DTC will
forward such payments to its Participants which thereafter will be required
to forward them to Indirect Participants or certificateholders. It is
anticipated that the sole "Certificateholder", as such term is used in the
Pooling and Servicing Agreement, of the Book-Entry Certificates will be
Cede & Co., as nominee of DTC, and that Book-Entry Certificateholders will
not be recognized by the [Trustee] as certificateholders under the Pooling
and Servicing Agreement. Book-Entry certificateholders will be permitted to
exercise the rights of certificateholders under the Pooling and Servicing
Agreement only indirectly through Participants, who in turn will exercise
their rights through DTC.
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 Book-Entry
Certificates and is required to receive and transmit distributions of
principal of and interest on the Book-Entry Certificates. Participants and
Indirect Participants with which certificateholders have accounts with
respect to the Book-Entry Certificates similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of
their respective certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
certificateholder to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or otherwise take actions in
respect of such certificates, may be limited due to the lack of a physical
certificate for such certificates.
DTC has advised SAMCO Mortgage Securities Corp. that it will take any
action permitted to be taken by a certificateholder under the Pooling and
Servicing Agreement only at the direction of one or more Participants to
whose account with DTC the certificates are credited. Additionally, DTC has
advised SAMCO Mortgage Securities Corp. that it will take such actions with
respect to a certificate only at the direction of and on behalf of the
Participant whose holdings include that certificate. DTC may take
conflicting actions with respect to other certificates to the extent that
such actions are taken on behalf of Participants whose holdings include
such certificates.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Book-Entry Certificates among Participants, it is
under no obligation to perform or continue to perform such procedures and
such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form to certificateholders or their nominees, rather than to
DTC or its nominee, only if:
o SAMCO Mortgage Securities Corp. advises the Trustee in writing that
DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the certificates, and
the Trustee or SAMCO Mortgage Securities Corp. is unable to locate a
qualified successor or
o SAMCO Mortgage Securities Corp., at its option, elects to terminate
the book-entry system through DTC.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants
of the availability through DTC of Definitive Certificates. Upon surrender
by DTC of the definitive certificates representing each class of the
Book-Entry Certificates and instructions for registration, the Trustee will
issue the Book-Entry Certificates in the form of Definitive Certificates,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as certificateholders under the Pooling and Servicing
Agreement.
Distribution of principal of and interest on the certificates will be
made by [ ] directly to holders of Definitive Certificates in accordance
with the procedures set forth in this prospectus supplement and in the
Pooling and Servicing Agreement. Interest and principal payments on each
Distribution Date will be made to holders in whose names the Definitive
Certificates were registered on the Record Date. Distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Registrar. The final payment on any certificate, whether
Definitive Certificates or the certificates registered in the name of Cede
& Co. representing each class of the Book-Entry Certificates, will be made
only upon presentation and surrender of such certificate at the offices of
the Transfer Agent and Registrar, which shall initially be [ ], or such
office or agency as is specified in the notice of final distribution to
holders of certificates of the class being retired. The Trustee will
provide such notice to registered certificateholders not later than the
fifth day of the month in which all remaining outstanding certificates of
the applicable class will be retired.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Transfer
Agent and Registrar may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith.]
[EXCHANGEABLE CERTIFICATES]
The Class [ ] Certificates are exchangeable certificates.
ADVANCES
The [master servicer][servicer][seller][Originator] will [not] make
Advances for delinquent payments of principal and interest on SAMs and real
estate taxes, assessments and certain insurance premiums necessary to
maintain the Mortgaged Property as described in the prospectus under
"Description of the Certificates--Advances." [No Advance of Additional
Interest Payments will be made to the SAMs]
DISTRIBUTIONS OF INTEREST
[description of amounts passed through to certificateholders as interest
and allocation of such amounts among classes, if any]
DISTRIBUTIONS OF PRINCIPAL
[description of amounts passed through to certificateholders as
principal and allocation of such amounts among classes, if any]
SUBORDINATION AND ALLOCATION OF LOSSES
[description of loss allocation provisions]
Priority of the Senior Certificates. As of Closing Date, the aggregate
current principal amounts of the Class [ ] Certificates and of the Class [
] Certificates, Class [ ] Certificates, Class [ ] Certificates, and Class [
] Certificates will equal approximately [ ]% and [ ]%, respectively, of the
aggregate current principal amounts of the certificates.
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the SAMs will be subordinated to such rights
of the holders of the Senior Certificates and to each class of Subordinated
Certificates having a lower numerical designation than such class. The
subordination of the Subordinated Certificates to the Senior Certificates
and of Subordinated Certificates to classes of Subordinated Certificates
with a higher payment priority is intended to increase the likelihood of
timely receipt by the holders of the Senior Certificates and the applicable
class of Subordinated Certificates of the maximum amount to which they are
entitled on any Distribution Date and to provide such holders protection
against losses resulting from defaults on SAMs to the extent described
above.
However, in certain circumstances, the amount of available
subordination, including the limited subordination provided for excess
losses, may be exhausted and shortfalls in distributions on the Senior
Certificates or Subordinated Certificates, as applicable, could result.
Holders of the Senior Certificates or Subordinated Certificates, as
applicable, will then bear their proportionate share of realized losses in
excess of the total subordination amount.
Priority among the Subordinated Certificates. On each
Distribution Date, the holders of any particular class of Subordinated
Certificates will have a preferential right to receive the amounts due them
on such Distribution Date out of the Distribution Account, prior to any
distribution being made on such date on each class of certificates
subordinated to such class.
As a result of the subordination of any class of certificates,
such class of certificates will be more sensitive than more senior classes
of certificates to the rate of delinquencies and defaults on the SAMs in
the related SAM Pool, and under certain circumstances investors in such
certificates may not recover their initial investment.
THE CLASS R CERTIFICATES
On each Distribution Date, any amounts remaining in the Distribution
Account after distributions of interest on and principal of the
certificates [, including Additional Interest Payments or the Appreciation
Certificates,] and payment of expenses, if any, of the Trust will be
distributed to the holder of the Class R Certificates together with Excess
Liquidation Proceeds, if any. Distributions of such excess amounts to the
holder of the Class R Certificates will be subordinate to all payments
required to be made on the certificates on any Distribution Date.
Any amounts remaining in the Distribution Account upon reduction of the
principal balance of the certificates to zero, payment of any outstanding
expenses and termination of the Trust will be distributable to the holder
of the Class R Certificates. Such remaining assets are expected to be
minimal. See "--Optional Termination of the Trust".
AVAILABLE DISTRIBUTION AMOUNT
On each Distribution Date, the Available Distribution Amount, which
generally includes scheduled principal and interest payments on the SAMs
due on the related [Due Date], principal prepayments received on the SAMs
in the previous calendar month and amounts received with respect to
liquidations and repurchases upon conversions of the SAMs, will be
distributed by or on behalf of the Trustee to the related class of
certificateholders.
The Due Date related to each Distribution Date is the first day of the
month in which such Distribution Date occurs.
LAST SCHEDULED DISTRIBUTION TO CERTIFICATEHOLDERS
Scheduled distributions on the SAMs, assuming defaults or losses on the
SAMs do not exceed amounts that are covered by the credit enhancements
described elsewhere in this prospectus supplement, will be sufficient to
make timely distributions of interest on the certificates and to reduce the
principal balance of each class of certificates to zero not later than its
Last Scheduled Distribution Date set forth below:
Last Scheduled
Class Distribution Date
- ----------------------------------- -------------------------------------
[List of classes of certificates] [List of Last Scheduled Distribution
Dates for each class of certificates]
The determination of the Last Scheduled Distribution Date or each class
of certificates assumes, among other things, timely payments, without
principal prepayments, of principal of and interest on the SAMs underlying
the certificates, [no conversions to fixed rates or any SAMs], no
repurchases of any SAMs and no optional termination of the Trust. Since the
rate of payment, including principal prepayments, of the SAMs can be
expected to exceed the scheduled rate of payments, and could exceed the
scheduled rate by a substantial amount, the actual final Distribution Date
may be earlier, and could be substantially earlier, than the Last Scheduled
Distribution Date indicated.
[THE MASTER SERVICER
description, as applicable, of master servicer's business and
delinquency, foreclosure and loss experience with respect to comparable
shared appreciation loans serviced by the master servicer]
[THE SERVICER
description, as applicable, of servicer's business and delinquency,
foreclosure and loss experience with respect to comparable shared
appreciation loans serviced by the servicer] [Description of servicer's
authority to waive fees or changes or to allow SAMs to remain delinquent,
if applicable].
SERVICING COMPENSATION, RETAINED YIELD AND PAYMENT OF EXPENSES
[The [Master][Servicer] Fee with respect to each SAM [is expected to]
[will] range from a minimum of [ ]% to a maximum of [ ]% per annum.] The
[initial weighted average] [master][Servicing][Seller][Originator] Fee with
respect to each SAM [is expected to] [will] be approximately [ ]% per
annum. [The Certificate Administrator Fee with respect to each SAM [is
expected to] [will] be approximately [ ]% per annum.] [The Retained Yield
[is expected to] [will] range from [ ]% to [ ]%, with an initial weighted
average Retained Yield of approximately [ ]%. The Retained Yield [is
expected to be] [may be] [sold] [transferred to [the Underwriter for
resale] to] a third party.] See "Description of the Certificates--Retained
Yield" and "--Servicing Compensation and Payment of Expenses" in the
prospectus for information regarding other possible compensation to SAMCO
Mortgage Securities Corp. and the [seller][Originator][master][servicer].
The [master] servicer will pay [all] [certain] expenses incurred in
connection with its responsibilities under the Pooling and Servicing
Agreement [and the Sale and Servicing Agreement], subject to reimbursement
as described in the prospectus, including, without limitation, the various
items of expense enumerated in the prospectus. In particular, under the
[Pooling and Servicing Agreement][Sale and Servicing Agreement], each month
or year, as applicable, the [master] servicer will be obligated to pay from
the [Master] Servicing Fee
o the premiums on the Pool Insurance Policy,
o [the fees of the Trustee] and
o certain other fees and expenses of the Trust, as prescribed by the
Pooling and Servicing Agreement.
Such fees and expenses are expected to aggregate not more than [ ]% per
annum. [The Certificate Administrator will pay the fees and expenses of the
Trustee.]
OPTIONAL TERMINATION OF THE TRUST
On any Distribution Date after the first date on which the aggregate
outstanding principal balance of the SAMs is less than [ ]% of the
aggregate principal balance of the SAMs as of the Cut-Off Date, SAMCO
Mortgage Securities Corp. may repurchase the SAMs and any other property
remaining in the Trust, and thereby effect the termination of the Trust and
the retirement of the certificates. The repurchase price will equal the sum
of 100% of the aggregate outstanding principal balances of such SAMs, plus
accrued interest thereon at the applicable [stated interest rates] through
the last day of the month of such repurchase plus the Indexed Appreciation
Payments for all such SAMs and the fair market value of all other property
remaining in the Trust less expenses of disposition of any property
remaining in the Trust. The proceeds of such repurchase will be treated as
a principal prepayment of the SAMs for purposes of distributions to
certificateholders. Accordingly, an optional termination of the Trust will
cause the outstanding principal balance of the certificates to be paid in
full. In no event will the Trust continue beyond the expiration date
identified in the Pooling and Servicing Agreement. See "Description of
Certificates--Termination and Optional Termination" in the prospectus.
YIELD, APPRECIATION AND PREPAYMENT CONSIDERATIONS
The effective yield to maturity of the certificates will depend upon,
among other things, the price at which the certificates are purchased, the
applicable Pass-Through Rate and the rate of principal payments on the
SAMs. The effective yield to certificateholders will be lower than the
yield otherwise produced by the applicable Pass-Through Rate and purchase
price of such certificates, because principal and interest distributions
will not be payable to such certificateholders until the 25th day of the
month following the month of accrual, without any additional distribution
of interest or earnings thereon with respect to such delay. [Because the
[master] servicer will not be obligated to pass through a full month's
payment of interest with respect to principal prepayments, the effective
yield may also be reduced in the event of interest shortfalls attributable
to Payoffs of, or Curtailments with respect to, one or more SAMs.]
Further, the level of the appreciation of the Mortgaged Properties
underlying the SAMs in the Trust will, and the index used for calculating
the Indexed Appreciation Payment for any SAM in the Trust or the
Appreciation Certificates may, affect the yield earned by holders of
principally the Appreciation Certificates. The level of appreciation of the
Mortgaged Properties underlying the SAMs may be affected by a variety of
factors, including but not limited to: economic conditions in the area
where the Mortgaged Property is located, the general level of inflation and
unemployment in the economy, the general level of liquidity in the economy
and more specifically the level of liquidity in the residential mortgage
market. The amount of appreciation paid to any holders of Appreciation
Certificates may also be affected by the amount of principal prepayments
that are occurring on the SAMs. Holders of Appreciation Certificates should
be aware that their yield may be low, zero or negative and should be
prepared that they can lose their entire investment in the Appreciation
Certificates they have purchased.
The rate of principal payments on the certificates is directly related
to the rate of payments of principal on the SAMs, which may be in the form
of scheduled payments or principal prepayments. See "Yield Considerations"
in the prospectus. A higher than anticipated rate of principal prepayments
would reduce the aggregate principal balance of the SAMs more quickly than
expected. As a consequence, aggregate interest payments at the applicable
stated interest rate with respect to such SAMs could be substantially less
than expected. Therefore, a higher rate of principal prepayments could
result in a lower than expected yield to investors in classes of
certificates purchased at a premium. Conversely, a lower than anticipated
rate of principal prepayments could reduce the return to investors on any
classes of certificates purchased at a discount, in that payments of
principal with respect to the SAMs would occur later than anticipated.
The actual rate of payments of principal and principal prepayments on
the SAMs may be influenced by a variety of economic, geographic, social and
other factors, including general economic conditions and homeowner
mobility. In general, if prevailing interest rates fall significantly below
the effective interest rates on the SAMs, i.e., the sum of the applicable
stated interest rate and the implicit rate associated with the payment of
additional interest the SAMs are likely to be subject to higher principal
prepayment rates than if prevailing rates remain at or above the effective
interest rates on the SAMs. Conversely, if interest rates rise above the
effective interest rate on the SAMs, the rate of principal prepayment would
be expected to decrease. The rate of payment of principal will also be
affected by any repurchase by SAMCO Mortgage Securities Corp. of the SAMs.
See "Maturity, Average Life, Appreciation and Prepayment Assumptions" and
"Description of Certificates--Termination and Optional Termination" in the
prospectus and "Description of the Certificates--Optional Termination of
the Trust" in this prospectus supplement. In such event, the repurchase
price paid by SAMCO Mortgage Securities Corp. would be passed through to
certificateholders in accordance with their respective interests.
SAMCO Mortgage Securities Corp. makes no representation as to the
specific factors that will affect the prepayment of the SAMs or the
appreciation of the underlying Mortgaged Properties or the relative
importance of such factors. Factors not identified by SAMCO Mortgage
Securities Corp. or discussed in this prospectus supplement may
significantly affect the Principal prepayments of the SAMs or the level of
appreciation of the underlying Mortgaged Properties. In particular, SAMCO
Mortgage Securities Corp. makes no representation as to the percentage of
the principal amount of the SAMs that will be paid as of any date or as to
the overall rate of prepayment or appreciation.
[The SAMs comprising the SAM Pools are adjustable rate shared
appreciation mortgage loans. SAMCO Mortgage Securities Corp. is not aware
of any publicly available statistics that set forth principal prepayment
experience or prepayment forecasts of adjustable rate shared appreciation
mortgage loans over an extended period of time, and its experience with
respect to such loans is insufficient to draw any conclusions with respect
to the expected prepayment rates on the adjustable rate shared appreciation
mortgage loans comprising the SAM Pools. The rate of principal prepayments
with respect to adjustable rate shared appreciation mortgage loans has
fluctuated in recent years. As in the case with conventional fixed rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater
rate of principal prepayment 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 shared appreciation mortgage loans at competitive interest rates
may encourage mortgagors to refinance their adjustable rate shared
appreciation mortgage loans to "lock in" a lower fixed interest rate. The
features of the adjustable rate shared appreciation mortgage loan programs
of shared appreciation mortgage loan Originators during the past years have
varied significantly in response to market conditions such as interest
rates, consumer demand, regulatory restrictions and other factors. The lack
of uniformity of the terms and provisions of such adjustable rate shared
appreciation mortgage loan programs have made it impracticable to compile
meaningful comparative data on prepayment rates and, accordingly, there can
be no certainty as to the rate of prepayments on the SAMs in stable or
changing interest rate environments.]
[With respect to all SAMs, including SAMs that are Balloon Loans,
payment of the unamortized principal balance and any additional interest
due at maturity, which, based on the amortization schedule of such SAMs, is
expected to be a substantial amount, will generally depend on the
mortgagor's ability to obtain refinancing of such SAM or to sell the
Mortgaged Property prior to the maturity of such SAMs. The ability to
obtain refinancing will depend on a number of factors prevailing at the
time refinancing or sale is required, including, without limitation, real
estate values, the mortgagor's financial situation, prevailing mortgage
loan interest rates, the mortgagor's equity in the related Mortgaged
Property, tax laws and prevailing general economic conditions.]
[With respect to Equity Release SAMs, payments of the principal balance
and any additional interest due at maturity will [also] generally depend on
the mortgagor's ability to obtain refinancing of such SAM or sell the
Mortgaged Property prior to the maturity of the SAM. The ability to obtain
refinancing will depend on a number of factors prevailing at the time the
refinancing or sale is required, including without limitation, real estate
values, the mortgagor's financial situation, prevailing mortgage loan
interest rates, tax laws and prevailing general economic conditions and may
particularly depend upon whether SAMs are being offered at that time. In
addition, in the case of Equity Release SAMs, the ability to obtain
refinancing may be more difficult than for other types of mortgage loans
and SAMs, since the typical mortgagor of an Equity Release SAM may have
less current income available to repay such refinancing than would be
acceptable to most financial institutions that would facilitate such
refinancing. There can be no assurance that SAMs or similar type of
mortgages will be used as a method for financing single family residential
real estate at that time.]
[Because distributions on the Adjustable Strip Certificates [consist
primarily of distributions of interest] [are based upon the excess of
interest at the weighted average Remittance Rate on the SAMs over [ ]% per
annum], the yield to maturity on the Adjustable Strip Certificates will be
extremely sensitive to the level of principal prepayments on the SAM, and
may fluctuate significantly from time to time. The yield to maturity on
such class will be particularly sensitive to the rate of prepayments on
SAMs bearing higher interest rates, which could be significantly higher
than the prepayment rates on SAMs bearing lower interest rates, since the
rate of interest payable on the Adjustable Strip Certificates will decrease
as a result of principal prepayments on SAMs with gross margins that are
higher than the weighted average gross margin from time to time on the
SAMs. Investors should fully consider all of the associated risks,
including the risk that an extremely rapid rate of principal prepayments on
the SAMs could result in the failure of investors in Adjustable Strip
Certificates to recoup fully their initial investments. For information
regarding yield considerations on the Adjustable Strip Certificates, see
"--Yield Considerations with Respect to the Adjustable Strip
Certificates".]
[Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a constant annual rate of prepayment each month, expressed as a per
annum percentage of the then-scheduled principal balance of the Mortgage
Pool.] [Investors in the Appreciation Certificates will be affected by the
level of appreciation in value of the Mortgaged Properties. The model used
in this prospectus supplement assumes a constant annual rate of
appreciation each month, expressed as a per annum percentage of the
then-scheduled principal balance of the Mortgage Pool, taking into account
the volatility of the Constant Prepayment Rate.
The [Constant Prepayment Rate] does not purport to be either an
historical description of the appreciation experience of the mortgaged
properties underlying any pool of mortgage loans or a prediction of the
anticipated rate of appreciation of the mortgaged properties underlying any
pool of mortgage loans, including the SAMs, and there is no assurance that
the SAMs will prepay at any given percentage of the [Constant Prepayment
Rate.
The [Constant Appreciation Rate] does not purport to be either an
historical description of the prepayment experience of any pool of mortgage
loans or a predictor of the anticipated rate of prepayments of any pool of
mortgage loans, including the SAMs, and there is no assurance that the SAMs
will prepay at any given percentage of the [Constant Appreciation Rate].
The table set forth below has been prepared on the basis of the
characteristics of the SAMs that are expected to be included in the SAM
Pools and the respective expected initial Principal Balances of the
certificates as set forth in this prospectus supplement and using the
following assumptions:
o The figures shown for 0% of the [Constant Prepayment Rate] were
calculated assuming, among other things, that the SAMs have
stated interest rates of [ ]%, Remittance Rates of [ ]% and
remaining terms to maturity of [ ] months;
o In connection with calculating the figures shown for the other
percentages of the [Constant Prepayment Rate], it was assumed
that the SAMs have stated interest rates and original and
remaining terms to maturity which fall within the parameters set
forth beginning on page [ ] under "Description of the SAM Pools"
in this prospectus supplement;
o The SAMs have an aggregate principal balance of $[ ];
o The SAMs have Remittance Rates which fall within the parameters
set forth beginning on page [ ] under "Description of the SAM
Pools" in this prospectus Supplement;
o Each monthly payment is received on its [Due Date] commencing
[ ], [1999];
o The first monthly payment on the certificates is received on
[ ], [1999];
o No optional termination of the Trust occurs and no default in the
payment of any SAM occurs;
o Prepayments on the SAMs are received on the last day of each
month commencing [ ], [1999] at the various percentages of the
[Constant Prepayment Rate] specified in the table; and
o All prepayments will be prepayments in full and 30 days of
interest is received in connection with such principal
prepayments. Certificateholders generally will receive less than
30 days of interest on principal prepayments and
o Volatility is at the level indicated in each table.
See "Description of the Certificates--Distributions of Interest" in this
prospectus supplement).
Any discrepancy between the characteristics of the SAMs actually
included in the SAM Pools and the characteristics of the SAMs expected to
be so included may affect the percentages of the outstanding Principal
Balances of such class set forth in the table and the weighted average
lives of the certificates. To the extent that the SAMs that are actually
included in the SAM Pools have characteristics that differ from those
assumed in preparing the following table, the outstanding principal balance
of any class of certificates may be reduced to zero earlier or later than
indicated by the table.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding Principal Balances of a class and
the weighted average lives shown in the following table. Such variations
may occur even if the average prepayment experience of all of the SAMs
equals the indicated percentage of the [Constant Prepayment Rate]. There is
no assurance, however, that prepayment of the SAMs will conform to any
given percentage of the [Constant Prepayment Rate].
There are no historical prepayment or appreciation data available for
the SAM Pools, and comparable data are not available because the SAMs do
not constitute a representative sample of the shared appreciation mortgage
loan market generally. In addition, experiences with respect to shared
appreciation mortgage loans may differ from historical data with respect to
mortgage loans underlying mortgage pass-through certificates issued by the
GNMA, FNMA or FHLMC and the prepayments experienced by the mortgage loans
underlying such mortgage pass-through certificates may not be comparable to
prepayments expected to be experienced by the SAM Pools, because the SAMs
may have characteristics which differ from the shared appreciation mortgage
loans underlying certificates issued by GNMA, FNMA and FHLMC.
Based on the foregoing assumptions, the following table indicates the
projected weighted average life of each class of certificates, other than
the Class R Certificates, and sets forth the percentages of the initial
outstanding principal balance of each such class of certificates that
would be outstanding after each of the dates shown at various constant
percentages of the [Constant Prepayment Rate].
Percentage of Principal Amount
Class Date Outstanding
- ------------------------ --------------- ------------------------------
[Prepayment tables]
[YIELD CONSIDERATIONS WITH RESPECT TO THE ADJUSTABLE STRIP CERTIFICATES
The following table illustrates the significant effect that principal
prepayments on the SAMs have upon the pre-tax yield to maturity of the
Adjustable Strip Certificates. The actual prices to be paid on the
Adjustable Strip Certificates have not been determined and will be
dependent on the characteristics of the SAM Pools as ultimately
constituted. The table shows hypothetical pre-tax yields to maturity for
the Adjustable Strip Certificates, stated on a corporate bond equivalent
basis, under five different prepayment assumptions based on the [Constant
Prepayment Rate]. The table has been prepared based on the same assumptions
underlying the table on page [ ] relating to percentages of the [Constant
Prepayment Rate] [and the percentages of Constant Appreciation Rate], and
the additional assumption that the Appreciation Certificates are purchased
on [ ] at the purchase prices stated in the table, including accrued
interest from the Cut-Off Date.
Pre-tax
Yield to Maturity
Certificate (Basic Prepayment
Class Price Assumptions)
- ----------------------------- --------------- -----------------------
[Yield Charts]
The yields set forth in the preceding table were calculated by initially
determining, for each prepayment assumption shown in the table, the monthly
discount rate which, when applied to the assumed stream of cash flows to be
paid to the Adjustable Strip Certificateholders, would cause the discounted
present value of such assumed stream to equal the assumed purchase price
including accrued interest for the Adjustable Strip Certificates. These
monthly discount rates were then converted to corporate bond equivalent
yields, which are higher than the monthly discount rates, because they are
based on semiannual compounding.
On the basis of a constant prepayment rate of approximately [ ]% of the
[Constant Prepayment Rate], a constant appreciation rate of approximately [
]% of the [Constant Appreciation Rate], a purchase price of $[ ], including
accrued interest, and the assumptions described above, the pre-tax yield to
maturity of the Adjustable Strip Certificates would be approximately 0%. If
the actual prepayment rate were to exceed the rate assumed above, an
investor in the Adjustable Strip Certificates would not fully recoup the
initial purchase price of such certificates.
It is unlikely that the characteristics of the SAMs will correspond
exactly to those assumed in preparing the tables above. The yields to
maturity of the Adjustable Strip Certificates therefore will differ even if
all of the SAMs prepay monthly at the related assumed prepayment rates. In
addition, it is not likely that the SAMs will prepay at a constant
percentage of the [Constant Prepayment Rate] and [Constant Appreciation
Rate] until maturity or that all of the SAMs will prepay at the same
percentage of the [Constant Prepayment Rate] and [Constant Appreciation
Rate], and the timing of changes in the rate of prepayments and
appreciation may affect significantly the yield to maturity received by a
holder of the Adjustable Strip Certificates.
[YIELD CONSIDERATIONS WITH RESPECT TO THE APPRECIATION CERTIFICATES
The following table illustrates the significant effect that [principal
prepayments and] different appreciation rates on the SAMs have upon the
pre-tax yield to maturity of the Appreciation Certificates. The actual
prices to be paid on the Appreciation Certificates have not been determined
and will be dependent on the characteristics of the SAM Pools as ultimately
constituted. The table shows hypothetical pre-tax yields to maturity for
the Appreciation Certificates, stated on a corporate bond equivalent basis,
under [five] different prepayment assumptions based on the [Constant
Prepayment Rate] described above. The table has been prepared based on the
same assumptions underlying the table on page [ ] relating to percentages
of the [Constant Prepayment Rate][and the percentage of the Constant
Appreciation Rate], and the additional assumption that the Appreciation
Certificates are purchased on [ ] at the purchase prices stated in the
table, including accrued interest from the Cut-Off Date.
Pre-tax
Yield to Maturity
Certificate (Basic Prepayment and
Class Price Appreciation Assumption)
- ------------------------- --------------- ---------------------------
[Yield Charts]
The yields set forth in the preceding table were calculated by initially
determining, for each prepayment [and appreciation] assumption shown in the
table, the monthly discount rate which, when applied to the assumed stream
of cash flows to be paid to the Appreciation Certificateholders, would
cause the discounted present value of such assumed stream to equal the
assumed purchase price. These monthly discount rates were then converted to
corporate bond equivalent yields, which are higher than the monthly
discount rates because they are based on semiannual compounding.
On the basis of a constant prepayment rate of approximately [ ]% of the
[Constant Prepayment Rate], constant appreciation rates of approximately [
]% of the [Constant Appreciation Rate], a purchase price of $[ ], and the
assumptions described above, the pre-tax yield to maturity of the
Appreciation Certificates would be approximately 0%. If the actual
prepayment rate or appreciation rate were to exceed the rate assumed above,
an investor in the Appreciation Certificates would not fully recoup the
initial purchase price of such certificates.
It is unlikely that the characteristics of the SAMs will correspond
exactly to those assumed in preparing the tables above. The yields to
maturity of the Appreciation Certificates therefore will differ even if all
of the SAMs prepay monthly at the related assumed prepayment rate and the
related Mortgaged Properties appreciate at the assumed appreciation rate.
In addition, it is not likely that the SAMs will prepay at a constant
percentage of the [Constant Prepayment Rate][Constant Appreciation Rate]
until maturity or that all of the SAMs will [prepay at the same percentage
of the Constant Prepayment Rate][appreciate at the same percentage of the
Constant Appreciation Rate], and the timing of changes in the rate of
prepayments may affect significantly the yield to maturity received by a
holder of the Appreciation Certificates.
SAMCO Mortgage Securities Corp. makes no representation that the SAMs
will prepay in the manner or at any of the rates assumed above or that the
underlying Mortgaged Properties will appreciate at any of the rates assumed
above or that such rate will be constant. Each investor must make its own
decision as to the appropriate prepayment or appreciation assumptions to be
used in deciding whether or not to purchase any of the certificates. Since
the rate of principal payments, including prepayments, with respect to, and
repurchases of, the SAMs and appreciation on the underlying Mortgaged
Properties will significantly affect the yield to maturity on the
certificates, prospective investors are urged to consult their investment
advisors as to both the anticipated rate of future principal payments,
including prepayments, on the SAMs and appreciation on the underlying
Mortgaged Properties and the suitability of the certificates to their
investment objectives.]
[RESIDUAL CERTIFICATE YIELD CONSIDERATIONS
Any distributions payable on the Residual Certificates may be subject to
United States federal income tax withholding in an amount equal to the
total distributions paid thereon which would result in a zero after-tax
rate of return. The Residual Certificates bear a greater risk of loss than
the other classes of Senior Certificates because of their later priority
for distributions of principal and because the interest thereon is added to
the Principal Balances until such principal distributions commence.
The Residual Certificateholders should consult their own tax advisors as
to the effect of taxes and the receipt of any payments made to such holders
in connection with the purchase of the Residual Certificates on after-tax
rates of return on the Residual Certificates. See "Certain Federal Income
Tax Consequences" in the prospectus.]
[ADDITIONAL INFORMATION
SAMCO Mortgage Securities Corp. intends to file with the commission
certain additional yield tables and other computational materials with
respect to one or more classes of the certificates on a current report on
Form 8-K to be dated [ ]. Such tables and materials were prepared by the
Underwriter at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and materials are preliminary in nature,
and the information contained is subject to, and superseded by, the
information in this prospectus supplement.]
THE POOLING AND SERVICING AGREEMENT AND SALE AND SERVICING AGREEMENT
GENERAL
The certificates will be issued under the Pooling and Servicing
Agreement. Reference is made to the prospectus for important information
additional to that set forth in this prospectus Supplement regarding the
terms and conditions of the Pooling and Servicing Agreement, [any servicing
agreements] and the certificates. SAMCO Mortgage Securities Corp. will
provide to a prospective or actual certificateholder without charge, upon
written request, a copy, without exhibits, of the Pooling and Servicing
Agreement. Requests should be addressed to [ ] at
[ ].
REPRESENTATIONS AND WARRANTIES
In the Sale and Servicing Agreement between EMC Mortgage Corporation and
each Seller of the SAMs, each Seller will represent and warrant to EMC
Mortgage Corporation with respect to all SAMs, among other things, that:
[a summary of the representations and warranties that will be approved here]
[description of remedy for breaches of representations and warranties
including substitution process, if any in the event of a substitution of
SAMs as provided in this prospectus supplement; no more than 5% of the SAMs
relative to the aggregate SAM Pool balance will deviate from the SAM
characteristics on [Closing Date], as described in this prospectus
supplement]
CREDIT ENHANCEMENTS
[THE POOL INSURANCE POLICY
The Pool Insurance Policy for the certificates will be issued by the
Pool Insurer. Claims under the Pool Insurance Policy will be limited to an
aggregate initial amount [, to be specified in the current report on Form
8-K referred to above under "Description of the SAM Pools--Additional
Information"] [equal to not less than [ ]% of the aggregate principal
balance of the SAMs that are not covered as to their entire outstanding
principal balances by Primary Insurance Policies as of the Cut-Off Date.]
[The Pool Insurance Policy will include an Advance Claims Endorsement.]
[The Pool Insurance Policy will [also] include an endorsement which
provides that the insurer will pay claims presented although claims against
the applicable Primary Insurance Policy have not been settled due to
insolvency, bankruptcy, receivership or assignment for the benefit of
creditors of the issuer of the Primary Insurance Policy.] The coverage
provided by the Pool Insurance Policy may be cancelled or reduced, provided
that the then current rating of the certificates assigned by [the rating
agencies] will not be adversely affected thereby.
The Pool Insurer is a corporation engaged principally in the business of
insuring shared appreciation mortgage loans on residential properties
against default in payment by the mortgagor. At [ ], [1999], the Insurer
had at risk $[ ] billion covering approximately $[ ] billion of residential
mortgages. At such date, the Insurer had total assets of approximately $[ ]
million, capital and surplus aggregating $[ ] million and statutory
contingency reserves of $[ ] million, resulting in total policyholders'
reserves of approximately $[ ] million. The information set forth in this
paragraph has been provided by the Pool Insurer. SAMCO Mortgage Securities
Corp. makes no representation as to the accuracy or completeness of such
information.] [Audited financial statements of the Pool Insurer are
attached hereto as Annex II.]
[THE SPECIAL HAZARD [INSURANCE POLICY][RESERVE FUND] [LETTER OF CREDIT]
[The Special Hazard Reserve Fund for the SAM Pools will be established
with a financial institution[, the debt obligations of which are rated at
least " " by [ ]] [acceptable to the rating agencies] to cover a specified
amount of certain losses arising from special hazards. The initial coverage
amount of the Special Hazard Reserve Fund is expected to be approximately [
], which is equal to the greatest of:
(a) the aggregate principal balance of the SAMs located in the single
[California] zip code zone that has the largest aggregate
principal balance of SAMs,
(b) [ ]% of the aggregate unpaid principal balance of the SAMs or (c)
[twice] the unpaid principal balance of the largest single SAM, in
each case calculated as of the Cut-Off Date.
On each anniversary of the Cut-Off Date, the amount of such Special Hazard
Reserve Fund will be reduced to an amount equal to the greatest of clauses
(a), (b) and (c), calculated as of the preceding [ ]. However, if the
balance of the Special Hazard Reserve Fund as of [ ] has been reduced by
payment of special hazard losses to an amount less than the greatest of
clauses (a), (b) and (c), SAMCO Mortgage Securities Corp. will not be
obligated to deposit additional amounts in the Special Hazard Reserve Fund
on such anniversary of the Cut-Off Date to return the amount in the fund to
such required amount. The amount required to be deposited into the Special
Hazard Reserve Fund may be reduced to zero, provided that the then current
rating of the certificates obtained from [the rating agencies] will not be
adversely affected thereby.]
[The Special Hazard Letter of Credit will be issued by [ ], [ ] in an
amount equal to the greatest of:
(a) the aggregate principal balance of the SAMs located in the single
[California] zip code zone that has the largest aggregate
principal balance of SAMs,
(b) [ ]% of the aggregate unpaid principal balance of the SAMs or (c)
[twice] the unpaid principal balance of the largest single SAM, in
each case calculated as of the Cut-Off Date.
On each anniversary of the Cut-Off Date, the amount available under the
Special Hazard Letter of Credit will be reduced to an amount equal to the
greatest of clauses (a), (b) and (c), calculated as of the preceding [ ].
Moreover, the amount available as of each anniversary of the Cut-Off Date
will in no event be greater than the coverage amount on the immediately
preceding anniversary, reduced by all payments made in respect of special
hazard losses during such year. The coverage provided by the Special Hazard
Letter of Credit may be cancelled or reduced, provided that the then
current rating of the certificates obtained from [ ] will not be adversely
affected thereby.
[The Special Hazard Insurance Policy for the SAM Pools will be issued by
the Special Hazard Insurer, [ ], a [ ] corporation. Claims under such
policy initially will be limited to an amount equal to the greatest of:
(a) [ ]% of the aggregate unpaid principal balance of such SAMs, (b)
the aggregate principal balance of the SAMs located in the single
[California] zip code zone that has the largest aggregate
principal balance of SAMs or
(c) [twice] the unpaid principal balance of the largest single SAM,
in each case calculated as of the Cut-Off Date.
On each anniversary of the Cut-Off Date, the amount of coverage will be
reduced to an amount equal to the greatest of clauses (a), (b) and (c),
calculated as of the preceding [ ]. Moreover, the coverage amount of the
Special Hazard Insurance Policy as of each anniversary of the Cut-Off Date
will in no event be greater than the balance on the immediately preceding
anniversary, reduced by all payments made in respect of claims during such
year. The coverage provided by the Special Hazard Insurance Policy may be
cancelled or reduced, provided that the then current rating of the
certificates obtained from [ ] will not be adversely affected thereby. At
December 31, [1999], [ ] had total assets of approximately $ [ ] and total
policyholders' surplus of $[ ]. The information set forth in the preceding
sentence has been provided by [ ], and SAMCO Mortgage Securities Corp.
makes no representation as to the accuracy or completeness of such
information.]]
[THE SAM REPURCHASE [RESERVE FUND] [LETTER OF CREDIT] [BOND]
Some or all of the Primary Insurance Policies may contain an exclusion
from coverage for circumstances involving fraudulent conduct or negligence
by the [seller][master] [servicer] [Originator] or the mortgagor. The
[master] servicer will agree to repurchase any such SAM for which Primary
Insurance Policy coverage is ultimately not available solely by reason of
such exclusion. A SAM Repurchase [Reserve Fund] [Letter of Credit] [Bond]
will be [obtained] [established] for the SAM Pools to support the [master]
servicer's repurchase obligation.
The SAM Repurchase [Reserve Fund] [Letter of Credit] [Bond] will be in
an aggregate amount of $[ ], which is equal to [ ]% of the aggregate
outstanding principal balance of the SAMs as of the Cut-Off Date. This
coverage amount will be maintained during the first year of the SAM Pools
and will thereafter be reduced on [the first anniversary of the Cut-Off
Date to [ ]% of the aggregate outstanding principal balance of the SAMs on
such date, and thereafter on] each anniversary of the Cut-Off Date to an
amount equal to [ ]% of the then aggregate outstanding principal balance of
the SAMs. In addition, the coverage provided by the SAM Repurchase [Letter
of Credit] [Bond] may be cancelled or reduced and the amount required to be
deposited into the [Reserve Fund] may be reduced to zero, provided that the
then current rating of the certificates obtained from [ ] will not be
adversely affected thereby. Coverage provided by the SAM Repurchase
[Reserve Fund] [Letter of Credit] [Bond] will terminate five years after
the Cut-Off Date.
[The SAM Repurchase Reserve Fund for the SAM Pools will be established
and maintained with a financial institution, the debt obligations of which
are rated at least " " by [ ]. Amounts placed in such Reserve Fund may be
invested for the benefit of the [master] servicer in instruments rated not
less than " " by [ ]. Such Reserve Fund will initially be established at [
] with a cash deposit by the [master] servicer.]
[The SAM Repurchase Letter of Credit will be issued by [ ]. As of [ ],
[1999], [ ] had total assets of approximately $[ ] and total liabilities of
approximately $[ ].] [The information set forth in this paragraph
concerning [ ] has been provided by [ ]. SAMCO Mortgage Securities Corp.
makes no representation as to the accuracy or completeness of such
information.
[The SAM Repurchase Bond will be issued by [ ], a[n] [ ] corporation. As
of [ ], [1999] , [ ] had total assets of approximately $[ ] and total
policyholders' surplus of $[ ]. SAMCO Mortgage Securities Corp. makes no
representation as to the accuracy or completeness of such information.]
[THE BANKRUPTCY [RESERVE FUND] [LETTER OF CREDIT] [BOND]
Under the terms of the [Pooling and Servicing Agreement][applicable Sale
and Servicing Agreement], the [master] servicer will agree to pay to the
Trustee for the benefit of certificateholders any portion of the principal
balance of a SAM that becomes unsecured under a ruling under the federal
Bankruptcy Code. The [master] servicer will also agree to pay to the
Trustee for the benefit of certificateholders any shortfall in payment of
principal and interest resulting from the recasting of any originally
scheduled monthly principal and interest payment under a ruling under the
Bankruptcy Code. These payment obligations will be subject to the
limitations specified in the Pooling and Servicing Agreement. The [master]
servicer will have the option, in lieu of making such payments, to
repurchase any SAM affected by bankruptcy court rulings. To insure the
[master] servicer's obligation to make the payments described above, [a
Bankruptcy [Letter of Credit] [Bond] will be issued by [ ]]. [The [master]
servicer will establish and maintain a Bankruptcy Reserve Fund with a
financial institution, the debt obligations of which are rated at least " "
by [ ]. Amounts placed in such Reserve Fund may be invested for the benefit
of the [master] servicer in instruments rated not less than " " by [ ].]
The [master] servicer's payment obligations and the related coverage
under the Bankruptcy [Reserve Fund] [Letter of Credit] [Bond] shall in no
event exceed $[ ]. The Bankruptcy Coverage shall be reduced by the amount
of any payment by the [master] servicer in accordance with the preceding
paragraph. The [master] servicer's payment obligations and the coverage
amount of the Bankruptcy [Reserve Fund] [Letter of Credit][Bond] may be
cancelled or reduced, provided that the then current rating of the
certificates obtained from [ ] will not be adversely affected thereby. [See
"--The SAM Repurchase [Reserve Fund] [Letter of Credit] [Bond]" above for
certain financial information regarding [ ].] [At [ ], [1999], [ ] had
total assets of approximately $[ ], and total liabilities of $[ ]. The
information set forth in the preceding sentence has been provided by [ ],
and SAMCO Mortgage Securities Corp. makes no representation as to the
accuracy or completeness of such information.]]
LEGAL INVESTMENT ASPECTS
[discussion of investments and possible legal ramifications]
ERISA CONSIDERATIONS
Any Plan fiduciary that proposes to cause a Plan to purchase
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 certificates. See "ERISA Considerations" in the
prospectus.
[discussion of PTCE 83-1, Underwriter's PTCE, and other prohibited
transaction class exemptions or prohibited transaction exemptions relevant
or potentially relevant to the certificates]
FEDERAL INCOME TAX CONSEQUENCES
[For federal income tax purposes, a SAM Pool will be treated as a REMIC,
a FASIT or a grantor trust, depending on the election that is made or not
made. Additional Interest Payments will be excluded from any mortgage pool
that elects to be treated as a REMIC or a FASIT.
Holders of REMIC or FASIT Regular Certificates will be treated as
holding debt instruments for federal income tax purposes. In general,
interest, including OID to the extent that the certificates are issued with
OID, will be treated as ordinary income to the holders of such
certificates. The prepayment assumption that will be used in determining
the rate of accrual of OID for federal income tax purposes is [ ]% of the
Constant Prepayment Rate. See "Description of the Certificates - Yield,
Appreciation and Prepayment Considerations" herein. Holders of such
certificates will be required to include in income all interest on the
certificates in accordance with the accrual method of accounting regardless
of the holder's usual method of accounting, the effect of which is that
cash basis holders may be required to recognize income in a year regardless
of whether or not they receive a cash distribution with respect to the
certificates.
Holders of Pass-Through Certificates and Stripped Certificates that are
not Appreciation Certificates will also be treated as holding debt
instruments for federal income tax purposes. Although there is not
authority directly on point and other characterizations are possible, the
issuer will also treat holders of Appreciation Certificates as holding debt
instruments for federal income tax purposes. In general, holders of
Stripped Certificates that are not Appreciation Certificates will generally
be subject to federal income tax in the same manner as holders of REMIC or
FASIT Regular Certificates. The federal income tax consequences to holders
of Pass- Through Certificates and Appreciation Certificates is less clear.
Nevertheless, the issuer will treat such holders as holding debt
instruments that are subject to Section 1272(a)(6) of the Code and the
Contingent Payment Debt Regulations. Interest, including OID, will be
treated as ordinary income to the holders of such certificates. Holders of
such certificates will be required to include in income all interest on the
certificates in accordance with the accrual method of accounting regardless
of the holder's usual method of accounting, the effect of which is that
cash basis holders may be required to recognize income in a year regardless
of whether or not they receive a cash distribution with respect to the
certificates.]
METHOD OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement, SAMCO Mortgage Securities Corp. has agreed to sell to the
Underwriter[s], and the Underwriter[s] [has][have] agreed to purchase, all
of the offered certificates. [Bear, Stearns & Co. Inc., an Underwriter, is
an affiliate of SAMCO Mortgage Securities Corp.] Such offered certificates
will be offered by the Underwriter[s], only as and if issued and delivered
to and accepted by the Underwriter[s], from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds, excluding accrued interest, to SAMCO Mortgage Securities
Corp. from the sale of the certificates, before deducting expenses
estimated to be $[ ], will be approximately [ ]% of the initial aggregate
certificate principal balance of the certificates plus accrued interest
thereon. In connection with the purchase and sale of such offered
certificates, the Underwriter[s] may be deemed to have received
compensation from SAMCO Mortgage Securities Corp. in the form of an
underwriting discount. ]
[SAMCO Mortgage Securities Corp. has agreed to indemnify the
Underwriter[s] against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments
the Underwriter[s] may be required to make.]
[This prospectus supplement and the related prospectus may be used by
Bear, Stearns & Co. Inc., an affiliate of SAMCO Mortgage Securities Corp.,
in connection with offers and sales related to secondary market
transactions in the certificates. Bear, Stearns & Co. Inc., may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale or otherwise.]
There is currently no secondary market for the certificates and no
assurances are made that such a market will develop. The Underwriter[s]
intends to establish a market in the offered certificates, but it is not
obligated to do so. Any such market, even if established, may or may not
continue.
[See "SAMCO Mortgage Securities Corp.--Relationships with Affiliates" in
the prospectus for a description of the affiliation between the Underwriter
and SAMCO Mortgage Securities Corp.] [Pending final sale of the
certificates, SAMCO Mortgage Securities Corp. may cause the certificates to
be issued to itself and may enter into repurchase agreements or secured
lending arrangements for purposes of financing the holding of certificates
by SAMCO Mortgage Securities Corp.]
LEGAL MATTERS
Certain legal matters will be passed upon for SAMCO Mortgage Securities
Corp. and the Underwriter by [Skadden, Arps, Slate, Meagher & Flom LLP].
CERTIFICATE RATINGS
It is a condition to the issuance of the certificates that they be rated
[" "] by [ ] and the Appreciation Certificates be rated [" "] by [ ]. A
security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently
of any other security rating].
The ratings on the certificates address the likelihood of the receipt by
certificateholders of all distributions on the underlying SAMs, in light of
the structural and legal aspects associated with the certificates and the
nature of the underlying SAMs. The ratings do not represent any assessment
of the likelihood that principal prepayments by mortgagors might differ
from those originally anticipated or the rate that appreciation will occur
on the underlying Mortgaged Properties. As a result of such differences in
principal prepayments or appreciation, certificateholders might suffer a
lower than anticipated yield. [The ratings also do not address the
likelihood that the [master] servicer will be able to repurchase any SAM
which has been converted from an adjustable rate loan to a fixed rate
loan.] See "Description of the Certificates--Yield, Appreciation and
Prepayment Considerations" in this prospectus supplement.]
GLOSSARY OF TERMS
"ADDITIONAL INTEREST PAYMENT" means the payment of additional interest
at the earlier of the maturity date thereof and the occurrence of a
Mortgage Termination Event equal to a portion of the increase in value, if
any, of the Mortgaged Properties over the term of the SAM. Such Additional
Interest Payment is equal to the product of (i) the Appreciation Share and
(ii) the amount by which the settlement value of such SAM exceeds the
Adjusted Value of such SAM at the earlier of the maturity date of such SAM
and the occurrence of a Mortgage Termination Event.
"APPRECIATION SHARE" means the product of a percentage set forth in the
SAM that the mortgagor must pay to the Originator.
"AVAILABLE DISTRIBUTION AMOUNT" means the sum of the following amounts
with respect to the SAMs:
(1) the total amount of all cash received by the [master
servicer][servicer][certificate administrator] by the Determination Date
for such Distribution Date (including Advances made by the [master
servicer][servicer][seller][Originator] and withdrawals from the Reserve
Fund), except:
(a) all scheduled payments of principal and interest due on or before
the Cut-Off Date;
(b) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Date;
(c) all Principal Prepayments received after the previous calendar
month (together with any interest payments received with such
Principal Prepayments to the extent that they represent the payment
of interest accrued on the related SAMs for the period subsequent to
the previous calendar month);
(d) Insurance Proceeds and Liquidation Proceeds received in the
calender month and [proceeds of SAMs repurchased following conversion
of such SAMs to fixed stated interest rates] during such month;
(e) all amounts in the Distribution Account which are due and
reimbursable to the [master servicer][servicer][seller][Originator]
pursuant to the terms of the Pooling and Servicing Agreement;
(f) the sum of [the Master Servicing Fee and] the Servicing Fee [and
the Certificate Administrator Fee] for each SAM; and
(g) with respect to a SAM, the Excessive Liquidation Proceeds.
(2) all Advances made by the [master servicer][servicer][seller][Originator]
to the Trustee with respect to such Distribution Date.]
"BANKRUPTCY COVERAGE" means the amount of $[ ].
"BOOK-ENTRY CERTIFICATES" means the certificates generally available
only in book-entry form through the facilities of DTC if they are
Participants, or indirectly through organizations which are Participants.
"CLOSING DATE" means [ ].
"CONSTANT PREPAYMENT RATE" means the prepayment standard or model used
in this prospectus supplement which assumes a constant annual rate of
prepayment each month, expressed as a per annum percentage of the
then-scheduled principal balance of the Mortgage Pool.
"CONSTANT APPRECIATION RATE" means the appreciation standard or model
used in this prospectus supplement which assumes a constant annual rate of
appreciation each month, expressed as a per annum percentage of the
then-scheduled principal balance of the Mortgage Pool, taking into account
the volatility of the Constant Appreciation Rate.
"CUT-OFF DATE" means [ ], [1999].
"DEFINITIVE CERTIFICATES" means Book-Entry Certificates issued in fully
registered, certificated form to certificateholders or their nominees.
"DETERMINATION DATE" means the Due Date related to each Distribution
Date, or the first day of the month in which such Distribution Date occurs.
"EMC" means EMC Mortgage Corporation.
"EXCESS LIQUIDATION PROCEEDS" means the excess, if any, of aggregate
Liquidation Proceeds received during the previous calendar month over the
amount that would have been received if a Payoff had been made with respect
to the related SAM on the date such Liquidation Proceeds are received.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"LTV" means a ratio of the principal balance of the SAM to the value of
the Mortgaged Property.
"LAST SCHEDULED DISTRIBUTION DATE" means the Distribution Date that
occurs in the month following the latest scheduled maturity date of any of
the SAMs.
"LOAN SCHEDULE" means a schedule appearing as an exhibit to the Pooling
and Servicing Agreement which will specify with respect to each SAM, among
other things, the original principal balance and the outstanding principal
balance as of the close of business on the Cut-Off Date, the term of the
Mortgage Note and the stated interest rate and the Appreciation Share,
whether such SAM is a Mortgage Subsidy SAM or Equity Release SAM, the
stated maturity of each SAM and various material information about each
mortgagor.
"MORTGAGED PROPERTY" means one- to four- family residential properties
which may include detached homes, duplexes, townhouses, condominiums,
individual units in planned unit developments and other attached dwelling
units which are part of buildings consisting of more than four units.
"PAYING AGENT" means [ ].
"POOL INSURER" means [ ], the issuer of the Pool Insurance Policy
for the certificates.
"RECORD DATE" means the close of business on the last business day of
the month preceding the month in which the Distribution Date occurs.
"REGISTRAR" means [ ].
"REMITTANCE RATE" means a rate equal to the stated interest rate for
such SAM less the sum of the Retained Yield, the [[Seller][Servicing] Fee
and the Master Servicing Fee] [Servicing Fee and the Certificate
Administrator Fee] for such SAM.
"SALE AND SERVICING AGREEMENT" means each such Agreement between EMC
Mortgage
Corporation and each Seller of the SAMs.
"SAM REPURCHASE" means a repurchase by the [master] servicer of any such
SAM for which Primary Insurance Policy coverage is ultimately not available
solely due to the fact that a Primary Insurance Policy may contain an
exclusion from coverage for circumstances involving fraudulent conduct or
negligence by the [Seller] [master] [servicer] [Originator] of the
mortgagor.
"SELLERS" means lending institutions which meet the requirements set
forth in the attached prospectus which sell SAMs to SAMCO Mortgage
Securities Corp..
"SENIOR CERTIFICATES" means the class [ ] certificates.
"SUBORDINATED CERTIFICATES" means the class [ ] certificates, class [ ]
certificates, class [ ] certificates, and class [ ] certificates.
"TRANSFER AGENT" means [ ].
"TRUST" means the [ ] Trust [1999]-[ ], the primary assets of which
consist of SAMs secured by one- to four-family residential properties [ or
certificates or participations therein].
"TRUSTEE" means [ ].
"UNDERWRITING AGREEMENT" means the underwriting agreement, dated as of
[ ], between [ ] and [ ].
PROSPECTUS
SAMCO MORTGAGE SECURITIES CORP.
DEPOSITOR
SHARED APPRECIATION MORTGAGE PASS-THROUGH CERTIFICATES
SAMCO Mortgage Securities Corp. may periodically issue certificates
representing interests in a trust that consists primarily of shared
appreciation mortgage loans. The certificates will be issued in series, and
each series of certificates will represent interests in a different trust
established by SAMCO Mortgage Securities Corp.
EACH TRUST WILL CONSIST OF:
1. a pool or pools of shared appreciation mortgage loans secured
by residential properties, described in detail in the accompanying
prospectus supplement;
2. related property and interests in such property or other interests in
shared appreciation mortgage loans;
3. mortgage pass through securities issued or guaranteed by certain
government or government sponsored agencies;
4. privately issued mortgaged-backed securities; and 5. other property as
described in the accompanying prospectus supplement.
THE CERTIFICATES IN A SERIES:
1. will represent interests in a trust and will be paid only from
the assets of that trust; and
2. may be divided into multiple classes of certificates, and, if so, each
class may have differing characteristics.
The certificates may be offered to the public through different methods
as described in "Methods of Distribution" in this prospectus. Bear, Stearns
& Co. Inc. may act as agent or underwriter in connection with the sale of
the certificates. This prospectus and the accompanying prospectus
supplement may be used by Bear, Stearns & Co. Inc. in secondary market
transactions in connection with the offer and sale of any certificates.
Bear, Stearns & Co. Inc. may act as principal or agent in such transactions
and such sales will be made at prevailing market prices or otherwise.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
___________, 1999
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that progressively provide more detail: this prospectus, which
provides general information, some of which may not apply to your series of
certificates and the accompanying prospectus supplement, which describes
the specific terms of your series of certificates.
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 certificates in any
state where the offer is not permitted.
The information in the prospectus supplement is specific to your
certificates and amplifies on the more general information contained in the
prospectus. To the extent that the prospectus supplement provides such
greater detail about the terms of you certificates, you should rely on it
rather than the information in the prospectus. Additionally, we do not
claim the accuracy of any factual information in this prospectus or the
accompanying prospectus supplement as of any date other than the date state
on their respective covers.
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.
TABLE OF CONTENTS
Risk Factors.................................................................5
The SAM Pools...............................................................14
General..................................................................14
Agency Certificates......................................................19
Private Mortgage-Backed Securities.......................................27
Use of Proceeds.............................................................30
Yield Considerations........................................................30
General..................................................................30
Effective Interest Rate..................................................31
Maturity, Average Life, Appreciation and
Prepayment Assumptions......................................................33
SAMCO Mortgage Securities Corp..............................................35
EMC Mortgage Corporation.................................................35
Mortgage Purchase Program................................................35
Loan Standards...........................................................36
Credit, Appraisal and Underwriting Standards.............................37
Representations and Warranties and Indemnification of Mortgage
Securities Corp..........................................................38
Mortgage Subsidy SAMs and Equity
Release SAMs.............................................................39
Description of the Certificates.............................................41
General..................................................................41
Book-Entry Registration..................................................43
Definitive Certificates..................................................48
Assignment of SAMs.......................................................49
Substitution of SAMs.....................................................51
Representations and Warranties...........................................51
Retained Yield...........................................................53
Payments on SAMs; Deposits to Accounts...................................53
Distributions on Certificates............................................56
Advances.................................................................58
Termination and Optional Termination.....................................59
Reports to Certificateholders............................................60
Description of the Pooling and Servicing
Agreement and the Sale and Servicing Agreement..............................62
General..................................................................62
Servicing................................................................63
Collection and Other Servicin Procedures.................................63
Servicing Compensation and Payment
of Expenses..............................................................64
Rights Upon Event of Default.............................................65
Amendment................................................................66
List of Certificateholders...............................................67
The Trustee..............................................................68
Duties of the Trustee....................................................68
Resignation of Trustee...................................................69
Evidence as to Compliance................................................69
Certain Matters Regarding the Master Servicer, the Servicer
and the Certificate Administrator........................................70
Exchangeable Certificates...................................................72
General..................................................................72
Exchanges................................................................73
Procedures and Exchange Proportions......................................78
Primary Insurance, Hazard Insurance; Claims
Thereunder..................................................................79
Primary Insurance........................................................79
Hazard Insurance.........................................................81
Maintenance of Mortgage Impairment
Insurance................................................................82
Maintenance of Fidelity Bond and
Errors and Omissions Insurance...........................................82
Description of Credit Enhancements..........................................83
Pool Insurance Policies..................................................85
Subordination............................................................87
Fraud Bond...............................................................88
Bankruptcy Bond..........................................................89
Special Hazard Insurance Policies........................................89
Letter of Credit.........................................................91
Reserve Fund.............................................................91
Certificate Insurance Policies...........................................92
Maintenance of Credit Enhancements; Claims Thereunder and Other
Realization Upon Defaulted SAMs..........................................92
Authority To Issue SAMS and Certain Legal
Considerations Concerning SAMS..............................................96
Authority to Originate SAMs..............................................96
Applicability of Usury Laws..............................................97
Disclosure Requirements related to SAMs..................................98
Certain State Law Considerations.........................................99
Certain Legal Considerations Applicable to SAMs..........................99
ERISA Considerations.......................................................106
Plan Assets Regulation..................................................106
Prohibited Transaction Class
Exemption 83-1..........................................................107
Other Exemptions........................................................109
General Considerations..................................................112
Federal Income Tax Consequences............................................113
Tax Status of SAM Pools.................................................113
Characterization of REMIC and
FASIT Regular Certificates..............................................115
Taxation of Owners of REMIC and
FASIT Regular Certificates..............................................115
Taxation of Owners of REMIC
Residual Certificates...................................................120
Taxation of Owners of FASIT
Ownership Certificates..................................................125
Sales of REMIC or FASIT Certificates....................................128
Prohibited Transactions and Other
Possible REMIC Taxes....................................................130
Termination of a REMIC or FASIT.........................................130
Reporting and Other Administrative
Matters of REMICs.......................................................131
Backup Withholding with Respect to
REMIC and FASIT Certificates............................................132
Foreign Investors in REMIC or FASIT
Certificates............................................................132
Classification as a Grantor Trust.......................................134
Taxation of Holders of Pass-Through
Certificates............................................................135
Taxation of Holders of Stripped
Certificates............................................................138
Information Reporting...................................................139
Taxation of Holders of Classes of
Exchangeable Certificates...............................................139
State and Local Taxation................................................142
Methods of Distribution....................................................143
Certain Legal Investment Aspects........................................144
Legal Matters..............................................................145
Financial Information......................................................146
Reports to Certificateholders..............................................146
Where You Can Find More Information........................................146
Annex II: Global Clearance, Settlement
and Tax Documentation Procedures.........................................AII-1
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE RISK
FACTORS IN THE PROSPECTUS SUPPLEMENT, IN DECIDING WHETHER TO PURCHASE ANY
OF THE CERTIFICATES.
LACK OF SECONDARY MARKET MAY LIMIT A secondary market for the certificates
YOUR ABILITY TO RESELL YOUR of any series may not develop. If a
CERTIFICATES secondary market does develop, it might
not continue or it might not be
sufficiently liquid to allow you to
resell any of your certificates. An
underwriter, including Bear,
Stearns & Co. Inc., may decide to
establish a secondary market for a
particular series of certificates.
If so, the prospectus supplement
for that series of certificates
will indicate this intention.
However, no underwriter, including
Bear, Stearns & Co. Inc., will be
obligated to do so. The
certificates will not be listed on
any securities exchange.
THERE IS NO SOURCE OF PAYMENTS FOR When you buy a certificate, you will
YOUR CERTIFICATES OTHER THAN not own an interest in SAMCO Mortgage
PAYMENTS ON THE SAMS IN THE TRUST Securities Corp., Bear, Stearns & Co.
Inc. or any of its affiliates. You
will own an interest in the trust
established for that series of
certificates. Your payments come
only from assets in the trust.
Therefore, the mortgagors' payments
on the shared appreciation mortgage
loans included in the trust, and
any credit enhancements, will be
the sole source of payments to you.
If those amounts are insufficient
to make required payments of
interest or principal to you, there
is no other source of payments.
Moreover, it is not anticipated
that any governmental agency or any
other entity will guarantee or
insure payments on the certificates
or any of the shared appreciation
mortgage loans. SAMCO Mortgage
Securities Corp. and the servicers
of the shared appreciation mortgage
loans will have limited
obligations. These will usually
include: the obligation under
certain circumstances to repurchase
the shared appreciation mortgage
loans if there has been a breach of
representations and warranties;
advancing payments on the shared
appreciation mortgage loans when
the mortgagor is delinquent if the
servicers of the shared
appreciation mortgage loans believe
the advance is recoverable; and
various servicing and
administrative obligations made in
the Pooling and Servicing Agreement
and servicing contracts.
YOU BEAR THE LOSSES OF CERTAIN Because your certificates represent an
SHARED APPRECIATION MORTGAGOR interest in the shared appreciation
DEFAULTS; mortgage loans, your investment may be
affected by a decline in real
estate values and changes in
individual mortgagors' financial
conditions. Investors should be
aware that the value of the
mortgaged properties may decline.
If the outstanding balance of a
shared appreciation mortgage loan
and any secondary financing on the
mortgaged property is greater than
the value of the property, there is
an increased risk of delinquency,
foreclosure and losses on or with
respect to the shared appreciation
mortgage loan. If the residential
real estate market experiences an
overall decline in property values,
the rates of delinquencies,
foreclosures and losses could be
higher than those now generally
experienced in the mortgage lending
industry as to mortgage loans that
are not shared appreciation
mortgage loans or mortgage loans
generally. To the extent your
certificates do not have any form
of credit enhancements, you will
bear all of the risks resulting
from defaults by mortgagors.
THE SHARED APPRECIATION MORTGAGE Further, shared appreciation mortgage
LOANS MAY BE ESPECIALLY PRONE TO loans may involve a greater degree of
DEFAULTS risk with respect to default, because
the ability of a mortgagor to make
this final payment, which because
of the shared appreciation feature
may be greater than a typical
mortgage loan, typically depends on
the ability of the mortgagor to
refinance the shared appreciation
mortgage loan or sell the related
mortgaged property. If the
mortgagor is unable to obtain such
financing at maturity, the
mortgagor may be more likely to
default.
The shared appreciation mortgage
loans may have higher than average
rates of default than mortgage
loans which are not shared
appreciation mortgage loans or
other types of shared appreciation
mortgage loans that may be included
in the trust that issues your
certificates. For instance, the
value of a mortgaged property
subject to an equity release
mortgage loan may decline more than
would have been the case had such
mortgaged property been subject to
a mortgage associated with a shared
appreciation mortgage loan other
than an equity release mortgage
loan. The principal reason why this
may occur is that the mortgagor
under an equity release mortgage
loan may have agreed to pay the
originator a more substantial
portion of the appreciation in the
value of the mortgaged property
since the date of origination of
the mortgage loan than another type
of shared appreciation mortgage
loan and therefore may be less
inclined to perform routine
maintenance or make capital
expenditures on or with respect to
the property. Further, your trust
may include shared appreciation
mortgage loans with a negative
amortization feature. The principal
balances of such loans may be
increased to amounts greater than
the value of the underlying
mortgaged property and such value
may decrease as described above.
This increases the likelihood of
default. Your trust may include
shared appreciation mortgage loans
that do not fully amortize over
their terms to maturity. Such
mortgage loans are sometimes
referred to as balloon loans. Such
loans will require a large payment
at their stated maturity. These
mortgage loans involve a greater
degree of risk, because the ability
of a mortgagor to make this final
payment typically depends on the
ability of the mortgagor to
refinance the shared appreciation
mortgage loan or sell the related
mortgaged property. Further, your
trust may include shared
appreciation mortgage loans that
provide for escalating or variable
payments by the mortgagor. The
mortgagor may have qualified for
such shared appreciation mortgage
loans based on an income level
sufficient to make the initial
payments only. As the required
payments increase, the likelihood
of default will increase. Finally,
your trust may include shared
appreciation mortgage loans that
are concentrated in certain
regions, states or zip code areas
of the United States. Such
geographic units may experience
weak economic conditions or housing
markets. This may cause higher
rates of loss and delinquency on
the shared appreciation mortgage
loans originated in these areas.
See "Description of the SAM Pool"
in the related prospectus
supplement to see if any of these
or other types of special risk
loans are present in the mortgage
pool applicable to your
certificates.
CREDIT ENHANCEMENTS MAY BE The prospectus supplement related to
LIMITED OR REDUCED AND THIS MAY your certificates may specify that
CAUSE YOUR CERTIFICATES TO BEAR credit enhancements will provide some
MORE LOSSES OF MORTGAGOR protection to cover certain losses on
DEFAULTS the underlying shared appreciation
mortgage loans. The forms of credit
enhancement include, but are not
limited to, the following:
o subordination of one or more
classes of certificates to other
classes of certificates in the
same series;
o insurance policies on particular
classes of certificates to
support payments on those
certificates;
o a letter of credit;
o a mortgage pool insurance
policy;
o a special hazard insurance
policy;
o a fraud bond;
o a bankruptcy bond;
o a reserve fund; or
o any combination of the above.
See "Description of the Credit
Enhancements". See also "Credit
Enhancements" in the related
prospectus supplement in order
to see what forms of credit
enhancements apply to your
certificates.
Regardless of the form of credit
enhancement, an investor should be
aware that:
o the amount of coverage is
usually limited;
o the amount of coverage will
usually be reduced over time
according to a schedule or
formula;
o the particular form of credit
enhancements may provide
coverage only to certain types
of losses, such as hazard losses
or special hazard losses, on the
shared appreciation mortgage
loans, and not to other types of
losses;
o the particular form of credit
enhancements may provide
coverage only to certain
certificates and not other
certificates of the same series;
and
o if the applicable rating
agencies believe that the rating
on the certificates will not be
adversely affected, certain
types of credit enhancements may
be reduced or terminated.
IF THE RATE OF PREPAYMENTS ON THE The yield to maturity of your
SHARED APPRECIATION MORTGAGE LOANS certificates will depend primarily on
IS DIFFERENT THAN EXPECTED, YOUR the price you paid for your
YIELD MAY BE CONSIDERABLY LOWER certificates and the rate of principal
THAN ANTICIPATED payments on the shared appreciation
mortgage loans in the applicable
trust. The rate of principal
payments includes scheduled
payments of interest and principal,
payments of additional interest,
prepayments, liquidations due to
defaults and repurchases. If the
rate of prepayments on the shared
appreciation mortgage loans related
to your certificates is higher or
lower than anticipated, the yield
to maturity may be adversely
affected. The yield on some types
of certificates are more sensitive
to variations in prepayments than
others. For example, certificates
that receive only payments of
interest are especially sensitive
to variations in the rate of
prepayments. If the rate of
prepayments is high or if a
redemption or call feature of the
certificates or the underlying
shared appreciation mortgage loans
occurs, the holders of such
certificates may not fully recoup
their initial investment. See
"Yield Considerations" and
"Maturity, Average Life,
Appreciation and Prepayment
Assumptions" in this prospectus.
See also "Risk Factors" and
"Description of the
Certificates--Yield, Appreciation
and Prepayment Considerations" in
the related prospectus supplement
for more information concerning the
prepayment risks pertaining to your
certificates.
THE REDEMPTION OF THE Your certificates may be subject to
CERTIFICATES OR redemption or other call features.
THE UNDERLYING SHARED APPRECIATION Likewise, the underlying shared
MORTGAGE LOANS WILL AFFECT YOUR appreciation mortgage loans may
YIELD be subject to a call feature which
would result in the retirement of
the certificates. Such an event
would affect the average life and
yield of each class of certificates
in such series. In addition, if you
are the purchaser of an
appreciation certificate, your
yield will also be affected by the
method for calculating the indexed
appreciation payments for any
shared appreciation mortgage loans
or any certificates. See "Yield
Considerations" and "Maturity,
Average Life, Appreciation and
Prepayment Assumptions" in this
prospectus.
IF YOU PURCHASE APPRECIATION Appreciation certificates will be
CERTIFICATES, YOUR YIELD WILL BE allocated some or all of the additional
ESPECIALLY AFFECTED BY CHANGES IN interest payments generated by the
THE VALUE OF THE MORTGAGED PROPERTY shared appreciation mortgage
loans in your trust. The amount of
these payments for any trust is a
function of both the actual
appreciation occurring on the
mortgaged properties underlying the
shared appreciation mortgage loans
in the trust that have matured and
the index used for calculating the
indexed appreciation payments for
the shared appreciation mortgage
loans in the trust or such
certificates. The value of any
mortgaged properties in the trust
may not increase. Similarly, the
value of any mortgaged properties
in the trust may decrease. Thus, as
an investor in the appreciation
certificates, you should be aware
that your yield may be low, zero or
negative and you may lose the
entire investment in the
appreciation certificates that you
purchase. See "Yield
Considerations" and "Maturity,
Average Life, Appreciation and
Prepayment Assumptions" in this
prospectus.
VIOLATION OF VARIOUS FEDERAL AND Applicable state laws generally
STATE LAWS MAY RESULT IN LOSSES ON regulate interest rates and other
THE SHARED APPRECIATION MORTGAGE charges and require certain
LOANS disclosures. In addition, most
states have other laws, public
policies and general principles of
equity relating to the protection
of consumers, unfair and deceptive
practices, and other practices that
may apply to the origination,
servicing and collection of the
shared appreciation mortgage loans.
The shared appreciation mortgage
loans may also be subject to
various federal laws. The
Truth-in-Lending Act and Regulation
Z and the Real Estate Settlement
Procedures Act and Regulation X
require certain disclosures to the
mortgagors regarding the terms of
the shared appreciation mortgage
loans. The Equal Credit Opportunity
Act and Regulation B and the Fair
Housing Act and the regulations
prohibit discrimination in the
provision of housing credit on the
basis of certain protected classes.
The Fair Credit Reporting Act
regulates the use and reporting of
information related to the
mortgagors' credit experience.
Other federal laws may also apply.
Depending on the provisions of the
applicable law and the specific
facts and circumstances involved,
violations of such laws, policies
and general principles of equity
may limit the ability of a servicer
to collect all or part of the
principal of or interest charged on
the shared appreciation mortgage
loans, may entitle the mortgagors
to rescind the loan or to a refund
of amounts previously paid and, in
addition, could subject the owner
of the shared appreciation mortgage
loans to damages and administrative
sanctions.
APPRECIATION CERTIFICATES MAY BE If the additional interest provision of
SUBJECT TO USURY LAWS the shared appreciation mortgage loans
does not fall within the scope of
the Depositary Institutions
Deregulation and Monetary Control
Act of 1980 and the Alternative
Mortgage Transaction Parity Act of
1982 is interpreted not to provide
for an exemption from state usury
statutes, individual state usury
laws may apply to such loans. Only
limited case law exists on the
application of these federal acts
to shared appreciation mortgage
loans.
THE SAM POOLS
Capitalized terms are defined in the Glossary of Terms in this
Prospectus.
GENERAL
Each series will consist of a SAM Pool, each of which will consist of
SAMs evidenced by Mortgage Notes secured by Mortgages on Mortgaged
Properties, Agency Securities issued or guaranteed by the government
agencies or government sponsored agencies and private issued
mortgage-backed securities. The types of Mortgaged Properties securing the
SAMs in each SAM Pool may include owner-occupied (a) attached or detached
single-family residences, including residences in planned unit
developments, (b) two- to four-family primary residences and (c)
condominiums or other attached dwelling units and owner-occupied leasehold
interests in the underlying Mortgaged Properties and any other homes or
dwellings that conform with the underwriting policies and credit criteria
of EMC Mortgage Corporation. In the case of leasehold interests, the term
of the leasehold will exceed the scheduled maturity of the SAM by at least
ten years.
Private Mortgage-Backed Securities may include:
o mortgage participation or pass-through certificates
representing beneficial interests in certain mortgage loans or
SAMs,
o CMOs secured by such mortgage loans or SAMs, and
o stripped mortgage-backed securities representing an undivided
interest in all or a part of any of the principal
distributions, but not the interest distributions, or the
interest distributions, but not the principal distributions,
or in some specified portion of the principal and interest
distributions, but not all of such distributions, on certain
mortgage loans or SAMs.
Agency Securities may include:
o GNMA Certificates,
o FNMA Certificates,
o FHLMC Certificates,
o stripped mortgage-backed securities representing an undivided
interest in all or a part of either the principal
distributions, but not the interest distributions, or the
interest distributions, but not the principal distributions,
or in some specified portion of the principal and interest
distributions, but not all of such distributions, on certain
GNMA, FNMA, FHLMC or other government agency or government-
sponsored agency certificates and generally guaranteed to the
same extent as the underlying securities,
o another type of guaranteed pass-through certificate issued or
guaranteed by GNMA, FNMA, FHLMC or another government agency
or government- sponsored agency and described in the related
prospectus supplement, or
o a combination of such Agency Securities.
The SAMs to be purchased by EMC Mortgage Corporation, which will
transfer them to SAMCO Mortgage Securities Corp. for inclusion in a SAM
Pool) will be screened in accordance with the standards set forth under
"SAMCO Mortgage Securities Corp.--Credit, Appraisal and Underwriting
Standards" unless there are changes thereto, which changes are set forth in
the related prospectus supplement. EMC Mortgage Corporation will also
underwrite a percentage of the SAMs to be purchased. The SAMs in each SAM
Pool will be originated by "Originators" in accordance with standards set
forth by EMC Mortgage Corporation and purchased from lending institutions
which meet the requirements set forth under "SAMCO Mortgage Securities
Corp.--Mortgage Purchase Program". Generally, with respect to Mortgage
Pass-Through Certificates to be issued in series from time to time, an
entity, often being or affiliated with such seller, set forth in the
related prospectus supplement will be responsible for the servicing and
administration of the SAMs and will perform certain servicing functions
with respect to the SAMs. In the event that a master servicer or servicer
named in the prospectus supplement, is acting as master servicer or
servicer with respect to a single series,
o such master servicer or servicer will act as master servicer or
servicer for the SAMs in the related SAM Pool as set forth in the
related prospectus supplement,
o the duties, obligations and liabilities of such master servicer or
servicer shall relate only to its respective SAM Pool, and
o the master servicer or servicer will calculate amounts distributable
to the certificateholders of the certificates, prepare tax returns on
behalf of the Trust Fund and provide certain other administrative
services specified in the Pooling and Servicing Agreement.
If so specified in the applicable prospectus supplement, the Trustee may be
the certificate administrator with respect to such series. The servicing of
the SAMs may be performed by the seller which sold the SAMs to EMC Mortgage
Corporation for inclusion in the Trust Fund, or by a qualified servicer
selected by SAMCO Mortgage Securities Corp. and there
may not be a master servicer. The master servicer, the servicer and the
certificate administrator may perform their respective servicing and
administrative responsibilities through agents or independent contractors
but shall not thereby be released from any of their obligations under the
Pooling and Servicing Agreement. See "Description of the Pooling and
Servicing Agreement and the Servicing Agreement--Servicing."
For each series, the applicable prospectus supplement will set forth
information respecting the number and principal amount of SAMs in each SAM
Pool which were originated for the purpose of purchasing and refinancing
the related Mortgaged Properties; and for borrowers on such SAMs in
specified age groups. For each SAM Pool, the related prospectus supplement
will generally contain specific information as of the date specified in the
prospectus supplement relating to the creation of the Trust Fund regarding:
(1) the aggregate principal balance of the SAMs;
(2) the range of contractual stated periodic interest payments and
the Appreciation
Shares by principal balance;
(3) the month and year in which the first monthly payments occur, and
the latest
maturity of the SAMs;
(4) the largest and smallest principal balances of the SAMs at
origination;
(5) the aggregate principal balance of all SAMs having LTVs at
origination exceeding 80% and the maximum permissible
loan-to-value ratio for all SAMs;
(6) the types of dwellings constituting the Mortgaged Properties
securing the SAMs;
and
(7) the geographic distribution of the SAMs, prepared on a
state-by-state or zip code by zip code basis for states
containing 5% or more of the SAM Pool.
To the extent specified in the applicable prospectus supplement, SAMs with
LTVs or principal balances exceeding certain limits will be covered
partially by Primary Insurance Policies. In addition, if specified in the
applicable prospectus supplement, SAMCO Mortgage Securities Corp., the
master servicer, a seller or a servicer, as applicable, may obtain or
establish one or more credit enhancements for a SAM Pool. Any such credit
enhancement will be described in the applicable prospectus supplement. Such
credit enhancements may be limited to one or more classes of certificates
and may include, but will not necessarily be limited to, any of the
following: a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Fraud Bond, a Bankruptcy Bond, a Letter of Credit, a Reserve Fund, a
Certificate Insurance Policy, or any combination of the foregoing. Coverage
of certain risks of default or loss may also be provided to a particular
class or classes of certificates by the subordination in right of payment
of one or more other classes of certificates of the same series to the
right of holders of such class or classes of certificates to receive
payments. See "Description of Credit Enhancements".
All SAMs will be of one or more of the following types of SAMs of
varying terms at origination:
o Mortgage Subsidy SAMs, see "SAMCO Mortgage Securities Corp.--Mortgage
Subsidy SAMs and Equity Release SAMs");
o Equity Release SAMs, see "SAMCO Mortgage Securities Corp.--Mortgage
Subsidy SAMs and Equity Release SAMs"); and
o any other type of SAM described in the applicable prospectus
supplement.
Specific information with respect to the SAMs in a particular SAM
Pool and the applicable credit enhancements which is not included in the
related prospectus supplement will generally be included in a current
report on Form 8-K which will be available to purchasers of the
certificates at or before the time of initial issuance of the related
series of certificates and which will be filed with the Commission within
15 days thereafter.
Each master servicer has entered or will enter into a contract with each
related servicer to perform, as an independent contractor, certain
servicing functions for such master servicer subject to its supervision and
may enter into a contract with an independent entity to perform
administrative functions for the SAM Pools, or the Trustee has entered or
will enter into a contract with each related servicer to perform certain
servicing functions for the SAM sold to the Trust by it or for all the SAMs
in the SAM Pool. There may be no master servicer for a particular series of
certificates. In such event, the servicing of the SAMs will be performed by
the servicer specified in the applicable prospectus supplement. Such master
servicer may have the right to remove any related servicer of any SAM at
any time if such master servicer considers such removal to be in the best
interests of certificateholders, but only for cause as described in such
prospectus supplement. In such event, such master servicer must designate a
replacement servicer, which may include a related master servicer or
servicer, or an affiliate of such master servicer or servicer. Each master
servicer may also perform its administrative and servicing responsibilities
through agents or independent contractors but shall not thereby be released
from any of its responsibilities under the Pooling and Servicing Agreement.
Each master servicer will receive a fee for its services in accordance with
performing its duties and under any Pooling and Servicing Agreement or Sale
and Servicing Agreement, as applicable. The servicer will receive a fee for
performing its services in accordance with performing its duties under any
Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable. The fees to a master servicer and the servicers will be paid
from the difference between the stated interest rate on each SAM, or SAM
Pool, if applicable, and the amount needed to pay Master Servicing Fees,
Servicing Fees, Certificate Administrator Fees and any Retained Yield with
respect to such SAM or, if specified in the prospectus supplement, be paid
from Additional Interest Payments.
With respect to each series, a certificate administrator may be
appointed. If appointed, the certificate administrator will calculate
amounts distributable to the certificateholders, and may prepare tax
returns on behalf of the Trust Fund and provide certain other services
specified in a separate Pooling and Servicing Agreement for the series. The
servicer and the certificate administrator may perform their respective
servicing and administrative responsibilities through agents or independent
contractors but shall not thereby be released from any of their respective
responsibilities under the Pooling and Servicing Agreement. With respect to
such series of certificates, the certificate administrator will receive a
fee for its services, which will be paid from the difference between the
stated interest rate on each SAM and the Remittance Rate, net of any
Retained Yield, with respect to such SAM or if specified in the prospectus
supplement, be paid from Additional Interest Payments in such other manner
specified in the related prospectus supplement.
The certificates of each series will represent undivided interests in
a trust consisting of the SAMs included in one or more SAM Pools for that
series and related property. Certain series will be enhanced by mortgage
loan insurance or other forms of credit enhancement, in each case as more
fully described under the captions "Description of the Certificates" and
"Description of Credit Enhancements" and in the related prospectus
supplement. When each series of certificates is issued, SAMCO Mortgage
Securities Corp. will cause the SAMs in each SAM Pool for that series to be
assigned to an independent bank or trust company as trustee for the benefit
of the holders of certificates of that series, and the master servicer or
the servicer, as applicable, will be responsible for master servicing the
SAMs under the Pooling and Servicing Agreement. The Trustee may also serve
as certificate administrator.
SAMCO Mortgage Securities Corp.'s assignment of the SAMs to the Trustee
will be without recourse, and SAMCO Mortgage Securities Corp.'s obligations
with respect to the SAMs will, unless otherwise indicated in the prospectus
supplement for a series of certificates, be limited to any representations
and warranties made by it in, as well as its contractual obligations under,
the Pooling and Servicing Agreement for each series. In the event of
delinquencies in payments on the SAMs, or the related SAM Pool for such
series, the master servicer, the seller or the Originator, as specified in
the applicable prospectus supplement will only be obligated to advance cash
in the amounts described under "Description of the Certificates--Advances"
relating to its SAM Pool to the extent such Advances are not made by the
servicers. Any such Advances by a master servicer, the servicer, the seller
or the Originator will be limited to amounts which, in the judgment of such
entity, ultimately will be reimbursable with respect to such SAM Pool from
principal payments, Additional Interest Payments and the stated interest
paid on the SAMs or amounts paid by or under any applicable Pool Insurance
Policy, any applicable Special Hazard Insurance Policy, any Primary
Insurance Policy, any applicable Letter of Credit, Reserve Fund or any
other applicable policy of insurance, any subordination feature described
in this prospectus or the proceeds of liquidation of a SAM. See
"Description of Credit Enhancements." If so specified in the applicable
prospectus supplement, neither a master servicer nor any such other entity
will be obligated to make Advances with respect to SAMs delinquent longer
than the time period specified in such prospectus supplement. See
"Description of the Certificates--Advances" and "Description of Credit
Enhancements." A master servicer is obligated to remit to
certificateholders of a series all amounts relating to the SAMs to the
extent such amounts have been collected or advanced by the servicers or
advanced by such master servicer and are due certificateholders under the
terms of the Pooling and Servicing Agreement for such series. With respect
to any series of certificates as to which there will be no master servicer
and the servicing of the SAMs will be performed by the servicer and the
seller or the Originator as specified in the related prospectus supplement,
the servicer may be obligated to make Advances in the amounts described
under "Description of the Certificates--Advances" limited to amounts which,
in the judgment of the servicer, ultimately will be reimbursable with
respect to such SAM Pool from any of the sources stated above.
AGENCY CERTIFICATES
Government National Mortgage Association
GNMA is a wholly-owned corporate instrumentality of the United States
with the United States Department of Housing and Urban Development. The
Housing Act authorizes GNMA to guarantee the timely payment of the
principal of and interest on certificates which represent an interest in
FHA Loans, or partially guaranteed by the VA.
Section 306(g) of the Housing Act provides that "the full faith
and credit of the United States is pledged to the payment of all amounts
which may be required to be paid under any guarantee under this
subsection." In order to meet its obligations under any such guarantee,
GNMA may, under Section 306(d) of the Housing Act, borrow from the United
States Treasury in an amount which is at any time sufficient to enable
GNMA, with no limitations as to amount, to perform its obligations under
its guarantee.
GNMA Certificates
Each GNMA Certificate held in a Trust Fund, which may be issued under
either the GNMA I Program or the GNMA II Program, will be a "fully modified
pass-through" mortgaged-backed certificate issued and serviced by a GNMA
Issuer approved by GNMA or approved by FNMA as a seller-servicer of FHA
Loans and VA Loans. The mortgage loans underlying the GNMA Certificates
will consist of FHA Loans and VA Loans. Each such mortgage loan is secured
by a one- to four-family residential property or a manufactured home. GNMA
will approve the issuance of each such GNMA Certificate in accordance with
a Guaranty Agreement between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds
in order to make timely payments of all amounts due on each such GNMA
Certificate, even if the payments received by the GNMA Issuer on the FHA
Loans or VA Loans underlying each such GNMA Certificate are less than the
amounts due on each such GNMA Certificate.
The full and timely payment of principal of and interest on each
GNMA Certificate will be guaranteed by GNMA, which obligation is backed by
the full faith and credit of the United States. Each such GNMA Certificate
will have an original maturity of not more than 30 years, but may have
original maturities of substantially less than 30 years. Each such GNMA
Certificate will be based on and backed by a pool of FHA Loans or VA Loans
secured by one- to four-family residential properties or manufactured homes
and will provide for the payment by or on behalf of the GNMA Issuer to the
registered holder of such GNMA 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 such GNMA Certificate, less
the applicable servicing and guarantee fee which together equal the
difference between the interest on the FHA Loan or VA Loan and the
pass-through rate on the GNMA Certificate. In addition, each payment will
include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and
liquidation proceeds in the event of a foreclosure or other disposition of
any such FHA Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA
Certificate as it becomes due, it must promptly notify GNMA and request
GNMA to make such payment. Upon notification and request, GNMA will make
such payments directly to the registered holder of such GNMA Certificate.
In the event no payment is made by a GNMA Issuer and the GNMA Issuer fails
to notify and request GNMA to make such payment, the holder of such GNMA
Certificate will have recourse only against GNMA to obtain such payment.
The Trustee or its nominee, as registered holder of the GNMA Certificates
held in a Trust Fund, will have the right to proceed directly against GNMA
under the terms of the Guaranty Agreements relating to such GNMA
Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA I 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 such GNMA I Certificate will equal the interest rate on the mortgage
loans included in the pool of mortgage loans underlying such 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 such GNMA II Certificate, except for
pools of mortgage loans secured by manufactured homes.
Regular monthly installment payments on each GNMA Certificate
held in a Trust Fund will be comprised of interest due as specified on such
GNMA Certificate plus the scheduled principal payments on the FHA Loans or
VA Loans underlying such GNMA Certificate due on the first day of the month
in which the scheduled monthly installments on such GNMA Certificate is
due. Such regular monthly installments on each such GNMA Certificate are
required to be paid to the Trustee 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 GNMA Certificate held in a Trust Fund or any other early
recovery of principal on such loan will be passed through to the Trustee as
the registered holder of such GNMA Certificate.
GNMA 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
such mortgage loan. Payments due the registered holders of GNMA
Certificates backed by pools containing "buydown" mortgage loans will be
computed in the same manner as payments derived from other GNMA
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 such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to
the principal of such graduated payment mortgage loans and, together with
interest thereon, will be paid in subsequent years. The obligations of GNMA
and of a GNMA Issuer will be the same irrespective of whether the GNMA
Certificates are backed by graduated payment mortgage loans or "buydown"
loans. No statistics comparable to the FHA's prepayment experience on level
payment, non-buydown loans are available in respect of graduated payment or
buydown mortgages. GNMA Certificates related to a series of certificates
may be held in book-entry form.
GNMA Certificates may be backed by multifamily mortgage loans
having the characteristics specified in the prospectus supplement.
The GNMA Certificates included a Trust Fund, and the related
underlying mortgage loans, may have characteristics and terms different
from those described above. Any such different characteristics and terms
will be described in the related prospectus supplement.
FNMA
FNMA is a federally chartered and privately owned corporation
organized and existing under the Charter Act. FNMA was originally
established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted
in 1968.
FNMA provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing their funds
for additional lending. FNMA 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, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
FNMA Certificates
FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
representing fractional undivided interests in a pool of mortgage loans
formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either
provided by FNMA from its own portfolio or purchased under the criteria of
the FNMA purchase program.
Mortgage loans underlying FNMA Certificates held by a Trust Fund
will consist of conventional mortgage loans, FHA Loans or VA Loans.
Original maturities of substantially all of the conventional, level payment
mortgage loans underlying a FNMA Certificate are expected to be between
either 8 to 15 years or 20 to 30 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 FNMA 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 FNMA Certificate 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
FNMA's guaranty fee. Under a regular servicing option, under which the
mortgagee or other servicers assumes the entire risk of foreclosure losses,
the annual interest rates on the mortgage loans underlying a FNMA
Certificate will be between 50 basis points and 250 basis points greater
than in its annual pass-through rate and under a special servicing option,
under which FNMA assumes the entire risk for foreclosure losses, the annual
interest rates on the mortgage loans underlying a FNMA Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual FNMA Certificate pass-through rate. If specified in the related
prospectus supplement, FNMA Certificates may be backed by adjustable rate
mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate
that it will distribute amounts representing such holder's proportionate
share of scheduled principal and interest payments at the applicable
pass-through rate provided for by such FNMA Certificate on the underlying
mortgage loans, whether or not received, and such holder's proportionate
share of the full principal amount of any foreclosed or other finally
liquidated mortgage loan, whether or not such principal amount is actually
recovered. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and
credit of the United States. Although the Secretary of the Treasury of the
United States has discretionary authority to lend FNMA up to $2.25 billion
outstanding at any time, neither the United States nor any United States
agency is obligated to finance FNMA's operations or to assist FNMA in any
other manner. If FNMA were unable to satisfy its obligations, distributions
to holders of FNMA Certificates would consist solely of payments and other
recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by
delinquent payments and defaults on such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985, other than FNMA Certificates backed by
pools containing graduated payment mortgage loans or mortgage loans secured
by multifamily projects, are available in book-entry form only.
Distributions of principal and interest on each FNMA Certificate will be
made by FNMA on the 25th day of each month to the persons in whose name the
FNMA Certificate is entered in the books of the Federal Reserve Banks, or
registered on the FNMA Certificate register in the case of fully registered
FNMA Certificates, as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry
form, distributions thereon will be made by wire, and with respect to fully
registered FNMA Certificates, distributions thereon will be made by check.
The FNMA Certificates included in a Trust Fund, and the related
underlying mortgage loans, may have characteristics and terms different
from those described above. Any such different characteristics and terms
will be described in the related
prospectus supplement.
FHLMC
FHLMC is a publicly-held United States government-sponsored
enterprise created under the FHLMC Act. FHLMC was established primarily for
the purpose of increasing the availability of mortgage credit for the
financing of urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investments primarily by
assisting in the development of secondary markets for conventional
mortgages. The principal activity of FHLMC currently consists of the
purchase of first lien conventional mortgage loans or participation
interests in such mortgage loans and the sale of the mortgage loans or
participations so purchased in the form of mortgage securities, primarily
FHLMC Certificates. FHLMC is confined to purchasing, so far as practicable,
mortgage loans that it deems to be of such quality, type and class as to
meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates
Each FHLMC Certificate represents 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.
Mortgage loans underlying the FHLMC Certificates held by a Trust
Fund will consist of mortgage loans with original terms to maturity of
between 10 and 30 years or such other period as provided in the related
prospectus supplement. Each such mortgage loan must meet the applicable
standards set forth in the FHLMC Act. A FHLMC Certificate group may include
whole loans, participation interests in whole loans and undivided interests
in whole loans or participations comprising another FHLMC Certificate
group. Under the Guarantor Program, any such FHLMC Certificate group may
include only whole loans or participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC 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 FHLMC Certificate group represented by such FHLMC
Certificate, whether or not received. FHLMC also guarantees to each
registered holder of a FHLMC Certificate collection by such holder of all
principal on the underlying mortgage loans, without any offset or
deduction, to the extent of such holder's pro rata share, but does not,
except if and to the extent specified in the prospectus supplement for a
series of certificates, guarantee the timely payment of scheduled
principal. Under FHLMC's Gold PC Program, FHLMC 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 such month of distribution. Pursuant to its guarantees,
FHLMC indemnifies holders of FHLMC Certificates against any diminution in
principal by reason of charges for property repairs, maintenance and
foreclosure. FHLMC may remit the amount due on account of its guarantee of
collection of principal at any time after default on an underlying mortgage
loan, but not later than
o 30 days following foreclosure sale,
o 30 days following payment of the claim by any mortgage insurer,
or
o 30 days following the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated
payment of principal.
In taking actions regarding the collection of principal after default on
the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment
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 FHLMC
to determine that a mortgage loan should be accelerated varies with the
particular circumstances of each mortgagor, and FHLMC has not adopted
standards which require that the demand be made within any specified
period.
FHLMC 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 FHLMC
under its guarantee are obligations solely of FHLMC and are not backed by,
nor entitled to, the full faith and credit of the United States. If FHLMC
were unable to satisfy its obligations, distributions to holders of FHLMC
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to
holders of FHLMC Certificates would be affected by delinquent payments and
defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by FHLMC, including any scheduled principal
payments, full and partial repayments of principal and principal received
by FHLMC by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by FHLMC or the seller. FHLMC is
required to remit each registered FHLMC Certificateholder's pro rata share
of principal payments on the underlying mortgage loans, interest at the
FHLMC pass-through rate and any other sums such as prepayment fees, within
60 days of the date on which such payments are deemed to have been received
by FHLMC.
Under FHLMC's cash program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a FHLMC
Certificate may exceed the pass-through rate on the FHLMC Certificate.
Under such program, FHLMC 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 FHLMC. 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 FHLMC Certificate group
under the cash program will vary since mortgage loans and participations
are purchased and assigned to a FHLMC Certificate group based upon their
yield to FHLMC rather than on the interest rate on the underlying mortgage
loans. Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the
underlying mortgage loans, minus a minimum servicing fee and the amount of
FHLMC's management and guaranty income as agreed upon between the seller
and FHLMC.
FHLMC 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 FHLMC 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 FHLMC Certificates. Thereafter, such
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 FHLMC
Certificates sold by FHLMC on or after January 2, 1985, and makes payments
of principal and interest each month to the registered holders of the FHLMC
Certificates in accordance with such 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 such Agency Security will represent an
undivided interest in all or part of either the principal distributions,
but not the interest distributions, or the interest distributions, but not
the principal distributions, or in some specified portion of the principal
and interest distributions, but not all of such distributions, on certain
FHLMC, FNMA, GNMA or other government agency or government-sponsored agency
certificates. The underlying securities may be held under a trust agreement
by FHLMC, FNMA, GNMA or another government agency or government- sponsored
agency, each as trustee, or by another trustee named in the related
prospectus supplement. FHLMC, FNMA or GNMA or another government agency or
government-sponsored agency generally will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying
securities backing such stripped Agency Security.
Other Agency Securities
A Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA, FHLMC. The characteristics of any such
mortgage pass-through certificates will be described in such related
prospectus supplement. If so specified, a combination of different types of
Agency Securities may be held in a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
Private Mortgage-Backed Securities may consist of mortgage
pass-through certificates evidencing a direct or indirect undivided
interest in a pool of mortgage loans or SAMs, or CMOs secured by mortgage
loans or SAMs. Private Mortgage-Backed Securities will have been issued
under a pooling and servicing agreement. The Private Mortgage-Backed
Securities in a Trust Fund may include a class or classes of securities
that are callable at the option of another class or classes of securities.
The seller/servicer of the underlying mortgage loans will have entered into
the PMBS Agreement with the trustee under the PMBS Agreement. The PMBS
Trustee or its agent, or a custodian, will possess the mortgage loans or
SAMs underlying such Private Mortgage-Backed Security. Mortgage loans or
SAMs underlying a Private Mortgage-Backed Security will be serviced by the
servicer directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS servicer.
Such securities will (1) either (a) have been previously
registered under the Securities Act of 1933, as amended, or (b) will at the
time be eligible for sale under Rule 144(k) under such act; and (2) will be
acquired in bona fide secondary market transactions not from the issuer or
its affiliates. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the
assets conveyed by it to the related trust or the assignment by it of the
representations and warranties of another entity from which it acquired the
assets. The PMBS Issuer generally 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 or SAMs 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 certain date or under other circumstances specified in the related
prospectus supplement.
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 or SAMs underlying the Private Mortgage-Backed
Securities or with respect to the Private Mortgage-Backed Securities
themselves.
Additional Information
The related prospectus supplement for a series for which the Trust
Fund includes Private Mortgage-Backed Securities will specify:
o the aggregate approximate principal amount and type of the
Private Mortgage-Backed Securities to be included in the
Trust Fund;
o certain characteristics of the mortgage loans or SAMs which
comprise the underlying assets for the Private
Mortgage-Backed Securities including to the extent available
o the payment features of such mortgage loans
or SAMs, the approximate aggregate principal
balance, if known, of underlying mortgage
loans or SAMs insured or guaranteed by a
governmental entity,
o the servicing fee or range of servicing fees
with respect to the mortgage loans or SAMs,
o the minimum and maximum stated maturities of the
underlying mortgage loans or SAMs and at
origination and
o delinquency experience with respect to the
mortgage loans or SAMs;
o the pass-through or certificate rate of the Private
Mortgage-Backed Securities and the method of
determination of the pass-through or certificate rate;
o the PMBS Issuer, the PMBS servicer, if other than the
PMBS Issuer, and the PMBS Trustee for such Private
Mortgage-Backed Securities;
o certain characteristics of credit support, if any, such
as subordination, reserve funds, insurance policies,
letters of credit or guarantees relating the mortgage
loans or SAMs underlying the Private Mortgage-Backed
Securities or to such Private Mortgage-Backed Securities
themselves;
o the terms on which the underlying mortgage loans or SAMs
for such Private Mortgage-Backed Securities, or such
Private Mortgage-Backed Securities themselves, may, or
are required to, be purchased prior to their stated
maturity or the stated maturity of the Private
Mortgage-Backed Securities;
o the terms on which mortgage loans, SAMs or Private
Mortgage-Backed Securities may be substituted for those
originally deposited with the PMBS Trustee or the
Trustee; and
o any other material information related to such Private
Mortgage-Backed Securities.
USE OF PROCEEDS
All of the net proceeds to be received from the sale of each series
of the certificates will be used by SAMCO Mortgage Securities Corp. to
purchase the SAMs related to that series or to return to SAMCO Mortgage
Securities Corp. the amounts previously used to effect such purchases, the
costs of carrying the SAMs until sale of the certificates and other
expenses connected with pooling the SAMs and issuing the certificates, or
for general corporate purposes. SAMCO Mortgage Securities Corp. expects to
issue certificates in series from time to time as part of its continuing
program of acquiring SAMs and selling certificates. See "SAMCO Mortgage
Securities Corp.--Mortgage Purchase Program."
YIELD CONSIDERATIONS
GENERAL
The yield to maturity on any certificate will depend on the purchase
price paid by the certificateholder, the effective interest rate of the
certificate and, if such certificate is an Appreciation Certificate, the
amount of any Additional Interest Payments passed through to such
certificate. See "Maturity, Average Life, Appreciation and Prepayment
Assumptions" for a discussion of the weighted average life of the
certificates and consideration of the effect of the appreciation of the
Mortgaged Properties on payments made on the Appreciation Certificates. Any
prepayment of a SAM, liquidation of a SAM, by foreclosure proceedings or by
virtue of the purchase of a SAM in advance of its stated maturity or
otherwise or, if applicable, the occurrence of an early termination or
other call feature of the certificates of a series or the underlying SAMs
will have the effect of passing through to certificateholders amounts of
principal which would otherwise be passed through in amortized increments
over the remaining term of such SAM, causing interest payments which may
have been expected to continue to be paid over time to stop and an Indexed
Appreciation Payment to be made which may be zero. The effect of such
prepayments on the yield to maturity to certificateholders depends on
several factors. For example, if the certificates are purchased above par,
i.e., for more than 100% of the outstanding principal balance of the SAMs
they represent, such prepayments will tend to decrease the yield to
maturity. If the certificates are purchased at a discount, i.e., for less
than 100% of such outstanding principal balance, such prepayments will tend
to increase the yield to maturity. Moreover, in either case, such effect
may be negatively affected by the payment of smaller than anticipated
Additional Interest Payments. See "Certain Legal Considerations--Certain
Legal Considerations Applicable to SAMs--Enforceability of Certain
Provisions" for a description of certain provisions of each SAM and
statutory, regulatory and judicial developments that may affect the
prepayment experience, maturity assumptions and appreciation payments on
the SAMs. See also "Description of the Certificates--Termination and
Optional Termination" for a description of the repurchase of the SAMs in
any SAM Pool when the aggregate outstanding principal balance in any SAM
Pool is less than a specified percentage of the aggregate outstanding
principal balance of the SAMs in such SAM Pool on the related Cut-Off Date.
For this purpose, an Additional Interest Payment may include a payment at
the purchase price of the SAM based upon an index defined in the prospectus
supplement and used as a surrogate for what the Additional Interest Payment
would have been had the SAM matured or terminated. The existence of
certificates with an exchange feature will have no impact on the yield to
maturity to certificateholders.
The timing of changes in the rate of principal payments on or
repurchases of the SAMs, including, if applicable, the occurrence of a
redemption, other call or put feature of the certificates of a series or
the underlying SAMs may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over
time is consistent with an investor's expectation. In general, the earlier
a prepayment of principal or a repurchase on the underlying SAMs,
including, if applicable, the occurrence of a redemption or other call
feature of the certificates of a series or the underlying SAMs, the greater
will be the effect on an investor's yield to maturity. As a result, the
effect on an investor's yield to maturity of principal payments and
repurchases occurring at a rate higher or lower than the rate anticipated
by the investor during the period immediately following the issuance of a
series of certificates would not be fully offset by a subsequent like
reduction or increase in the rate of principal payments.
EFFECTIVE INTEREST RATE
Each monthly interest payment on a SAM is calculated as set forth in
the applicable prospectus supplement. The Pass-Through Rate will be
calculated as set forth in the applicable prospectus supplement. The
Remittance Rate does not take into account the amount of any Additional
Interest Payments which may be payable to any Appreciation Certificate.
As described in the applicable prospectus supplement, in certain
events, if the amounts available for distribution in respect of interest
are not sufficient to cover the total of all accrued and unpaid interest at
the Remittance Rate, the available amount will be distributed to the
certificateholders, pro rata, in accordance with their respective interests
or in an order of priority described in the applicable prospectus
supplement.
For the sale of certificates under this prospectus, SAMCO Mortgage
Securities Corp. may establish one or more SAM Pools having a variable, as
opposed to a fixed, stated interest rate. A SAM Pool with a variable stated
interest rate may be composed of SAMs that have adjustable stated interest
rates or fixed stated interest rates; provided that the amount of fixed
stated interest rates to be passed through is determined on a SAM-by-SAM
basis as the stated interest rate minus specified fees for servicing and
administrative compensation, which may include any of the Master Servicing
Fee, the Servicing Fee and the Certificate Administrator Fee, for each such
SAM, as set forth in the applicable prospectus supplement. Because the
stated interest rates may vary in such a SAM Pool, and the servicing and
administrative compensation generally will be fixed as a percentage of the
principal balance of the SAMs, the Remittance Rate will be affected by
disproportionate principal prepayments among SAMs bearing different stated
interest rates and, consequently, for certificates which are not
Appreciation Certificates, the yield to maturity on the certificates will
be affected. The characteristics of any such variable-rate SAM Pools will
be described in the applicable prospectus supplement. Although stated
interest rates for SAMs in a SAM Pool may vary from SAM to SAM,
disproportionate principal prepayments among the SAMs bearing different
stated interest rates will not affect the return to certificateholders of
certificates with fixed Pass-Through Rates purchased on par.
For any class of certificates that are not Appreciation Certificates,
the effective yield to maturity to certificateholders generally will be
lower than the yield to maturity otherwise produced by the applicable
Pass-Through Rate, because while interest will accrue on each SAM from the
first day of each month, the distribution of such interest to
certificateholders at the applicable Pass-Through Rate generally will be
made on a later day, which will be stated in the applicable prospectus
supplement, or, if such day is not a business day, the next succeeding
business day of the month following the month of accrual.
When a prepayment in full is made by the mortgagor on a SAM during a
month, the mortgagor is charged interest on the days in the month actually
elapsed up to the date of the prepayment in full at the daily interest
rate, determined by dividing the stated interest rate by 365, or 360 in the
case of a prepayment in full received on a Due Date, which is applied to
the principal amount of the SAM so prepaid. Similarly, when a SAM is
liquidated under a Pool Insurance Policy during a month, the Pool Insurer
will pay interest on the SAM only to the date the claim is paid. Also, when
a partial principal prepayment is made on a SAM together with the scheduled
monthly payment for a month on or after the related Due Date, the mortgagor
does not pay interest on the prepaid amount, and therefore
certificateholders will not receive any interest on such prepaid amount.
To the extent that Compensating Interest is not paid, the effect of a
Prepayment in full or such a liquidation will be to reduce the amount of
interest passed through on the next Distribution Date, because interest on
the principal amount of the SAM so prepaid was paid only to the date of
such prepayment in full or liquidation and not to the end of the month of
prepayment. The following may apply: prepayments in fulls received during
the period from the first day of a calendar month through the 15th day of
such month will be passed through, without Compensating Interest and
without interest accrued from the first day of such month to the date of
the prepayment in full, on the Distribution Date in such month, and
prepayments in full received during the period from the 15th day of a
calendar month through the last day of such month will be passed through,
with Compensating Interest and with interest at the applicable Pass-Through
Rate attributable to interest paid through the date of the Prepayment in
full by the mortgagors, on the Distribution Date in the following month.
Proceeds of SAMs liquidated under a Pool Insurance Policy during a month
will be passed through, with Compensating Interest and interest at the
applicable Pass-Through Rate attributable to interest paid by the Pool
Insurer under an applicable Pool Insurance Policy, on the Distribution Date
in the following month.
Compensating Interest on liquidated SAMs will be passed through to
certificateholders, together with any interest at the applicable
Pass-Through Rate attributable to interest paid by the Pool Insurer under
any applicable Pool Insurance Policy to the date of liquidation on the
Distribution Date of the month following liquidation. Compensating Interest
on prepayments in fulls may be paid on a Distribution Date only with
respect to prepayments in fulls received during the period from the 15th
day of the preceding calendar month through the last day of such preceding
month. The applicable prospectus supplement will specify any limitations on
the extent of or source of funds available for payments of Compensating
Interest.
MATURITY, AVERAGE LIFE, APPRECIATION AND PREPAYMENT ASSUMPTIONS
The SAMs at origination will have varying stated interest rates,
maturities and Appreciation Shares as more fully described in the
applicable prospectus supplement. SAMCO Mortgage Securities Corp. expects
that most such SAMs will have maturities at origination of either 15 to 30
years and such SAMs may be prepaid in full or in part at any time. However,
some of the SAMs may, where permissible under state law, require a penalty
for prepayment in whole or in part in the initial years after origination
of the SAM. The particulars of such prepayment penalties will be disclosed
in the applicable prospectus supplement. The prepayment experience or, if
applicable, the occurrence of an optional termination or other call or put
of the certificates of a series or the underlying SAMs will affect the
weighted average lives of the certificates. The yield on any certificates,
including Appreciation Certificates, purchased at a premium will be
adversely affected by any increase in the level of prepayments occurring
with respect to any series. A substantial number of SAMs are anticipated to
be paid in full prior to their scheduled maturity.
A number of factors, including homeowner mobility, economic
conditions, enforceability of "due-on-sale" clauses, mortgage market
interest rates, the appreciation of real estate generally and the general
availability of mortgage funds may affect prepayment experience. Generally,
each Mortgage executed in connection with a fixed rate SAM, will contain
"Mortgage Termination Event" provisions permitting the holder of the
Mortgage Note to accelerate the maturity of the SAM upon conveyance by the
mortgagor of the underlying Mortgaged Property. With respect to series of
certificates, the master servicer or the servicer, as applicable, will
agree that it will enforce the Mortgage Termination Event clause contained
in each such SAM to the extent it has knowledge of the termination and
reasonably believes that it is entitled to do so under applicable law.
Further, the level of the appreciation of the Mortgaged Properties
underlying the SAMs in any Trust and, to a much lesser degree, the index
used for calculating the indexed appreciation payments for such SAMs or
such certificates will affect the yield earned by holders of the
Appreciation Certificates of any series. The level of appreciation of the
Mortgaged Properties underlying the SAMs may be affected by a variety of
factors, including but not limited to: economic conditions in the area
where the Mortgaged Property is located, the general level of inflation and
unemployment in the economy, the general level of liquidity in the economy
and more specifically the level of liquidity in the residential mortgage
market. The amount of appreciation paid to any Appreciation Certificates
may also be affected by the amount of prepayments that are occurring on the
SAMs. Holders of Appreciation Certificates should be aware that their yield
may be low, zero or negative and should be prepared for the possibility
that they could lose their entire investment in the Appreciation
Certificates they have purchased.
The prospectus supplement with respect to any series will further
describe the risks that prepayments and low levels of increase in the value
of the Mortgaged Properties may have on the yield of holders of the
certificates of such series.
The weighted average life of the certificates will be influenced by
the rate at which principal on the SAMs in the Trust is paid, which may be
in the form of scheduled amortization of principal prepayments. SAMCO
Mortgage Securities Corp. has to date not compiled information on the
prepayment experience of SAMs. However, based upon published information,
the rate of prepayments on fixed and adjustable rate conventional one- to
four-family mortgage loans has fluctuated significantly in recent years.
SAMCO Mortgage Securities Corp. believes such fluctuation is due to a
number of factors, including those discussed above, and that such factors
will also affect the prepayment experience on the SAMs in any Trust.
Accordingly, SAMCO Mortgage Securities Corp. cannot predict what future
prepayment experience will be or what the resulting weighted average life
might be applicable to SAMs. However, principal prepayments on mortgage
loans which are not SAMs are commonly measured relative to a prepayment
standard or model. The model used in this prospectus and in each prospectus
supplement, assumes a constant annual rate of prepayment each month,
expressed as a per annum percentage of the then-scheduled principal balance
of the Mortgage Pool. Such prepayment model assumes a constant prepayment
rate as stated in the prospectus supplement. Further, as stated above,
investors in the Appreciation Certificates will be affected by the level of
appreciation in value of the Mortgaged Properties. The model used in this
prospectus and each prospectus supplement, assumes a constant annual rate
of appreciation each month, expressed as a per annum percentage of the
then-scheduled principal balance of the Mortgage Pool, taking into account
the volatility of the Constant Appreciation Rate. It is unclear whether
either of these models even has any relevance to the certificates. The
prospectus supplement or current report on Form 8-K for each series of
certificates may contain a table setting forth the projected weighted
average life of each class of certificates of such series and the
percentage of the original principal amounts or notional principal amounts
of each such class that would be outstanding on specified Distribution
Dates for such series and the yield on Appreciation Certificates, based on
the assumptions set forth with respect to the Constant Prepayment Rate and
Constant Appreciation Rate deemed appropriate by SAMCO Mortgage Securities
Corp. and specified in this prospectus.
SAMCO MORTGAGE SECURITIES CORP.
SAMCO Mortgage Securities Corp., a Delaware corporation, is a
wholly-owned subsidiary of EMC Mortgage Corporation. SAMCO Mortgage
Securities Corp. was organized as a special purpose entity for the purpose
of acquiring SAMs and selling interest in the SAMs. SAMCO Mortgage
Securities Corp. does not have, nor is it expected to have in the future,
any significant assets. SAMCO Mortgage Securities Corp.'s principal
executive offices are located at 245 Park Avenue, New York, New York 10167,
telephone (212) 272-2000.
EMC MORTGAGE CORPORATION
EMC Mortgage Corporation is a Delaware Corporation organized on
December 23, 1995. EMC Mortgage Corporation is an affiliate of Bear,
Stearns & Co. Inc. and is a wholly-owned subsidiary of The Bear Stearns
Companies Inc. EMC Mortgage Corporation's principal executive offices are
located at 245 Park Avenue, New York, New York 10167, telephone (212)
272-2000.
MORTGAGE PURCHASE PROGRAM
Set forth below is a description of the principal aspects of EMC
Mortgage Corporation's purchase program for SAMs eligible for inclusion in
a SAM Pool. In the case of most SAM Pools, SAMCO Mortgage Securities Corp.
will represent and warrant to the Trustee that at the time that a SAM was
originated, the Originator was a mortgagee approved by the Secretary of
Housing and Urban Development under Sections 203 and 211 of the National
Housing Act, as amended, or a savings and loan association, a savings bank,
a commercial bank, a licensed mortgage banker or similar banking or lending
institution which is supervised and examined by a federal or state
authority or such other entities as may be described in the applicable
prospectus supplement. EMC Mortgage Corporation has approved, or will
approve, individual institutions as eligible Originators by applying
certain criteria, including the Originator's depth of mortgage origination
experience, servicing experience and financial stability. In general, each
Originator must have experience in originating and servicing conventional
residential mortgages and must have a net worth acceptable to EMC Mortgage
Corporation. Each Originator is required to use the services of qualified
underwriters, appraisers and attorneys. Other factors evaluated by EMC
Mortgage Corporation in approving Originators include delinquency and
foreclosure ratio performances for conventional mortgage loans.
LOAN STANDARDS
The SAMs to be included in each SAM Pool will be loans with fixed or
adjustable rates of interest secured by first mortgages, deeds of trust or
security deeds on residential properties with original principal balances
which generally did not exceed 95% of the value of the Mortgaged
Properties, unless such loans are FHA insured or VA guaranteed. Each SAM
having an LTV at origination and as of the Cut-Off Date in excess of 80%
will be covered by a Primary Insurance Policy insuring against default all
or a specified portion of the principal amount of such SAM. See "Primary
Insurance, Hazard Insurance; Claims Thereunder." Each mortgage insurer must
be a mortgage guaranty insurance company which is duly qualified as such
under the laws of each state in which the Mortgaged Properties are located,
duly authorized and licensed in such states to transact a mortgage guaranty
insurance business and to write the insurance provided by the Primary
Insurance Policy or the Pool Insurance Policy, as the case may be, and
which is approved as a Qualified Insurer.
The SAMs to be included in each SAM Pool will be "one- to
four-family" shared appreciation mortgage loans, which means permanent
loans, as opposed to construction or land development loans, secured by
Mortgages on non-farm properties, including attached or detached
single-family homes, two- to four-family primary residences and
condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even
when located in buildings containing five or more such units. If specified
in the related prospectus supplement, each SAM may be required to be
secured by an owner occupied primary residence. The Mortgaged Property may
not be a mobile home or cooperative.
CREDIT, APPRAISAL AND UNDERWRITING STANDARDS
The SAMs to be included in each SAM Pool will be subject to the
various credit, appraisal and underwriting standards described in this
prospectus. SAMCO Mortgage Securities Corp.'s credit, appraisal and
underwriting standards with respect to certain SAMs will generally conform
to the Program as established and maintained by EMC Mortgage Corporation.
The Program may be revised based on opportunities and prevailing conditions
in the residential mortgage market and the market for SAMCO Mortgage
Securities Corp.'s mortgage pass-through certificates. The SAMs are being
underwritten by designated third party sellers involved in the Program.
In addition, SAMCO Mortgage Securities Corp. may purchase SAMs which
do not conform to the underwriting standards set forth by SAMCO Mortgage
Securities Corp. Such SAMs may be purchased in negotiated transactions from
sellers who will represent that the SAMs have been originated in accordance
with credit, appraisal and underwriting standards agreed to by SAMCO
Mortgage Securities Corp. SAMCO Mortgage Securities Corp. will generally
review only a limited portion of the SAMs in any delivery of such SAMs for
conformity with the applicable credit, appraisal and underwriting
standards.
The credit, appraisal and underwriting standards utilized in
negotiated transactions and the credit, appraisal and underwriting
standards of insurance companies issuing insurance for SAMS may vary
substantially from the credit, appraisal and underwriting standards set
forth in the Program. The relevant prospectus supplement will detail such
differences in underwriting standards. All of the credit, appraisal and
underwriting standards will provide an underwriting officer with sufficient
information to evaluate the mortgagor's repayment ability and the adequacy
of the Mortgaged Property as collateral. Due to the variety of underwriting
standards and review procedures that may be applicable to the SAMs included
in any SAM Pool, the related prospectus supplement will not distinguish
among the various credit, appraisal and underwriting standards applicable
to the SAMs nor describe any review for compliance with applicable credit,
appraisal and underwriting standards performed by SAMCO Mortgage Securities
Corp. Moreover, there can be no assurance that every SAM was originated in
conformity with the applicable credit, appraisal and underwriting standards
in all material respects or that the quality or performance of SAMs
underwritten under varying standards as described above will be equivalent
under all circumstances.
The Program's underwriting standards generally follow standards
established by FHLMC. The Program's underwriting standards are intended to
evaluate, except in the case of an Equity Release SAM, the prospective
mortgagor's credit standing and repayment ability and the value and
adequacy of the proposed Mortgaged Property as collateral. In the loan
application process, prospective mortgagors will be required to provide
information regarding such factors as their assets, liabilities, income,
credit history, employment history and other related items. Each
prospective mortgagor will also provide an authorization to apply for a
credit report which summarizes the prospective mortgagor's credit history.
With respect to establishing the prospective mortgagor's ability to make
timely payments in the context of most SAMs, EMC Mortgage Corporation will
require evidence regarding the prospective mortgagor's employment and
income, and of the amount of deposits made to financial institutions where
the mortgagor maintains demand or savings accounts.
The mortgagor will also be required to have an appraisal performed on
the property. In determining the adequacy of the property as collateral, an
independent appraisal is made of each property considered for financing.
The appraiser is required to inspect the property and verify that it is in
good condition and that construction, if new, has been completed. With
respect to the SAMs, the appraisal is based on the market value of
comparable homes and the cost of replacing the home.
Certain states where the Mortgaged Properties may be located are
"anti-deficiency" states where, in general, lenders providing credit on
one- to four-family residential properties must look solely to the property
for repayment in the event of foreclosure. See "Certain Legal
Considerations--Certain Legal Considerations Applicable to
SAMs--Anti-Deficiency Legislation and Other Limitations on Originators."
SAMCO Mortgage Securities Corp.'s underwriting standards in all states,
including anti-deficiency states, require that the underwriting officers be
satisfied that the value of the property being financed, as indicated by
the independent appraisal, currently supports and is anticipated to support
in the future the outstanding loan balance, and provides sufficient value
to mitigate the effects of adverse shifts in real estate values.
REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION OF SAMCO MORTGAGE
SECURITIES CORP.
With respect to any series of certificates, each seller generally
will make representations and warranties with respect to SAMs in the SAM
Pool, sold by it to EMC Mortgage Corporation for inclusion in the Trust
Fund, which SAMCO Mortgage Securities Corp. deems sufficient to permit it
to make its representations and warranties in respect of such SAMs to the
Trustee and the certificateholders under the related Pooling and Servicing
Agreement. See "Description of the Certificates--Representations and
Warranties." Each seller will also make certain other representations and
warranties. Upon the breach of any representation or warranty made by a
seller that materially and adversely affects the interests of the
certificateholders in a SAM, other than those breaches which have been
cured, SAMCO Mortgage Securities Corp. may require the seller or the
servicer or other party specified in the prospectus supplement, to
repurchase the related SAM. In addition, each seller will agree to
indemnify SAMCO Mortgage Securities Corp. against any loss or liability
incurred by SAMCO Mortgage Securities Corp. on account of any breach of any
representation or warranty made by the seller, any failure to disclose any
matter that makes any such representation and warranty misleading, or any
inaccuracy in information furnished by the seller to SAMCO Mortgage
Securities Corp., including any information set forth in this prospectus or
in any prospectus supplement. See "Description of the
Certificates--Assignment of SAMs" and "--Representations and Warranties".
MORTGAGE SUBSIDY SAMS AND EQUITY RELEASE SAMS
The stated interest rate for a SAM will be determined at the time of
loan origination based upon the LTV ratio and the Appreciation Share taken
by the Originator. Generally, a lower LTV and higher Appreciation Share
will result in a lower stated interest rate. The minimum rate of stated
interest rate will be 35% of the prevailing 30-year fixed interest rate for
residential mortgages. The maximum LTV permitted for the purchase or
refinancing of a home is 95% and for a cash-out refinancing transaction is
75%. See "Primary Insurance, Hazard Insurance; Claims Thereunder." For
Jumbo SAMs, the maximum LTV is 80% for a purchase or refinancing of a home,
respectively. The minimum permitted LTV is 30%, and a Primary Insurance
Policy will be required in transactions where LTV is greater than 80%.
Mortgage Subsidy SAMs will generally have stated amortization terms of 15
years or 30 years, unless earlier terminated in accordance with their terms
upon the occurrence of a Mortgage Termination Event.
During the term of an Equity Release SAM, no payments will be due
until the occurrence of a Mortgage Termination Event. If a Mortgage
Termination Event occurs as a result of the death of a mortgagor, an
appraisal will be performed and the Equity Release SAM will be due and
payable on the date that is nine months after such death.
The principal balance of an Equity Release SAM will not exceed an
amount that would create an LTV in excess of 25%.
General
The SAMs to be included in each SAM Pool will be "one- to
four-family" shared appreciation mortgage loans, which means permanent
loans, as opposed to construction or land development loans, secured by
Mortgages on non-farm properties, including attached or detached
single-family, two- to four-family primary residences and condominiums or
other attached dwelling units, including individual condominiums, row
houses, townhouses and other separate dwelling units even when located in
buildings containing five or more such units. Each SAM will almost always
be secured by an owner-occupied primary residence.
Appreciation Share
The future capital appreciation in the Mortgaged Property is the
amount by which the Settlement Value of the Mortgaged Property exceeds the
Adjusted Value of the Mortgaged Property upon the earlier of the maturity
of the Mortgage Subsidy SAM and the occurrence of such Mortgage Termination
Event, such earlier date, the Termination Date.
The Appreciation Certificates may be sold under an offering in
connection with this Registration Statement, as specified in the applicable
prospectus supplement, may be sold under another Registration Statement,
may be sold under a private placement under an offering memorandum or may
be sold outside the United States under an offshore transaction complying
with Rule 903 or 904 of Regulation S under the Securities Act.
Settlement Value
The Settlement Value is the appraised value of the Mortgaged Property
on the Termination Date; provided that:
o there is no sale of the Mortgaged Property;
o the purchaser is not a relative of the mortgagor; or
o the variance between the sales price, if any, of such Mortgaged
Property and the appraised value is less than or equal to
five percent.
In the event that such variance is greater than 5% and the sales price is
lower than the appraised value, a subsequent appraisal will be conducted
and a second appraised value will be calculated. The Settlement Value will
equal the average of the first and second appraised values; provided that
the variance between the sales price and the second appraised value is
greater than 5%. The Settlement Value is the sales price in the event that
(a) the variance between the sales price and the first appraised value is
greater than 5% and the sales price is greater than the first appraised
value; or (b) the variance between the sales price and the second appraised
value is not greater than 5%.
Adjusted Value
Upon loan origination, the original value of the Mortgaged Property
will be calculated. The Original Value will equal the lower of the purchase
price, if any, and the appraised value of the property on the origination
date of the Mortgage Subsidy SAM.
The Casualty Adjustment will be subtracted from the Adjusted Value of
the Mortgaged Property, only if:
o the mortgagor has not restored the Mortgaged Property to its
original condition by 180 days from the date of the Casualty;
o SAMCO Mortgage Securities Corp., master servicer or servicer has
made the repairs necessary to restore the Mortgaged Property; or
o the decrease in the market value of the Mortgaged Property due to
such Casualty is greater than 5% of the Adjusted Value determined
prior to such Casualty.
Upon the occurrence of a Mortgage Termination Event, the Additional
Interest Payment payable to the Mortgagee will equal the product of the
Appreciation Share and the Settlement Value of the Mortgaged Property at
such time minus its Original Value.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates of each series will represent undivided interests in
the Trust Fund created under the Pooling and Servicing Agreement for such
series. The Trust Fund for each series will consist, to the extent provided
in the Pooling and Servicing Agreement, of:
o such SAMs as from time to time are subject to the Pooling and
Servicing Agreement, exclusive of any related Retained Yield;
o such assets as from time to time are held in the Distribution
Account and the Collection Account or Accounts related to such
SAMs, exclusive of any Retained Yield;
o property acquired by foreclosure of SAMs or deed in lieu of
foreclosure;
o any combination, as specified in the related prospectus
supplement, of a Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond, Fraud Bond,
Reserve Fund or other type of credit enhancement as described
under "Description of Credit Enhancements;"
o the Eligible Investments and
o such other assets or rights as are described in the applicable
prospectus Supplement.
Certificates of a given series may be issued in several classes, which may
pay interest at different rates, may represent different allocations of the
right to receive principal and interest and Additional Interest Payments,
and certain of which may be subordinated to others. Any such class of
certificates may also provide for payments of principal only or interest
only or Additional Interest Payments for disproportionate payments of
principal and interest. Appreciation Certificates may be offered in
transactions registered under the Act or in transactions which are exempt
under such Act, as described in the related prospectus supplement.
Subordinated classes of a given series of certificates may or may not be
offered by the same prospectus supplement as the senior classes of such
series.
The certificates will be freely transferable and exchangeable for
certificates of the same series and class at the office set forth in such
certificates; provided, however, that certain classes of certificates may
be subject to transfer restrictions set forth in such certificates and
described in the applicable prospectus supplement. A reasonable service
charge may be imposed for any registration of exchange or transfer of
certificates, and SAMCO Mortgage Securities Corp. may require payment of a
sum sufficient to cover any tax or other governmental charge. One or more
classes of certificates for any series may be transferable only on the
books of DTC or another depository identified in such prospectus
supplement.
Beginning with the month following the month in which the Cut-Off
Date occurs for a series of certificates, distributions of principal and
interest or, where applicable, principal only or interest only, on each
class of certificates will be made either by the Trustee, the servicer, the
master servicer or the certificate administrator, as applicable, acting on
behalf of the Trustee or a Paying Agent appointed by the Trustee on the
25th day or, if such 25th day is not a business day, the business day
immediately following such 25th day, of each calendar month to the persons
in whose names the certificates are registered at the close of business on
the last business day of the month preceding the month in which the
Distribution Date occurs. Distributions for each series will be made by
wire transfer in immediately available funds or by check mailed to, each
certificateholder of record; provided, however, that, the final
distribution in retirement of the certificates for each class of a series
will be made only upon presentation and surrender of the certificates at
the office or agency of SAMCO Mortgage Securities Corp. or the Trustee
specified in the notice to certificateholders of such final distribution.
A series may provide for the issuance of one or more classes of
exchangeable certificates as provided in the related prospectus supplement.
The holders of such Exchangeable Classes will be entitled to exchange all
or a portion of such Exchangeable Classes for proportionate interests in
other related classes of Exchangeable Certificates. See "Exchangeable
Certificates--General." Further, one or more classes of certificates may be
callable at the option of one or more other classes of securities. A Call
Class and its related Callable Class or Classes will be issued under a
separate trust agreement. A Callable Class generally will not be called
unless the market value of the assets in the trust fund for such Callable
Class exceeds the outstanding principal balance of such assets. After the
issuance of the Callable Class, there may be a specified "lockout period"
during which such certificates could not be called. It is anticipated that
Call Classes generally will be offered only on a private basis.
BOOK-ENTRY REGISTRATION
The information in this section concerning DTC, Cedelbank, and
Euroclear and their book-entry systems and procedures will apply to each
series of certificates and has been obtained from sources that SAMCO
Mortgage Securities Corp. believes to be reliable, but SAMCO Mortgage
Securities Corp. takes no responsibility for the accuracy of the
information in this section.
Certificateholders may hold their certificates through DTC in the
United States or Cedelbank or Euroclear in Europe. The certificates will be
registered in the name of the nominee of DTC. Cedelbank and Euroclear will
hold omnibus positions on behalf of the Cedelbank Customers and the
Euroclear Participants, respectively, through customers' securities
accounts in Cedelbank's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of
DTC. SAMCO Mortgage Securities Corp. has been informed by DTC that DTC's
nominee will be Cede & Co. Accordingly, Cede & Co. is expected to be the
holder of record of the certificates. Senior Certificates will be available
for purchase in book-entry form in minimum denominations of $1,000 and in
increments of $1.00 in excess of $1,000, and Subordinated Certificates will
be available for purchase in book-entry form in minimum denominations of
$25,000 and in increments of $1.00 in excess of $25,000. No person
acquiring an interest in the certificates will be entitled to receive a
certificate representing that person's interest in the certificates. Unless
and until Definitive Certificates are issued under the limited
circumstances described in this prospectus, all references to actions by
certificateholders will refer to actions taken by DTC upon instructions
from its Participants, as defined, and all references to distributions and
notices to certificateholders will refer to distributions and notices to
DTC or Cede & Co., as the registered holder of the certificates, for
distribution to certificateholders in accordance with DTC procedures. See
"--Definitive Certificates." For additional information regarding clearance
and settlement procedures for the certificates, see Annex I hereto.
DTC is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
a "clearing agency" registered under the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations, and may include
certain other organizations including underwriters of any series of
certificates. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
DTC management is aware that some computer applications and systems
used for processing data were written using two digits rather than four to
define the applicable year, and therefore may not recognize a date using
"00" as the year 2000. This could result in the inability of these systems
to properly process transactions with dates in the year 2000 and
thereafter. DTC has developed and is implementing a program to address this
problem so that its applications and 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 properly. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC plans to implement a testing phase of this program which is expected to
be completed within appropriate time frames.
In addition, DTC is contacting, and will continue to contact, third
party vendors that provide services to DTC to determine the extent of their
year 2000 compliance, and DTC will develop contingency plans as it deems
appropriate to address failures in year 2000 compliance on the part of
third party vendors. However, there can be no assurance that the systems of
third party vendors will be timely converted and will not adversely affect
the proper functioning of DTC's services.
The information set forth in the preceding two paragraphs has been
provided by DTC for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
SAMCO Mortgage Securities Corp. makes no representations as to the accuracy
or completeness of such information.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedelbank Customers and Euroclear Participants
will occur in accordance with their applicable 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
Customers or Euroclear Participants, on the other hand, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established
deadlines. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
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 Customers and Euroclear Participants may not
deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedelbank
or Euroclear as a result of a transaction with a Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Cedelbank Customer or Euroclear Participant on such business day.
Cash received in Cedelbank or Euroclear as a result of sales of securities
by or through a Cedelbank Customer or a Euroclear Participant to a
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.
Certificateholders that are not Participants or Indirect Participants
may purchase, sell or otherwise transfer ownership of, or other interests
in, the certificates only through Participants and Indirect Participants.
In addition, certificateholders will receive all distributions of
principal, stated interest and Additional Interest Payments from the
Trustee through the Participants. Under a book-entry format,
certificateholders may experience some delay in their receipt of payments,
since the payments will be forwarded by the Trustee to Cede & Co., as
nominee for DTC. DTC will forward the payments to its Participants, which
thereafter will forward them to Indirect Participants or
certificateholders. It is anticipated that the only certificateholder will
be Cede & Co., as nominee of DTC. Certificateholders will not be recognized
by the Trustee as "Certificateholders," as that term is used in the Pooling
and Servicing Agreement, and certificateholders only will be permitted to
exercise the rights of certificateholders indirectly through the
Participants.
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 certificates and
is required to receive and transmit distributions of the principal of and
interest on the certificates. Participants and Indirect Participants with
which certificateholders have accounts with respect to the certificates
similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective certificateholders.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of a
certificateholder to pledge certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of
those certificates, may be limited due to the lack of a physical
certificate for those certificates.
DTC has advised SAMCO Mortgage Securities Corp. that it will take any
action permitted to be taken by a certificateholder under the Pooling and
Servicing Agreement or any applicable prospectus supplement only at the
direction of one or more Participants to whose account with DTC the
certificates are credited. DTC may take conflicting action with respect to
other undivided interests in the certificates to the extent that those
actions are taken on behalf of Participants whose holdings include those
undivided interests.
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 Customers through electronic book-entry
changes in accounts of Cedelbank Customers, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in
Cedelbank in any of 36 currencies, including United States dollars.
Cedelbank provides to its Cedelbank Customers, among other things, services
for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Cedelbank deals with domestic securities markets in over 30 countries
through established depository and custodial relationships. Cedelbank has
established an electronic bridge with MGT/EOC in Brussels to facilitate
settlement of trades between Cedelbank and MGT/EOC. Cedelbank currently
accepts over 110,000 securities issues on its books. As a professional
depository, Cedelbank is subject to regulation by the Luxembourg Commission
for the Supervision of the Financial Sector, which supervises Luxembourg
banks. Cedelbank Customers are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters of any series of certificates. Cedelbank Customers
in the United States are limited to securities brokers and dealers and
banks. Currently, Cedelbank has approximately 2,000 customers located in
over 80 countries, including all major European countries, Canada and the
United States. 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 Customer, either
directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System 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 now be settled in any of 34
currencies, including United States dollars. The Euroclear System 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. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office, under contract with Euroclear Clearance System,
S.C., a Belgian cooperative corporation. 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 the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks,
central banks, securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any series of
certificates. Indirect access to the Euroclear System 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. The Terms and Conditions govern transfers of
securities and cash within the Euroclear System, withdrawal of securities
and cash from the Euroclear System, and receipts of payments with respect
to securities in the Euroclear System. All securities in the Euroclear
System 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 with respect to certificates held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank Customers or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. 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 or any
applicable supplement on behalf of a Cedelbank Customer or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of investor certificates among
participants of DTC and Euroclear and Cedelbank customers, they are under
no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The certificates may be issued in fully registered, certificated form
to certificateholders or their nominees, rather than to DTC or its nominee,
if:
(1) SAMCO Mortgage Securities Corp. advises the Trustee in writing
that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the
certificates, and the Trustee or SAMCO Mortgage Securities
Corp. is unable to locate a qualified successor;
(2) SAMCO Mortgage Securities Corp., at its option, elects to
terminate the book-entry system through DTC;
(3) after the occurrence of an event causing the master servicer or
applicable servicer to be replaced, certificateholders
representing in the aggregate not less than 51% of the
aggregate certificate principal amount of such series advise
DTC through Participants in writing that the continuation of a
book-entry system through DTC, or a successor thereto, is no
longer in the best interest of the certificateholders or
(4) if so disclosed in the applicable prospectus supplement.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all
certificateholders of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of a definitive certificate
representing the certificates and instructions for re-registration, the
Trustee will issue the certificates in Definitive Certificates, and
thereafter the Trustee will recognize the registered holders of such
Definitive Certificates as certificateholders under the Pooling and
Servicing Agreement.
Distribution of principal, stated interest and Additional Interest
Payments on the certificates will be made by the Trustee directly to
holders of Definitive Certificates in accordance with the procedures set
forth in this prospectus and in the Pooling and Servicing Agreement. On
each Distribution Date, stated interest, principal and Additional Interest
Payments will be made to holders in whose names the Definitive Certificates
were registered at the close of business on the related Record Date.
Payments will be made by check mailed to the address of such holder as it
appears on the register maintained by the Trustee. The final distribution
on any certificate, whether Definitive Certificates or certificates
registered in the name of Cede & Co. representing the certificates,
however, will be made only upon presentation and surrender of such
certificate at the office or agency specified in the notice of final
distribution to certificateholders. The Trustee will provide such notice to
registered certificateholders not later than the tenth day of the month of
such final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee, or at such other office as SAMCO Mortgage
Securities Corp. designates. No service charge will be imposed for any
registration of transfer or exchange, but the Transfer Agent may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
ASSIGNMENT OF SAMS
SAMCO Mortgage Securities Corp. will cause the SAMs to be assigned to
the Trustee, together with all principal, stated interest and Additional
Interest Payments on the SAMs other than principal and interest due, if
any, on or before the Cut-Off Date. The master servicer, applicable
servicer or seller will expressly reserve its rights in and to any Retained
Yield, which accordingly will not constitute part of the Trust Fund. In
addition, the applicable prospectus supplement may specify that the seller
will retain the right to a specified portion of either principal, stated
interest and Additional Interest Payments payable by the mortgagor. The
Trustee will, concurrently with such assignment, authenticate and deliver
the certificates or cause the certificates to be authenticated and
delivered to SAMCO Mortgage Securities Corp. or its designated agent in
exchange for the Trust Fund. Each SAM will be identified in the Loan
Schedule. Such schedule will include information as of the close of
business on the Cut-Off Date as to the principal balance of each SAM, the
stated interest rate and the maturity of each Mortgage Note, the
Appreciation Shares, the servicing, master servicing and certificate
Administrator's Fee, if applicable, whether a Primary Insurance Policy has
been obtained for each SAM and the then-current scheduled monthly payment
of principal and interest for each SAM.
In addition, each seller will, as to each SAM, deliver or cause to be
delivered to the Trustee the Mortgage Note, an assignment to the Trustee of
the SAM in a form for recording or filing as may be appropriate in the
state where the Mortgaged Property is located, the original recorded SAM
with evidence of recording or filing indicated thereon, a copy of the title
insurance policy or other evidence of title and evidence of any Primary
Insurance Policy, for such SAM, if applicable. In certain instances where
original documents respecting a SAM may not be available prior to execution
of the Pooling and Servicing Agreement, such seller will deliver such
documents to the Trustee within 270 days thereafter unless, as set forth in
the Pooling and Servicing Agreement, the county recorder has not yet
returned such SAM. Notwithstanding the foregoing, a Trust Fund may include
SAMs where the original Mortgage Note is not delivered to the Trustee if
SAMCO Mortgage Securities Corp. delivers to the Trustee or the custodian a
copy or a duplicate original of the Mortgage Note, together with an
affidavit certifying that the original has been lost or destroyed. With
respect to such SAMs, the Trustee, or its nominee, may not be able to
enforce the Mortgage Note against the related mortgagor. Each Originator,
seller, SAMCO Mortgage Securities Corp., master servicer or servicer, as
applicable, will agree to repurchase SAMs in certain circumstances or
substitute for them other qualifying SAMs. See "--Representations and
Warranties".
In instances where, due to a delay on the part of the title insurer,
a copy of the title insurance policy for a particular SAM cannot be
delivered to the Trustee prior to or concurrently with the execution of the
Pooling and Servicing Agreement, SAMCO Mortgage Securities Corp. will
provide a copy of such title insurance policy to the Trustee within 90 days
after SAMCO Mortgage Securities Corp.'s receipt of the original recorded
SAM, any intervening recorded assignments or other documents necessary to
issue such title insurance policy.
The Trustee will review the mortgage documents within 45 days of
their receipt to ascertain that all required documents have been properly
executed and received. The Trustee will hold such documents for each series
in trust for the benefit of certificateholders of such series. If any
document is found by the Trustee not to have been properly executed or
received or to be unrelated to the SAMs identified in the Pooling and
Servicing Agreement, the Trustee will notify the appropriate seller and the
master servicer or servicer. If the seller cannot cure such defect, the
appropriate Originator or seller will substitute a new SAM meeting the
conditions set forth in the Pooling and Servicing Agreement or repurchase
the related SAM from the Trustee at a price equal to 100% of the
outstanding principal balance of such SAM, plus accrued interest thereon at
the greater of the applicable stated interest rate on the outstanding
principal balance of the related SAM through the last day of the month of
such repurchase plus the Indexed Appreciation Payment and the Implied
Market Rate on the outstanding principal balance of the related SAM through
the last day of the month of such repurchase, plus in either case, any
expenses reasonably incurred by the master servicer in respect of the
breach or defect giving rise to the repurchase obligation. See
"--Substitution of SAMs." The purchase price of any SAM so repurchased will
be passed through to certificateholders as liquidation proceeds in
accordance with the procedures specified under "--Distributions on
Certificates." This substitution or repurchase obligation constitutes the
sole remedy available to the certificateholders or the Trustee for such a
defect in a constituent document.
An assignment of each SAM to the Trustee will be recorded or filed.
In certain states, the assignment may not be recorded where, in the written
opinion of counsel admitted to practice in such state acceptable to SAMCO
Mortgage Securities Corp. and the Trustee, such filing or recording is not
required to protect the Trustee's interest in the SAM against sale, further
assignment, satisfaction or discharge by the appropriate seller, SAMCO
Mortgage Securities Corp. or the master servicer or any servicer.
SUBSTITUTION OF SAMS
With respect to series of certificates, the applicable seller may
substitute an eligible shared appreciation mortgage loan for a defective
SAM or, if applicable, a SAM in its related SAM Pool, in lieu of
repurchasing such defective SAM or the related Mortgaged Property. Any
shared appreciation mortgage loan, to be eligible for substitution, must
fit within the general description of the SAMs set forth in this prospectus
and in the related prospectus supplement. In the event the seller does
substitute SAMs as provided on the Closing Date for the related SAM Pool no
more than 5% of the SAMs by the SAM Pool aggregate principal balance will
deviate from SAM characteristics described in the related prospectus
supplement. See "The SAM Pools."
REPRESENTATIONS AND WARRANTIES
In the agreements under which the SAMs were sold to EMC Mortgage
Corporation for each series of certificates, each seller may generally
represent and warrant to SAMCO Mortgage Securities Corp. with respect to
all SAMs, among other things, that:
o that title insurance, or in the case of Mortgaged
Properties located in areas where such policies are
generally not available, an attorney's certificate of
title, in the case of each SAMs and any required hazard
insurance policy was in effect on the date of purchase of
the SAM from the Originator by or on behalf of the
seller;
o that the Originator had title to each such SAM and such
SAM was subject to no offsets, defenses or counterclaims;
o that each SAM constituted a valid first or other
applicable lien on, or a perfected security interest with
respect to, the Mortgaged Property, subject only to
permissible title insurance exceptions, if applicable,
and certain other exceptions described in the Pooling and
Servicing Agreement, and that the Mortgaged Property was
free from damage and was in good repair;
o that there were no delinquent tax or assessment liens
against the Mortgaged Property,
o that no required payment on a SAM was more than a
specified number of days delinquent;
o that each SAM was made in compliance with, and is
enforceable under, all applicable state and federal laws
and regulations in all material respects;
o that each SAM complies with all LTV requirements and will
be insured as to payment defaults by a Primary Insurance
Policy;
o at the time that the SAM was originated, the Originator
was a mortgagee approved by the Secretary of Housing and
Urban Development or a savings and loan association, a
savings bank, a commercial bank, a licensed mortgage
banker or similar banking or lending institution which is
supervised and examined by a federal or state authority;
o that the stated interest rate of any SAM provides for an
Appreciation Share on the SAM of not less than 30% and
not greater than 60%, with a principal balance at
origination of no more than $650,000, and a stated
principal balance of at least $25,000, and there is no
negative amortization other than the Appreciation Shares
on the SAMs;
o that the mortgage contains an enforceable provision for
the acceleration of the payment of the unpaid principal
balance of the SAM in the event that a Mortgage
Termination Event occurs, and the Mortgage Note and
mortgage have been originated on the form provided for in
the applicable Pooling and Servicing Agreement or Sale
and Servicing Agreement; and
o that, as of the Closing Date, the Mortgaged Property is
lawfully occupied by the mortgagor under applicable law.
The applicable prospectus supplement and Pooling and Servicing
Agreement may set forth additional representations and warranties of each
Originator or seller. In addition, with respect to any SAM as to which the
seller delivers to the Trustee or the custodian an affidavit certifying
that the original Mortgage Note has been lost or destroyed, if such SAM
subsequently is in default and the enforcement or of the related mortgage
is materially adversely affected by the absence of the original Mortgage
Note, such Originator or seller will be obligated to repurchase or
substitute for such SAM in the manner described above. SAMCO Mortgage
Securities Corp. may make similar representations and warranties with
respect to the SAMs and will have similar repurchase and substitution
obligations, if applicable.
In the event of the discovery by the Trustee, the master servicer or
the servicer of a breach of any representation or warranty which materially
and adversely affects the interest of the certificateholders in the related
SAM, or the receipt of notice of such a breach from the master servicer,
the Trustee or the servicer, as the case may be, will cure the breach,
substitute a new shared appreciation mortgage loan for such SAM or
repurchase such SAM, or any Mortgaged Property acquired with respect
thereto, on the terms set forth above under "--Assignment of SAMs." The
proceeds of any such repurchase will be passed through to
certificateholders as liquidation proceeds. This substitution or repurchase
obligation constitutes the sole remedy available to the certificateholders
or the Trustee for any such breach.
RETAINED YIELD
For certain series, SAMCO Mortgage Securities Corp., an Originator, a
seller, the master servicer or a servicer, as specified in the related
prospectus supplement, may retain a portion of the interest payable on each
SAM. Any such Retained Yield and any earnings from reinvestments will not
be part of the Trust Fund and therefore will not have any effect on
payments to certificateholders. The Originator, the seller, the master
servicer, the servicer or SAMCO Mortgage Securities Corp., as the case may
be, may at its option transfer to a third party all or a portion of the
Restated Yield for a series of certificates.
PAYMENTS ON SAMS; DEPOSITS TO ACCOUNTS
In general, the master servicer or a servicer servicing the SAMs will
be required to establish and maintain for one or more series of
certificates a separate account or accounts for the collection of payments
on the related SAMs, which must be:
o 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 such holding company, are rated in one of the two highest
rating categories by Moody's or S&P or another nationally
recognized statistical rating agency specified in the related
prospectus supplement rating the series of certificates;
o an account or accounts the deposits in which are fully insured
by the FDIC;
o an account or accounts the deposits in which are insured by the
FDIC, to the limits established by the FDIC, and the uninsured
deposits in which are invested in Eligible Investments held in
the name of the Trustee, or
o an account or accounts otherwise acceptable to each rating
agency.
A Collection Account may be maintained as an interest bearing account or
the funds held in a Collection Account may be invested pending each
succeeding Distribution Date in Eligible Investments. The master servicer
or related servicer or its designee or another person specified in the
prospectus supplement will be entitled to receive any such interest or
other income earned on funds in the Collection Account as additional
compensation and will be obligated to deposit or deliver for deposit in the
Collection Account the amount of any loss immediately as realized. The
Collection Account may be maintained with the master servicer or servicer
or with a depository institution that is an affiliate of the master
servicer or servicer, provided it meets the standards set forth above.
The master servicer and servicer generally will be required to
deposit or cause to be deposited in the Collection Account for each Trust
Fund on a daily basis 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 Yield):
o all payments on account of principal, including principal
prepayments and, if specified in the related prospectus
supplement, prepayment penalties, on the SAMs;
o all payments on account of interest on the SAMs, net of
applicable servicing compensation;
o to the extent specified in the related Pooling and
Servicing Agreement, all proceeds, net of unreimbursed
payments of property taxes, insurance premiums and
similar items incurred, and unreimbursed Advances made,
by the related master servicer or servicer, if any, of
the Hazard Insurance Policies and any Primary Insurance
Policies, to the extent such proceeds are not applied to
the restoration of the property or released to the
mortgagor in accordance with the master servicer's or
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 or
servicer, if any, received and retained in connection
with the liquidation of defaulted SAMs, by foreclosure or
otherwise, together with any net proceeds received with
respect to any properties acquired on behalf of the
certificateholders by foreclosure or deed in lieu of
foreclosure;
o all proceeds of any SAM or property purchased as
described above under "--Representations and Warranties;"
o all payments required to be deposited in the Collection
Account with respect to any deductible clause in any
blanket insurance policy described under "Primary
Insurance, Hazard Insurance; Claims Thereunder--Hazard
Insurance";
o any amount required to be deposited by the master
servicer or servicer in connection with losses realized
on investments for the benefit of the master servicer or
servicer of funds held in any account; and
o all other amounts required to be deposited in the
Collection Account under the Pooling and Servicing
Agreement.
If acceptable to any rating agency rating the series of certificates,
a Collection Account maintained by the master servicer or servicer may
commingle funds from the SAMs deposited in the Trust Fund with similar
funds relating to other mortgage loans which are serviced or owned by the
master servicer or servicer. The Pooling and Servicing Agreement may
require that certain payments related to the SAMs be transferred from a
Collection Account maintained by the master servicer or servicer into
another account maintained under conditions acceptable to any rating
agency.
The Trustee will be required to establish in its name as Trustee for
one or more series of certificates a trust account or another account
acceptable to any rating agency. The Distribution Account may be maintained
as an interest bearing account or the funds held in the Distribution
Account may be invested pending each succeeding Distribution Date in
Eligible Investments. If there is a master servicer or more than one
servicer for the rated series of certificates, there may be a separate
Distribution Account or a separate subaccount in a single Distribution
Account for funds received from the master servicer. The master servicer or
servicer or its designee or another person specified in the related
prospectus supplement may be entitled to receive any interest or other
income earned on funds in the Distribution Account or subaccount of the
Distribution Account as additional compensation and, if so entitled, will
be obligated to deposit or deliver for deposit in the Distribution Account
or subaccount the amount of any loss immediately as realized. The Trustee
will be required to deposit into the Distribution Account on the business
day received all funds received from the master servicer or the servicer
for deposit into the Distribution Account and any other amounts required to
be deposited into the Distribution Account under the Pooling and Servicing
Agreement. In addition to other purposes specified in the Pooling and
Servicing Agreement, the Trustee will be required to make withdrawals from
the Distribution Account to make distributions to certificateholders. If
the series includes one Trust Fund which contains a beneficial ownership
interest in another Trust Fund, funds from the Trust Assets may be
withdrawn from the Distribution Account included in the latter Trust Fund
and deposited into another account included in the former Trust Fund prior
to transmittal to certificateholders with a beneficial ownership interest
in the former Trust Fund. The Collection Account and the Distribution
Account may be combined into a single Distribution Account.
DISTRIBUTIONS ON CERTIFICATES
For each series, on such date specified in the prospectus supplement,
commencing in the month following the month in which the Cut-Off Date
occurs, the master servicer, the servicer or the certificate administrator,
as applicable, acting on behalf of the Trustee or the Paying Agent will
withdraw from the Distribution Account and distribute to certificateholders
of record on the applicable Record Date, and to holders of residual
interests, if any, who are entitled to receive such distributions under the
terms of the applicable Pooling and Servicing Agreement, to the extent of
their entitlement thereto, an amount in the aggregate equal to the sum of:
o all scheduled payments of principal, interest at the
Pass-Through Rate and Additional Interest Payments either
collected from the mortgagors on the SAMs prior to the
related Determination Date or advanced by the master
servicer or servicer;
o all partial principal prepayments received on the SAMs in
the month prior to the month in which the Distribution
Date occurs;
o all Insurance Proceeds or Liquidation Proceeds received
during the Distribution Period, together with interest at
the applicable Pass-Through Rate to the extent described
under "Yield Considerations--Effective Interest Rate;"
and
o all prepayment in full received, in each case together
with interest at the applicable Pass-Through Rate, to the
extent described under "Yield Considerations--Effective
Interest Rate;"
less the sum of:
o previously unreimbursed Advances made by the master
servicer or servicer on SAMs which are considered by the
master servicer or servicer as of the Distribution Date
to be nonrecoverable;
o amounts expended by the master servicer or servicer in
connection with the preservation or restoration of
property securing SAMs which have been liquidated and
related liquidation expenses; and
o amounts representing other expenses of the master
servicer or servicer, reimbursable under the Pooling and
Servicing Agreement.
In addition, the master servicer or servicer shall usually include
with any such distribution an Advance equal to principal and stated
interest payments and Additional Interest Payments due on the first day of
the month in which the Distribution Date occurs and not received as of the
close of business on the 15th day of said month or if such day is not a
business day, the next succeeding business day, subject to such master
servicer's or servicer's determination that such payments are recoverable
from future payments or collections on the SAMs, any subordination feature
or Insurance Proceeds or Liquidation Proceeds. See "--Advances."
The method of allocating the amount withdrawn from the Distribution
Account on each Distribution Date to principal and stated interest and
Additional Interest Payments on a particular series of certificates will be
described in the applicable prospectus supplement. Distributions of
interest and additional interest on each class of certificates will be made
prior to distributions of principal thereon. Each class of certificates may
have a different Pass-Through Rate, and each Pass-Through Rate may be fixed
and such rate may be zero percent, variable or adjustable. The applicable
prospectus supplement will specify the Pass-Through Rate for each class, or
in the case of a variable or adjustable Pass-Through Rate, the initial
Pass-Through Rate and the method for determining the Pass-Through Rate.
On each Distribution Date for a series of certificates, the Trustee
or the Paying Agent, as the case may be, will distribute to each holder of
record on each Record Date, an amount equal to the Percentage Interest
represented by a certificate, which is not an Appreciation Certificate,
held by such holder multiplied by the sum of the Class Principal
Distribution Amount for such class, if such class is entitled to payments
of interest on such Distribution Date, one month's interest at the
applicable Pass-Through Rate on the principal balance or notional principal
balance of such class specified in the applicable prospectus supplement,
less such class's pro rata share of the sum of:
o the shortfalls in collections of interest on prepayments in full
with respect to which distribution is to be made on such
Distribution Date, if any,
o the amount of any deferred interest added to the principal
balance of the SAMs and the outstanding balance of the
certificates on the related Due Date, if applicable,
o one month's interest at the applicable Pass-Through Rate on the
amount of any partial principal prepayments received on the SAMs
in the month preceding the month of the distribution and
o any other interest shortfalls including, without limitation,
shortfalls arising out of application of the Relief Act or similar
legislation or regulations as in effect from time to time,
allocable to certificateholders which are not covered by Advances
or applicable credit enhancements, in each case in such amount
as is allocated to such class on the basis set forth in the
related prospectus supplement.
On each Distribution Date for a series of certificates, the Trustee
or the Paying Agent, as the case may be, will, in most cases, distribute to
each holder of record on the Record Date, an amount equal to the Percentage
Interest represented by each Appreciation Certificate held by such holder
multiplied by the sum of the Class Appreciation Distribution Amount for
such class, which will represent all or a portion of the Additional
Interest Payments made on the pool of SAMs and, if so specified, a class
Total Distribution Amount for such class of certificates.
In the case of a series of certificates which includes two or more
classes of certificates, the timing, sequential order, priority of payment
or amount of distributions in respect of principal, and any schedule or
formula or other provisions applicable to the determination with respect to
each such class shall be as provided in the related prospectus supplement.
The master servicer or the servicer, as applicable, will furnish to
the Trustee and to any certificateholder upon request a statement setting
forth the aggregate amount to be distributed on such Distribution Date to
each class of certificates, on account of principal, stated interest and
additional interest, as applicable, stated separately.
ADVANCES
The Originator, the seller, the master servicer or the servicer or
other person designated in the prospectus supplement will be required to
advance on or before each Distribution Date, from its own funds, funds
advanced by others or funds held in any of the accounts for future
distributions to the holders of such certificates, an amount equal to the
aggregate of payments of principal and interest that were delinquent on the
related Determination Date, subject to such person's determination that
such Advances will be recoverable out of late payments by mortgagors,
Liquidation Proceeds, Insurance Proceeds or otherwise with respect to the
specific SAM or, if required by the applicable rating agency, with respect
to any of the SAMs.
In making Advances, the Originator, the seller, the master servicer
or the servicer will endeavor to maintain a regular flow of interest and
principal payments to holders of the certificates, rather than to guarantee
or insure against losses. If Advances are made by the Originator, the
seller, the master servicer or the servicer from cash being held for future
distributions to certificateholders, the Originator, the seller, the master
servicer or the servicer will replace such funds on or before any future
Distribution Date to the extent that funds in the applicable account on
such Distribution Date would be less than the amount required to be
available for distributions to certificateholders on such date. Any
Originator, seller, master servicer or servicer funds advanced will be
reimbursable to the Originator, the seller, the master servicer or the
servicer out of recoveries on the specific SAMs with respect to which such
Advances were made, late payments made by the related mortgagor, any
related Insurance Proceeds, Liquidation Proceeds or proceeds of any SAM
purchased by a seller under the circumstances described in this prospectus.
Advances by the Originator, the seller, the master servicer or the servicer
also will be reimbursable to the Originator, the seller, the master
servicer or the servicer from cash otherwise distributable to
certificateholders, including the holders of Senior Certificates, at such
time as the Originator, the seller, the master servicer or the servicer
determines that any such Advances previously made are not ultimately
recoverable from the proceeds with respect to the specific SAM or, if
required by the applicable rating agency, at such time as a loss is
realized with respect to a specific SAM. The Originator, the seller, the
master servicer or the servicer also will be obligated to make Advances, to
the extent recoverable out of Insurance Proceeds, Liquidation Proceeds or
otherwise, in respect of certain taxes and insurance premiums not paid by
mortgagors on a timely basis. Funds so advanced are reimbursable to the
Originator, the seller, the master servicer or the servicer to the extent
permitted by the Pooling and Servicing Agreement. If specified in the
related prospectus supplement, the obligations of the Originator, the
seller, the master servicer or the 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 such prospectus supplement.
TERMINATION AND OPTIONAL TERMINATION
The obligations created by the Pooling and Servicing Agreement for a
series of certificates generally will terminate upon the payment to the
related certificateholders of all amounts held in any Distribution Accounts
or Collection Accounts or by the master servicer or the servicer and
required to be paid to them under such Pooling and Servicing Agreement
following the later of (a) the final payment or other liquidation of the
last of the Trust Assets subject thereto or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgaged
Property or other assets remaining in the Trust Fund and (b) the purchase
by the seller, the master servicer, the servicer or other entity specified
in the related prospectus supplement including, if REMIC treatment has been
elected, by the holder of the residual interest in the REMIC, from the
related Trust Fund of all of the remaining Trust Assets and all property
acquired in respect of Mortgage Assets remaining in the Trust Fund. See
"Certain Federal Income Tax Consequences."
Any such purchase of Trust Assets and property acquired in respect of
Mortgaged Properties evidenced by a series of certificates will be made at
the option of the seller or other entity identified in the related
prospectus supplement, at a price, and in accordance with the procedures,
specified in the related prospectus supplement. Such purchase price may not
in all cases equal the entire unpaid principal and accrued unpaid interest
on the certificates that are outstanding at the time of the optional
termination due to the fact that any component of the purchase price based
on existing property, i.e., real property acquired following foreclosure
and as to which a realized loss has not yet been taken, will be equal to
the fair market value of such property, less expected liquidation or
foreclosure expenses, and not necessarily the previously outstanding
principal balance of the related loan. There may not be sufficient proceeds
to pay off the then current balance of and accrued unpaid interest on
certificates, including Appreciation Indexed Payments for Appreciation
Certificates, of such series outstanding. The exercise of such right will
effect early retirement of the certificates, but the right of the seller or
such other entity to so purchase will generally be subject to the principal
balance of the related Trust Assets being less than the percentage
specified in the related prospectus supplement of the aggregate principal
balance of the Trust Assets at the Cut-Off Date for the series. The
foregoing is subject to the provision that if a REMIC election is made with
respect to a Trust Fund, any repurchase under clause (b) 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.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution
Date or at such other time as is specified in the related prospectus
supplement or Pooling and Servicing Agreement, the master servicer, the
servicer or the Trustee will furnish to each certificateholder of record of
the related series a statement setting forth, to the extent applicable or
material to such series of certificates, among other things:
o the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any
principal prepayments and if so specified in the related
prospectus supplement, prepayment penalties included in
such distribution;
o the amount of such distribution allocable to interest and
additional interest;
o the amount of any Advance by the master servicer, the
servicer, the seller or the Originator;
o the aggregate amount (a) otherwise allocable to the
subordinated certificateholders on such Distribution
Date, and (b) withdrawn from the Reserve Fund, if any,
that is included in the amounts distributed to the
certificateholders;
o the outstanding current principal amount or notional
principal balance of such class after giving effect to
the distribution of principal on such Distribution Date;
o the percentage of principal payments on the SAMs, if any,
which such class will be entitled to receive on the
following Distribution Date;
o the percentage of principal prepayments on the SAMs, if
any, which such class will be entitled to receive on the
following Distribution Date;
o unless the Pass-Through Rate is a fixed rate, the
Pass-Through Rate applicable to the distribution on the
Distribution Date;
o the number and aggregate principal balances of SAMs in
the related SAM Pool delinquent (a) one month, (b) two
months or (c) three or more months, and the number and
aggregate principal balances of SAMs in foreclosure;
o the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure; and
o if applicable, the amount remaining in any Reserve
Account or the amount remaining of any other credit
support, after giving effect to the distribution on the
Distribution Date.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single certificate of the relevant class having a
denomination or interest specified in the related prospectus supplement or
in the report to certificateholders. The report to certificateholders for
any series of certificates 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, the servicer or the Trustee will mail
to each certificateholder of record at any time during such calendar year a
report as to the aggregate of amounts reported for such calendar year and
such other customary information as may be deemed necessary or desirable
for certificateholders to prepare their tax returns.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
AND THE SALE AND SERVICING AGREEMENT
GENERAL
Each series of certificates will be issued under a separate Pooling
and Servicing Agreement. Each Pooling and Servicing Agreement will be among
SAMCO Mortgage Securities Corp., as depositor, and the Trustee and master
servicer or servicer named in the prospectus supplement. EMC Mortgage
Corporation will enter into a sale and servicing agreement with each seller
and Originator. Pursuant to each Sale and Servicing Agreement the related
seller or Originator will assign all of its right, title and interest to
the related SAMs to EMC Mortgage Corporation and make the representations
and warranties set forth under "Description of the
Certificates--Representations and Warranties," among others. The rights of
EMC Mortgage Corporation under such agreements will be assigned to SAMCO
Mortgage Securities Corp., which will, in turn, assign it to the Trustee.
In the event of a breach of any representation or warranty by the related
Originator or seller that materially adversely affects the interests of the
certificateholders in the related SAM, such breach shall be cured if such
SAM is repurchased as described under "Description of the
Certificates--Assignment of SAMs."
In the Pooling and Servicing Agreement or each Sale and Servicing
Agreement, the master servicer or servicer, as applicable, will agree to
perform diligently some of the services and duties customary to the
servicing of shared appreciation mortgage loans. Any master servicer will
monitor a servicer's performance under any such Sale and Servicing
Agreement. The master servicer may have the right to remove any servicer
from the performance of its duties under the Sale and Servicing Agreement.
The duties performed by the servicer include collection and remittance of
principal, stated interest and Additional Interest Payments, administration
of mortgage escrow accounts, collection of insurance claims and, if
necessary, foreclosure.
A form of Pooling and Servicing Agreement and a form of a Sale and
Servicing Agreement are filed as exhibits to the Registration Statement of
which this prospectus is a part. The following discussion summarizes
certain provisions expected to be contained in each Pooling and Servicing
Agreement. The applicable prospectus supplement will describe material
features of the related Pooling and Servicing Agreement, which may differ
from the features described in this prospectus.
SERVICING
With respect to each series of certificates, under the Pooling and
Servicing Agreement, the master servicer or servicer will be responsible
for servicing and administering the SAMs, or the SAMs in its respective SAM
Pool, as applicable. The master servicer, as described in the related
prospectus supplement, may provide master servicing for one or more
servicers described in such prospectus supplement.
As specified in each prospectus supplement, the master servicer, the
servicer and the certificate administrator will calculate amounts
distributable to the certificateholders, prepare tax returns on behalf of
the Trust Fund and provide certain other administrative services specified
in the Pooling and Servicing Agreement. The master servicer will generally
perform the same services and duties as a servicer under a Sale and
Servicing Agreement, as well as certain services of a master servicer
described in this prospectus.
The Trustee may act as the certificate administrator. With respect to
each series of certificates, as established in the applicable Pooling and
Servicing Agreement, a certificate administrator will be appointed and will
receive the Certificate Administrator Fee.
COLLECTION AND OTHER SERVICING PROCEDURES
The master servicer or servicer will make reasonable efforts to
collect all payments called for under the SAMs and will, consistent with
each Pooling and Servicing Agreement and any Pool Insurance Policy, Primary
Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Fraud
Bond, Letter of Credit, Reserve Fund, Certificate Insurance Policy or
alternative arrangements, follow such collection procedures as are
customary with respect to mortgage loans that are comparable to the SAMs.
Consistent with the above, the master servicer or servicer may, in its
discretion, waive any assumption fee, late payment or other charge in
connection with a SAM and to the extent not inconsistent with the coverage
of such SAM by a Pool Insurance Policy, Primary Insurance Policy, Special
Hazard Insurance Policy, Bankruptcy Bond, Fraud Bond, Letter of Credit,
Reserve Fund, Certificate Insurance Policy or alternative arrangements, if
applicable, arrange with a mortgagor a schedule for the liquidation of
delinquencies running for no more than a period as is specified in the
Pooling and Servicing Agreement or the Sale and Servicing Agreement after
the applicable due date for each payment. The master servicer or servicer
remain obligated to make Advances during any period of such an arrangement.
In any case in which property securing a SAM has been, or is about to
be, conveyed by the mortgagor, the master servicer or servicer generally
will, to the extent it has knowledge of such transfer, exercise or cause to
be exercised its rights to accelerate the maturity of such SAM as a
Mortgage Termination Event, but only if the exercise of such rights is
permitted by applicable law. Any fee collected by or on behalf of the
master servicer or servicer for entering into an assumption agreement will
be retained by or on behalf of the master servicer or servicer as
additional servicing compensation.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each series of certificates, the master servicer's or
any servicer's primary compensation for their servicing activities will
come from the payment to them, or the retention by them, of an amount equal
to the Master Servicing Fee or the Servicing Fee for each SAM. The master
servicer's or the servicer's primary compensation for supervising the
mortgage servicing and advancing certain expenses of a SAM Pool will come
from the payment to it of an amount equal to the Master Servicing Fee or
the Servicing Fee, as applicable, with respect to each SAM, or a SAM in its
respective SAM Pool, in such SAM Pool. The Master Servicing Fee or the
Servicing Fee, with respect to each payment of interest received on a SAM,
will equal one-twelfth of the Master Servicing Fee or the Servicing Fee
annual percentage, as applicable, set forth in the Pooling and Servicing
Agreement, or the Servicing Agreement, as applicable, multiplied by the
outstanding principal balance of such SAM during the month for which such
amount is computed.
With respect to a series of certificates as to which the master
servicer will act as master servicer, the master servicer will retain as
its Master Servicing Fee a portion of the interest payable on each SAM
serviced by it. In addition, the master servicer may retain late charges,
assumption fees and similar charges to the extent collected from
mortgagors. SAMCO Mortgage Securities Corp. expects that such fees and
charges will be negligible in amount. The master servicer may retain as its
Master Servicing Fee an amount which will be calculated as a per annum
percentage for each SAM plus an amount calculated to reimburse it for the
expenses required to be borne by it, which, may include the Trustee's fees
and premiums on or other expenses relating to any Pool Insurance Policy and
other credit enhancements, if applicable.
With respect to series of certificates as to which there will be a
servicer, each servicer will receive a Servicing Fee, as established in the
applicable Pooling and Servicing Agreement.
As principal payments are made on each SAM, the outstanding principal
balance of the SAMs will decline, and thus compensation to the master
servicer or servicer will decrease as the SAMs amortize, subject to any
minimum levels of such compensation set forth in the applicable prospectus
supplement. Principal prepayments, Partial principal prepayments and
liquidations of SAMs prior to maturity will also cause servicing
compensation to the servicer and the master servicer to decrease, subject
to any minimum levels of such compensation set forth in the applicable
prospectus supplement.
In addition to their primary compensation, the master servicer or the
servicer, as applicable, will retain all prepayment fees, assumption fees
and late payment charges, to the extent collected from a mortgagor. The
master servicer's or the servicer's income from such charges will depend
upon their origination and servicing policies.
The master servicer and the servicer, as applicable, are entitled to
reimbursement for certain expenses incurred by them in connection with the
liquidation of related defaulted SAMs. Certificateholders of such series
will suffer no loss by reason of such expenses to the extent claims are
paid under any applicable credit enhancements. In the event, however, that
claims are not paid under such policies or alternative coverages, or if
coverage has been exhausted, certificateholders of such series will suffer
a loss to the extent that the proceeds of liquidation of a defaulted SAM,
after reimbursement of each such master servicer's and the servicer's
expenses, as applicable, are less than the principal balance of such SAM.
In addition, the master servicer and the servicer, as applicable, are
entitled to reimbursement of expenditures incurred by them in connection
with the restoration of a related damaged Mortgaged Property, such right of
reimbursement being prior to the rights of certificateholders to receive
any related Insurance Proceeds or Liquidation Proceeds.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling and Servicing
Agreement, for any series remains unremedied, the Trustee or holders of 25%
of the Percentage Interest, as determined in the manner set forth in such
Pooling and Servicing Agreement, may terminate all of the rights and
obligations of the defaulting master servicer or the servicer, as
applicable, under such Pooling and Servicing Agreement, and in and to the
Trust Fund, whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of such master servicer or servicer, except to the
extent, as specified in the applicable prospectus supplement, the master
servicer takes over the obligations of a defaulting servicer, under such
Pooling and Servicing Agreement and such successor will be entitled to
similar compensation arrangements and limitations on liability. 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 housing
and home finance institution with a net worth of at least $10,000,000 to
act as successor to the defaulting master servicer or the servicer under
such Pooling and Servicing Agreement. Pending any such appointment, the
Trustee is obligated to act in such capacity. In the event that the Trustee
acts as successor to such master servicer or the servicer, the Trustee will
be obligated to make Advances unless it is prohibited by law from doing so.
The Trustee and such successor may agree upon the compensation to be paid,
which in no event may be greater than the compensation to the master
servicer or the servicer, as applicable. Holders of certificates for a
series evidencing interests aggregating not less than 25% of the Trust
Fund, as determined in the manner set forth in the Pooling and Servicing
Agreement for that series, may direct the action of the Trustee in pursuing
remedies and exercising powers under such Pooling and Servicing Agreement
as limited by such Pooling and Servicing Agreement.
No certificateholder of any series will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect to
such Pooling and Servicing Agreement unless such certificateholder
previously has given to the Trustee written notice of default and unless
the holders of certificates for that series evidencing interests
aggregating not less than 25% of the Trust Fund, as determined in the
manner set forth in such Pooling and Servicing Agreement, have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee and have offered to the Trustee reasonable indemnity. However, the
Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement for any series or to
make any investigation of matters arising under the Pooling and Servicing
Agreement or to institute, conduct or defend any litigation under the
Pooling and Servicing Agreement or in relation to it at the request, order
or direction of any of the certificateholders, unless such
certificateholders have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be
incurred.
The Pooling and Servicing Agreement may permit the Trustee to sell
the assets of the Trust Fund in the event that payments in respect thereto
are insufficient to make the payments required in the Pooling and Servicing
Agreement. The assets of the Trust Fund may be sold only under the
circumstances and in the manner specified in the related prospectus
supplement.
AMENDMENT
In general, the Pooling and Servicing Agreement may be amended by the
parties thereto, without the consent of any of the certificateholders,
o to cure any ambiguity;
o to correct or supplement any provision which may be defective or
inconsistent with any other provision;
o to comply with any changes in the Code or
o to make any other revisions with respect to matters or
questions arising under the Pooling and Servicing Agreement
which are not inconsistent with its provisions, provided that
such action will not adversely affect in any material respect
the interests of any certificateholder.
In addition, to the extent provided in the Pooling and Servicing
Agreement, a Pooling and Servicing Agreement may be amended without the
consent of any of the certificateholders, to change the manner in which the
Distribution Account, the Collection Account or any other accounts is
maintained, provided that any such change does not adversely affect the
then current rating on the class or classes of certificates of such series
that have been rated. In addition, if a REMIC election is made with respect
to a Trust Fund, the related Pooling and Servicing Agreement may be amended
to modify, eliminate or add to any of its provisions to such extent as may
be 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 such action is necessary or helpful to maintain such
qualification. In general, each Pooling and Servicing Agreement may also be
amended by the parties thereto with consent of holders of certificates of
such series evidencing not less than 662/3% of the aggregate Percentage
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 Pooling and Servicing Agreement or of modifying in any
manner the rights of the holders of the related certificates; provided,
however, that no such amendment may reduce in any manner the amount of or
delay the timing of, payments received on Trust Assets which are required
to be distributed on any certificate without the consent of the holder of
such certificate, or reduce the aforesaid percentage of certificates of any
class of holders which are required to consent to any such amendment
without the consent of the holders of all certificates of such class
covered by such Pooling and Servicing 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 Pooling and Servicing
Agreement without having first received an opinion of counsel to the effect
that such amendment will not cause such Trust Fund to fail to qualify as a
REMIC.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more certificateholders of record of
such a series of certificates, for purposes of communicating with other
certificateholders with respect to their rights under the Pooling and
Servicing Agreement for such series, the Trustee will afford such
certificateholders access during business hours to the most recent list of
certificateholders of that series held by the Trustee.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each series of certificates will be
set forth in the related prospectus supplement. The entity serving as
Trustee may have normal banking relationships with the seller and its
affiliates. In addition, for the purpose of meeting the legal requirements
of certain local jurisdictions, the Trustee will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust Fund
relating to a series of certificates. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the
Trustee by the applicable Pooling and Servicing Agreement will be conferred
or imposed upon the Trustee and each such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee shall be incompetent
or unqualified to perform certain acts, singly upon such separate trustee
or co-trustee who will exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents will have any or all of the rights, powers, duties and obligations
of the Trustee conferred on them by such appointment; provided that the
Trustee will continue to be responsible for its duties and obligations
under the Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee will not make any representations as to the validity or
sufficiency of the Pooling and Servicing Agreement, the certificates or of
any assets or related documents. If no Event of Default, as defined in the
related Pooling and Servicing Agreement, has occurred, the Trustee is
required to perform only those duties specifically required of it under the
Pooling and Servicing Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it,
the Trustee is required to examine them to determine whether they are in
the form required by the related Pooling and Servicing Agreement. However,
the Trustee will not be responsible for the accuracy or content of any such
documents furnished to it by the certificateholders, the master servicer or
the servicer under the Pooling and Servicing Agreement.
The Trustee may be held liable for its own negligent action or
failure to act, or for its own misconduct; provided, however, that the
Trustee will 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
direction of the certificateholders following an Event of Default. The
Trustee is not required to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties under the
Pooling and Servicing Agreement, or in the exercise of any of its rights or
powers, if it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the seller, resign at any
time, in which event the seller will be obligated to use its best efforts
to appoint a successor Trustee. If no successor Trustee has been appointed
and has accepted the appointment within the period specified in the Pooling
and Servicing Agreement after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any
time:
o if the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement,
o if the Trustee becomes insolvent or
o by the certificateholders evidencing over 50% of the aggregate
voting rights of the certificates in the Trust Fund upon
written notice to the Trustee and to the seller.
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.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that on or before a
specified date in each year, a firm of independent public accountants will
furnish a statement to the Trustee to the effect that, on the basis of the
examination by such firm conducted substantially in compliance with the
Uniform Single Audit Program for Mortgage Bankers, the Audit Program for
Mortgages serviced for the FHLMC or a program certified by such firm to be
comparable, the servicing by or on behalf of the master servicer or
servicer of mortgage loans, agency securities or private mortgage-backed
securities, under pooling and servicing agreements substantially similar to
each other (including the related Pooling and Servicing Agreement) was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the
Uniform Single Audit Program for Mortgage Bankers, the Audit Program for
Mortgages serviced for FHLMC or such comparable program requires it to
report. In rendering its statement, such firm may rely, as to matters
relating to the direct servicing of mortgage loans, agency securities or
private mortgage-backed securities by servicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform
Single Audit Program for Mortgage Bankers, the Audit Program for Mortgages
serviced for FHLMC or such comparable program, rendered within one year of
such statement, of firms of independent public accountants with respect to
the related servicer.
The Pooling and Servicing Agreement will also provide for delivery to
the Trustee, on or before a specified date in each year, of an annual
statement signed by an officer of the master servicer or servicer to the
effect that such master servicer or servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the master servicer or servicer may be obtained by
certificateholders of the related series without charge upon written
request to the master servicer or servicer at the address set forth in the
related prospectus supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SERVICER AND THE
CERTIFICATE ADMINISTRATOR
One or more master servicer or servicers under the Pooling and
Servicing Agreement, may be named in the related prospectus supplement.
Each entity serving as master servicer or servicer may have normal business
relationships with the seller or the seller's affiliates.
The Pooling and Servicing Agreement will provide that a master
servicer or servicers may not resign from its obligations and duties under
the Pooling and Servicing Agreement, except upon a determination that its
duties under the Pooling and Servicing Agreement are no longer permissible
under applicable law or as otherwise specified in the related prospectus
supplement. No such resignation will become effective until the Trustee or
a successor servicer has assumed the master servicer's or servicer's
obligations and duties under the Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will further provide that
neither the master servicer or servicers, in certain instances, the seller
nor any director, officer, employee, or agent of the master servicer, the
servicers or the seller will be under any liability to the Trustee, the
related Trust Fund or certificateholders for any action taken or for
refraining from the taking of any action in good faith under the Pooling
and Servicing Agreement or for errors in judgment; provided, however, that
neither the master servicer, the servicer, the seller nor any such person
will be protected against any breach of warranties or representations made
in the Pooling and Servicing Agreement or any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties under the Pooling and Servicing
Agreement or by reason of reckless disregard of obligations and duties
under the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement will further provide that the master servicer or servicers, in
certain instances, the seller and any director, officer, employee or agent
of the master servicer, servicers or the seller will be entitled to
indemnification by the Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Pooling and Servicing Agreement or the certificates, other
than any loss, liability or expense related to any failure to perform its
duties in compliance with the Pooling and Servicing Agreement, except any
such loss, liability or expense otherwise reimbursable under the Pooling
and Servicing Agreement and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance
of duties under the Pooling and Servicing Agreement or by reason of
reckless disregard of obligations and duties under the Pooling and
Servicing Agreement. In addition, the Pooling and Servicing Agreement will
provide that neither the master servicer, the servicers nor, in certain
instances, the seller will be under any obligation to appear in, prosecute
or defend any legal action which is not incidental to its respective
responsibilities under the Pooling and Servicing Agreement and which in its
opinion may involve it in any expense or liability. The master servicer,
the servicer or the seller may, however, in its discretion undertake any
such 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 interests of the certificateholders under the Pooling and
Servicing Agreement. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund and the master servicer, the servicer or the
seller, as the case may be, will be entitled to be reimbursed therefor out
of funds otherwise distributable to certificateholders.
Any person into which the master servicer or servicers may be merged
or consolidated, or any person resulting from any merger or consolidation
to which the master servicer or servicers is a party, or any person
succeeding to the business of the master servicer or servicers, will be the
successor of the master servicer or servicers under the Pooling and
Servicing Agreement, provided that such person is, among other things,
qualified to sell mortgage loans to, and service mortgage loans on behalf
of, FNMA or FHLMC and further provided that such merger, consolidation or
succession does not adversely affect the then current rating or ratings of
the class or classes of certificates of such Trust.
EXCHANGEABLE CERTIFICATES
GENERAL
Certain series will provide for the issuance of one or more
classes of Exchangeable Certificates, as set forth in the related
prospectus supplement. In any such series, the holders of one or more of
the specified classes of Exchangeable Certificates will be entitled, upon
notice and payment to the Trustee of an administrative fee, to exchange all
or a portion of such classes for proportionate interests in one or more of
the other specified classes of Exchangeable Certificates. The Combinations
for the Exchangeable Certificates in a series, if any, will be set forth in
the prospectus supplement for the series.
In each series that includes Exchangeable Certificates, all of
the classes of certificates that are shown on the cover page of the related
prospectus supplement will be issued, and those classes that are to be the
basis for the exchange arrangements will be deposited in a separate trust
fund established under a trust agreement between the seller and a trustee.
The Trustee may serve as such trustee. The Exchangeable Certificate Trust
Fund initially will issue classes of Exchangeable Certificates that are
identical in all respects to the classes of certificates deposited in such
trust fund. At any time after their issuance, including immediately after
such issuance, these classes of Exchangeable Certificates may be exchanged,
in whole or in part, for other related classes of Exchangeable Certificates
that are part of the same Combination, as specified in the related
prospectus supplement. When an exchange is effected, the Exchangeable
Certificate Trust Fund will cancel the relevant portion or portions of the
class or classes of Exchangeable Certificates that are being exchanged and
will issue the corresponding portion or portions of the class or classes of
other related Exchangeable Certificates into which such class or classes of
certificates are exchangeable. Exchangeable Certificates received in an
exchange may subsequently be exchanged for other Exchangeable Certificates
that are part of the same Combination. This process may be repeated again
and again and is limited only by the amount of Exchangeable Certificates
held by an investor and the Combinations available to such class of
Exchangeable Certificates, as further described under "Exchanges." Each
Exchangeable Certificate issued by an Exchangeable Certificate Trust Fund
will represent a beneficial ownership interest in the class or classes of
certificates deposited in such Trust Fund.
In general, the descriptions in this prospectus of classes of
certificates of a series also apply to the Exchangeable Classes of that
series, except where the context requires otherwise. For example, the
Exchangeable Classes of a series are entitled to receive payments of
principal and interest, are issued in book-entry form or as Definitive
Certificates to certificateholders in prescribed denominations, may be
provided with credit enhancements, and are subject to yield, appreciation
and prepayment considerations, in the same manner and to the same extent as
are the classes of certificates of such series. Similarly, the discussions
under "ERISA Considerations" and "Certain Legal Considerations" apply to
Exchangeable Certificates as well as certificates.
EXCHANGES
Only a holder of an Exchangeable Certificate may initiate an
exchange. Such an exchange may be initiated by a holder who wishes to hold
certificates with different interest or principal payment characteristics.
An exchange will apply only to the amount of a class of Exchangeable
Certificates held by such holder, regardless of whether the holder owns all
or a portion of such class of Exchangeable Certificates. Holders of any
remaining Exchangeable Certificates of the same class are not required to
participate in exchange, nor is their consent required to permit other
holders to cause such exchange with respect to their Exchangeable
Certificates.
The ability of a holder of a class or classes of Exchangeable
Certificates to exchange such class or classes for another related class or
classes of Exchangeable Certificates within the same Combination will be
subject to three basic constraints, as follows:
o The aggregate principal amount, rounded to whole dollars, of
the Exchangeable Certificates received in the exchange,
immediately after the exchange, must equal that of the
Exchangeable Certificates surrendered for exchange immediately
before the exchange, for this purpose, the principal amount of
any interest only class will always equal $0;
o The Annual Interest Amount payable with respect to the
Exchangeable Certificates received in the exchange must equal
that of the Exchangeable Certificates surrendered for exchange;
and
o Such classes must be exchanged in the applicable exchange
proportions, if any, shown in the related prospectus
supplement, which are based at all times on the original
principal amounts, or original notional principal amounts, if
applicable, of such classes.
Within any particular series, one or more types of Combinations
may exist. For example, a class of Exchangeable Certificates with a stated
interest rate that varies directly with changes in an index and a class of
Exchangeable Certificates with a stated interest rate that varies inversely
with changes in an index may be exchangeable for a class of Exchangeable
Certificates with a fixed stated interest rate. Under another Combination,
a class of Exchangeable Certificates that is a principal only class and a
class of Exchangeable Certificates that is an interest only class may be
exchangeable for a class of Exchangeable Certificates that pays both
principal and interest. Further, a class of Exchangeable Certificates that
accretes all of its interest for a period, such accreted interest being
added to the principal of such class, and a class of Exchangeable
Certificates that receives principal payments from such accretions on the
Accrual Class may be exchangeable for a class of Exchangeable Certificates
that receives payments of principal continuously from the first
Distribution Date on which it receives principal until it is retired. Under
another Combination, a class of Exchangeable Certificates that is designed
to receive principal payments in accordance with a predetermined schedule
derived by assuming two constant prepayment rates for the underlying SAMs
and a class of Exchangeable Certificates that receives principal payments
on any Distribution Date only if scheduled payments have been made on the
Planned Amortization Class may be exchangeable for a class of Exchangeable
Certificates that receives payments of principal continuously from the
first Distribution Date on which it receives principal until it is retired
and that also receives a coupon. The foregoing examples describe only some
of the types of Combinations that are possible.
Set forth below are additional examples that illustrate in simple
mathematical terms how certain possible Combinations might operate. The
first example shows a Combination in which Exchangeable Certificates of a
principal only class and Exchangeable Certificates of an interest bearing
class are exchangeable for Exchangeable Certificates of a class that has
the aggregate characteristics of the two original classes of Exchangeable
Certificates:
Maximum
Original Original
Principal Interest Principal Interest
Class Amount Rates Class Amount Rate
- --------- ------------ -------- -------- ------------ --------
ES-1 $20,000,000 10% ES-2 $40,000,000 5%
ES-P* 20,000,000 0%
* Class ES-P is a principal only class and will receive no
interest.
The following example illustrates a Combination of a Floating
Rate class and an Inverse Floating Rate Exchangeable Certificate which are
exchangeable for a single class of Exchangeable Certificates with a fixed
interest rate:
Maximum
Original Original
Principal Interest Principal Interest
Class Amount Rates Class Amount Rate
- ------- ----------- ----------- ------- ---------- ---------
ES-3 $9,333,330 LIBOR + ES-5 $11,333,330 7%
0.75%
ES-4 2,000,000 36.1666
-(LIBOR x
4.66667)
In the following Combination, an Exchangeable Certificate that pays
both principal and interest is exchangeable for two Exchangeable
Certificates, one of which pays only interest and the other pays only
principal:
Maximum
Original
Original Principal or
Principal Interes Notional Interes
Class Amount t Rate Class Principal t Rates
Amount
- -------- ------------ -------- ------- ------------ -------
ES-5 $20,000,000 10% ES-P* $20,000,000 0%
ES- 20,000,000 10%
X** (notional)**
*
- ------------------
* Class ES-P is a principal only class and will receive no
interest.
** Class ES-X is an interest only class and will receive no
principal.
*** Notional principal amount of ES-X class being exchanged
equals principal amount of ES-P class being exchanged.
In some series, a Combination may include a number of classes of
Exchangeable Certificates that are exchangeable for one another and that
will enable a holder of one of the classes of Exchangeable Certificates to
exchange it for another class of Exchangeable Certificates with a higher or
lower coupon. As discussed below, any such exchange also will require the
issuance of a third class of Exchangeable Certificates that will pay only
principal or interest, respectively. The following table illustrates such a
Combination:
Maximum
Original
Original Principal or
Principal Interes Notional Interes
Class Amount t Rate Class Principal t Rates
Amount
- -------- ------------ -------- -------- ------------ --------
ES-6 $20,000,000 7% ES-X* $20,000,000 7%
(notional)
ES-7 20,000,000 6%
ES-8 20,000,000 6.25%
ES-9 20,000,000 6.50%
ES-10 20,000,000 6.75%
ES-11 19,310,344 7.25%
ES-12 18,666,666 7.50%
ES-13 18,064,516 7.75%
ES-14 17,500,000 8.00%
ES-P** 20,000,000 0.00%
- -------------------
* Class ES-X is an interest only class and will receive no
principal.
** Class ES-P is a principal only class and will receive no
interest.
The foregoing table shows the maximum amount of each other ES class that
can be created from the related class ES-6 Exchangeable Certificate. Such
amounts could not exist concurrently, as any Combination is limited to the
amount of principal and interest distributable on the related Exchangeable
Certificate to be exchanged. One method of calculating the maximum amount
that can be created in a specific combination is to determine the annual
stated interest applicable to the Exchangeable Certificates to be
exchanged, and divide such interest amount by the coupon of the desired
Exchangeable Certificate. The resulting principal amount can in no case be
greater than the principal amount of Exchangeable Certificates to be
exchanged. For example, using the foregoing table, if class ES-12 is
desired, the maximum original principal amount of the class ES-12
Exchangeable Certificates that could be created would be $18,666,666, an
amount arrived at by dividing the annual stated interest of the class ES-6
certificates ($1,400,000) by the stated interest of the class ES-12
Exchangeable Certificates (7.50%). Since all of the available stated
interest with respect to the class ES-6 Exchangeable Certificates would be
used to create the class ES-12 Exchangeable Certificates, principal only
class ES-P Exchangeable Certificates would be created to receive the
remainder of the class ES-6 principal in the amount of $1,333,334,
calculated by subtracting the class ES-12 Exchangeable Certificates
original principal amount from the class ES-6 Exchangeable Certificates
original principal amount.
Similarly, if class ES-9 Exchangeable Certificates are desired, dividing
the stated interest of the class ES-6 Exchangeable Certificates
($1,400,000) by the stated interest of the class ES-9 Exchangeable
Certificates (6.50%) would indicate an original principal amount of
$21,538,461. However, since the class ES-6 Exchangeable Certificates have a
principal balance of $20,000,000, only $20,000,000 of the class ES-9
Exchangeable Certificates could be created. The stated interest applicable
to the class ES-9 Exchangeable Certificates would be $20,000,000 multiplied
by 6.50% or $1,300,000. Since the stated interest of the class ES-6
Exchangeable Certificates is $1,400,000, the interest only class ES-X
Exchangeable Certificates would be created to receive the remaining
$100,000 of interest. The notional amount of such securities would be
calculated by dividing the stated interest ($100,000) by the stated
interest applicable to class ES-X Exchangeable Certificates (7.00%) to
determine the notional amount ($1,428,571).
Under the terms of this Combination, the class ES-9 Exchangeable
Certificates described in the preceding paragraph might also be
exchangeable for the class ES-14 Exchangeable Certificates. If the stated
interest of the class ES-9 Exchangeable Certificates ($1,300,000) is
divided by the stated interest on the class ES-14 Exchangeable Certificates
(8.00%), the maximum original principal amount of the class ES-14
Exchangeable Certificates that can be created is $16,250,000. Since all of
the available stated interest with respect to the class ES-9 Exchangeable
Certificates would be used to create the class ES-14 Exchangeable
Certificates, principal only class ES-P Exchangeable Certificates would be
created to receive the remainder of the class ES-9 principal in the amount
of $3,750,000, calculated by subtracting the class ES-14 Exchangeable
Certificates original principal amount from the class ES-9 Exchangeable
Certificates original principal amount).
The foregoing examples set forth various combinations of Exchangeable
Certificates which differ in interest characteristics, i.e., interest only
classes, principal only classes and classes which have principal amounts
and bear interest. In certain series, a certificateholder may also be able
to exchange its Exchangeable Certificates for other Exchangeable
Certificates that have different principal payment characteristics. For
example, an exchange of two or more classes of Exchangeable Certificates
for a single class of Exchangeable Certificates may result in an
Exchangeable Certificate with the aggregate principal payment
characteristics of the multiple classes of Exchangeable Certificates for
which it was exchanged. In addition, a holder of either an Exchangeable
Certificate representing Appreciation Shares or an Exchangeable Certificate
entitled to receive principal and stated interest payments from the SAMs
could exchange such classes for a single Exchangeable Certificate that
entitles such holder to receive both payments of the Appreciation Share and
principal and stated interest from the SAMs. Further, in certain
series, Exchangeable Certificates may be exchangeable for other
Exchangeable Certificates with different credit characteristics. For
example, a class that is senior in priority of payment may be combined with
a subordinated class, to create a new class with the aggregate credit
characteristics of the two classes that were combined.
At any given time, a certificateholder's ability to exchange
Exchangeable Certificates for other Exchangeable Certificates will be
limited by a number of factors. A certificateholder must, at the time of
the proposed exchange, own the class or classes which are permitted to be
exchanged in the proportions necessary in order to effect the desired
exchange. A certificateholder that does not own such class or classes or
the necessary amounts of such class or classes may not be able to obtain
the desired class or classes of Exchangeable Certificates. The
certificateholder of a needed class may refuse or be unable to sell at a
reasonable price or at any price, or certain classes may have been
purchased and placed into other financial structures. ERISA or other
transfer restrictions may apply to certain of the Exchangeable Certificates
in a Combination, but not to others. In addition, principal payments and
prepayments will, over time, diminish the amounts available for exchange.
PROCEDURES AND EXCHANGE PROPORTIONS
A certificateholder proposing to effectuate an exchange must notify the
Trustee or follow other procedures as described in the related prospectus
supplement. Such notice must be given in writing or by telefax not later
than five business days before the proposed exchange date, which date,
subject to the Trustee's approval, can be any business day other than the
first or last business day of the month. The notice must include the
outstanding principal, or notional principal, amount of both the securities
to be exchanged and the securities to be received, and the proposed
exchange date. Promptly after the certificateholder has given the required
notice, the Trustee will provide instructions for delivering the securities
and the payment of the administrative fee to the Trustee by wire transfer.
A certificateholder's notice becomes irrevocable on the second business day
before the proposed exchange date.
An administrative fee will be payable to the Trustee in connection with
each exchange as specified in the related prospectus supplement. Any
exchanges will be subject to the rules, regulations and procedures
applicable to DTC's book-entry securities, in the case of Exchangeable
classes issued in book-entry form.
Where exchange proportions are shown in the related prospectus
supplement for classes of Exchangeable Certificates, SAMCO Mortgage
Securities Corp. will follow the convention of basing such proportions on
the original, rather than on the outstanding, principal or notional
principal amounts of such classes. If such classes receive principal
payments pro rata with each other, the exchange proportions also will apply
to their outstanding principal amounts. If such classes do not receive
principal payments pro rata with each other, an investor can calculate
current exchange proportions for such classes, based on their outstanding
principal amounts, by multiplying the exchange proportion shown in the
related prospectus supplement for each such class by its current Class
Factor and dividing each resulting percentage by the sum of such
percentages. The Trustee will include that Class Factor for each class of
outstanding Exchangeable Certificates having a principal amount in the
statements it furnishes to certificateholders in connection with each
Distribution Date. The current Class Factor also will be available to
certificateholders upon request from the Trustee or the seller as specified
in the related prospectus Supplement. A Class Factor for each interest only
class having a notional principal amount will be included in the statements
the Trustee furnishes to certificateholders in connection with each
Distribution Date and also will be available to certificateholders upon
request from the Trustee or the seller as specified in the related
prospectus supplement. Such a Class Factor will reflect the remaining
notional principal amount of the interest only class in an analogous
manner.
The first payment on an Exchangeable Certificate received in an exchange
transaction may be made on the Distribution Date in the month following the
month of the exchange or as specified in the related prospectus supplement.
Such payment will be made to the certificateholder of record as of the
applicable Record Date.
PRIMARY INSURANCE, HAZARD INSURANCE; CLAIMS THEREUNDER
As set forth below, a SAM may be required to be covered by a Primary
Insurance Policy and is required to be covered by a Hazard Insurance
Policy. The following is only a brief description of such coverage and does
not purport to describe all of the characteristics of each type of
insurance, although the material terms of such coverage are described in
this prospectus and in the prospectus supplement. Such insurance is subject
to underwriting and approval of individual SAMs by the respective insurers
and guarantors. In some cases, however, the issuer of the insurance or
guaranty may delegate underwriting authority to the Originator of the SAM.
The descriptions of any insurance coverage in this prospectus or any
prospectus supplement do not purport to be complete and are qualified in
their entirety by reference to such forms of policies, and to such statutes
or regulations as may be applicable.
PRIMARY INSURANCE
The master servicer or the related servicer will be required to maintain
or in the case of the master servicer, cause each servicer to maintain, in
full force and effect, to the extent specified in the related prospectus
supplement a Primary Insurance Policy with regard to each SAM for which
such coverage is required. The master servicer or servicer will be required
not to cancel or refuse to renew any such Primary Insurance Policy in
effect at the time of the initial issuance of a series of certificates that
is required to be kept in force under the applicable Pooling and
Servicing Agreement unless the replacement Primary Insurance Policy for
such cancelled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of certificates of such series that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Insurance Policy
covering a SAM generally will consist of the insured percentage of the
unpaid principal amount of the covered SAM and accrued and unpaid interest
thereon and reimbursement of certain expenses, less:
o all rents or other payments collected or received by the insured,
other than the proceeds of hazard insurance, that are derived from or
in any way related to the Mortgaged Property;
o hazard insurance proceeds in excess of the amount required to restore
the Mortgaged Property and which have not been applied to the payment
of the SAM;
o amounts expended but not approved by the Primary Insurer;
o claim payments previously made by the Primary Insurer and
o unpaid premiums.
Primary Insurance Policies reimburse certain losses sustained by reason
of defaults in payments by mortgagors. Primary Insurance Policies will not
insure against, and exclude from coverage, a loss sustained by reason of a
default arising from or involving certain matters, including:
o fraud or negligence in origination or servicing of the SAMs,
including misrepresentation by the Originator, mortgagor or other
persons involved in the origination of the SAM;
o failure to construct the Mortgaged Property subject to the SAM in
accordance with specified plans;
o physical damage to the Mortgaged Property; and
o the related master servicer not being approved as a servicer by the
Primary Insurer.
HAZARD INSURANCE
The master servicer or the related servicer will require the mortgagor
on each SAM 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 Mortgaged Property in the state
in which such Mortgaged Property is located. Such coverage will be in an
amount not less than the replacement value of the improvements securing
such SAM or the principal balance owing on such SAM, whichever is less. All
amounts collected by the master servicer or servicer under any hazard
policy, except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
master servicer's or servicer's normal servicing procedures, will be
deposited in the related Collection Account. In the event that the master
servicer or servicer maintains a blanket policy insuring against hazard
losses on all of the SAMs comprising part of a Trust Fund, it will
conclusively be deemed to have satisfied its obligation relating to the
maintenance of hazard insurance. Such blanket policy may contain a
deductible clause, in which case the master servicer or servicer will be
required to deposit from its own funds into the related Collection Account
the amounts which would have been deposited in the Collection Account but
for such clause. Any additional insurance coverage for Mortgaged Properties
in a SAM Pool of multifamily loans will be specified in the related
prospectus supplement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements or
manufactured home securing a SAM 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 SAMs 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 are dictated by respective state laws, and most such policies
typically do not cover any physical damage resulting from the following:
war, revolution, governmental actions, floods and other water-related
causes, earth movement - including earthquakes, landslides and mud flows
nuclear reaction, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. If the Mortgaged Property securing a SAM is located in
a federally designated special flood area at the time of origination, the
master servicer or servicer will require the mortgagor to obtain and
maintain flood insurance.
The hazard insurance policies covering properties securing the SAMs
typically contain a clause which in effect requires the insured at all
times to carry insurance of a specified percentage, generally 80% to 90%,
of the full replacement value of the insured property in order to recover
the full amount of any partial loss. If the insured's coverage falls below
this specified percentage, then the insurer's liability in the event of
partial loss will not exceed the larger of 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 such proportion
of the loss, without deduction for depreciation, as the amount of insurance
carried bears to the specified percentage of the full replacement cost of
such improvements. Since the amount of hazard insurance that the master
servicer or servicer may cause to be maintained on the improvements
securing the SAMs declines as the principal balances owing thereon
decrease, and since improved real estate generally has appreciated in value
over time in the past, the effect of this requirement in the event of
partial loss may be that hazard insurance proceeds will be insufficient to
restore fully the damaged property. If specified in the related prospectus
supplement, a special hazard insurance policy or an alternative form of
credit enhancement will be obtained to insure against certain of the
uninsured risks described above. See "Description of Credit
Enhancements--Special Hazard Insurance Policies."
MAINTENANCE OF MORTGAGE IMPAIRMENT INSURANCE
The master servicer or the related servicer may obtain and maintain a
blanket policy insuring against losses arising from fire and hazards
covered under extended coverage on all of the related SAMs, then, to the
extent such policy provides coverage in an amount equal to the amount
required under the Pooling and Servicing Agreement and otherwise complies
with all other requirements of the Pooling and Servicing Agreement, it
shall conclusively be deemed to have satisfied its obligations as set forth
in the Pooling and Servicing Agreement. Any amounts collected by a master
servicer or servicer under any such policy relating to a SAM shall be
deposited in any Collection Account subject to withdrawal under the Pooling
and Servicing Agreement. Such policy may contain a deductible clause, in
which case, in the event that there shall not have been maintained on the
related Mortgaged Property a policy complying with the Pooling and
Servicing Agreement, and there shall have been a loss which would have been
covered by such policy, a master servicer or servicer shall deposit in any
Collection Account at the time of such loss the amount not otherwise
payable under the blanket policy because of such deductible clause, such
amount to be deposited from the master servicer or servicer funds, without
reimbursement therefor. Upon request of SAMCO Mortgage Securities Corp., a
master servicer or servicer shall cause to be delivered to SAMCO Mortgage
Securities Corp. a certified true copy of such policy.
MAINTENANCE OF FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE
The master servicer or each servicer may maintain with responsible
companies, at its own expense, a blanket Fidelity Bond and an Errors and
Omissions Insurance Policy, with broad coverage on all officers, employees
or other persons acting in any capacity requiring such persons to handle
funds, money, documents or papers relating to the SAMs. Any such Fidelity
Bond and Errors and Omissions Insurance Policy will be in the form of the
Mortgage Banker's Blanket Bond and may protect and insure such master
servicer or servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such
employees. Such Fidelity Bond and Errors and Omissions Insurance Policy
also shall protect and insure such master servicer or servicer against
losses in connection with the release or satisfaction of a SAM without
having obtained payment in full of the indebtedness secured thereby.
DESCRIPTION OF CREDIT ENHANCEMENTS
To the extent provided in the applicable prospectus supplement, credit
enhancement for each series of certificates may be comprised of one or more
of the following components, each of which will have a dollar limit. Credit
enhancement components may include coverage with respect to losses that
are:
o attributable to the mortgagor's failure to make any payment of
principal, interest or additional interest payments as required under
the Mortgage Note, but not including Special Hazard Losses,
Extraordinary Losses or other losses resulting from damage to a
Mortgaged Property, Bankruptcy Losses or Fraud Losses;
o of a type generally covered by a Special Hazard Insurance Policy;
o attributable to certain actions which may be taken by a bankruptcy
court in connection with a SAM, including a reduction by a bankruptcy
court of the principal balance of or the stated interest rate on a
SAM or an extension of its maturity;
o incurred on defaulted SAMs as to which there was fraudulent conduct
or negligence by any of the Originator, the seller, SAMCO Mortgage
Securities Corp., the master servicer, the servicer or the mortgagor
in connection with such SAMs; and
o attributable to shortfalls in the payment of amounts due to one or more
classes of certificates.
Losses occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction, chemical contamination, errors in design, faulty
workmanship or materials or waste by the mortgagor will not be covered. To
the extent that the credit enhancement for any series of certificates is
exhausted, the certificateholders will bear all further risks of loss not
otherwise insured against.
As set forth below and in the applicable prospectus supplement,
o coverage with respect to defaulted SAMs may be provided by one or
more of a Letter of Credit, Reserve Fund or a Pool Insurance Policy,
o coverage with respect to Special Hazard Losses may be provided by one
or more of a Letter of Credit, Reserve Fund or a Special Hazard
Insurance Policy,
o coverage with respect to Bankruptcy Losses may be provided by one or
more of a Letter of Credit, Reserve Fund or Bankruptcy Bond and
o coverage with respect to Fraud Losses may be provided by one or more of
a Letter of Credit, Reserve Fund or Fraud Bond.
In addition, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of subordination of one
or more classes of certificates to provide credit support to one or more
other classes of certificates.
The amounts and types of credit enhancement arrangements as well as the
provider of such credit enhancement arrangements, if applicable, with
respect to each series of certificates will be set forth in the related
prospectus supplement. To the extent provided in the applicable prospectus
Supplement and the Pooling and Servicing Agreement, the credit enhancement
arrangements may be periodically modified, reduced and substituted for
based on the aggregate outstanding principal balance of the SAMs covered
thereby. Credit support for a series of certificates may cover one or more
other series of certificates issued by SAMCO Mortgage Securities Corp. or
others.
To the extent permitted by any applicable rating agency and provided
that the then current ratings of the certificates are maintained, coverage
under any credit enhancement may be cancelled or reduced.
The descriptions of any credit enhancement instruments included in this
prospectus or any prospectus supplement and the coverage under this
prospectus or any prospectus supplement do not purport to be complete and
are qualified in their entirety by reference to the actual forms of
governing documents, copies of which are available upon request.
POOL INSURANCE POLICIES
A separate Pool Insurance Policy may be obtained for the SAM Pool and
issued by the insurer named in such related prospectus supplement. Each
Pool Insurance Policy may cover loss by reason of default in payment on
single family loans in the SAM Pool in an amount specified in such
prospectus supplement. As more fully described in this prospectus, the
master servicer or servicer will present claims to the Pool Insurer on
behalf of itself, the Trustee and the holders of the certificates. The Pool
Insurance Policies, however, are not blanket policies against loss, since
claims may only be made respecting particular defaulted SAMs and only upon
satisfaction of certain conditions precedent described in this prospectus.
A Pool Insurance Policy generally will not cover losses due to a failure to
pay or denial of a claim under a Primary Insurance Policy.
In general, each Pool Insurance Policy will provide that no claims may
be validly presented unless:
o any required Primary Insurance Policy is in effect for the defaulted
SAM and a claim under a Primary Insurance Policy has been submitted
and settled;
o hazard insurance on the related Mortgaged Property has been kept in
force and real estate taxes and other protection and preservation
expenses have been paid;
o if there has been physical loss or damage to the Mortgaged Property,
it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and
o the insured has acquired good and merchantable title to the Mortgaged
Property free and clear of liens except certain permitted
encumbrances.
Upon satisfaction of these conditions, the Pool Insurer will have the
option either (a) to purchase the Mortgaged Property at a price equal to
the principal balance of the Mortgaged Property plus accrued and unpaid
interest at the stated interest rate to the date of purchase plus the
Interest Appreciation Payment and certain expenses incurred by the master
servicer or servicer on behalf of the Trustee and certificateholders, or
(b) to pay the amount by which the sum of the principal balance of the
defaulted SAM plus accrued and unpaid interest at the stated interest rate
plus the Indexed Appreciation Payment to the date of payment of the claim
and the aforementioned expenses exceeds the proceeds received from an
approved sale of the Mortgaged Property, in either case net of certain
amounts paid or assumed to have been paid under the related Primary
Insurance Policy. If any Mortgaged Property securing a defaulted SAM 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 Mortgaged Property to a condition sufficient to permit recovery
under the Pool Insurance Policy, the master servicer or servicer will not
be required to expend its own funds to restore the damaged Mortgaged
Property unless it determines that such restoration will increase the
proceeds to certificateholders on liquidation of the SAM after
reimbursement of the master servicer or servicer for its expenses and such
expenses will be recoverable by it through proceeds of the sale of the
Mortgaged Property or proceeds of the related Pool Insurance Policy or any
related Primary Insurance Policy.
A Pool Insurance Policy generally will not insure, and many Primary
Insurance Policies do not insure, against loss sustained by reason of a
default arising from, among other things, fraud or negligence in the
origination or servicing of a SAM, including misrepresentation by the
mortgagor, the Originator or persons involved in the SAM's origination, or
failure to construct a Mortgaged Property in accordance with plans and
specifications. If so specified in the prospectus supplement, an
endorsement to the Pool Insurance Policy, a bond or other credit support
may cover fraud in connection with the origination of SAMs. If so specified
in the related prospectus supplement, a failure of coverage attributable to
an event specified above might result in a breach of the related seller's
or Originator's representations described above and, in such event, might
give rise to an obligation on the part of such seller or Originator to
purchase the defaulted SAM if the breach cannot be cured by such seller or
Originator. No Pool Insurance Policy will cover, and many Primary Insurance
Policies do not cover, a claim in respect of a defaulted SAM occurring when
the servicer of such SAM, at the time of default or thereafter, was not
approved by the applicable insurer.
The original amount of coverage under each Pool Insurance Policy
generally will be reduced over the life of the related certificates by the
aggregate dollar amount of claims paid less the aggregate of the net dollar
amounts realized by the Pool Insurer upon disposition of all foreclosed
properties covered thereby. The amount of claims paid will include certain
expenses incurred by the master servicer or servicer as well as accrued
interest on delinquent SAMs 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
certificateholders.
The terms of any pool insurance policy relating to a SAM Pool will be
described in the related prospectus supplement.
See "--Fraud Bond" in this prospectus for a discussion of the possible
effect of fraudulent conduct or negligence by the seller, the master
servicer, the servicer or the mortgagor with respect to a SAM on the
coverage of a Pool Insurance Policy.
SUBORDINATION
If so specified in the applicable prospectus supplement, distributions
with respect to scheduled principal, principal prepayments, stated interest
rate, Appreciation Share or any combination of the above that otherwise
would have been payable to one or more classes of certificates of a series,
which may be Appreciation Certificates, will instead be payable to holders
of one or more other classes of such series, which may also be Appreciation
Certificates, under the circumstances and to the extent specified in the
prospectus supplement. If specified and as described in the applicable
prospectus supplement, delays in receipt of payments on the SAMs and losses
on defaulted SAMs may be borne first by the various classes of Subordinated
Certificates and thereafter by the various classes of Senior Certificates.
The aggregate distributions in respect of delinquent payments on the SAMs
over the lives of the certificates or at any time, the aggregate losses in
respect of defaulted SAMs which must be borne by the Subordinated
Certificates by virtue of subordination and the amount of the distributions
otherwise distributable to holders of Subordinated Certificates that will
be distributable to holders of Senior Certificates on any Distribution Date
may be limited as specified in the applicable prospectus supplement. If the
aggregate distribution with respect to delinquent payments on the SAMs or
aggregate losses in respect of such SAMs were to exceed the total amounts
payable and available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed the specified maximum
amount, holders of Senior Certificates could experience losses on the
certificates.
In addition to or in lieu of the foregoing, if so specified in the
applicable prospectus supplement, all or any portion of distributions
otherwise payable to holders of Subordinated Certificates on any
Distribution Date may instead be deposited into one or more reserve
accounts established by the Trustee. If so specified in the applicable
prospectus supplement, such deposits may be made on each Distribution Date,
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 Certificates 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 prospectus
supplement. If so specified in the applicable prospectus supplement,
amounts on deposit in the Reserve Account may be released to SAMCO Mortgage
Securities Corp., the master servicer, the servicer or the seller, as
applicable, or the holders of any class of certificates at the times and
under the circumstances specified in the prospectus supplement.
If specified in the applicable prospectus supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other
classes of Senior and Subordinated Certificates, respectively, through a
cross support mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such
classes:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events, or
o otherwise, in each case as specified in the applicable prospectus
supplement.
As between classes of Subordinated Certificates, payments to holders of
Senior Certificates on account of delinquencies or losses and payments to
any Reserve Account will be allocated as specified in the applicable
prospectus supplement.
FRAUD BOND
Some or all of the Primary Insurance Policies covering SAMs in any SAM
Pool may contain an exclusion from coverage for Fraud Losses. To provide
limited protection to certificateholders against losses in the event that
coverage relating to a SAM which otherwise would have been available under
a Primary Insurance Policy is not ultimately available by reason of such an
exclusion, if so specified in the applicable prospectus supplement, a Fraud
Instrument may be obtained or established by the master servicer or the
related servicer, as applicable, for the SAM Pool. The type, coverage
amount and term of any such Fraud Instrument will be disclosed in the
applicable prospectus supplement or in the related Current report on Form
8-K, and the coverage amount may be cancelled or reduced during the life of
the SAM Pool, provided that the then current ratings of the certificates
will not be adversely affected thereby. The master servicer or the
servicer, as applicable, may also replace the initial Fraud Instrument with
any other type of Fraud Instrument, provided that the then current ratings
of the certificates will not be adversely affected thereby. The identity of
the issuer of any Fraud Bond, Reserve Fund or the Letter of Credit
providing such coverage and certain financial information with respect to
such issuer will be contained in the applicable prospectus supplement or in
the related Current report on Form 8- K.
In addition, SAMCO Mortgage Securities Corp. understands that,
regardless of whether exclusion language such as that described above is
included in the insurance documents, it is the policy of some or all
issuers of Primary Insurance Policies and of Pool Insurance Policies to
deny coverage in circumstances involving fraudulent conduct or negligence
by any of the related seller, the master servicer, the related servicer or
the mortgagor. It is unclear whether any such denial would be upheld by a
court. Neither the repurchase obligation of the related seller, the master
servicer or the related servicer, nor any of the Fraud Instruments
described above would apply to any such denial of coverage unless, as
described above, such denial is based upon a specific exclusion relating to
fraudulent conduct or negligence which is included in a Primary Insurance
Policy.
BANKRUPTCY BOND
The prospectus supplement for certain series may specify that the master
servicer or the related servicer has undertaken to pay to the Trustee for
the benefit of certificateholders any portion of the principal balance of a
SAM which becomes unsecured under a proceeding under Chapter 7, 11 or 13 of
the Bankruptcy Code. If such obligation is undertaken, the master servicer
or the related servicer, as applicable, will also agree to pay to the
Trustee for the benefit of certificateholders any shortfall in payment of
principal, stated interest rate and Additional Interest Payments resulting
from the recasting of any originally scheduled monthly principal and stated
interest payment or the payment of additional interest under a ruling under
the Bankruptcy Code. These payment obligations will be subject to the
limitations specified in the applicable Pooling and Servicing Agreement.
The master servicer or the related servicer, as applicable, will have the
option, in lieu of making such payments, to repurchase any SAM affected by
bankruptcy court rulings. To insure the master servicer or the related
servicer's obligation to make the payments described above, the master
servicer or the related servicer, as applicable, will obtain or establish a
Bankruptcy Instrument in an initial amount specified in the prospectus
supplement or in the related Current report on Form 8-K. The prospectus
supplement or Current report on Form 8-K may also specify that, provided
that the then current ratings of the certificates are maintained, coverage
under any Bankruptcy Instrument may be cancelled or reduced. The master
servicer or the related servicer, as applicable, may also replace the
initial method under which such coverage is provided with either of the
other two alternative methods, provided that the then current ratings of
the certificates will not be adversely affected thereby.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related prospectus supplement, a separate Special
Hazard Insurance Policy will be obtained for the SAM Pool and will be
issued by the Special Hazard Insurer named in such prospectus supplement.
Each Special Hazard Insurance Policy should protect holders of the related
certificates from loss by reason of damage to Mortgaged Properties caused
by certain hazards, including earthquakes and, to a limited extent, tidal
waves and related water damage, not insured against under the standard form
of Hazard Insurance Policy for the respective states in which the Mortgaged
Properties are located or under a flood insurance policy if the Mortgaged
Property is located in a federally designated flood area, and loss caused
by reason of the application of the coinsurance clause contained in Hazard
Insurance Policies. See "Primary Insurance, Hazard Insurance; Claims
Thereunder--Hazard Insurance." Special Hazard Insurance Policies will not
cover losses occasioned by war, civil insurrection, certain governmental
action, errors in design, faulty workmanship or materials, except under
certain circumstances, nuclear reaction, flood, if the Mortgaged Property
is located in a federally designated flood area, chemical contamination and
certain other risks. The amount of coverage under any Special Hazard
Insurance Policy will be specified in the related prospectus supplement.
Each Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the property securing
the SAM has been kept in force and other protection and preservation
expenses have been paid.
Each Special Hazard Insurance Policy will provide that where there has
been damage to property securing a foreclosed SAM, title to which has been
acquired by the insured, and to the extent such damage is not covered by
the Hazard Insurance Policy or flood insurance policy, if any, maintained
by the mortgagor or the master servicer or the related servicer, the
Special Hazard Insurer will pay the lesser of the cost of repair or
replacement of such property or upon transfer of the property to the
Special Hazard Insurer, the unpaid principal balance of such SAM at the
time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest and the related Interest Appreciation
Payments to the date of claim settlement and certain expenses incurred by
the master servicer or servicer with respect to such property. If the
unpaid principal balance of a SAM plus accrued interest and the related
Interest Appreciation Payments and certain expenses are paid by the Special
Hazard Insurer, the amount of further coverage under the related Special
Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the property. Any amount paid as the cost of
repair of the property will further reduce coverage by such amount. So long
as a Pool Insurance Policy remains in effect, the payment by the Special
Hazard Insurer of the cost of repair or of the unpaid principal balance of
the related SAM plus accrued interest and certain expenses will not affect
the total insurance proceeds paid to certificateholders, but will affect
the relative amounts of coverage remaining under the related Special Hazard
Insurance Policy.
Collection of insurance proceeds under a Pool Insurance Policy is
generally not possible if the underlying property has been damaged and not
restored. A Special Hazard Insurance Policy permits full recovery under a
Pool Insurance Policy relating to the SAMs backing the series of
certificates by providing insurance to restore damaged property. Each
Pooling and Servicing Agreement will provide that, if the related Pool
Insurance Policy shall have been terminated or been exhausted through
payment of claims, the master servicer or servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
To the extent specified in the related prospectus supplement, the master
servicer or the related servicer may deposit cash, an irrevocable letter of
credit or any other instrument acceptable to any rating agency rating the
certificates of the related series in a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of
the deposit to the special trust account in lieu of any Special Hazard
Insurance Policy relating to such certificates may be reduced so long as
any such reduction will not result in a downgrading of the ratings of such
certificates by any such rating agency.
The terms of any Special Hazard Insurance Policy relating to a SAM Pool
will be described in the related prospectus supplement.
LETTER OF CREDIT
If any component of credit enhancement as to any series of certificates
is to be provided by a Letter of Credit, a bank or other entity will
deliver to the Trustee an irrevocable Letter of Credit. The Letter of
Credit Bank and certain information with respect thereto, as well as the
amount available under the Letter of Credit with respect to each component
of credit enhancement, will be specified in the applicable prospectus
supplement. The Letter of Credit will expire on the expiration date set
forth in the related prospectus supplement, unless earlier terminated or
extended in accordance with its terms.
The Letter of Credit may also provide for the payment of Advances which
the master servicer or the related servicer would be obligated to make with
respect to delinquent monthly payments.
RESERVE FUND
If so specified in the related prospectus supplement, the master
servicer, the servicer, SAMCO Mortgage Securities Corp., the Originator or
the seller, as applicable, will deposit or cause to be deposited in a fund
cash or Eligible Investments in specified amounts, or any other instruments
satisfactory to the rating agency or agencies rating the certificates
offered under such prospectus supplement, which will be applied and
maintained in the manner and under the conditions specified in such
prospectus supplement. In the alternative or in addition to such deposit,
to the extent described in the related prospectus supplement, a Reserve
Fund may be funded through application of all or a portion of amounts
otherwise payable on one or more related classes of certificates, from
Retained Yield or otherwise. Amounts in a Reserve Fund may be used to
provide one or more components of credit enhancement, or applied to
reimburse the master servicer or the related servicer, as applicable, as
master servicer, or the related servicer with respect to series of
certificates as to which there will be no master servicer, for outstanding
Advances, or may be used for other purposes, in the manner and to the
extent specified in the related prospectus supplement. Any such Reserve
Fund will not be deemed to be part of the related Trust Fund.
Amounts deposited in any Reserve Fund for a series of certificates will
be invested in Eligible Investments by, or at the direction of, and for the
benefit of the master servicer, the related servicer, SAMCO Mortgage
Securities Corp. or the related seller, as applicable, or any other person
named in the related prospectus supplement. Any amounts remaining in the
Reserve Fund upon the termination of the Trust Fund will be returned to
whomever deposited such amounts in the Reserve Fund.
CERTIFICATE INSURANCE POLICIES
If so specified and as described in the related prospectus supplement,
the master servicer or the related servicer may obtain one or more
Certificate Insurance Policies, issued by insurers acceptable to the rating
agencies, insuring to the holders of one or more classes of certificates
the payment of amounts due in accordance with the terms of such class or
classes of certificates.
MAINTENANCE OF CREDIT ENHANCEMENTS; CLAIMS THEREUNDER AND OTHER REALIZATION
UPON DEFAULTED SAMS
For each series of certificates which will be covered by a Pool
Insurance Policy or a Letter of Credit established in lieu of such policy,
such coverage to be disclosed in the applicable prospectus supplement, the
master servicer or the related servicer, as applicable, will exercise its
best reasonable efforts to keep such Pool Insurance Policy or Letter of
Credit in full force and effect throughout the term of the Pooling and
Servicing Agreement, unless coverage has been exhausted through the payment
of claims or until such instrument is replaced in accordance with the terms
of the Pooling and Servicing Agreement. The master servicer or the related
servicer, as applicable, may agree to pay the premiums for any Pool
Insurance Policy, and the fee for any Letter of Credit, on a timely basis.
In the event that the insurer under the Pool Insurance Policy ceases to be
a Qualified Insurer or the Letter of Credit Bank ceases to be acceptable to
the rating agencies, if any, rating the series of certificates the master
servicer or the related servicer, as applicable, will use its best
reasonable efforts to obtain from another Qualified Insurer or letter of
credit issuer a replacement policy or letter of credit comparable to the
Pool Insurance Policy or Letter of Credit which it replaces, with total
coverage equal to the then outstanding coverage of the Pool Insurance
Policy or Letter of Credit, provided that if the cost of the replacement
policy or letter of credit is greater than the cost of the Pool Insurance
Policy or Letter of Credit being replaced, the coverage of the replacement
policy or letter of credit for a series of certificates may be reduced to a
level such that its premium rate or cost does not exceed 150% of the
premium rate or cost of the Pool Insurance Policy or Letter of Credit for a
series of certificates which is rated by one or more rating agencies, or
100% of the premium rate or cost for such replacement policy or letter of
credit for a series which is not so rated.
In addition, the master servicer or the related servicer, as applicable,
may substitute at any time a Pool Insurance Policy or Letter of Credit for
an existing Pool Insurance Policy or Letter of Credit. In no event,
however, may the master servicer or the related servicer, as applicable,
provide a Letter of Credit in lieu of a Pool Insurance Policy, or vice
versa, or substitute one such instrument for another, except under the
circumstances detailed in the preceding paragraph, if such action will
impair the then current ratings, if any, of the certificates.
The master servicer or the related servicer, as applicable, may cause a
Primary Insurance Policy to be maintained in full force and effect with
respect to each SAM it services with a LTV in excess of 80%; provided,
however, that if the LTV of a SAM based on a subsequent appraisal of the
Mortgaged Property is less than 80%, such Primary Insurance Policy may be
terminated, if so specified in the applicable prospectus supplement. The
master servicer or the related servicer, as applicable, will agree to pay
the premium for each Primary Insurance Policy on a timely basis in the
event that the mortgagor does not make such payments. See "Primary
Insurance, Hazard Insurance; Claims Thereunder--Primary Insurance."
For each series of certificates which will be covered by a Special
Hazard Instrument, such coverage to be disclosed in the applicable
prospectus supplement, the master servicer or the related servicer, as
applicable, will exercise its best reasonable efforts to keep such Special
Hazard Instrument in full force and effect throughout the term of the
Pooling and Servicing Agreement, unless coverage has been exhausted through
the payment of claims or until such Special Hazard Instrument has been
replaced in accordance with the terms of the Pooling and Servicing
Agreement. So long as any applicable rating on a series of certificates
will be maintained, the master servicer or the related servicer, as
applicable, may at any time replace the initial instrument providing
special hazard coverage with either of the other two alternative methods.
The master servicer or the related servicer, as applicable, may agree to
pay the premium for any Special Hazard Insurance Policy, or Letter of
Credit obtained in lieu of a Special Hazard Insurance Policy, on a timely
basis. Any such policy may provide for a fixed premium rate on the
declining balance of the SAMs. In the event that any Special Hazard
Insurance Policy is cancelled or terminated for any reason other than the
exhaustion of total policy coverage, the master servicer or the related
servicer, as applicable, is obligated either to substitute a Letter of
Credit or Reserve Fund or to exercise its best reasonable efforts to obtain
from another insurer a replacement policy comparable to such Special Hazard
Insurance Policy with a total coverage which is equal to the then existing
coverage of such Special Hazard Insurance Policy; provided, however, that
if the cost of any such replacement policy shall be greater than the cost
of the original Special Hazard Insurance Policy, the amount of coverage of
such replacement policy may be reduced to a level such that the cost shall
be equal to the cost of the original Special Hazard Insurance Policy. As
indicated above, in lieu of obtaining a replacement Special Hazard
Insurance Policy, the master servicer or the related servicer, as
applicable, may obtain a Letter of Credit or establish a Reserve Fund in
accordance with terms prescribed by any applicable rating agency so that
any rating obtained for the certificates will not be impaired.
For each series of certificates which will be covered by a Fraud
Instrument, such coverage to be disclosed in the applicable prospectus
supplement, the master servicer or the related servicer, as applicable,
with respect to series of certificates as to which there will be no master
servicer, will exercise its best reasonable efforts to maintain and keep
any such Fraud Instrument in full force and effect throughout the required
term as set forth in the applicable prospectus Supplement, unless coverage
has been exhausted through the payment of claims. The master servicer or
the related servicer, as applicable, will agree to pay the premium for any
Fraud Bond or Bankruptcy Bond on a timely basis.
For each series of certificates or class of certificates which will be
covered by a Certificate Insurance Policy or a Letter of Credit or Reserve
Fund, such coverage to be disclosed in the applicable prospectus
supplement, the master servicer or the related servicer, as applicable,
will exercise its best reasonable efforts to maintain and keep any such
Certificate Insurance Policy, Letter of Credit or Reserve Fund in full
force and effect throughout the required term as set forth in the
applicable prospectus supplement. The master servicer or the related
servicer, as applicable, may agree to pay the premium for any Certificate
Insurance Policy on a timely basis.
The master servicer or the related servicer, as applicable, on behalf of
the Trustee and the certificateholders, will present claims to the issuer
of any applicable Primary Insurance Policy, Pool Insurance Policy, Special
Hazard Insurance Policy or Letter of Credit, or under any Reserve
Fund or other form of credit enhancement, and will take such reasonable
steps as are necessary to permit recovery under such insurance policies or
alternative coverages respecting defaulted SAMs. With respect to any
applicable Fraud Bond, Bankruptcy Bond or Certificate Insurance Policy, the
Trustee will present claims to the issuer of such bond or policy on behalf
of the certificateholders. As set forth above, all collections by the
master servicer or the related servicer, as applicable, under such policies
or alternative coverages that are not applied to the restoration of the
related Mortgaged Property are to be deposited in the applicable Collection
Account or the Distribution Account, subject to withdrawal as heretofore
described.
If any property securing a defaulted SAM is damaged and proceeds, if
any, from the related hazard insurance policy or any applicable Special
Hazard Insurance Policy, or Letter of Credit or Reserve Fund, as the case
may be, are insufficient to restore the damaged property to a condition
sufficient to permit recovery under any applicable Pool Insurance Policy or
Primary Insurance Policy, the master servicer or the related servicer, as
applicable, will not be required to expend its own funds to restore the
damaged property unless it determines that such restoration will increase
the proceeds to certificateholders upon liquidation of the SAM after
reimbursement of the master servicer or the related servicer, as
applicable, for its expenses and that such expenses will be recoverable to
it through Liquidation Proceeds or Insurance Proceeds.
If recovery under any Pool Insurance Policy, or Letter of Credit
established in lieu of such policy, or Primary Insurance Policy is not
available, because the master servicer or the servicer, as applicable, has
been unable to make the determinations described in the second preceding
paragraph or otherwise, the master servicer or the related servicer, as
applicable, is nevertheless obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
SAM. If the proceeds of any liquidation of the property securing the
defaulted SAM are less than the principal balance of the defaulted SAM plus
accrued and unpaid interest thereon at the applicable Stated Rate, after
deduction of the Retained Yield, if any, or a pro rata portion of the
Retained Yield as required by the applicable Pooling and Servicing
Agreement, plus the applicable Interest Appreciation Payment,
certificateholders in the aggregate will realize a loss in the amount of
such difference plus the aggregate of expenses incurred by the master
servicer or the related servicer, as applicable, in connection with such
proceedings and which are reimbursable under the Pooling and Servicing
Agreement. In addition, and as set forth above, in the event that the
master servicer or the servicer, as applicable, has expended its own funds
to restore damaged property and such funds have not been reimbursed under
any Special Hazard Insurance Policy, Letter of Credit or Reserve Fund, it
will be entitled to receive from the Distribution Account, out of related
Liquidation Proceeds or Insurance Proceeds, an amount equal to such
expenses incurred by it, in which event the certificateholders may realize
a loss up to the amount so charged. Since Insurance Proceeds cannot exceed
deficiency claims and certain expenses incurred by the master servicer or
the related servicer, as applicable, no insurance payments will result in a
recovery to certificateholders which exceeds the principal balance of the
defaulted SAM together with accrued and unpaid interest thereon at the
applicable Stated Rate plus the applicable Indexed Appreciation Payment. In
addition, where property securing a defaulted SAM can be resold for an
amount exceeding the principal balance of any related Mortgage Note
together with accrued interest and any Indexed Appreciation Payment and
expenses, it may be expected that, where retention of any such amount is
legally permissible, the insurer will exercise its right under any related
Pool Insurance Policy to purchase such property and realize for itself any
excess proceeds. Further, with respect to certain series of certificates,
if so provided in the applicable prospectus supplement, the master servicer
or the related servicer, as applicable, may have the option to purchase
from the Trust Fund any defaulted SAM after a specified period of
delinquency. If a defaulted SAM is not so removed from the Trust Fund,
then, upon the final liquidation of the SAM, if a loss is realized which is
not covered by any applicable form of credit enhancement or other
insurance, the certificateholders will bear such loss. However, if a gain
results from the final liquidation of a defaulted SAM which is not required
by law to be remitted to the related mortgagor, the master servicer or the
related servicer, as applicable, may be entitled to retain such gain as
additional servicing compensation.
AUTHORITY TO ISSUE SAMS AND
CERTAIN LEGAL CONSIDERATIONS CONCERNING SAMS
AUTHORITY TO ORIGINATE SAMS
Nationally Chartered Lenders
The OCC has informally determined that national banks which it charters
have implicit authority to accept consideration for a mortgage loan in the
form of equity appreciation in the real estate securing the loan, provided
the national bank expects to receive money rather than a possessory
interest in real property and the principal is to be repaid. National banks
are required to comply with certain OCC requirements when making
residential mortgage loans and these requirements would also apply to SAMs.
In a statement of policy, the OTS determined to the same effect that
Federal Thrifts chartered by the OTS may lend on terms where the principal
is to be repaid and the institution receives a "substantial payment of
interest" periodically. The OTS has not prescribed any other terms or
limitations specific to SAMs. However, the OTS's predecessor, the FHLBB,
originally proposed to cap the maximum share in the appreciation of a
home's value to 40 percent, to limit the maximum term to 10 years, and to
obligate the lender to refinance the mortgage at maturity. These proposed
limits were dropped when the current OTS's SAM statement of policy was
adopted.
State Chartered Lenders
Alternative mortgage transactions, including SAMs, have historically
been subjected to a variety of restrictions. Such restrictions differed
from state to state, resulting in difficulties in determining whether a
particular alternative mortgage instrument originated by a state chartered
lender was in compliance with applicable law. These difficulties were
alleviated by the enactment of the Parity Act which allows state chartered
banks, thrifts and most other mortgage lenders to "make, purchase and
enforce" qualifying alternative mortgage transactions, notwithstanding any
state constitution, law or regulation. alternative mortgage transactions
include any loan or credit sale secured by an "interest in residential real
property, a dwelling, all stock allocated to a dwelling unit in a
residential cooperative housing corporation," or certain residential
manufactured homes, "involving any...type of rate, method of determining
return, term, repayment, or other variation...including without limitation,
transactions that involve the sharing of equity or appreciation." In order
to qualify as an alternative mortgage transaction, the Parity Act requires
that a state chartered lender other than a state bank comply with certain
OTS regulations generally applicable to federal thrift mortgage lending.
The OTS by regulation specifies that such lenders making any alternative
mortgage transaction, as alternative mortgage transaction is defined by the
Parity Act, are protected by the Parity Act's preemption. Likewise, the OCC
provides such protection to state bank lenders that comply with certain OCC
adjustable rate mortgage regulations. The Parity Act provides that any
state may reject applicability of its provisions by adopting, prior to
October 15, 1985, a law or constitutional provision expressly rejecting the
application of such provisions. Maine, Massachusetts, New York and South
Carolina have exercised this override of the Parity Act.
APPLICABILITY OF USURY LAWS
National banks and federal thrifts are made subject by their respective
authorizing acts to limits on interest charged by the law of the state
where they are located, subject to penalties. Congress enacted the Monetary
Control Act which preempts the application of any state law or constitution
limiting the "rate or amount of interest, discount points, finance charges,
or other charges which may be charged, taken, received, or reserved" for
loans secured by first liens on residential real property, stock in a
residential cooperative housing corporation or certain residential
manufactured homes. Eligible lenders include all national and state banks,
federal and state thrifts, Department of Housing and Urban Development
approved mortgage-insurance program lenders and any person who regularly
extends or arranges for the extension of credit and makes or invests in
residential real property loans, subject to certain limits. The Monetary
Control Act's preemption is not unlimited. The implementing regulation
permits a state at any time to "adopt a provision of law placing
limitations on discount points or such other charges on any loan." In
addition, the law does not preempt any state laws on "prepayment charges,
attorneys' fees, late charges or other provisions designed to protect
borrowers."
The Monetary Control Act provides that any state may reject
applicability of its provisions by adopting, prior to April 1, 1983, a law
or constitutional provision expressly rejecting the application of such
provisions. Colorado, Georgia, Hawaii, Kansas, Maine, Massachusetts,
Minnesota, Nebraska, Nevada, North Carolina, South Carolina, South Dakota
and Wisconsin have exercised this override of the Monetary Control Act.
The term "interest" is not defined by the Monetary Control Act. The
preemption protection provided for a SAM by the Monetary Control Act is
qualified by the possibility that equity appreciation could be determined
not to be "interest" and therefore not within the scope of the statute.
Alternatively, a plaintiff could argue that the shared appreciation portion
of the loan is not subject to federal preemption as an "other charge"
subject to state restrictions, or that the equity interest portion of a SAM
is protected from federal preemption by a state "provision designed to
protect borrowers." In the event that equity appreciation is not considered
"interest" under the Monetary Control Act or a state has opted out of the
Monetary Control Act, the Parity Act provides broad preemptive authority
for a qualifying SAM, including the preemption of state usury limitations.
The Parity Act specifically provides that "[a]n alternative mortgage
transaction may be made by a housing creditor in accordance with this
section, notwithstanding any State constitution, law, or regulation." While
the Parity Act's preemption appears to be express, complete and unlimited
by its terms, the limited case law applying the Parity Act has not focused
on the preemption of usury statutes. Rather, the banking agencies and
courts which have applied the Parity Act have focused on the stated purpose
of the statute to provide parity to state chartered institutions or
non-bank lenders with respect to the structure of a loan. They have not
focused on the Parity Act as a mechanism to override state interest rate
ceilings, even though the ability to make an alternative mortgage
transaction might at times be inconsistent with such ceilings.
No SAMs will be originated in the states which have opted out of the
Parity Act. Under the Program, each Originator is required to represent and
warrant to SAMCO Mortgage Securities Corp. that all SAMs are originated in
full compliance with applicable state laws, including usury laws. Based
upon such representations and warranties from the Originators, SAMCO
Mortgage Securities Corp. will, if required by the rating agencies rating
the certificates, make a similar representation and warranty in the Pooling
and Servicing Agreement for each series to the Trustee for the benefit of
certificateholders. See "Description of the Certificates--Representations
and Warranties."
DISCLOSURE REQUIREMENTS RELATED TO SAMS
SAMs, as any other mortgage loan, are subject to the disclosure
requirements of the federal TIL Act and Regulation Z. SAMs are subject to
the disclosure provisions of the TIL Act and Regulation Z, which require
creditors to disclose to consumers the terms of all consumer credit
transactions. Basic credit terms such as the payment amounts, the finance
charge, and the total of payments must be disclosed. Rather than develop
specific rules pertaining to the many unique mortgage products, the Board
of Governors of the Federal Reserve System has opted to treat
alternative mortgage instruments such as SAMs within the already developed
framework for mortgage disclosure. As a result, although technically not
variable-rate mortgages, SAMs are treated as such, and a SAM Originator
consequently must disclose:
o the circumstances under which the annual percentage rate may increase;
o any limitations on the increase;
o the effect of an increase; and
o an example of the payment terms that would result from an increase.
Similarly, the OTS has determined that the disclosure requirements
prescribed by the OTS's adjustable rate mortgage regulation are
applicable to alternative mortgage transactions. Although SAMs
would not appear to fit within the OTS's definition of an adjustable
rate mortgage, the OTS would likely look to the treatment of SAMs
under the TIL Act, where SAMs are subject to variable-rate disclosures.
In addition, the FH Act and the ECOA prohibit discrimination on the
basis of any of a number of prohibited factors. As interpreted by the
courts and applied by the banking and enforcement agencies, underwriting
standards, marketing, pricing and other aspects of mortgage lending may be
regarded as discriminatory if members of protected classes or neighborhoods
that are predominantly constituted of such class members are treated
differently from other mortgagors or neighborhoods. Violations of the fair
lending laws could subject a lender to liability through an action brought
by the federal government or a private party. Lending discrimination may be
established by overt or circumstantial evidence of intentional
discrimination resulting in "disparate treatment," or evidence that a
lender's facially neutral policies and practices resulted in a "disparate
impact" on members of a protected class.
CERTAIN STATE LAW CONSIDERATIONS
If required given the concentration of SAMs originated in any one or
more states, certain state law considerations applicable to the SAMs in the
SAM Pool are described in the applicable prospectus supplement.
CERTAIN LEGAL CONSIDERATIONS APPLICABLE TO SAMS
Foreclosure
Foreclosure may be 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 the necessary defendant
parties. Judicial foreclosure proceedings are generally not contested by
any of the defendant parties. However, when the lender's right to foreclose
is contested, the legal proceedings necessary to resolve the issue can be
time consuming. After the completion of judicial foreclosure, the court
would issue a judgment of foreclosure and would generally appoint a referee
or other court officer to conduct the sale of the property.
In many states, foreclosure of a mortgage or deed of trust may also be
accomplished by a non-judicial sale under a specific provision in the
mortgage or deed of trust which authorizes the sale of the property at
public auction upon default by the mortgagor. The laws of the various
states establish certain notice requirements for non-judicial foreclosure
sales. In some states, notice of default must be recorded and sent to the
mortgagor and to any person who has recorded a request for a copy of a
notice of default and notice of sale. In addition, notice must be provided
in some states to certain other persons including junior lienholders and
any other individual having an interest in the real property. In some
states, the mortgagor, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by
paying the entire amount in arrears, plus the costs and expenses incurred
in enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including limited attorneys' fees, which
may be recovered by an Originator. Some states also require a notice of
sale to be posted in a public place and published for a specified period of
time in one or more newspapers. In addition, some state laws require that a
copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer or by the trustee is a
public sale. However, because of a number of factors, including the
difficulty a potential buyer at the sale would have in determining the
exact status of title and the fact that the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure
sale. Rather, it is common for the lender to purchase the property from the
trustee or referee with a credit bid in an amount equal to the principal
amount of the mortgage or deed of trust, accrued and unpaid interest,
including additional interest, and the expenses of foreclosure. Thereafter,
the lender will assume the burdens of ownership, including obtaining
casualty insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may
not equal the Originator's investment in the property.
Courts have imposed general equitable principles upon foreclosure
proceedings. These equitable principles are generally designed to relieve
the mortgagor from the legal effect of his default under the loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the Originator undertake affirmative and
sometimes expensive actions to determine the causes for the mortgagor's
default and the likelihood that the mortgagor will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the
lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate mortgagors who are suffering from
a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the security
instrument is not monetary, such as the mortgagor failing to adequately
maintain or insure the property or the mortgagor executing a second
mortgage or deed of trust affecting the property. Some courts have been
faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers receive notices in addition to the statutorily prescribed
minimum. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the foreclosure sale does not
involve sufficient state action to afford constitutional protections to the
borrower.
Rights of Redemption
In some states, after sale under a deed of trust or foreclosure of the
mortgage, there are statutory periods during which the mortgagor and
foreclosed junior lienholders may redeem the property from the foreclosure
sale. One effect of the statutory right of redemption is to diminish the
ability of the Originator to sell the foreclosed property, because the
right of redemption would defeat the title of any purchaser from the
Originator subsequent to foreclosure or sale under a deed of trust. As a
practical matter, the Originator may therefore be forced to retain the
mortgagor's property and pay the expenses of ownership until the redemption
period has run.
Anti-Deficiency Legislation and Other Limitations on Originators
Certain states have imposed statutory prohibitions which restrict or
eliminate the remedies of an Originator under a deed of trust or a
mortgage. In some states, statutes limit the right of the lender to obtain
a deficiency judgment against the mortgagor following sale under a deed of
trust or foreclosure of the mortgage. A deficiency judgment would be a
personal judgment against the former mortgagor equal in most cases to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Other statutes may require the
lender 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 mortgagor. Some state statutes also prohibit
any deficiency judgment where the loan proceeds were used to purchase an
owner-occupied dwelling. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale
to the excess of the outstanding debt over the fair market value of the
property at the time of the public sale. The basic purpose of these
statutes is to prevent a lender from obtaining a large deficiency judgment
against the former mortgagor as a result of low or no bids at the judicial
sale.
In addition to anti-deficiency and related legislation, numerous other
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 collect the full amount of interest due or
realize upon its security. For example, with respect to the Bankruptcy
Code, a court with federal bankruptcy jurisdiction may permit a mortgagor
through his or her Chapter 11, Chapter 12 or Chapter 13 rehabilitative plan
to cure a monetary default in respect of a mortgage loan on the mortgagor's
residence by paying arrearages within a reasonable time period and
reinstating the original mortgage loan payment schedule even though the
lender accelerated the mortgage loan and foreclosure proceedings had
occurred prior to the filing of its petition. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts
of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also held that the
terms of a mortgage loan secured by property of the mortgagor may be
modified. These courts have held that such modifications may include
reducing the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule, and reducing the lender's security
interest to the value of the residence, thus leaving the lender in the
position of a general unsecured creditor for the difference between the
value of the residence and the outstanding balance of the loan.
The Code provides priority to certain tax liens over the lien of the
security instrument. Numerous federal and some state consumer protection
laws impose substantive requirements upon lenders in connection with the
origination and the servicing of mortgage loans. These laws include the
federal TIL Act, Real Estate Settlement Procedures Act, ECOA, Fair Credit
Billing Act, Fair Credit Reporting Act and related statutes. These federal
laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In
some cases, this liability may affect assignees of the mortgage loans.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust used by
Originators generally contain "due-on-sale" clauses. These clauses permit
the Originator to accelerate the maturity of the loan if the mortgagor
sells, transfers or conveys the property. The enforceability of these
clauses was the subject of legislation and litigation in many states, and
in some cases the enforceability of these clauses was limited or denied.
However, the Garn-St Germain Act purports to pre-empt state statutory and
case law that prohibits the enforcement of "due-on-sale" clauses and
permits lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions as described in this prospectus. The
Garn-St Germain Act does "encourage" lenders to permit assumption of loans
at the original rate of interest or at some other rate less than the
average of the original rate and the market rate. In addition, certain
states have continuing restrictions on the enforceability of due-on-sale
clauses for certain loans.
The Garn-St Germain Act also sets forth specific instances in which a
mortgage lender covered thereby, including federal savings associations and
federal savings banks, may not exercise a "due-on-sale" clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intrafamily transfers, leases of less than three years, the
creation of a junior encumbrance, certain transfers by operation of law and
transfers or dispositions described in regulations prescribed by the OTS.
Regulations promulgated under the Garn-St Germain Act by the FHLBB, now the
OTS, and statutes in some states also prohibit the imposition of a
prepayment penalty upon the acceleration of a loan under a "due-on-sale"
clause. In addition, a few states have exercised their rights under the
Garn-St Germain Act to limit the enforceability of the due-on-sale clauses
in certain loans made prior to passage of the Garn-St Germain Act.
A consequence of the inability to enforce a due-on-sale clause may be
that a mortgagor's buyer may assume the existing mortgage loan rather than
paying it off, which may have an impact upon the average life of the SAMs
and the ability of the lender to collect equity appreciation from the
mortgagor.
Under the terms of the Relief Act, a mortgagor who enters military
service after the origination of such mortgagor's mortgage loan, including
a mortgagor who is a member of the National Guard or is in reserve status
at the time of the origination of the mortgage loan and is later called to
active duty, may not be charged interest above an annual rate of 6% during
the period of such mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. Any shortfall in interest or
additional interest collections resulting from the application of the
Relief Act, to the extent not covered by any applicable credit
enhancements, could result in losses to the holders of the certificates. In
addition, the Relief Act imposes limitations which would impair the ability
of the master servicer or servicer to foreclose on an affected SAM during
the mortgagor's period of active duty status. Thus, in the event that such
a SAM goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion.
Environmental Considerations
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to
assure the payment of costs of clean-up. In several states, such a lien has
priority over the lien of an existing mortgage against such property.
In addition, under the laws of some states and under the federal CERCLA,
a lender may be liable, as an "owner" or "operator," for costs arising out
of releases or threatened releases of hazardous substances that require
remedy at a mortgaged property. CERCLA imposes liability for such costs on
any and all "responsible parties," including the current owner or operator
of a contaminated property, regardless of whether or not the environmental
damage was caused by a prior owner. However, CERCLA excludes from the
definition of "owner or operator" a secured creditor who holds indicia of
ownership primarily to protect its security interest, but does not
"participate in the management" of a mortgaged property. The conduct which
constitutes "participation in the management," such that the lender would
lose the protection of the exclusion for secured creditors, has been a
matter of judicial interpretation of the statutory language, and court
decisions have historically been inconsistent. In 1990, the United States
Court of Appeals for the Eleventh Circuit suggested, in United States v.
Fleet Factors Corp., that the mere capacity of the lender to influence a
borrower's decisions regarding disposal of hazardous substances was
sufficient participation in the management of the borrower's business to
deny the protection of the secured creditor exclusion to the lender,
regardless of whether the lender actually exercised such influence. Other
judicial decisions did not interpret the secured creditor exclusion as
narrowly as did the Fleet Factors decision.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation Act, which took effect on September 30, 1996. The Asset
Conservation Act 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 of the borrower.
The Asset Conservation Act 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 exclusion only if it
exercises decision making control over the mortgagor's environmental
compliance and hazardous substance handling and disposal practices, or
assumes day-to-day management of all operational functions of the mortgaged
property. It should also be noted, however, that liability for costs
associated with the investigation and clean-up of environmental
contamination may also be governed by state law, which may not provide any
specific protections to lenders, or, alternatively, may not impose
liability on lenders at all.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion, therefore, does not apply to liability for clean-up costs
associated with releases of petroleum contamination. Federal regulation of
underground petroleum storage tanks, other than heating oil tanks, is
governed by Subtitle I of the federal RCRA. The EPA has promulgated a
lender liability rule for underground storage tanks regulated by Subtitle I
of RCRA. Under the EPA rule, a holder of a security interest in an
underground storage tank, or real property containing an underground
storage tank, is not considered an operator of the underground storage tank
as long as petroleum is not added to, stored in or dispensed from the tank
by the holder of the security interest. Moreover, amendments to RCRA,
enacted in 1996, concurrently with the CERCLA amendments discussed in the
previous paragraph, extend to the holders of security interests in
petroleum underground storage tanks the same protections accorded to
secured creditors under CERCLA. Again, it should be noted, however, that
liability for clean-up of petroleum contamination may be governed by state
law, which may not provide any specific protection for Originators or,
alternatively, may not impose liability on Originators at all.
At the time the SAMs were originated, no environmental assessment or a
very limited environment assessment of the Mortgaged Properties will have
been conducted.
Violation of Various Federal and State Laws May Result in Losses on the SAMs
Applicable state laws generally regulate interest rates and other
charges and require certain disclosures. In addition, most states have
other laws, public policies and general principles of equity relating to
the protection of consumers, unfair and deceptive practices and other
practices that may apply to the origination, servicing and collection of
the SAMs.
The SAMs may also be subject to various federal laws. The
Truth-in-Lending Act and Regulation Z and the Real Estate Settlement
Procedures Act and Regulation X require certain disclosures to the
borrowers regarding the terms of the SAMs. The Equal Credit Opportunity Act
and Regulation B and the Fair Housing Act and the regulations prohibit
discrimination in the provision of housing credit on the basis of certain
protected classes. The Fair Credit Reporting Act regulates the use and
reporting of information related to the borrower's credit experience. Other
federal laws may also apply.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of such laws, policies and general
principles of equity may limit the ability of the master servicer or a
servicer to collect all or part of the principal of or interest on the
SAMs, may entitle the mortgagor to rescind the loan or to a refund of
amounts previously paid and, in addition, could subject the owner of the
SAM to damages and administrative sanctions.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain requirements on employee benefit plans and other benefit plans or
arrangements which are subject to ERISA or Section 4975 of the Code and on
those persons who are fiduciaries with respect to Plans or otherwise
responsible for the investment of "plan assets" of Plans. Moreover, based
on the reasoning of the United States Supreme Court in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of Plans
investing in the general account, e.g., through the purchase of an annuity
contract. In accordance with the general fiduciary standards of ERISA, an
ERISA Plan fiduciary should consider whether an investment in the
certificates is permitted by the documents and instruments governing the
Plan, consistent with the Plan's overall investment policy and appropriate
in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans, as defined in
Section 3(32) of ERISA, and certain church plans, as defined in Section
3(33) of ERISA, are not subject to the requirements of ERISA or Section
4975 of the Code. Accordingly, assets of such plans may be invested in the
certificates subject to the provisions of applicable state law and, in the
case of any such plan which is qualified under Section 401(a) of the Code,
the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and the Code
prohibit a broad range of transactions involving Plan Assets and certain
persons who have certain specified relationships to the Plan. If the assets
of a SAM Pool are treated for purposes of ERISA and Section 4975 of the
Code as Plans or other entities holding Plan Assets with respect to Plans,
collective investment funds, insurance company general or separate accounts
that purchase or hold certificates of the applicable series, an investment
in certificates by any such Plan Asset Investor might constitute or give
rise to a prohibited transaction under ERISA or Section 4975 of the Code,
unless a statutory or administrative exemption applies. Violation of the
prohibited transaction rules could result in the imposition of excise taxes
or other penalties under ERISA or Section 4975 of the Code, as applicable.
PLAN ASSETS REGULATION
The United States Department of Labor has issued a final regulation
under which the assets of an entity in which a Plan Asset Investor makes an
equity investment will be treated as Plan Assets in certain circumstances.
Unless the Regulation provides an exception from this "plan asset"
treatment, and if an exemption is not otherwise available under ERISA, an
undivided portion of the assets of a SAM Pool will be treated, for purposes
of applying the fiduciary standards and prohibited transaction rules of
ERISA and Section 4975 of the Code, as Plan Assets with respect to each
Plan Asset Investor.
The Regulation provides an exception from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the
value of each class of equity interests in the entity, excluding interests
held by a person who has discretionary authority or control with respect to
the assets of the entity, or any affiliate of such a person, is held by
"benefit plan investors", i.e., Plans, governmental, foreign and other
employee benefit plans not subject to ERISA and entities holding Plan
Assets. Because the availability of this exemption with respect to any SAM
Pool depends upon the identity of the certificateholders of the applicable
series at any time, there can be no assurance as to whether any series or
class of certificates will qualify for this exemption.
PROHIBITED TRANSACTION CLASS EXEMPTION 83-1
Prohibited Transaction class Exemption 83-1, class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts, applicable to SAMs,
permits, subject to certain conditions, certain transactions involving the
creation, maintenance and termination of certain residential mortgage pools
and the acquisition and holding of certain residential mortgage pool
pass-through certificates by Plan Asset Investors, regardless of whether
(a) the mortgage pool is exempt from "plan asset" treatment or (b) the
transactions would otherwise be prohibited under ERISA or Section 4975 of
the Code. If the general conditions of PTCE 83-1 are satisfied, an
investment by a Plan in certificates (1) will be exempt from the
prohibitions of Section 406(a) of ERISA, relating generally to Plan Asset
transactions involving Parties in Interest who are not fiduciaries, if the
certificates are not subordinated to the rights and interests evidenced by
other certificates of the same Mortgage Pool and are purchased at no more
than fair market value, and (2) will be exempt from the prohibitions of
Sections 406(b)(1) and (2) of ERISA, relating generally to Plan Asset
transactions with fiduciaries if, in addition, the purchase is approved by
an independent fiduciary, the Plan Asset Investor pays no more for the
certificates than would be paid in an arm's length transaction with an
unrelated party, no sales commission is paid to SAMCO Mortgage Securities
Corp. as SAM Pool sponsor, the Plan Asset Investor does not purchase more
than 25% of the certificates of the applicable series, and at least 50% of
the certificates of that series is purchased by persons independent of
SAMCO Mortgage Securities Corp., the Trustee and the insurer, as
applicable.
PTCE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (1) the existence of a
pool trustee who is not an affiliate of the pool sponsor; (2) the
maintenance of a system of insurance or other protection for the pooled
shared appreciation mortgage loans and property securing such loans, and
for indemnifying certificateholders against reductions in pass-through
payments due to property damage or defaults in loan payments; 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 shared appreciation mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the
mortgage pool.
The Trustee for each series may be affiliated with SAMCO Mortgage
Securities Corp., and the first general condition of PTCE 83-1 will be
satisfied for each such series. With respect to the second general
condition of PTCE 83-1, SAMCO Mortgage Securities Corp. intends to use its
best efforts to establish for each series of certificates an insurance,
indemnification, subordination or other method of credit support which will
adequately protect the SAM Pools and indemnify certificateholders of the
applicable series against pass-through payment reductions resulting from
property damage or defaults in loan payments. See "Description of Credit
Enhancements." The amount, method and description of the credit support
method applicable to a series of certificates will be set forth in the
related prospectus supplement. With respect to the third general condition
of PTCE 83-1, SAMCO Mortgage Securities Corp. intends to use its best
efforts to establish for each series a compensation method which will
produce for SAMCO Mortgage Securities Corp. total compensation which will
not exceed adequate consideration for forming the SAM Pool, selling the
certificates and serving as master servicer or servicer of the SAM Pool.
However, SAMCO Mortgage Securities Corp. does not guarantee that its credit
support and compensation methods will be sufficient to meet the second and
third general conditions with respect to any series.
As indicated in the two preceding paragraphs, the continued maintenance
of a system of insurance or other protection for the pooled shared
appreciation mortgage loans and property securing such loans, and for
indemnifying certificateholders against reductions in pass-through payments
due to property damage or defaults in loan payments, is one of the three
general conditions that must be satisfied for any transaction involving a
SAM Pool to remain eligible for exemption by PTCE 83-1 from the prohibited
transaction rules of ERISA and Section 4975 of the Code. If the credit
support method established for any series is cancelled or terminated, or if
the credit support is reduced to such an extent that its coverage amount is
less than the greater of (a) 1% of the aggregate unpaid principal balance
of the SAMs or (b) the unpaid principal balance of the largest single SAM,
then the SAM Pool relating to that series may no longer satisfy the general
conditions of PTCE 83-1. In such event, the exemption from the prohibited
transaction rules afforded by PTCE 83-1 may no longer be available. See
"Description of Credit Enhancements."
One or more series of certificates may be offered to Plan Asset
Investors through a forward delivery commitment contract, which is a
contract for the purchase of certificates to be delivered at an agreed
future settlement date. PTCE 83-1 permits the sale of certificates to a
Plan Asset Investor under such a contract, provided that the forward
delivery commitment is expressly approved by a fiduciary who is independent
of SAMCO Mortgage Securities Corp., the Trustee, the insurer, if any and
their respective affiliates, and who has the authority to manage and
control the Plan Assets being committed for investment in the certificates.
PTCE 83-1 will not provide exemptive relief with respect to a series of
certificates evidencing interests in a Trust Fund that include loans to
cooperatives. If a series of certificates is subdivided into two or more
classes which are entitled to disproportionate allocations of the principal
and interest payments on the SAMs, the availability of the exemption
afforded by PTCE 83-1 may be adversely affected, as described in the
applicable prospectus supplement. Moreover, if any class of certificates is
entitled to pass-through payments of principal, but no or only nominal
interest, or interest, but no or only nominal principal, PTCE 83-1 will not
exempt holders of that class of certificates from the prohibited
transaction rules of ERISA and Section 4975 of the Code.
OTHER EXEMPTIONS
The DOL also has issued an individual administrative exemption,
Prohibited Transaction Exemption 90-30, to Bear, Stearns & Co., Inc., which
exempts the initial purchase, the holding and the subsequent resale by
Plans of certificates representing interests in asset-backed pass through
trusts that consists of certain secured receivables, loans and other
obligations that meet the conditions and requirements of PTE 90-30 from
certain of the prohibited transaction rules of ERISA and the Code. In
addition, PTE 90-30 provides that the trust's assets may include yield
supplement agreements or similar yield maintenance arrangements of the type
described above, provided such arrangements do not involve swap agreements
or other notional principle contracts; and certain pre-funding account
arrangements. PTE 90-30 may apply to the acquisition and holding of one or
more series of certificates that may be offered to Plan Asset Investors
subject to the satisfaction of certain conditions.
Among the conditions that must be satisfied for PTE 90-30 to apply
are the following:
o The acquisition of the certificates by a Plan must be on terms,
including the price, that are at least as favorable to the Plan
as they would be in an arm's length transaction with an
unrelated party;
o The rights and interests evidenced by the certificates acquired
by the Plan may not be subordinated to the rights and interests
evidenced by other certificates of the Trust;
o The certificates acquired by the Plan must have received a
rating at the time of such acquisition that is in one of the
three highest generic rating categories form either S&P,
Moody's, D&P or Fitch;
o The sum of all payments made to the Underwriters in connection
with the distribution of the certificates may represent not
more than reasonable compensation for underwriting the
certificates. The sum of all payments made to and retained by
the servicer may not represent more than reasonable
compensation for the servicer's services under the Pooling and
Servicing Agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
o The Trustee must not be an affiliate of any other member of the
Restricted Group; and
o The Plan investing in the certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of
1933.
The Trust also must meet the following requirements:
o the corpus of the Trust must consist solely of assets of
the type which have been included in other investment
pools;
o certificates in such other investment pools must have
been rated in one of the three highest rating categories
of S&P, Moody's, Duff & Phelps or Fitch for at least one
year prior to the Plan's acquisition of certificates; and
o certificates evidencing interests in such other
investment pools must have been purchased by investors
other than plans for at least one year prior to any
Plan's acquisition of certificates.
In order for PTE 90-30 to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary
causes the Plan to acquire certificates, PTE 90- 30 requires, among other
matters, that:
o 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 is acquired by persons independent of the
Restricted Group;
o such fiduciary, or its affiliate, is an obligor with respect to 5
percent or less of the fair market value of the obligations contained
in the trust;
o the Plan's investment in each class of certificates does not exceed
twenty-five (25) percent of all of the certificates of that class
outstanding at the time of the acquisition and
o immediately after the acquisition, no more than twenty-five percent
(25%) of the assets of the Plan are invested in certificates
representing an interest in one or more trusts containing assets sold
or serviced by the same entity.
PTE 90-30 does not apply in the case of Plans sponsored by the Underwriter,
the Trustee, the servicer, any obligor with respect to the Receivables
included in the Trust, any entity deemed to be a "sponsor" of the Trust as
such term is defined in PTE 90-30, or any affiliate of any such party.
If for any reason the above exemptions do not provide an exemption for a
particular certificateholder who is a Plan Asset Investor, one of five
other prohibited transaction class exemptions issued by the DOL might
apply, i.e., PTCE 96-23, Class Exemption for Plan Asset Transactions
Determined by In-House Asset Managers, PTCE 95-60, Class Exemption for
Certain Transactions Involving Insurance Company General Accounts, PTCE
91-38, Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds, PTCE 90-1, Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts, or PTCE 84-14, Class
Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers. There can be no assurance that any of these
class exemptions will apply with respect to any particular Plan Asset
Investor or, even if it were to apply, that the exemption would apply to
all transactions involving the SAM Pool. In addition, the underwriter with
respect to a particular series may be the recipient of a final prohibited
transaction exemption which, if so specified in the applicable prospectus
supplement, may accord a Plan Asset Investor protection from violations of
the prohibited transaction rules of ERISA and Section 4975 of the Code if
the Plan Asset Investor satisfies the conditions described in the
applicable prospectus supplement.
As noted above, based on the reasoning of the United States Supreme
Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S.
Ct. 517 (1993), an insurance company's general account may be deemed to
include assets of the Plans investing in the general account (e.g., through
the purchase of an annuity contract), and the insurance company might be
treated as a Party-in-Interest with respect to a Plan by virtue of such
investment. Any purchaser that is an insurance company using the assets of
an insurance company general account should note that the Small Business
Job Protection Act of 1996 added new Section 401(c) of ERISA relating to
the status of the assets of insurance company general accounts under ERISA
and Section 4975 of the Code. Pursuant to Section 401(c), the Department of
Labor is required to issue final regulations not later than December 31,
1997 with respect to insurance policies issued on or before December 31,
1998 that are supported by an insurer's general account. The General
Account Regulations are to provide guidance on which assets held by the
insurer constitute "plan assets" for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Section
401(c) also provides that, except in the case of avoidance of the General
Account Regulation and actions brought by the Secretary of Labor relating
to certain breaches of fiduciary duties that also constitute breaches of
state or federal criminal law, until the date that is 18 months after the
General Account Regulations become final, no liability under the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section
4975 may result on the basis of a claim that the assets of the general
account of an insurance company constitute the plan assets of any such
plan. The plan asset status of insurance company separate accounts is
unaffected by new Section 401(c) of ERISA, and separate account assets
continue to be treated as the plan assets of any such plan invested in a
separate account.
GENERAL CONSIDERATIONS
In summary, SAMCO Mortgage Securities Corp., the Trustee, a master
servicer, a servicer, any insurer, the obligor under any other credit
enhancement instrument, any servicer, any underwriter for any series of
certificates, as applicable, and their respective affiliates might be
considered or might become Parties in Interest with respect to a Plan Asset
Investor. In that event, the acquisition or holding of certificates of the
applicable series or class by or on behalf of such Plan Asset Investor
might be viewed as giving rise to a prohibited transaction under ERISA and
Section 4975 of the Code. Accordingly, before a Plan Asset Investor makes
the investment decision to purchase, to commit to purchase or to hold
certificates of any series or class, the Plan Asset Investor should
determine (a) whether adequate protection is accorded by PTCE 83-1, PTE
90-30 or any other prohibited transaction exemption that may be issued with
respect to the applicable series, as described in the applicable prospectus
supplement; (b) whether any other prohibited transaction class exemption
(if required) is available under ERISA and Section 4975 of the Code; or (c)
whether an exemption from "plan asset" treatment is available to the
applicable SAM Pool. The Plan Asset Investor should also consult the ERISA
discussion, if any, in the applicable prospectus supplement for further
information regarding the application of ERISA and Section 4975 of the Code
to any series or class of certificates.
ANY PLAN ASSET INVESTOR THAT PROPOSES TO USE PLAN ASSETS TO PURCHASE
CERTIFICATES SHOULD CONSULT WITH ITS OWN COUNSEL WITH RESPECT TO THE
POTENTIAL CONSEQUENCES UNDER ERISA AND THE CODE OF THE ACQUISITION AND
OWNERSHIP OF CERTIFICATES.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the certificates
offered hereunder to initial purchasers of certificates. This discussion
does not address aspects of purchasing, owning and disposing of the
certificates that are specific to particular classes of holders in light of
their personal investment or tax circumstances or to holders subject to
special treatment under the federal income tax laws, such as dealers in
securities, life insurance companies, tax-exempt organizations, financial
institutions and taxpayers subject to the alternative minimum tax. This
discussion assumes that each holder holds its certificates as a capital
asset within the meaning of section 1221 of the Code and does not hold the
certificates as part of a hedge or hedging transaction or other transaction
subject to special treatment under a specific section of the Code or
Treasury regulations. This discussion does not address the state, local or
foreign tax consequences of the purchase, ownership and disposition of
certificates and is based on the Code and Treasury regulations currently in
effect and judicial and administrative interpretations, all of which are
subject to change, possibly with retroactive effect.
We suggest that investors consult their own tax advisors to determine
the federal, state, local and foreign tax consequences to them of the
purchase, ownership and disposition of the certificates offered hereunder.
The following discussion addresses only the federal income tax
consequences applicable to holders of certificates that are issued with
respect to SAM Pools containing Mortgage Subsidy SAMs. If certificates are
issued with respect to SAM Pools containing Equity Release SAMs, disclosure
of any material federal income tax consequences to holders that differ from
those described below will be provided in the relevant prospectus
supplement.
TAX STATUS OF SAM POOLS
Depending on the type of election made, all or a portion of a SAM Pool
will be classified for federal income tax purposes as either a REMIC or a
FASIT. If neither election is made with respect to a SAM Pool or portion
thereof, the SAM Pool or portion thereof will be classified as a grantor
trust for federal income tax purposes. Certain SAM Pools may be classified
as more than one REMIC, FASIT or grantor trust or combination of the
foregoing. The tax consequences to holders of certificates issued with
regard to each type of SAM Pool are discussed below.
In the opinion of Skadden, Arps, Slate Meagher & Flom LLP, special
counsel to SAMCO Mortgage Securities Corp., assuming that:
o a REMIC or FASIT election, if any, is timely made on the
required form,
o each master servicer or servicer, as applicable, complies with
all provisions of the related Pooling and Servicing Agreement,
o certain representations set forth in the Pooling Agreement are
true, and
o there is continued compliance with applicable provisions of the
Code and Treasury regulations, the designated portion of a SAM
Pool will qualify as a REMIC, FASIT, or grantor trust, as the
case may be, and, in the case of a REMIC, the classes of
interests offered will be considered to be regular interests or
residual interests in that REMIC within the meaning of the
REMIC Provisions and, in the case of a FASIT, the classes of
interests offered will be considered to be regular interests or
ownership interests in that FASIT within the meaning of the
FASIT Provisions.
The foregoing opinion, however, does not relate to a particular transaction
and is valid only if confirmed in connection with a particular issuance.
Holders of certificates should be aware that, if an entity with respect
to which a REMIC or FASIT election has been made fails to comply with one
or more of the ongoing requirements of the Code for REMIC or FASIT status
during any taxable year, the Code provides that the entity will not be
treated as a REMIC or FASIT for such year and thereafter. In such event, an
entity electing to be treated as a REMIC or FASIT may be subject to tax as
a separate corporation under Treasury regulations, and the related
certificates may not be accorded the status described below under the
heading "--Characterization of REMIC and FASIT Certificates." In the case
of an inadvertent termination of REMIC or FASIT status, the Code provides
the Treasury Department with authority to issue regulations providing
relief. Any such relief, however, may be accompanied by sanctions, such as
the imposition of a corporate tax on all or a portion of the REMIC's or
FASIT's income for the period of time in which the requirements for REMIC
or FASIT status are not satisfied. The legislative history to the FASIT
Provisions indicates that loss of FASIT status results in the retirement of
all regular interests and a deemed reissuance of new Securities, resulting
in cancellation of indebtedness income if the old certificates were
characterized as indebtedness but the new securities are treated as equity.
If an entity that is expected to be treated as a grantor trust fails to
so qualify, it will be treated as a partnership for federal income tax
purposes, but may nevertheless be taxable as a corporation because of its
potential qualification as a publicly traded partnership
CHARACTERIZATION OF REMIC AND FASIT REGULAR CERTIFICATES
In general, REMIC or FASIT Regular Certificates (including High-Yield
Interests) are treated as debt for federal income tax purposes and not as
ownership interests in the assets of a SAM Pool. In addition, (i) REMIC
Certificates held by a domestic building and loan association will
constitute a "regular or residual interest in a REMIC" within the meaning
of section 7701(a)(19)(C)(xi) of the Code in the same proportion that the
assets would be treated as "loans . . . secured by an interest in real
property" within the meaning of section 7701(a)(19)(C)(v) of the Code or as
other assets described in section 7701(a)(19)(C) of the Code; and (ii)
REMIC Certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of section 856(c)(5)(A) of the
Code, and interest on the REMIC Certificates will be considered "interest
on obligations secured by mortgages on real property or on interests in
real property" within the meaning of section 856(c)(3)(B) of the Code in
the same proportion that, for both purposes, the assets would be treated as
"interests in real property" as defined in section 856(c)(6)(C) of the Code
(or, as provided in the legislative history, as "real estate assets" as
defined in section 856(c)(6)(B)) of the Code. Moreover, if 95% or more of
the assets qualify for any of the foregoing treatments, then REMIC
Certificates will qualify for the corresponding status in their entirety.
Similarly, if 95% or more of a FASIT's assets are real estate mortgages,
then FASIT Regular Certificates will qualify as real estate assets for
purposes of sections 7701(a)(19) and 856(c) of the Code. Holders of REMIC
Certificates should be aware that the investment of amounts in any reserve
account in non-qualifying assets would, and holding property acquired by
foreclosure pending sale might, reduce the amount of the REMIC Certificate
that would qualify for the foregoing treatment.
The REMIC will report the foregoing percentages to holders in the manner
and at the times required by applicable Treasury regulations. REMIC
Certificates held by certain financial institutions will constitute
"evidence of indebtedness" within the meaning of section 582(c)(1) of the
Code; in addition, REMIC Regular Certificates acquired by a REMIC in
accordance with the requirements of section 860G(a)(3)(C) or section
860G(a)(4)(B) of the Code will be treated as "qualified mortgages" for
purposes of section 860D(a)(4) of the Code.
TAXATION OF OWNERS OF REMIC AND FASIT REGULAR CERTIFICATES
Except as otherwise stated in this discussion, REMIC Regular
Certificates and FASIT Regular Certificates will be treated for federal
income tax purposes as a debt instrument issued by the REMIC or the FASIT,
as applicable, and not as an ownership interest in a SAM Pool. In general,
interest and OID paid or accrued on a REMIC Regular Certificate or a FASIT
Regular Certificate will be treated as ordinary income to the holder of
such REMIC or FASIT Regular Certificate. A principal distribution on a
REMIC or FASIT Regular Certificate will be treated as a return of capital
to the extent of the holder's basis in such REMIC or FASIT Regular
Certificate. Holders of REMIC or FASIT Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC or FASIT Regular Certificates under an accrual
method, the effect of which is that cash basis holders may be required to
recognize income in a year regardless of whether or not they receive a cash
distribution with respect to a certificate.
Original Issue Discount
Certain REMIC or FASIT Regular Certificates (or Stripped Certificates,
as described under "Taxation of Holders of Stripped Certificates") may be
issued with OID. Any holders of such certificates issued with OID generally
will be required to include OID in income as it accrues, in accordance with
a constant yield method, in advance of the receipt of the cash attributable
to such income. SAMCO Mortgage Securities Corp. will report annually (or
more often if required) to the Internal Revenue Service and to
certificateholders such information with respect to the original issue
discount accruing on the REMIC or FASIT Regular Certificates as may be
required under section 6049 of the Code and the Treasury regulations
thereunder. See "--Reporting and Other Administrative Matters of REMICs and
FASITs" below.
It is generally anticipated that REMIC and FASIT Regular Certificates
will accrue interest that is either:
o "qualified stated interest",
o not "qualified stated interest" because it is equal to the
weighted average of a pool of fixed rates or
o interest consisting of an "interest only." A specific
discussion of OID, if any, relating to a particular issuance
will be included in the related prospectus supplement.
Under the general de minimis rule, original issue discount on a REMIC or
FASIT Regular Certificate will be considered to be zero if such OID is less
than the product of (x) 0.25% and (y) the stated redemption price at
maturity of the REMIC or FASIT Regular Certificate multiplied by the
weighted average life of the REMIC or FASIT Regular Certificate calculated
in accordance with specific regulations. The Trustee will assume that the
Prepayment Assumption should be taken into account when applying this rule.
A holder of a REMIC or FASIT Regular Certificate must generally include any
de minimis OID in income ratably as principal payments are made, although a
Certificateholder may elect to accrue de minimis OID currently based on a
constant yield method.
Each holder of a REMIC Regular Certificate must include in gross income
the sum of the "daily portions" of OID on its REMIC or FASIT Regular
Certificate for each day during its taxable year on which it held such
REMIC or FASIT Regular Certificate. The daily portions of OID will be
determined as follows. A holder will first calculate the portion of the OID
that accrued during each accrual period. Unless otherwise stated in the
applicable prospectus supplement, the first accrual period will begin on
the closing date and end on the first Distribution Date for that REMIC or
FASIT Regular Certificate. The next accrual period will begin on the first
day following the last day of the immediately preceding accrual period and
will end on the next Distribution Date. For any accrual period, the portion
of OID will equal the excess, if any, of (1) the sum of (A) the present
value of all of the distributions remaining to be made on the REMIC or
FASIT Regular Certificate, if any, as of the end of the accrual period and
(B) the distributions made on such REMIC or FASIT Regular Certificate
during the accrual period of amounts included in the stated redemption
price at maturity, over (2) the adjusted issue price of such REMIC or FASIT
Regular Certificate at the beginning of the accrual period. The present
value of the remaining payments referred to in the preceding sentence will
be calculated based on:
o the yield to maturity of the REMIC or FASIT Regular Certificate,
calculated as of the settlement date, giving effect to the
Prepayment Assumption,
o events (including actual prepayments) that have occurred prior to
the end of the accrual period, and
o the Prepayment Assumption.
The adjusted issue price of a REMIC or FASIT Regular Certificate at the
beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of OID with respect to such
REMIC or FASIT Regular Certificate that accrued in prior accrual periods,
and reduced by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The OID accruing during any accrual period
will be allocated ratably to each day during the period to determine the
daily portion of OID. With respect to an accrual period between the
settlement date and the first Distribution Date on the REMIC Regular
Certificate (notwithstanding that no distribution is scheduled to be made
on such date) that is shorter than a full accrual period, the OID
Regulations permit the daily portions of OID to be determined according to
any reasonable method.
The adjusted issue price of a REMIC or FASIT Regular Certificate on any
given day is equal to the sum of the adjusted issue (or, in the case of the
first accrual period, the issue price) of the REMIC or FASIT Regular
Certificate at the beginning of the accrual period during which such day
occurs and the daily portions of original issue discount for all days
during such accrual period prior to such day reduced by the aggregate
amount of distributions previously made other than distributions of
qualified stated interest.
Variable Rate Certificates. If any variable rate certificates are
issued, disclosure will be provided in the related prospectus supplement.
High-Yield FASIT Certificates
A FASIT Certificate will be treated as a "high-yield interest" for
federal income tax purposes, if either (A) it would constitute a FASIT
regular interest under section 860L(b)(1) of the Code but fails to meet one
or more of the following requirements (1) the interest unconditionally
entitles the holder to receive a specified principal amount (or other
similar amount), (2) the issue price of such interest does not exceed 125%
of its stated principal amount, or (3) the yield to maturity on such
interest is less than the sum of (x) the AFR for the calendar month in
which the obligation is issued and (y) 5 percentage points, or (B) the
interest is an "interest only" certificate as to which interest payments
consist of a specified portion of the interest payments on permitted assets
and such portion does not vary during the period such FASIT Certificate is
outstanding.
A High-Yield Interest may not be held by a "disqualified holder," which
generally is any holder other than (1) a domestic C corporation that does
not qualify as a regulated investment company, a real estate investment
trust, a REMIC or a cooperative, (2) a FASIT or (3) a dealer who
temporarily holds such interests for resale to customers in the ordinary
course of business. The transfer of a High-Yield Interest to a disqualified
holder is disregarded for federal income tax purposes. As a result, the
transferor would be required to include in its income any amounts
attributable to such High-Yield Interest and pay tax thereon, and the
disqualified transferee would not required to include in its income any
amounts (other than gain) attributable to such High-Yield Interest. Income
will not be reallocated to the transferor, however, if (1) the transferee
furnishes the transferor with an affidavit that the former is not a
disqualified holder or (2) the Internal Revenue Service issues a waiver.
The holder of a High-Yield Interest may not use non-FASIT losses to
offset income (including gain or loss from sales and exchanges of such
interests) from the High-Yield Interest. For purposes of applying this
rule, all members of an affiliated group that file a consolidated return
are treated as one taxpayer. Any increase in income of a holder of a
High-Yield Interest that results from the rule described above will be
disregarded in determining the amount of the holder's net operating loss,
as well as the amount of any allowable carryback or carryover.
Realized Losses
Both corporate holders of REMIC or FASIT Regular Certificates and
noncorporate holders of REMIC or FASIT Regular Certificates that acquire
such certificates in connection with a trade or business should be allowed
to deduct, as ordinary losses, any losses sustained during a taxable year
in which their certificates become wholly or partially worthless as a
result of one or more realized losses on the shared appreciation mortgages.
However, it appears that a noncorporate holder that does not acquire a
REMIC or FASIT Regular Certificate in connection with a trade or business
will not be entitled to deduct a loss under section 166 of the Code until
such holder's certificate becomes wholly worthless (i.e., until its
outstanding principal balance has been reduced to zero) and that the loss
will be characterized as a short-term capital loss.
Each holder of a REMIC or FASIT Regular Certificate will be required to
accrue interest on its REMIC or FASIT Regular Certificate, which is a
separate debt obligation without regard (in general) to the performance of
the SAM Pool, at least until it can be established that any interest that
would otherwise be required to accrue ultimately will not be recoverable.
As a result, the amount of taxable income reported in any period by the
holder of a REMIC or FASIT Regular Certificate could exceed the amount of
cash received by the holder in such period. The holder of a REMIC or FASIT
Regular Certificate will eventually recognize a loss or reduction in
income; however, the law is unclear with respect to the timing and
character of such loss or reduction in income.
Pass-Through of Servicing Fees of "Single Class REMICs"
Unlike a conventional REMIC in which all the income and loss is only
allocated to the holder of a REMIC Residual Certificate, a "single-class
REMIC" requires that certain items of income and loss be allocated among
the holders of REMIC Residual Certificates and REMIC Regular Certificates.
The consequence of this rule is that holders of REMIC Regular Certificates
will be allocated (1) their proportionate share of the expense pertaining
to the servicing fee paid to SAMCO Mortgage Securities Corp. and (2) a
corresponding amount of gross income. The ability of a holder to deduct
expenses relating to the servicing fee and, thus, offset the allocation of
gross income may be limited. Generally, any holder of a REMIC Certificate
that is an individual, estate or trust will be able to deduct such expenses
in determining regular tax liability only to the extent that such expenses
together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; in
addition, such a holder may not deduct such expenses to any extent in
determining liability for alternative minimum tax. Accordingly, REMIC
Regular Certificates in a "single class REMIC" may not be appropriate
investments for individuals, estates or trusts because of the rules
regarding miscellaneous deductions, and such persons should consult with
their own tax advisors regarding the advisability of an investment in such
certificates.
A "single-class REMIC" is a REMIC that either (1) would be treated as a
pass-through trust under the provisions of Treasury regulation section
301.7701-4(c) in the absence of a REMIC election or (2) is substantially
similar to such a pass-through trust and is structured with the principal
purpose of avoiding the allocation of investment expenses to holders of
REMIC Regular Certificates.
It is not yet known whether similar rules will apply to "single class"
FASITs.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
General
An owner of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the
limitation described below under "--Basis Rules and Distributions," the net
loss of the REMIC for each day during a calendar quarter that the Residual
Owner owned such REMIC Residual Certificate. Any amount included in the
gross income or allowed as a loss of any Residual Owner pursuant to this
rule will be treated as ordinary income or loss. Purchasers of REMIC
Residual Certificates should be aware that taxable income from such
Certificates could exceed cash distributions thereon in any taxable year.
For example, if shared appreciation mortgages or interests in shared
appreciation mortgages are acquired by a REMIC at a discount, which is
likely given that the interest rates on shared appreciation mortgages are
below market rates (if the Appreciation Share is not taken into account) at
acquisition, then the holder of a residual interest may recognize income
without corresponding cash distributions. This result could occur because a
payment produces recognition of discount on the shared appreciation
mortgage while the payment could be used in whole or in part to make
principal payments on REMIC Regular Certificates issued without substantial
discount. Taxable income may also be greater in earlier years as a result
of the fact that interest expense deductions, expressed as a percentage of
the outstanding principal amount of the REMIC Regular Certificates, will
increase over time as the lower yielding sequences of certificates are
paid, whereas interest income with respect to any given fixed rate shared
appreciation mortgage will remain constant over time as a percentage of the
outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such certificate will be taken into
account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be
includible in income immediately upon its receipt, the Internal Revenue
Service might assert that such payment should be included in income over
time according to an amortization schedule or according to some other
method. Because of the uncertainty concerning the treatment of such
payments, holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of such payments for income tax purposes.
Taxable Income or Net Loss of the REMIC
The taxable income or net loss of the REMIC will reflect a netting of
income from the shared appreciation mortgages, any cancellation of
indebtedness income due to the allocation of realized losses to REMIC
Regular Certificates, and deductions and losses allowed to the REMIC. Such
taxable income or net loss for a given calendar quarter will be determined
in the same manner as for an individual having the calendar year as his
taxable year and using the accrual method of accounting, with certain
modifications. The first modification is that a deduction will be allowed
for accruals of interest (including OID) on the REMIC Regular Certificates.
Second, market discount on the REMIC's assets, if any, equal to the excess
of any shared appreciation mortgage's adjusted issue price over its fair
market value at the time of its transfer to the REMIC generally will be
included in income as it accrues, based on a constant yield and on the
Prepayment Assumption. For this purpose, SAMCO Mortgage Securities Corp.
intends to treat the fair market value of the shared appreciation mortgages
as being equal to the aggregate issue prices of the REMIC Regular
Certificates and REMIC Residual Certificates; if one or more classes of
REMIC Regular Certificates or REMIC Residual Certificates are retained by
SAMCO Mortgage Securities Corp., SAMCO Mortgage Securities Corp. will
estimate the value of such retained interests in order to determine the
fair market value of the shared appreciation mortgages for this purpose.
Third, no item of income, gain, loss or deduction allocable to a prohibited
transaction (see "--Prohibited Transactions and Other Possible REMIC Taxes"
below) will be taken into account. Fourth, the REMIC SAM Pool generally may
not deduct any item that would not be allowed in calculating the taxable
income of a partnership by virtue of section 703(a)(2) of the Code. Fifth,
the REMIC Regulations provide that the limitation on miscellaneous itemized
deductions imposed on individuals by section 67 of the Code will not be
applied at the SAM Pool level to the servicing fees paid to a master
servicer or servicer. See, however, "--Pass-Through of Servicing Fees"
above. If the deductions allowed to the REMIC exceed its gross income for a
calendar quarter, such excess will be the net loss for the REMIC for that
calendar quarter.
Basis Rules and Distributions
Any distribution by a REMIC to a Residual Owner will not be included in
the gross income of such Residual Owner to the extent it does not exceed
the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as
gain from the sale of the REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner and decreased by
distributions and by net losses taken into account with respect to such
interest. See "--Taxation of Owners of REMIC Residual
Certificates--General" above.
A Residual Owner is not allowed to take into account any net loss for
any calendar quarter to the extent such net loss exceeds such Residual
Owner's adjusted basis in its REMIC Residual Certificate as of the close of
such calendar quarter (determined without regard to such net loss). Any
loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same
limitation, may be used only to offset income from the REMIC Residual
Certificate.
The effect of these basis and distribution rules is that a Residual
Owner may not amortize its basis in a REMIC Residual Certificate, but may
only recover its basis through distributions, through the deduction of any
net losses of the REMIC or upon the sale of its REMIC Residual Certificate
See "Sales of REMIC Certificates" below.
Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any)
of the daily portions of taxable income over the sum of the "daily
accruals" for each day during such quarter that such REMIC Residual
Certificate was held by such Residual Owner. The daily accruals are
determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
long-term AFR (generally, an average of current yields on Treasury
securities of comparable maturity) in effect at the time of issuance of the
REMIC Residual Certificate. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter is
the issue price of the REMIC Residual Certificate, increased by the amount
of daily accruals for all prior quarters and decreased by any distributions
made with respect to such REMIC Residual Certificate before the beginning
of such quarter. The issue price of a REMIC Residual Certificate is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial amount of the REMIC Residual Certificates were sold.
An excess inclusion cannot be offset by deductions, losses or loss
carryovers from other activities. For Residual Owners that are subject to
tax on unrelated business taxable income (as defined in section 511 of the
Code), an excess inclusion of such Residual Owner is treated as unrelated
business taxable income. For Residual Owners that are nonresident alien
individuals or foreign corporations generally subject to United States 30%
withholding tax, even if interest paid to such Residual Owners is generally
eligible for exemptions from such tax, an excess inclusion will be subject
to such tax and no tax treaty rate reduction or exemption may be claimed
with respect thereto. See "Foreign Investors in REMIC Certificates" below.
If REMIC Residual Certificates are found in the aggregate not to have
"significant value," the entire daily portion of taxable income for such
REMIC Residual Certificates may be treated as excess inclusions. In order
to have significant value, the REMIC Residual Certificates must have an
aggregate issue price, at issuance, at least equal to two percent of the
aggregate issue prices of all of the related REMIC Regular and Residual
Certificates. In addition, the anticipated weighted average life of the
REMIC Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the Prepayment
Assumption and on any required or permitted clean-up calls or required
liquidation provided for in the REMIC's organizational documents. Each
prospectus supplement pursuant to which REMIC Residual Certificates are
offered will state whether such REMIC Residual Certificates will have, or
may be regarded as having, "significant value" under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual Certificate
will have "significant value" will be based upon certain assumptions, and
SAMCO Mortgage Securities Corp. will make no representation that a REMIC
Residual Certificate will have "significant value" for purposes of the
above described rules or that a Residual Owner will receive distributions
of amounts calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, pursuant to Treasury regulations not yet promulgated, the
aggregate excess inclusions with respect to such REMIC Residual
Certificates, reduced (but not below zero) by the real estate investment
trust taxable income (within the meaning of section 857(b)(2) of the Code,
excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders
from such trust, and any amount so allocated will be treated as an excess
inclusion with respect to a REMIC Residual Certificate as if held directly
by such shareholder.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede
the assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC Residual Certificate will be
considered a noneconomic residual interest unless, at the time of its
transfer and based on the Prepayment Assumption and any required or
permitted clean-up calls or required liquidation provided for in the
REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the AFR) of the REMIC Residual
Certificate equals at least the present value of the expected tax on the
anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. Accordingly, all transfers of REMIC Residual Certificates
that may constitute noneconomic residual interests will be subject to
certain restrictions under the terms of the related Pooling and
Servicing Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each party to a
transfer to provide an affidavit that no purpose of such transfer is to
impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective
transferee. Prior to purchasing a REMIC Residual Certificate, prospective
purchasers should consider the possibility that a purported transfer of
such REMIC Residual Certificate by such a purchaser to another purchaser at
some future date may be disregarded in accordance with the above-described
rules, which would result in the retention of tax liability by such
purchaser. The applicable prospectus supplement will disclose whether
offered REMIC Residual Certificates may be considered "noneconomic"
residual interests under the REMIC Regulations; provided, however, that any
disclosure that a REMIC Residual Certificate will or will not be considered
"noneconomic" will be based upon certain assumptions, and SAMCO Mortgage
Securities Corp. will make no representation that a REMIC Residual
Certificate will not be considered "noneconomic" for purposes of the
above-described rules or that a REMIC Residual Owner will receive
distributions calculated pursuant to such assumptions. See "--Foreign
Investors in REMIC Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons.
Tax-Exempt Investors
Generally, tax exempt organizations that are not subject to federal
income taxation on "unrelated business taxable income" pursuant to section
511 of the Code are treated as "disqualified organizations" under
provisions of the Code. Under provisions of the Pooling and Servicing
Agreement, such organizations generally are prohibited from owning REMIC
Residual Certificates. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in section 511 of the Code),
an excess inclusion of such Residual Owner is treated as unrelated business
taxable income. See "--Sales of REMIC Certificates" below.
Mark-to-Market Rules
A REMIC Residual Certificate is not treated as a security and,
therefore, generally may not be marked to market.
TAXATION OF OWNERS OF FASIT OWNERSHIP CERTIFICATES
General
A FASIT may issue only one ownership interest, which must be owned by a
domestic C corporation subject to corporate level tax. A FASIT Owner is
treated as owning all the assets and liabilities of a FASIT and thus will
be required to include in income all items of income, gain, deduction, loss
or credit of the FASIT. The character of the income is generally the same
as its character to the FASIT, except that tax-exempt interest is taken
into the income of the holder as ordinary income. As a result, amounts
included in income or allowed as loss will generally constitute ordinary
income or loss.
Purchasers of FASIT Ownership Certificates should be aware that taxable
income from such Certificates could exceed cash distributions thereon in
any taxable year. For example, if a FASIT acquires shared appreciation
mortgages at a discount, the payments received in respect of the shared
appreciation mortgage could be used in whole or in part to make principal
payments on FASIT Regular Certificates issued without substantial discount
leaving little or no cash to distribute to the FASIT Owner that is required
to include the discount in income. Moreover, FASIT Owners could recognize
greater taxable income in earlier years because interest expense
deductions, expressed as a percentage of the outstanding principal amount
of the FASIT Regular Certificates, will increase over time as the lower
yielding sequences of Certificates are paid; whereas interest income paid
in respect to any fixed rate shared appreciation mortgage will remain
constant over time as a percentage of the outstanding principal amount of
that loan.
Any payments received by a FASIT Owner in connection with the
acquisition of such certificate will be taken into account in determining
the income of such holder for federal income tax purposes. Although it
appears likely that any such payment would be includible in income
immediately upon its receipt, the Internal Revenue Service could assert
that such payment should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, FASIT Owners should
consult their tax advisors concerning the treatment of such payments for
income tax purposes.
Taxable Income or Net Loss of a FASIT
The taxable income or net loss of a FASIT will reflect a netting of
income from the shared appreciation mortgages, any cancellation of
indebtedness income due to the allocation of realized losses to FASIT
Regular Certificates and permitted deductions and losses. Interest paid or
accrued (including OID) to holders of the FASIT Regular Certificates is
deductible by the FASIT in computing the amount of its net taxable income
passed to the FASIT Owner. Taxable income is calculated using the accrual
method of accounting and the constant yield method and principles, which
apply for purposes of determining OID accrual on debt obligations whose
principal is subject to acceleration apply to all debt obligations held by
a FASIT, is used to calculate the FASIT's interest and discount income and
premium deductions or adjustments. Income from prohibited transactions,
which is subject to a 100% penalty tax as discussed below "- Prohibited
Transactions Tax" is not included in income; however, losses incurred in
prohibited transactions may be deducted in the taxable year of the loss.
Basis Rules and Distributions
Distributions by a FASIT to a FASIT Owner will not be included in the
gross income of the FASIT Owner to the extent the amount of such
distributions does not exceed the FASIT Owner's adjusted basis in its FASIT
Ownership Certificate. Such distribution will reduce the adjusted basis of
such interest but not below zero. To the extent a distribution exceeds the
adjusted basis of the FASIT Ownership Certificate, it will be treated as
gain from the sale of the FASIT Ownership Certificate. The adjusted basis
of a FASIT Ownership Certificate is equal to the amount paid for such
certificate, increased by amounts included in the income of the FASIT Owner
and decreased by distributions and by net losses taken into account with
respect to such interest.
A FASIT Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such FASIT Owner's
adjusted basis in its FASIT Ownership Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely
to future calendar quarters and, subject to the shared appreciation
mortgagee limitation, may be used only to offset income from the FASIT
Ownership Certificate.
The effect of these basis and distribution rules is that a FASIT Owner
may not amortize its basis in a FASIT Ownership Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the FASIT or upon the sale of its FASIT Ownership Certificate.
Prohibited Transactions Tax
A FASIT Owner is subject to a 100% tax on any income derived from
certain "prohibited transactions." Prohibited transactions generally
include:
o the receipt of income from dispositions of assets other than
cash and cash equivalents, certain permitted debt instruments,
certain foreclosure property, certain instruments or contracts
that represent a hedge or guarantee of debt held or issued by
the FASIT, contract rights to acquire permitted debt
instruments or hedges, and a regular interest in another FASIT,
and
o the disposition of a Permitted Asset other than
o upon the foreclosure, default, or imminent default of a
qualified mortgage,
o upon the bankruptcy or insolvency of the FASIT,
o in complete liquidation of a class of regular interests,
o to avoid a default (or imminent default) on an asset of the
FASIT,
o to facilitate a clean up call,
o to substitute a permitted debt instrument for another such
instrument or
o to reduce over-collateralization where a principal
purpose of the disposition was not to avoid recognition
of gain arising from an increase in its market value
after its acquisition by the FASIT.
It is unclear to what extent tax on such transactions could be collected
from the FASIT directly under the applicable statutes rather than from the
FASIT Owner. It is not anticipated that a FASIT will engage in any
prohibited transactions.
Excess Inclusions
FASIT Owners are subject to the same rules regarding "excess inclusions"
as Residual Owners of REMIC Residual Certificates. See "Taxation of Owners
of REMIC Residual Certificates - Excess Inclusions."
Limitation of Losses
A FASIT Owner cannot offset income and gain from its FASIT Ownership
Certificate with non-FASIT losses. Moreover, a FASIT Owner must disregard
any income arising by reason of a disallowed loss when computing any net
operating loss carryover. Only FASIT losses may be used to offset any FASIT
excess income recognized by a FASIT Owner.
Transfers to Disqualified Holders
Transfer of a FASIT Ownership Certificate to a holder that is not a
domestic C corporation subject to corporate level tax is disregarded for
federal income tax purposes. As a result, the most recent transferor who
was not a disqualified holder would be required to include any income
attributable to such FASIT Ownership Certificate and pay tax thereon.
Income will not be reallocated, however, if (1) the transferee furnishes
the transferor with an affidavit that the former is not a disqualified
holder or (2) the Internal Revenue Service issues a waiver.
SALES OF REMIC OR FASIT CERTIFICATES
General
If a REMIC or FASIT Certificate is sold, the seller will recognize gain
or loss equal to the difference between the amount realized on the sale and
its adjusted basis in the REMIC or FASIT Certificate. The adjusted basis of
a REMIC or FASIT Regular Certificate generally will equal the cost of such
REMIC or FASIT Regular Certificate to the seller, increased by any original
issue discount included in the seller's gross income with respect to such
REMIC or FASIT Regular Certificate and reduced by distributions previously
received by the seller of amounts included in the stated redemption price
at maturity of such REMIC or FASIT Regular Certificate. The adjusted basis
of a REMIC Residual Certificate will be determined as described above under
"--Taxation of Owners of REMIC Residual Certificates--Basis Rules and
Distributions," above, and the adjusted basis of a FASIT Ownership
Certificate will be determined as described above under "-- Taxation of
Owners of FASIT Ownership Certificates -- Basis Rules and Distributions."
Gain from the disposition of a REMIC Regular Certificate that might
otherwise be treated as a capital gain will be treated as ordinary income
to the extent that such gain does not exceed the excess, if any, of (1) the
amount that would have been includible in such holder's income had income
accrued at a rate equal to 110% of the AFR as of the date of purchase over
(2) the amount actually includible in such holder's income. Except as
otherwise provided above and under section 582(c) of the Code, any gain or
any loss on the sale or exchange of a REMIC or FASIT Certificate will be
capital gain or loss, provided such REMIC or FASIT Certificate is held as a
capital asset (generally, property held for investment) within the meaning
of section 1221 of the Code.
A portion of any gain from the sale of a REMIC or FASIT Regular
Certificate that might otherwise be capital gain may be treated as ordinary
income to the extent that such certificate is held as part of a "conversion
transaction" within the meaning of section 1258 of the Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in certificates or similar property that reduce or eliminate
market risk, if substantially all of the taxpayer's return is attributable
to the time value of the taxpayer's net investment in such transaction. The
amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120%
of the AFR at the time the taxpayer enters into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest and other
ordinary income items from the transaction.
A taxpayer's deduction of interest on indebtedness allocable to property
held for investment is limited to a taxpayer's net investment income for
each taxable year. Net investment income for each taxable year includes net
capital gain attributable to the disposition of investment property only if
the taxpayer elects to have such net capital gain taxed at ordinary income
rates rather than capital gains rates.
REMIC Residual Certificates
If a Residual Owner sells a REMIC Residual Certificate at a loss, the
loss will not be recognized if, within six months before or after the sale
of the REMIC Residual Certificate, such Residual Owner purchases another
residual interest in any REMIC or any interest in a taxable mortgage pool
(as defined in section 7701(i) of the Code) comparable to a residual
interest in a REMIC. Such disallowed loss will be allowed upon the sale of
the other residual interest (or comparable interest) if the rule referred
to in the preceding sentence does not apply to that sale. While the
legislative history states that this rule may be modified by Treasury
regulations, the REMIC Regulations do not address this issue and it is not
clear whether any such modification will in fact be implemented or, if
implemented, what the precise nature or effective date of it would be.
The Code makes transfers of a residual interest to certain "disqualified
organizations" subject to an additional tax on the transferor in an amount
equal to the maximum corporate tax rate applied to the present value of the
total anticipated excess inclusions (discounted using the AFR) with respect
to such residual interest for the periods after the transfer. For this
purpose, "disqualified organizations" includes the United States, any state
or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code section 521
cooperative) which is not subject to the tax on unrelated business income;
and any rural electrical and telephone cooperative. The anticipated excess
inclusions must be determined as of the date that the REMIC Residual
Certificate is transferred and must be based on events that have occurred
up to the time of such transfer, the Prepayment Assumption, and any
required or permitted clean-up calls or required liquidation provided for
in the REMIC's organizational documents. The tax generally is imposed on
the transferor of the REMIC Residual Certificate, except that it is imposed
on an agent for a disqualified organization if the transfer occurs through
such agent. The Pooling and Servicing Agreement requires, as a prerequisite
to any transfer of a Residual Certificate, the delivery to the Trustee of
an affidavit of the transferee to the effect that it is not a disqualified
organization and contains other provisions designed to render any attempted
transfer of a REMIC Residual Certificate to a disqualified organization
void.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity, then a tax
will be imposed on such entity equal to the product of (1) the amount of
excess inclusions on the REMIC Residual Certificate that are allocable to
the interest in the pass-through entity held by such disqualified
organization and (2) the highest marginal federal income tax rate imposed
on corporations. A pass-through entity will not be subject to this tax for
any period, however, if the record holder of an interest in such entity
furnishes to such entity (1) such holder's social security number and a
statement under penalties of perjury that such social security number is
that of the record holder or (2) a statement under penalties of perjury
that such record holder is not a disqualified organization. For these
purposes, a "pass-through entity" means any regulated investment company,
REIT, trust, partnership or certain other entities described in section
860E(e)(6) of the Code. In addition, a person holding an interest in a
pass-through entity as a nominee for another person shall, with respect to
such interest, be treated as a pass-through entity.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100 percent of the net income
derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of income from a
source other than a qualified mortgage or certain other permitted
investments, the receipt of compensation for services or gain from the
disposition of an asset purchased with the payments on the shared
appreciation mortgages for temporary investment pending distribution on the
REMIC Certificates. The Code also imposes a 100 percent tax on the value of
any contribution of assets to the REMIC after the "start-up day" (the day
on which the regular and residual interests are issued), other than
pursuant to specified exceptions, and subjects "net income from foreclosure
property" to tax at the highest corporate rate. It is not anticipated that
a REMIC will engage in any such transactions or receive any such income.
TERMINATION OF A REMIC OR FASIT
In general, no special tax consequences will apply to a holder of a
REMIC or FASIT Regular Certificate upon the termination of the REMIC or
FASIT by virtue of the final payment or liquidation of the last shared
appreciation mortgage remaining in the REMIC or FASIT. If a Residual
Owner's adjusted basis in its REMIC Residual Certificate at the time such
termination occurs exceeds the amount of cash distributed to such Residual
Owner in liquidation of its interest, then, although the matter is not
entirely free from doubt, it appears that the Residual Owner would be
entitled to a loss (which would be a capital loss) equal to the amount of
such excess. If a FASIT Owner's adjusted basis in its FASIT Ownership
Certificate at the time such termination occurs exceeds the amount of cash
distributed to such FASIT Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
FASIT Owner would be entitled to a loss (which would be a capital loss)
equal to the amount of such excess.
REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMICS AND FASITS
Reporting of interest income, including any original issue discount,
with respect to REMIC or FASIT Regular Certificates is required annually,
and may be required more frequently under Treasury regulations. In addition
to those holders of REMIC or FASIT Regular Certificates to whom information
reporting generally applies, certain holders of REMIC or FASIT Regular
Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or
commodities brokers, REITs, registered investment companies, common trust
funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information
set forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the
information was requested, or two weeks after the receipt of the request.
The REMIC or FASIT must also comply with rules requiring the face of a
REMIC or FASIT Certificate issued at more than a de minimis discount to
disclose the amount of original issue discount and the issue date and
requiring such information to be reported to the Treasury Department.
The REMIC or FASIT Regular Certificate information reports must include
a statement of the "adjusted issue price" of the REMIC or FASIT Regular
Certificate at the beginning of each accrual period. In addition, the
reports must include information necessary to compute the accrual of any
market discount that may arise upon secondary trading of REMIC or FASIT
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to
the holder's purchase price which the REMIC or FASIT may not have, it
appears that this provision will only require information pertaining to the
appropriate proportionate method of accruing market discount.
The party responsible for complying with the foregoing reporting rules
will be specified in the Pooling and Servicing Agreement.
For purposes of the administrative provisions of the Code, REMICs will
be treated as partnerships and the holders of REMIC Residual Certificates
will be treated as partners. Unless otherwise stated in the applicable
prospectus supplement, SAMCO Mortgage Securities Corp. will file federal
income tax information returns on behalf of the related REMIC, and will be
designated as agent for, and will act on behalf of the "tax matters
partner" with respect to the REMIC in all respects.
As agent for the tax matters partner, SAMCO Mortgage Securities Corp.
will, subject to certain notice requirements and various restrictions and
limitations, generally have the authority to act on behalf of the REMIC and
the Residual Owners in connection with the administrative and judicial
review of items of income, deduction, gain or loss of the REMIC, as well as
the REMIC's classification. Residual Owners will generally be required to
report such REMIC items consistently with their treatment on the REMIC's
federal income tax information return and may in some circumstances be
bound by a settlement agreement between the master servicer or servicer, as
agent for the tax matters partner, and the Internal Revenue Service
concerning any such REMIC item. Adjustments made to the REMIC tax return
may require a Residual Owner to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments
resulting from such an audit, could result in an audit of a Residual
Owner's return.
BACKUP WITHHOLDING WITH RESPECT TO REMIC AND FASIT CERTIFICATES
Payments of interest and principal on REMIC and FASIT Regular
Certificates, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under section
3406 of the Code at a rate of 31 percent if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from
such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal
income tax. Furthermore, certain penalties may be imposed by the Internal
Revenue Service on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC OR FASIT CERTIFICATES
REMIC or FASIT Regular Certificates
Except as qualified below, payments made on a REMIC or FASIT Regular
Certificate to a holder of a REMIC or FASIT Regular Certificate that is a
Non-U.S. Person, or to a person acting on behalf of such a
Certificateholder, generally will be exempt from federal income and
withholding taxes, provided:
o the holder of the certificate is not subject to United States tax
as a result of a connection to the United States other than
ownership of such certificate,
o the holder of such Certificate signs a statement under penalties
of perjury that certifies that such holder is a Non-U.S. Person
and provides the name and address of such holder, and
o the last U.S. Person in the chain of payment to the holder
received such statement from such holder or a financial
institution holding on its behalf and does not have actual
knowledge that such statement is false.
If the holder does not qualify for exemption, distributions of interest,
including distributions in respect of accrued original issue discount, to
such holder may be subject to a withholding tax rate of 30%, subject to
reduction under any applicable tax treaty.
Holders of REMIC or FASIT Regular Certificates should be aware that the
Internal Revenue Service might take the position that exemption from U.S.
withholding taxes does not apply to such a holder that also directly or
indirectly owns 10% or more of the REMIC Residual Certificates of a
particular Series of Certificates or a FASIT Ownership Certificate.
Further, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest or original
issue discount income earned by such controlled foreign corporation.
The United States Treasury Department has issued regulations that may
change the certification procedures regarding withholding on certain
amounts paid to Non-U.S. Persons after December 31, 2000. Non-U.S. Persons
should consult their tax advisors concerning the effect, if any, of such
new Treasury regulations on them.
REMIC Residual Certificates
Amounts paid to a Residual Owner that is a Non-U.S. Person generally
will be treated as interest for purposes of applying the withholding tax on
Non-U.S. Persons with respect to income on its REMIC Residual Certificate.
However, it is unclear whether distributions on REMIC Residual Certificates
will be eligible for the general exemption from withholding tax that
applies to REMIC Regular Certificates as described above. Treasury
regulations provide that, for purposes of the portfolio interest exception,
payments to the foreign owner of a REMIC Residual Certificate are to be
considered paid on the obligations held by the REMIC, rather than on the
certificate itself. Such payments would thus only qualify for the portfolio
interest exception if the underlying obligations held by the REMIC would so
qualify. Such withholding tax generally would be imposed at a rate of 30%
but would be subject to reduction under any tax treaty applicable to the
Residual Owner. However, there is no exemption from withholding tax nor may
the rate of such tax be reduced, under a tax treaty or otherwise, with
respect to any distribution of income that is an excess inclusion. See
"--Taxation of Owners of REMIC Residual Certificates--Excess Inclusions"
above.
Certain restrictions relating to transfers of REMIC Residual
Certificates to and by investors who are not U.S. Persons are also imposed
by the REMIC Regulations. First, transfers of REMIC Residual Certificates
to Non-U.S. Persons that have "tax avoidance potential" are disregarded for
all federal income tax purposes. If such transfer is disregarded, the
purported transferor of such a REMIC Residual Certificate to a Non-U.S.
Person would continue to remain liable for any taxes due with respect to
the income on such REMIC Residual Certificate. A REMIC Residual Certificate
has tax avoidance potential unless, at the time of the transfer, the
transferor reasonably expects that the REMIC will distribute to the
transferee amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which the
excess inclusion accrues and not later than the close of the calendar year
following the calendar year of accrual. This rule does not apply to
transfers if the income from the REMIC Residual Certificate is taxed in the
hands of the transferee as income effectively connected with the conduct of
a U.S. trade or business. Second, if a Non-U.S. Person transfers a REMIC
Residual Certificate to a U.S. Person, and the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, that
transfer is disregarded for all federal income tax purposes and the
purported Non-U.S. Person transferor continues to be treated as the owner
of the REMIC Residual Certificate. Thus, the REMIC's liability to withhold
30% of the accrued excess inclusions is not terminated even though the
REMIC Residual Certificate is no longer held by a Non-U.S. Person.
CLASSIFICATION AS A GRANTOR TRUST
If the applicable prospectus supplement so specifies with respect to a
SAM Pool, the arrangement pursuant to which the SAM Pool will be held will
be classified for federal income tax purposes as a grantor trust and not as
an association taxable as a corporation. In some series of Trust
Certificates, Pass-Through Certificates, there will be no separation of the
principal, interest and Additional Interest Payments on the shared
appreciation mortgages. A holder of a Pass-Through Certificate will be
treated as owning an undivided interest in each of the shared appreciation
mortgages in the SAM Pool. In the cases of Stripped Certificates, there
will be a separation in the ownership of the principal and interest
payment, on the one hand, and the Additional Interest Payments, on the
other hand, on the shared appreciation mortgages. A holder of a Stripped
Certificate will be treated as owning an undivided interest in the payments
underlying such Stripped Certificate.
Each holder of a Trust Certificate must report on its federal income tax
return its pro rata share of the gross income derived by the Trust from the
shared appreciation mortgages (not reduced by Servicing Fees), at the time
and in the same manner as such items would have been reported under the
holder's tax accounting method had it held its interest in the shared
appreciation mortgages directly, received directly its share of the amounts
received with respect to the shared appreciation mortgages, and paid
directly its share of the Servicing Fees. In the case of Pass-Through
Certificates, such gross income will consist of a pro rata share of all of
the income derived from all of the shared appreciation mortgages and, in
the case of Stripped Certificates, such income will consist of a pro rata
share of the income derived from each stripped bond or stripped coupon in
which the holder of a Stripped Certificate owns an interest. A holder of a
Trust Certificate will generally be entitled to deduct Servicing Fees under
section 162 or section 212 of the Code to the extent that such Servicing
Fees represent "reasonable" compensation for services rendered by the
Trustee and the master servicer (and servicer, if other than the master
servicer). In the case of a noncorporate holder, however, Servicing Fees
(to the extent not otherwise disallowed, e.g., because they exceed
reasonable compensation) will be deductible in computing such holder's
regular tax liability only to the extent that such fees, when added to
other miscellaneous itemized deductions, exceed 2% of adjusted gross income
and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds an
applicable amount 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 such taxable year.
TAXATION OF HOLDERS OF PASS-THROUGH CERTIFICATES
There are no rules that specifically govern the federal income tax
consequences of debt instruments that are both subject to prepayment and
provide for contingent payments. In the absence of direct authority, the
issuer, i.e., the Trust, will treat the Pass-Through Certificates as being
subject to section 1272(a)(6) of the Code and the Contingent Payment Debt
Regulations. There is no authority that prescribes the proper interaction
between section 1272(a)(6) of the Code and the Contingent Payment Debt
Regulations. Therefore, there can be no assurance that the Internal Revenue
Service will agree with the treatment of the Pass-Through Certificates set
forth below.
Interest Accrual on the Pass-Through Certificates. A holder will be
required to accrue interest (including OID) on a Pass-Through Certificate
regardless of whether such holder uses the cash or accrual method of tax
accounting. As a result, a holder will likely be required to include in its
taxable income for a particular year an amount of interest in excess of the
cash payments received with respect to a Pass-Through Certificate in that
year.
For each accrual period prior to and including the maturity date of a
Pass-Through Certificate, the amount of interest that will accrue, as
original issue discount, on a Pass-Through Certificate will equal (1) the
sum of (a) the present value of all remaining payments expected to be made
with respect to the Pass-Through Certificate as of the close of such period
and (b) the payments made during the accrual period with respect to the
Pass-Through Certificate over (2) the adjusted issue price of the
Pass-Through Certificate at the beginning of the accrual period. The
adjusted issue price is the issue price of the Pass-Through Certificate,
increased by any interest previously accrued with respect to the
Pass-Through Certificate and decreased by the amounts of any payments made
with respect to the Pass-Through Certificate. The issue price of a
Pass-Through Certificate is the first price at which a substantial amount
of the Pass-Through Certificates are sold to the public (excluding sales to
bond houses and brokers). This amount is ratably allocated to each day in
the accrual period and is includible in income as interest by a holder for
each day in the accrual period on which the holder holds the Pass-Through
Certificate.
The present value of all remaining payments expected to be made with
respect to a Pass- Through Certificate will be determined by deriving the
comparable yield for the Pass-Through Certificate and a projected payment
schedule for the Pass-Through Certificate and discounting the projected
payments at the comparable yield. The "comparable yield" is the annual
yield the issuer would be expected to pay, as of the issue date, on a debt
instrument with no contingent payments but with terms and conditions
otherwise comparable to those of a Pass-Through Certificate. Although there
is no specific authority that specifically authorizes an issuer to do so,
the issuer will determine the comparable yield based on an aggregate of the
mortgage loans in the SAM Pool rather than on a loan-by-loan basis. The
"projected payment schedule" is a schedule of the payments expected to be
made with respect to the Pass-Through Certificate, based upon reasonable
prepayment assumptions and the comparable yield. The issuer will make
available to holders the amount of original issue discount accrued with
respect to a Pass-Through Certificate for each accrual period.
Sale or Exchange of Pass-Through Certificates. Upon the sale, exchange
or retirement of a Pass-Through Certificate, a holder will recognize gain
or loss equal to the difference between the amount realized and the
holder's adjusted basis in the Pass-Through Certificate. The holder's
adjusted basis in a Pass-Through Certificate will be the holder's original
basis in the Pass- Through Certificate, increased by any interest
previously accrued by the holder with respect to the Pass-Through
Certificate and decreased by the amount of any payments made with respect
to the Pass-Through Certificate. Any gain recognized upon the sale or
exchange of a Pass-Through Certificate will be ordinary interest income;
any loss will be ordinary loss to the extent of interest previously
included in income by the holder with respect to the Pass-Through
Certificate, and thereafter, capital loss.
Because, however, there is no authority that clearly governs the
taxation of a holder of a Pass-Through Certificate, it is possible that a
holder of a Pass-Through Certificate could be subject to a federal income
tax regime different from that described herein under which the amount and,
possibly, the character of a holder's income inclusions and deductions
would differ from those described above.
Market Discount and Premium
A holder of a Pass-Through Certificate that purchases a Pass-Through
Certificate with market discount, that is, at a purchase price less than
its adjusted issue price generally will recognize market discount upon
receipt of a distribution of principal. In particular, such a holder will
generally be required to allocate a payment of principal first to accrued
market discount and to recognize ordinary income to the extent such
principal payment does not exceed the aggregate amount of accrued market
discount on such Pass-Through Certificate not previously included in
income. Such market discount must be included in income in addition to any
original issue discount includible in income with respect to such
Pass-Through Certificate.
A holder of a Pass-Through Certificate may elect to include market
discount in income currently as it accrues, rather than including it on a
deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such holder on or after
the first day of the first taxable year to which such election applies. In
addition, the OID Regulations permit a holder to elect to accrue all
interest and discount (including de minimis market or original issue
discount) as interest based on a constant yield method. It is unclear how
this election would apply to a Pass-Through Certificate. It is possible
that such an election with respect to a Pass-Through Certificate would
require that the principles of the Contingent Payment Debt Regulations, to
the extent that they apply to a Pass-Through Certificate, be applied in a
manner that takes into account the discount on the Pass-Through
Certificate. In any event, if such an election were made for a Pass-Through
Certificate with market discount, the holder would be deemed to have made
an election to include market discount in income currently with respect to
all other debt instruments having market discount that such holder acquires
during the year of the election or thereafter.
Under a statutory de minimis exception, market discount with respect to
a Pass-Through Certificate will be considered to be zero for purposes of
sections 1276 through 1278 of the Code if such market discount is less than
0.25% of the stated redemption price at maturity of such Pass-Through
Certificate multiplied by the number of complete years to maturity
remaining after the date of its purchase. It is unclear how this rule would
apply to a Pass-Through Certificate, which, under the principles of the
Contingent Payment Debt Regulations, would not have a stated redemption
price at maturity. Nevertheless, it is possible that the stated redemption
price at maturity could be based upon all of the projected payments to be
made under the Pass- Through Certificate, as determined by applying the
principles of the Contingent Payment Debt Regulations. It is also unclear
what amount should be used as the number of complete years to maturity of a
Pass-Through Certificate. In interpreting a similar de minimis rule with
respect to original issue discount on obligations payable in installments,
the OID Regulations refer to the weighted average maturity of obligations,
and it is possible that the same rule should be applied in determining
whether market discount is de minimis.
The Code grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more
than a de minimis amount on debt instruments, the principal of which is
payable in more than one installment. Until such time as regulations are
issued by the Treasury Department, certain rules described in the
legislative history will apply. Under those rules, the holder of a bond
purchased with more than de minimis market discount may elect to accrue
such market discount either on the basis of a constant yield method or on
the basis of the appropriate proportionate method described below. Under
the proportionate method for obligations issued with original issue
discount, the amount of market discount that accrues during a period is
equal to the product of (1) the total remaining market discount, multiplied
by (2) a fraction, the numerator of which is the original issue discount
accruing during the period and the denominator of which is the total
remaining original issue discount at the beginning of the period. Under the
proportionate method for obligations issued without original issue
discount, the amount of market discount that accrues during a period is
equal to the product of (1) the total remaining market discount, multiplied
by (2) a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the total
amount of stated interest remaining to be paid at the beginning of the
period. The Prepayment Assumption, if any, used in calculating the accrual
of original issue discount is to be used in calculating the accrual of
market discount under any of the above methods. It is unclear how these
rules might apply to a Pass-Through Certificate.
TAXATION OF HOLDERS OF STRIPPED CERTIFICATES
A holder of a Stripped Certificate that consists of the principal and
interest payments on the SAMs, but not the Additional Interest Payments,
should generally be subject to federal income tax in the same manner as the
holder of a REMIC or FASIT Regular Certificate. See "-- Taxation of Owners
of REMIC and FASIT Regular Certificates" above.
Although there is no authority directly on point and other
characterizations are possible, the issuer will treat a holder of a
Appreciation Certificate as holding an interest in a pool of stripped
coupons within the meaning of section 1286(e) of the Code. There are no
rules that specifically govern the federal income tax consequences to
holders of coupons stripped from loans that are subject to prepayment and
that provide for contingent payments. In the absence of direct authority,
the issuer will treat the Appreciation Certificates as newly-issued debt
instruments subject to section 1272(a)(6) of the Code and the Contingent
Payment Debt Regulations. Accordingly, holders of Appreciation Certificates
should generally be subject to federal income tax in the same manner as
holders of Pass-Through Certificates, although the rules regarding market
discount and premium will not apply. See "Taxation of Holders of
Pass-Through Certificates" above. In addition to all of the uncertainties
applicable to the taxation of holders of Pass-Through Certificates, in the
case of Appreciation Certificates, there is no specific authority for the
manner in which the comparable yield is to be determined. Nevertheless, the
issuer intends to take the position that the comparable yield is equal to
the rate that would be expected to apply to a stripped coupon that paid
interest monthly at a rate equal to the difference between the comparable
yield that would have been determined for the shared appreciation mortgages
in the SAM Pool had they not been stripped and the weighted average
interest rate on the Stripped Certificates issued with respect to the SAM
Pool that are not Appreciation Certificates.
Real Estate Investment Trusts
The interest earned with respect to Pass-Through Certificates or
Appreciation Certificates by a REIT is subject to the limitations of
sections 856(f) and 856(j) of the Code. Accordingly, a REIT that holds such
certificates could potentially jeopardize its qualification for taxation as
a REIT and expose such income to taxation as a prohibited transaction at a
100 percent rate.
Non-U.S. Persons
Pass-Through Certificates and Appreciation Certificates will not be sold
to Non-U.S. Persons.
INFORMATION REPORTING
Income on Trust Certificates will be reported to holders of Trust
Certificates on a Form 1099. This form will be mailed to holders of Trust
Certificates by January 31 following the end of each calendar year.
TAXATION OF HOLDERS OF CLASSES OF EXCHANGEABLE CERTIFICATES
The arrangement pursuant to which Exchangeable Classes are
created, sold and administered will be classified as a grantor trust for
federal income tax purposes. The interests in the classes of certificates
that have been exchanged for Exchangeable Classes will be the assets of the
Exchangeable Pool and the Exchangeable Classes represent beneficial
ownership of these interests in the classes of certificates.
Tax Status
The Exchangeable Classes should be considered to represent "real
estate assets" within the meaning of section 856(c)(4)(A) of the Code and
assets described in section 7701(a)(19)(C) of the Code. OID and interest
accruing on Exchangeable Classes should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of section 856(c)(3)(B) of the Code. Exchangeable Classes will be
"qualified mortgages" under section 860G(a)(3) of the Code for a REMIC.
Tax Accounting for Exchangeable Certificates
An Exchangeable Class represents beneficial ownership of an
interest in one or more classes of certificates on deposit in an
Exchangeable Certificate Trust Fund, as specified in the applicable
prospectus supplement. If it represents an interest in more than one class
of certificates, a purchaser must allocate its basis in the Exchangeable
Class among the interests in the classes of certificates in accordance with
their relative fair market values as of the time of acquisition. Similarly,
on the sale of such an Exchangeable Class, the holder must allocate the
amount received on the sale among the interests in the classes of
Certificates in accordance with their relative fair market values as of the
time of sale.
The holder of an Exchangeable Class must account separately for each
interest in a class of certificates (there may be only one such interest).
Where the interest represents a pro rata portion of a class of
certificates, the holder of the Exchangeable Class should account for such
interest as described under "--Taxation of Owners of REMIC Regular
Certificates" above. A holder of a Strip will likely be treated as owning,
pursuant to section 1286 of the Code, "stripped bonds" to the extent of its
share of principal payments and "stripped coupons" to the extent of its
share of interest payments on such class of Certificates. The issuer
intends to treat each Strip as a single debt instrument for purposes of
information reporting. The Internal Revenue Service, however, could take a
different position. For example, the Internal Revenue Service could contend
that a Strip should be treated as a pro rata part of the class of
certificates to the extent that the Strip represents a pro rata portion
thereof, and "stripped bonds" or "stripped coupons" with respect to the
remainder. An investor should consult its tax advisor regarding this
matter.
A holder of an Exchangeable Class should calculate OID with
respect to each Strip and include it in ordinary income as it accrues,
which may be prior to the receipt of cash attributable to such income, in
accordance with a constant interest method that takes into account the
compounding of interest. See "--Taxation of Ownership of REMIC and FASIT
Regular Certificates--Original Issue Discount," "Taxation of Holders of
Pass-Through Certificates," and "Taxation of Holders of Stripped
Certificates," above. The holder should determine its yield to maturity
based on its purchase price allocated to the Strip and on a schedule of
payments projected using a prepayment assumption, and then make periodic
adjustments to take into account actual prepayment experience. With respect
to a particular holder, Treasury regulations do not address whether the
prepayment assumption used to calculate original issue discount would be
determined at the time of purchase of the Strip or would be the original
prepayment assumption with respect to the related class of certificates.
Further, if the related class of certificates is subject to redemption as
described in the applicable prospectus supplement, Treasury regulations do
not address the extent to which such prepayment assumption should take into
account the possibility of the retirement of the Strip concurrently with
the redemption of such class of certificates. An investor should consult
its tax advisor regarding these matters. For purposes of information
reporting relating to original issue discount, the original yield to
maturity of the Strip, determined as of the date of issuance of the series,
will be calculated based on the original prepayment assumption.
If original issue discount accruing with respect to a Strip,
computed as described above, is negative for any period, the holder is
entitled to offset such amount only against future positive original issue
discount accruing from such Strip, and income is reported in all cases in
this manner. Although not entirely free from doubt, such a holder may be
entitled to deduct a loss to the extent that its remaining basis would
exceed the maximum amount of future payments to which the holder is
entitled with respect to such Strip, assuming no further prepayments of the
shared appreciation mortgages (or, perhaps, assuming prepayments at a rate
equal to the prepayment assumption). Although the issue is not free from
doubt, all or a portion of such loss may be treated as a capital loss if
the Strip is a capital asset in the hands of the holder.
A holder realizes gain or loss on the sale of a Strip in an amount equal
to the difference between the amount realized and its adjusted basis in
such Strip. The holder's adjusted basis generally is equal to the holder's
allocated cost of the Strip, increased by income previously included, and
reduced (but not below zero) by distributions previously received. Except
as described below, any gain or loss on such sale is capital gain or loss
if the holder has held its interest as a capital asset and is long-term if
the interest has been held for the long-term capital gain holding period
(more than one year). Such gain or loss will be ordinary income or loss (1)
for a bank or thrift institution or (2) to the extent income recognized by
the holder is less than the income that would have been recognized if the
yield on such interest were 110% of the AFR.
If a holder exchanges a Exchangeable Class for several
Exchangeable Classes and then sells one of the Exchangeable Classes so
received, the sale will likely subject the investor to the coupon stripping
rules of section 1286 of the Code. The holder must allocate its basis in
the Exchangeable Class that was given up between the part of such class
underlying the Exchangeable Class which was received and then sold and the
part of the Exchangeable Class that was received and retained, in
proportion to their relative fair market values as of the date of such
sale. The holder is treated as purchasing the interest retained for the
amount of basis allocated to such interest. The holder must calculate OID
with respect to the retained interest as described above.
Although the matter is not free from doubt, a holder that
acquires in one transaction a combination of Exchangeable Classes that may
be exchanged for a single Exchangeable Class that is identical to a class
of certificates that is on deposit in the related Exchangeable Certificate
Trust Fund should be treated as owning the relevant class of certificates.
Exchanges of Exchangeable Certificates
An exchange of an interest in one or more Exchangeable Classes
for an interest in one or more other related Exchangeable Classes that are
part of the same Combination, or vice versa, will not be a taxable
exchange. After the exchange, the holder is treated as continuing to own
the interests in the class or classes of Exchangeable Certificates that it
owned immediately prior to the exchange.
Tax Treatment of Foreign Investors
A holder of an Exchangeable Class is subject to taxation in the same
manner as foreign holders of REMIC Regular Certificates. See "Foreign
Investors in REMIC Certificates."
Backup Withholding
A holder of an Exchangeable Class is subject to backup
withholding rules to those applicable to REMIC Regular Certificates. See
"--Backup Withholding with Respect to REMIC Certificates."
Reporting and Administrative Matters
Reports will be made to the Internal Revenue Service and to
holders of record of Exchangeable Classes that are not exempt from the
reporting requirements.
STATE AND LOCAL TAXATION
Many states do not automatically conform to the federal income tax laws.
Consequently, a REMIC or FASIT which would not qualify as a fixed
investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income
or franchise taxation of a REMIC or FASIT formed in, owning mortgages or
property in, or having servicing activity performed in a state without
conforming REMIC or FASIT provisions in its income or franchise tax law.
Further, holders of REMIC or FASIT Regular Certificates resident in
nonconforming states may have their ownership of REMIC or FASIT Regular
Certificates characterized as an interest other than debt of the REMIC or
FASIT such as stock or a partnership interest. Investors are advised to
consult their tax advisors concerning the state and local income tax
consequences of their purchase, ownership and disposition of the
certificates issued hereunder.
METHODS OF DISTRIBUTION
The certificates offered by the related prospectus supplements will be
offered in series. The distribution of the certificates 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 certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Bear, Stearns & Co. Inc., an
affiliate of SAMCO Mortgage Securities Corp., acting as underwriter with
other underwriters, if any, named in the related prospectus supplement. In
such event, the related prospectus supplement may also specify that the
underwriters will not only be obligated to pay for any certificates agreed
to be purchased by purchasers under purchase agreements acceptable to SAMCO
Mortgage Securities Corp.. In connection with the sale of the certificates,
underwriters may receive compensation from SAMCO Mortgage Securities Corp.
or from purchasers of the certificates in the form of discounts,
concessions or commissions. The related prospectus supplement will describe
any such compensation paid by SAMCO Mortgage Securities Corp..
Alternatively, the related prospectus supplement may specify that the
certificates will be distributed by Bear, Stearns & Co. Inc. acting as
agent or in some cases as principal with respect to certificates that it
has previously purchased or agreed to purchase. If Bear, Stearns & Co. Inc.
acts as agent in the sale of Securities, Bear Stearns & Co. will receive a
selling commission with respect to each series of certificates, depending
on market conditions, expressed as a percentage of the aggregate principal
balance of the certificates sold hereunder as of the Cut-Off Date. The
exact percentage for each series of certificates will be disclosed in the
related prospectus supplement. To the extent that Bear, Stearns & Co. Inc.
elects to purchase certificates as principal, Bear, Stearns & Co. Inc. may
realize losses or profits based upon the difference between its purchase
price and the sales price. The related prospectus supplement with respect
to any series offered other than through underwriters will contain
information regarding the nature of such offering and any agreements to be
entered into between SAMCO Mortgage Securities Corp. and purchasers of
certificates of such series.
SAMCO Mortgage Securities Corp. will indemnify Bear, Stearns & Co. Inc.
and any underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, or will contribute to
payments Bear, Stearns & Co. Inc. and any underwriters may be required to
make in respect of the Securities Act.
In the ordinary course of business, Bear, Stearns & Co. Inc. and SAMCO
Mortgage Securities Corp. may engage in various securities and financing
transactions, including repurchase agreements to provide interim financing
of SAMCO Mortgage Securities Corp.'s Mortgage Loans pending the sale of
such Mortgage Loans or interests, including the certificates.
This prospectus and the related prospectus supplement may be used by
Bear, Stearns & Co. Inc. in connection with offers and sales related to
market-making transactions in the certificates. Bear, Stearns & Co. Inc.
may act as principal or agent in such transactions. Such sales will be made
at prices related to prevailing market prices at the time of sale or
otherwise.
SAMCO Mortgage Securities Corp. anticipates that the certificates will
be sold primarily to institutional investors. Purchasers of certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Act in
connection with reoffers and sales by them of certificates.
Certificateholders should consult with their legal advisors in this regard
prior to any such reoffer or sale.
CERTAIN LEGAL INVESTMENT ASPECTS
At the time of their issuance, the certificates which are rated "AAA" or
"AA" by a bank or a nationally recognized statistical rating agency will
constitute "mortgage related securities" for purposes of the SMMEA, and as
such 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 under or existing under the laws of the United States or of
any state whose authorized investments are subject to state regulation to
the same extent that, under applicable law, obligations issued by or
guaranteed as to principal and interest by the United States or any agency
or instrumentality of the United States constitute legal investments for
such entities. Under SMMEA, if a state enacted legislation prior to October
4, 1991 specifically limiting the legal investment authority of any of such
entities with respect to "mortgage related securities," the certificates
will constitute legal investments for entities subject to such legislation
only to the extent provided in such legislation. Certain states have
enacted such legislation. Investors should consult their own legal advisors
in determining whether and to what extent the certificates constitute legal
investments for such investors.
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 with
certificates without limitation as to the percentage of their assets
represented thereby; and federal credit unions may invest in certificates
and national banks may purchase certificates for their own accounts without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. ss.ss.24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
Institutions whose investment activities are subject to review by
certain regulatory authorities hereafter may become subject to restrictions
on investment in the certificates, and such restrictions may be
retroactively imposed. The Federal Financial Institutions Examination
Council, the Federal Deposit Insurance Corporation, the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System and the OTS have adopted guidelines regarding the suitability of
investments in various types of derivative mortgage-backed securities,
including securities such as the certificates. Under the guidelines,
regulated institutions are required to evaluate the suitability of such
investments prior to purchase and on an ongoing basis. In addition, several
states have adopted regulations that would prohibit regulated institutions
subject to their jurisdiction from holding mortgage-backed securities, such
as the certificates, including securities previously purchased. Investors
should consult their own legal advisors in determining whether and to what
extent the certificates constitute legal investments for such investors.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of such
investors' assets. Investors should consult their own legal advisors in
determining whether and to what extent the certificates constitute legal
investments for such investors.
LEGAL MATTERS
Certain legal matters will be passed upon for SAMCO Mortgage Securities
Corp. and the Underwriters, by their special counsel, Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
FINANCIAL INFORMATION
A new Trust will be formed with respect to each series of certificates
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 certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this prospectus or in the related prospectus supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning each Trust and prepared by the
master servicer or the servicer, will be sent on behalf of such Trust to
Cede & Co. as nominee of DTC and registered holder of the related
certificates, under the related Pooling and Servicing Agreement. See
"Description of the Certificates - Book-Entry Registration." "-Reports to
Certificateholders" and "-Evidence as to Compliance." Such reports will not
constitute financial statements prepared in accordance with generally
accepted accounting principles. The servicer does not intend to send any
financial reports of SAMCO Mortgage Securities Corp. to certificateholders.
The master servicer or the servicer will file with the SEC such periodic
reports with respect to each Trust as are required under the Exchange Act
and the rules and regulations of the SEC.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the certificates with the
SEC. This prospectus is part of the registration statement, but the
registration statement includes additional information.
The servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about each Trust.
You may read and copy any reports, statements or other information we
file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
(800) SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public on the
SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information we file with
it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus. Information that we file later
with the SEC will automatically update the information in this prospectus.
In all cases, you should rely on the later information over different
information included in this prospectus or the prospectus supplement. We
incorporate by reference any future annual, monthly and special SEC reports
and proxy materials filed by or on behalf of the Trust until we terminate
our offering of the certificates.
As a recipient of this prospectus, you may request a copy of any
document we incorporate by reference, except exhibits to the documents,
unless the exhibits are specifically incorporated by reference, at no cost,
by writing or calling us at: 245 Park Avenue, New York, New York 10167,
telephone (212) 272-2000.
GLOSSARY OF TERMS
"AFR" means the applicable federal rate as determined under section
1274(d) of the Code.
"ACCEPTED SERVICING PRACTICES" means collection procedures as are
customary with respect to mortgage loans that are comparable to the SAMs.
"ACCRUAL CLASS" means a class of Exchangeable Certificates that
accretes all of its interest for a period (such accreted interest being
added to the principal of such class).
"ACT" means Rule 903 or 904 of Regulation S under the Securities Act of
1933, as amended.
"ADDITIONAL INTEREST PAYMENT" means the amount of such Appreciation
Share paid to the holder of the Appreciation Certificate.
"ADJUSTED BASIS" means the U.S. Holder's original basis in the
Appreciation Certificate, increased by any interest previously accrued by
the U.S. Holder with respect to the Appreciation Certificate and decreased
by the amount of any payments made with respect to the Appreciation
Certificate.
"ADJUSTED ISSUE PRICE" means the issue price of the Appreciation
Certificate, increased by any interest previously accrued and decreased by
the amount of any payments made with respect to the Appreciation
Certificate, and is the first price at which a substantial amount of the
Appreciation Certificates will be sold to the public (excluding sales to
bond houses and brokers).
"ADVANCES" means an advance on or before each Distribution Date by
the Originator, the seller, the master servicer, the servicer or other
person designated in the prospectus supplement (from its own funds, funds
advanced by others or funds held in any of the accounts for future
distributions to the holders of such certificates) of an amount equal to
the aggregate of payments of principal and interest that were delinquent on
the related Determination Date, subject to such person's determination that
such Advances will be recoverable out of late payments by mortgagors,
Liquidation Proceeds, Insurance Proceeds or otherwise with respect to the
specific SAM or, if required by the applicable rating agency, with respect
to any of the SAMs.
"AGENCY SECURITIES" means mortgage pass-through securities.
"APPRECIATION CERTIFICATE" is a Stripped Certificate that represents an
interest only in Additional Interest Payments.
"APPRECIATION SHARE" means a percentage of the future capital
appreciation in the Mortgaged Property that is assessed by the mortgagor to
be paid to the Originator upon a Mortgage Termination Event with payment or
at maturity.
"ASSET CONSERVATION ACT" means the Asset Conservation, Lender Liability
and Deposit Insurance Protection Act of 1996.
"BANKRUPTCY CODE" means Chapter 7, 11 or 13 of the federal Bankruptcy
Code, as amended.
"BANKRUPTCY INSTRUMENT" means one or more of a Letter of Credit,
Reserve Fund or Bankruptcy Bond which may provide coverage with respect to
Bankruptcy Losses.
"BANKRUPTCY LOSS" means any loss attributable to certain actions
which may be taken by a bankruptcy court in connection with a SAM,
including a reduction by a bankruptcy court of the principal balance of or
the stated interest rate on a SAM or an extension of its maturity, as set
forth in the applicable prospectus supplement.
"BUDGET ACT" means the Omnibus Budget Reconciliation Act of 1993.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"CMOS" means Collateralized Mortgage Obligations.
"CALL CLASS" means each class of securities that can exercise a call of
a Callable Class of securities.
"CALL RIGHT" means the right of the counterparty, having entered into
a redemption agreement with an entity electing to be treated as a REMIC, to
cause a redemption of the outstanding Certificates beginning on the
Distribution Date and subject to payment of the redemption price and other
conditions that may be specified in the applicable prospectus supplement.
"CALLABLE CLASS" means one or more classes of certificates which may be
callable at the option of one or more other classes of securities.
"CALLABLE CLASS CERTIFICATE" means a certificate to which a Call Right
may apply.
"CASUALTY" means the occurrence of damage or destruction by flood, fire
or other casualties.
"CASUALTY ADJUSTMENT" means an amount equal to the estimated cost to
restore the Mortgaged Property following the occurrence of a Casualty.
"CEDELBANK" means Cedel Bank, societe anonyme.
"CEDELBANK CUSTOMERS" means participating organizations, including
underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and possibly the
underwriters of any series of certificates, for whom Cedelbank holds
securities.
"CERTIFICATE ADMINISTRATOR" means that Person who calculates amounts
distributable to the Certificateholders, prepares tax returns on behalf of
the Trust Fund and provides certain other administrative services specified
in the Pooling and Servicing Agreement .
"CERTIFICATE ADMINISTRATOR FEE" means a fee paid to the Certificate
Administrator for its services, paid from the difference between the stated
interest rate on each SAM and the Remittance Rate (net of any Retained
Yield) with respect to such SAM or if specified in the prospectus
supplement, paid from Additional Interest Payments in such other manner
specified in the related prospectus supplement.
"CERTIFICATE INSURANCE POLICIES" means insurance policies obtained by
the master servicer or the related servicer, issued by insurers acceptable
to the rating agencies, which insures to the holders of one or more classes
of certificates the payment of amounts due in accordance with the terms of
such class or classes of certificates, subject to such limitations and
exceptions as are set forth in the applicable prospectus supplement.
"CHARTER ACT" means the Federal National Mortgage Association Charter
Act.
"CLASS APPRECIATION DISTRIBUTION AMOUNT" means, for a Class of
Appreciation Certificates for any Distribution Date, all or a portion of
the Appreciation Share allocable to such class for such Distribution Date,
as described in the related prospectus supplement.
"CLASS FACTOR" means a truncated seven-digit decimal which, when
multiplied by the original principal amount of that Class, equals its
remaining principal amount, after giving effect to any payment of (or
addition to) principal to be made on the Distribution Date in the following
month.
"CLASS PRINCIPAL DISTRIBUTION AMOUNT" means an amount for a class of
certificates for any Distribution Date equal to the portion, if any, of the
principal balance allocable to such Class for such Distribution Date, as
described in the related prospectus supplement.
"CLASS TOTAL DISTRIBUTION AMOUNT" means an amount equal to the
Percentage Interest represented by a certificate, which is not an
Appreciation Certificate, held by such holder multiplied by the sum of the
Class Principal Distribution Amount for such class, if such class is
entitled to payments of interest on such Distribution Date, one month's
interest at the applicable Pass-Through Rate on the principal balance or
notional principal balance of such class specified in the applicable
prospectus supplement, less such class's pro rata share of the sum of
o the shortfalls in collections of interest on prepayments in full with
respect to which distribution is to be made on such Distribution
Date, if any,
o the amount of any deferred interest added to the principal balance of
the SAMs and/or the outstanding balance of the certificates on the
related Due Date,
o one month's interest at the applicable Pass-Through Rate on the
amount of any partial prepayments received on the SAMs in the month
preceding the month of the distribution and
o any other interest shortfalls (including, without limitation,
shortfalls arising out of application of the Relief Act or similar
legislation or regulations as in effect from time to time) allocable
to certificateholders which are not covered by Advances or applicable
credit enhancements, in each case in such amount as is allocated to
such class on the basis set forth in the related prospectus
supplement
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" means a separate account or accounts for the
collection of payments on the related SAMs, established and maintained for
one or more series of certificates by the master servicer or a servicer
servicing the SAMs, which must be
o 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 such
holding company) are rated in one of the two highest rating
categories by a rating agency rating the series of certificates,
o an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation (the "FDIC"),
o an account or accounts the deposits in which are insured by the FDIC
(to the limits established by the FDIC), and the uninsured deposits
in which are invested in Eligible Investments held in the name of the
Trustee, or
o an account or accounts otherwise acceptable to each rating agency.
"COMBINATIONS" means related classes of Exchangeable Certificates
which are exchangeable for one another.
"COMPARABLE YIELD" means the annual yield the issuer would be
expected to pay, as of the issue date, on a debt instrument with no
contingent payments but with terms and conditions otherwise comparable to
those of an Appreciation Certificate.
"COMPENSATING INTEREST" means a full month's payment of interest (to
the extent of any applicable limits) at the applicable Pass-Through Rate on
a SAM for which a prepayment in full is made or which is liquidated, less
the interest at the applicable Pass-Through Rate attributable to interest
paid by the mortgagor or by the Pool Insurer under an applicable Pool
Insurance Policy through the date of a prepayment in full.
"CONDEMNATION ADJUSTMENT" means an amount equal to: (1) the Adjusted
Value determined immediately prior to such adjustment, minus (2) the
product of the Adjusted Value determined immediately prior to such
adjustment multiplied by a fraction, the numerator of which is the
appraised value of the Mortgaged Property determined immediately after any
partial taking by eminent domain and the denominator of which is the
appraised value determined immediately prior to such partial taking.
"CONSTANT APPRECIATION RATE" means a standard or model which assumes
a constant annual rate of appreciation each month, expressed as a per annum
percentage of the then- scheduled principal balance of the Mortgage Pool,
taking into account the volatility of the constant appreciation rate.
"CONSTANT PREPAYMENT RATE" means a prepayment standard or model which
assumes a constant annual rate of prepayment each month, expressed as a per
annum percentage of the then- scheduled principal balance of the Mortgage
Pool.
"CONTINGENT PAYMENT DEBT REGULATIONS" means Treasury Regulation Section
1.1275-4.
"COOPERATIVE" means Euroclear Clearance System, S.C., a Belgian
cooperative corporation responsible for establishing policy for the
Euroclear System on behalf of Euroclear Participants.
"CUT-OFF DATE" means the date specified in the prospectus supplement
relating to the creation of the Trust Fund.
"D&P" means Duff & Phelps Inc.
"DOL" means the United States Department of Labor.
"DTC" means the Depositary Trust Company.
"DEFAULTED MORTGAGE LOSS" means any loss attributable to the
mortgagor's failure to make any payment of principal, interest or
additional interest payments as required under the Mortgage Note, but not
including Special Hazard Losses, Extraordinary Losses or other losses
resulting from damage to a Mortgaged Property, Bankruptcy Losses or Fraud
Losses, as set forth in the applicable prospectus supplement.
"DEFINITIVE CERTIFICATES" means Certificates issued in fully
registered, certificated form to certificateholders or their nominees,
rather than to DTC or its nominee.
"DEPOSITARIES" means Cedelbank's and Euroclear's respective
depositaries which hold omnibus positions in customers' securities accounts
in the Depositaries' names on the books of DTC.
"DEPOSITOR EMPLOYEES" means all officers, employees or other persons
acting in any capacity requiring such persons to handle funds, money,
documents or papers relating to the SAMs.
"DETERMINATION DATE" means the tenth day preceding each Distribution
Date.
"DISTRIBUTION ACCOUNT" means a trust account or another account
acceptable to any rating agency established by the Trustee in its name as
Trustee for one or more series of Certificates and maintained as an
interest bearing account, the funds in which are held to be invested
pending each succeeding Distribution Date in Eligible Investments.
"DISTRIBUTION DATE" means the 25th day (or if such 25th day is not a
business day, the business day immediately following such 25th day) of each
calendar month.
"DISTRIBUTION PERIOD" means the month prior to the month in which the
Distribution
Date occurs.
"DUE DATE" means a date on which the monthly payment for a SAM is due.
"ECOA" means the Equal Credit Opportunity Act, which prohibits
discrimination on the basis of any of a number of prohibited factors.
"EMC" means EMC Mortgage Corporation.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ELIGIBLE INVESTMENTS" means, among other things, obligations of the
United States and certain agencies thereof, certificates of deposit,
certain commercial paper, time deposits and bankers' acceptances sold by
eligible commercial banks and certain other instruments acceptable to the
applicable rating agency, all invested by, or at the direction of, and for
the benefit of the master servicer, the related servicer, SAMCO Mortgage
Securities Corp. or the related seller, as applicable, or any other person
named in the prospectus supplement.
"EQUITY RELEASE SAM" means a residential mortgage loan under which
the mortgagor pays no interest or principal to the holder of the SAM
periodically but pays all principal due and the Appreciation Share upon the
occurrence of a Mortgage Termination Event.
"ERRORS AND OMISSIONS INSURANCE POLICY" means an insurance policy
with broad coverage on Depositor's Employees maintained by the master
servicer or each servicer at its own expense which protects and insures
such master servicer or servicer against losses in connection with the
release or satisfaction of a SAM without having obtained payment in full of
the indebtedness secured thereby and, if so stated in the related
prospectus supplement, protects and insures, in the form of the Mortgage
Banker's Blanket Bond, such master servicer or servicer against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such Depositor Employees.
"EUROCLEAR OPERATOR"or "EUROCLEAR" means Morgan Guaranty Trust
Company of New York, Brussels, Belgium office, conductor of all operations.
"EUROCLEAR PARTICIPANTS" means participants of the Euroclear System
including banks (including central banks), securities brokers and dealers
and other professional financial intermediaries and possibly the
underwriters of any Series of Certificates.
"EVENTS OF DEFAULT" means an event, under the Pooling and Servicing
Agreement, generally including
o any failure by the master servicer or servicer to cause to be
deposited in the Distribution Account or Collection Account, as
applicable, any amount so required to be deposited pursuant to the
Pooling and Servicing Agreement and such failure continues unremedied
for two business days or such other time period as is specified in
such agreement;
o any failure by the master servicer or servicer duly to observe or
perform in any material respect any of its other covenants or
agreements in the Pooling and Servicing Agreement,
which continues unremedied for 60 days or such other time period as
is specified in the Pooling and Servicing Agreement, after the giving
of written notice of such failure to the master servicer or servicer
by the Trustee, or to the master servicer or servicer and the Trustee
by the holders of Certificates of any Class evidencing not less than
25% of the Percentage Interests evidenced by such Class;
o certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings and certain actions by
or on behalf of the master servicer or servicer indicating its
insolvency, reorganization or inability to pay its obligations; and
o the master servicer or servicer assigning or delegating its duties or
rights in contravention of the provisions permitting such assignment
or delegation under the Pooling and Servicing Agreement.
"EXCHANGEABLE CERTIFICATE TRUST FUND" means a trust fund, established
pursuant to a trust agreement between the seller and a trustee, which
issues Classes of Exchangeable Certificates that are identical in all
respects to the Classes of Certificates deposited in such trust fund.
"EXCHANGEABLE CLASSES" means classes of a series which are
exchangeable and represent beneficial ownership of an interest in one or
more classes of certificates on deposit in an Exchangeable Certificate
Trust Fund, as specified in the applicable prospectus supplement.
"EXCHANGEABLE POOL" means a pool of Exchangeable Classes which are to
be created, sold, and administered.
"EXCHANGED EXCHANGEABLE CLASS" means a single Exchangeable Class
which is exchanged for several Received Exchangeable Classes.
"EXTRAORDINARY LOSSES" means any uncovered loss attributable to
shortfalls in the payment of amounts due to one or more classes of
certificates. Losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction, chemical contamination, errors in
design, faulty workmanship or materials or waste by the mortgagor, as set
forth in the applicable prospectus supplement.
"FASIT" means a financial asset securitization investment trust
within the meaning of section 860L of the Code.
"FASIT CERTIFICATES" means certificates issued in respect of a SAM
Pool classified as a FASIT for federal income tax purposes.
"FASIT OWNER" is an owner of a FASIT Ownership Certificate.
"FASIT OWNERSHIP CERTIFICATE" means a FASIT Certificate that is
treated as an "ownership interest" within the meaning of section 860L(b)(2)
of the Code.
"FASIT PROVISIONS" means sections 860H through 860L of the Code.
"FASIT REGULAR CERTIFICATE" means a FASIT Certificate that is treated
as a "regular interest" within the meaning of section 860L(b)(1) of the
Code.
"FH ACT" means the Fair Housing Act, which prohibits discrimination
on the basis of any of a number of prohibited factors.
"FHA LOANS" means a pool of mortgage loans insured by the FHA under
the Housing Act, or Title V of the Housing Act of 1949.
"FHLBB" means the Federal Home Loan Bank Board, the OTS's predecessor.
"FHLMC ACT" means the Federal Home Loan Mortgage Corporation Act,
Title III of the Emergency Home Finance Act of 1970.
"FHLMC CERTIFICATES" means Mortgage Participation Certificates issued
and guaranteed as to timely payment of interest and ultimate (but generally
not timely) payment of principal by FHLMC (formerly, the Federal Home Loan
Mortgage Corporation).
"FNMA CERTIFICATES" means Guaranteed Mortgage Pass-Through
Certificates issued and guaranteed as to timely payment of principal and
interest by the Federal National Mortgage
Association.
"FEDERAL THRIFTS" means federal savings and loan associations and
savings banks which, according to a statement of policy by the OTS, may
lend on terms where the principal is to be repaid and the institution
receives a "substantial payment of interest" periodically.
"FIDELITY BOND" means a blanket fidelity bond with broad coverage on
Depositor's Employees maintained by the master servicer or each servicer at
its own expense which protects and insures such master servicer or servicer
against losses in connection with the release or satisfaction of a SAM
without having obtained payment in full of the indebtedness secured thereby
and, if so stated in the related prospectus supplement, protects and
insures, in the form of the Mortgage Banker's Blanket Bond, such master
servicer or servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such
Depositor Employees.
"FITCH" means Fitch IBCA, Inc.
"FLOATING RATE CLASS" means a class of Exchangeable Certificates with
a stated interest rate that varies directly with changes in an index.
"FRAUD BOND" means an amount of coverage for certificateholders
against loss in the event that coverage relating to a SAM which otherwise
would have been available under a Primary Insurance Policy is not available
because of an exclusion in such Primary Insurance Policy, from coverage of
Fraud Loss. The terms and amounts of coverage under any Fraud Bond will be
specified in the related prospectus supplement.
"FRAUD INSTRUMENT" means one or more of a Letter of Credit, Reserve
Fund or Fraud Bond which may provide coverage with respect to Fraud Losses.
"FRAUD LOSS" means any loss incurred on defaulted SAMs as to which
there was fraudulent conduct or negligence by any of the Originator, the
seller, SAMCO Mortgage Securities Corp., the master servicer, the servicer
or the mortgagor in connection with such SAMs, as set forth in the
applicable prospectus supplement.
"GNMA CERTIFICATES" means fully modified pass-through mortgage-backed
certificates guaranteed as to timely payment of principal and interest by
the Government National Mortgage
Association.
"GNMA ISSUER" means a mortgage banking company or other financial
concern approved by GNMA or approved by FNMA as a seller-servicer of FHA
Loans and/or
VA Loans.
"GARN-ST GERMAIN ACT" means the Garn-St Germain Depository
Institutions Act of 1982, which purports to pre-empt state statutory and
case law that prohibits the enforcement of "due-on-sale" clauses and
permits lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions.
"GENERAL ACCOUNT REGULATIONS" means final regulations issued by the
DOL not later than December 31, 1997 with respect to insurance policies
issued on or before December 31, 1998 that are supported by an insurer's
general account, which provide guidance on which assets held by the insurer
constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code.
"GLOBAL SECURITIES" means the globally offered Mortgage Pass-Through
Certificates, which are available only in book-entry form and are tradeable
as home market instruments in both European and U.S. domestic markets.
"GUARANTY AGREEMENT" means a guaranty agreement between GNMA and the
GNMA Issuer.
"HAZARD INSURANCE POLICY" means an insurance policy on each SAM
providing for no less than the coverage of the standard form of fire
insurance policy with extended coverage customary for the type of Mortgaged
Property in the state in which such Mortgaged Property is located, the
amount of which is not less than the replacement value of the improvements
securing such SAM or the principal balance owing on such SAM, whichever is
less.
"HIGH-YIELD INTEREST" means a FASIT Regular Certificate that is
treated as a "high-yield interest" within the meaning of section
860L(b)(1)(B) of the Code.
"HOUSING ACT" means the amended section 306(g) of Title II of the
National Housing Act of 1934.
"IMPLIED MARKET RATE" means with respect to any SAM, a typical market
interest rate for a comparable single-family mortgage product having the
same principal terms as the related SAM but not having a shared
appreciation mortgage feature.
"INDEXED APPRECIATION PAYMENT" means as to any SAM or class of
certificates, an amount determined by reference to an index of single
family residential house appreciation which estimates the Additional
Interest Payment or Payments which would have been due on such SAM or SAM
Pool had a Mortgage Termination Event occurred with respect to such SAM at
the time that the repurchase obligation arose.
"INDIRECT PARTICIPANTS" means banks, brokers, dealers and trust
companies that clear through or indirectly maintain a custodial
relationship with a Participant.
"INSURANCE PROCEEDS" means all proceeds (net of Insured Expenses and
unreimbursed advances made, by the related master servicer or servicer, if
any) of the Hazard Insurance Policies and any Primary Insurance Policies,
to the extent such proceeds are not applied to the restoration of the
property or released to the mortgagor in accordance with the master
servicer's or servicer's normal servicing procedures.
"INSURED EXPENSES" means unreimbursed payments of property taxes,
insurance premiums and similar items incurred.
"INVERSE FLOATING RATE CLASS" means a class of Exchangeable
Certificates with a stated interest rate that varies inversely with changes
in an index.
"JUMBO SAM" means a SAM having an initial principal amount of greater
than $650,000.
"LTV" means the loan-to-value ratio for the related SAM.
"LETTER OF CREDIT" means a letter provided as credit enhancement to a
series of certificates, set to expire on the expiration date set forth in
the related prospectus supplement, unless earlier terminated or extended in
accordance with its terms.
"LETTER OF CREDIT BANK" means a bank or other entity responsible for
delivering such Letter of Credit to the Trustee.
"LIQUIDATION EXPENSES" means unreimbursed expenses incurred in
connection with liquidation or foreclosure.
"LIQUIDATION PROCEEDS" means all cash amounts (net of Liquidation
Expenses and unreimbursed advances made, by the master servicer or
servicer, if any) received and retained in connection with the liquidation
of defaulted SAMs, by foreclosure or otherwise.
"MGT/EOC" means Morgan Guaranty Trust as the Operator of the Euroclear
System.
"MASTER SERVICING FEE" means a fee paid to each master servicer for
its services in accordance with performing its duties and under any Pooling
and Servicing Agreement or Servicing Agreement, as applicable.
"MONETARY CONTROL ACT" means the Depository Institutions Deregulation
and Monetary Control Act of 1980 which preempts the application of any
state law or constitution limiting the "rate or amount of interest,
discount points, finance charges, or other charges which may be charged,
taken, received, or reserved" for loans secured by first liens on
residential real property, stock in a residential cooperative housing
corporation or certain residential manufactured homes.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE BANKER'S BLANKET BOND" means a blanket bond, the form of
which any Fidelity Bond and Errors and Omissions Insurance Policy may take
if so stated in the related prospectus supplement, which protects and
insures the master servicer or servicer against losses, including forgery,
theft, embezzlement, fraud, errors and omissions and negligent acts of such
Depositor's Employees.
"MORTGAGE NOTES" means promissory notes which evidence SAMs.
"MORTGAGE SUBSIDY SAM" means a residential mortgage loan under which
the mortgagor pays to the Originator an interest rate that is below, and
may be substantially below, the market interest rate for such loans and the
Appreciation Share that is calculated in connection with such Mortgage
Subsidy SAM.
"MORTGAGE SUBSIDY SAMS" means fixed or adjustable rate shared
appreciation mortgage loans which currently pay interest.
"MORTGAGE TERMINATION EVENT" means
o any transfer of any interest in the Mortgaged Property, other than a
Permitted Transfer;
o total taking of the Mortgaged Property as the result of any condemning
authority exercising rights of eminent domain;
o the commencement of foreclosure proceedings in connection with any
lien junior to SAMCO Mortgage Securities Corp.'s security interest in
the Mortgaged Property;
o the voluntary or involuntary filing of any petition seeking to extend
to the mortgagor the protection of any state or federal bankruptcy law;
o no mortgagor occupying the Mortgaged Property for a period greater than
12 months or the rental of the Mortgaged Property;
o the repayment (including through refinancing) of the principal amount
of the SAM; and
o at the option of SAMCO Mortgage Securities Corp., a default by the
mortgagor with respect to any amounts due (including any amounts
required to be escrowed), or any covenant or representation made, by
the mortgagor under the Mortgage Note or the Mortgage.
"MORTGAGED PROPERTIES" means one- to four-family residential
properties or multi-family residential properties.
"MORTGAGES" means first and secured mortgages, deeds of trust or
security deeds.
"MULTIPLE VARIABLE RATE" means a rate for stated interest at (1) more
than one qualified floating rate, or at (2) a single fixed rate and (a) one
or more qualified floating rates or (b) a single "qualified inverse
floating rate."
"NON-U.S. PERSON" means a person that is not a U.S. Person, whose
collections of payment are generally exempt from U.S. federal income and
withholding taxes, provided
o the holder of the Certificate is not subject to U.S. tax as a result of
a connection to the United States other than ownership of such
Certificate,
o the holder of such Certificate signs a statement under penalties of
perjury that certifies that such holder is a Non-U.S. Person, and
provides the name and address of such holder, and
o the last U.S. Person in the chain of payment to the holder received
such statement from such holder or a financial institution holding on
its behalf and does not have actual knowledge that such statement is
false.
"OCC" means the Office of the Comptroller of the Currency which has
informally determined that national banks which it charters have implicit
authority to accept consideration for a mortgage loan in the form of equity
appreciation in the real estate securing the loan, provided the national
bank expects to receive money rather than a possessory interest in real
property and the principal is to be repaid.
"OID" means original issue discount.
"OID REGULATIONS" means the Treasury regulations promulgated under
sections 1271 through 1275 of the Code.
"OTS" means the Office of Thrift Supervision.
"ORIGINAL VALUE" means a value equal to the lower of the purchase
price, if any, and the appraised value of the property on the origination
date of the Mortgage Subsidy SAM.
"ORIGINATORS" means an originator of a SAM which is a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
Sections 203 and 211 of the National Housing Act, as amended, or a savings
and loan association, a savings bank, a commercial bank, a licensed
mortgage banker or similar banking or lending institution which is
supervised and examined by a federal or state authority or such other
entities as may be described in the applicable prospectus supplement.
"PARITY ACT" means the Alternative Mortgage Transaction Parity Act of
1982.
"PARTICIPANTS" means participating organizations including securities
brokers and dealers, banks, trust companies and clearing corporations, and
possibly certain other organizations including underwriters of any series
of certificates.
"PARTIES IN INTEREST" means certain persons who have certain
specified relationships to the Plan, for whom a broad range of transactions
involving Plan Assets is prohibited.
"PASS-THROUGH CERTIFICATE" means a Trust Certificate issued in
respect of a SAM Pool that (1) is classified as a grantor trust for federal
income tax purposes and (2) contains shared appreciation mortgages from
which the Additional Interest Payments have not been stripped.
"PASS-THROUGH RATE" means the amount paid to the certificateholders
for each class of certificates calculated on the basis of the Remittance
Rate for the related SAMs.
"PAYING AGENT" means a paying agent appointed by the Trustee.
"PERCENTAGE INTEREST" means the interest represented by a certificate
of a particular class which is equal to the percentage obtained by dividing
the initial principal balance or notional amount of such certificate by the
aggregate initial amount or notional amount of all the certificates of such
class.
"PERMITTED ASSETS" has the meaning contained in section 860L(c)(1) of
the Code.
"PERMITTED TRANSFER" means
o a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety;
o a transfer to a relative resulting from the death of the mortgagor;
o a transfer where the mortgagor's spouse or children become an owner of
the Mortgaged Property;
o a transfer resulting from a decree of a dissolution of marriage,
legal separation agreement, or from an incidental property settlement
agreement, by which the mortgagor's spouse becomes an owner of the
Mortgaged Property;
o a transfer into an inter vivos trust in which the mortgagor is and
remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property;
o the creation of a lien or other encumbrance subordinate to the SAMCO
Mortgage Securities Inc.'s security instrument which does not relate
to a transfer of rights of occupancy in the Mortgaged Property;
o the creation of a purchase money security interest for household
appliances; or (viii) any other transfer or disposition described in
regulations prescribed by the OTS.
"PLAN ASSET INVESTORS" means entities holding Plan Assets with
respect to Plans, collective investment funds, insurance company general or
separate accounts that purchase or hold certificates of the applicable
series.
"PLAN ASSETS" means the investable assets of any Plan.
"PLANNED AMORTIZATION CLASS" means a class of Exchangeable
Certificates that is designed to receive principal payments in accordance
with a predetermined schedule derived by assuming two constant prepayment
rates for the underlying SAMs.
"PLANS" means employee benefit plans and other benefit plans or
arrangements which are subject to ERISA or Section 4975 of the Code, upon
which certain requirements are imposed by ERISA.
"PMBS AGREEMENT" means a pooling and servicing agreement pursuant to
which Private Mortgage-Backed Securities are issued.
"PMBS ISSUER" means a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of
mortgage loans or SAMs, 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 such trusts and selling beneficial
interests in such trusts.
"PMBS SERVICER" means a FNMA or FHLMC approved servicer and, if FHA
Loans underlie the Private Mortgage-Backed Securities, approved by HUD as
an FHA mortgagee, or such other servicer as specified in the related
prospectus supplement.
"PMBS TRUSTEE" means the trustee under the PMBS Agreement with whom
the seller/servicer of the underlying mortgage loans enters into the PMBS
Agreement.
"POOL INSURANCE POLICY" means a separate insurance policy obtained
for the related SAM Pool and issued by the insurer which covers loss by
reason of default in payment on single family loans in the SAM Pool in an
amount specified in the prospectus supplement.
"POOL INSURER" means the insurer named in the related prospectus
supplement responsible for issuing the Pool Insurance Policy.
"POST-IMPROVEMENT APPRAISED VALUE" means the appraised value of the
Mortgaged Property conducted after the completion of a Qualifying Major
Home Improvement.
"PRE-IMPROVEMENT APPRAISED VALUE" means the appraised value of the
Mortgaged Property determined prior to the commencement of a Qualifying
Major Home Improvement.
"PREPAYMENT ASSUMPTION" means the mortgage prepayment assumption used
to calculate OID as required under section 1272(a)(6) of the Code and the
Treasury regulations promulgated thereunder.
"PRIMARY INSURANCE POLICY" means a primary insurance policy with
regard to each SAM for which such coverage is required which is maintained
by the master servicer or the related servicer, in full force and effect,
to the extent specified in the related prospectus supplement.
"PRIMARY INSURER" means the issuer of the related Primary Insurance
Policy.
"PRINCIPAL BALANCE" means a balance equal to the initial principal
amount thereof reduced by (i) all voluntary prepayments of principal
actually made on or before such date; and (ii) the portion of all
Liquidation Proceeds, Insurance Proceeds or income from the Mortgaged
Property applied to or prior to such date as a payment of principal on such
Equity Release SAM.
"PRIVATE MORTGAGE-BACKED SECURITIES" means private issued
mortgage-backed securities.
"PROJECTED PAYMENT SCHEDULE" means a schedule of the payments
expected to be made with respect to the Appreciation Certificate, based
upon reasonable prepayment assumptions and the Comparable Yield.
"PTCE 83-1" means Prohibited Transaction Class Exemption 83-1, which
permits, subject to certain conditions, certain transactions involving the
creation, maintenance and termination of certain residential mortgage pools
and the acquisition and holding of certain residential mortgage pool
pass-through certificates by Plan Asset Investors, regardless of whether
(1) the mortgage pool is exempt from "plan asset" treatment or (2) the
transactions would otherwise be prohibited under ERISA or Section 4975 of
the Code.
"PTE" means Prohibited Transaction Exemption, an individual
administrative exemption.
"PTE 90-30" means Prohibited Transaction Exemption 90-30, issued by
the DOL to Bear Stearns & Co., Inc., which exempts the initial purchase,
the holding and the subsequent resale by Plans of certificates representing
interests in asset-backed pass through trusts that consist of certain
secured receivables, loans and other obligations that meet the conditions
and requirements of PTE 90-30 from certain of the prohibited transaction
rules of ERISA and the Code, and provide that the trust's assets may
include (i) yield supplement agreements or similar yield maintenance
arrangements of the type described above, provided such arrangements do not
involve swap agreements or other notional principle contracts; and (ii)
certain pre-funding account arrangements.
"QUALIFIED INSURER" means a mortgage guaranty insurance company which
is duly qualified as such under the laws of each state in which the
Mortgaged Properties are located, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business and to write the
insurance provided by the Primary Insurance Policy or the Pool Insurance
Policy, as the case may be, and which is approved as an insurer by FHLMC or
FNMA or any successor entity and by SAMCO Mortgage Securities Corp.
"QUALIFYING MAJOR HOME IMPROVEMENT" means an improvement made to the
Mortgaged Property which increases the value of the Mortgaged Property and
o is a major improvement having a minimum total project value of the
greater of $5,000 and 3% of the Original Value or Adjusted Value, if
one exists;
o is completed within six months of the start date of the Qualifying
Major Home Improvements; and
o excludes certain work or items, including, but not limited to,
o ordinary maintenance and repair, including the replacement of
roofing,
o decorations, wallpaper, paint and the replacement of appliances
and floor coverings,
o landscaping, plants, patios, decks, fences and sheds, and
o replacement or updating of existing systems such as, heating, air
conditioning, septic and wells.
"RCRA" means the federal Resource Conservation and Recovery Act.
"REIT" means a real estate investment trust within the meaning of
section 856(a) of the Code.
"REMIC" means a real estate mortgage investment conduit within the
meaning of section 860D of the Code.
"REMIC CERTIFICATE" means a certificate issued in respect of a SAM
Pool classified as a REMIC for federal income tax purposes.
"REMIC PROVISIONS" means sections 860A through 860G of the Code.
"REMIC REGULAR CERTIFICATe" means a REMIC Certificate that is treated
as a "regular interest" within the meaning of section 860G(a)(1) of the
Code.
"REMIC REGULATIONS" means the Treasury regulations issued under the
provisions of the Code relating to REMICs.
"REMIC RESIDUAL CERTIFICATE" means a REMIC Certificate that is
treated as a "residual interest" within the meaning of section 860G(a)(2)
of the Code.
"REMIC SAM POOL" means a SAM Pool consisting of REMIC Certificates
which represent interests in such Pool.
"RECEIVED EXCHANGEABLE CLASS" means any Exchangeable Class which is
given to the holder/seller of any single Exchanged Exchangeable Class, the
sale of which makes the investor subject to the coupon stripping rules of
Section 1286 of the Code.
"RECORD DATE" means the close of business on the last business day of
the month preceding the month in which the Distribution Date occurs.
"REGULATION" means a final regulation, issued by the DOL, under which
the assets of an entity in which a Plan Asset Investor makes an equity
investment are to be treated as Plan Assets in certain circumstances.
"RELIEF ACT" means the Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"REMITTANCE RATE" means the difference between the stated interest
rate on each SAM (or SAM Pool, if applicable) and the amount needed to pay
Master Servicing Fees, Servicing Fees, Certificate Administrator Fees and
any Retained Yield.
"RESERVE ACCOUNT" means one or more reserve accounts established by the
Trustee.
"RESERVE FUND" means a fund funded, applied and maintained by the
master servicer, SAMCO Mortgage Securities Corp., the Originator or the
seller, as applicable, in the manner and under the conditions specified in
the prospectus supplement.
"RESIDUAL OWNER" means an owner of a REMIC Residual Certificate.
"RESTRICTED GROUP" means the Underwriter, the Trustee, the servicer,
any obligor with respect to the Receivables included in the Trust, any
entity deemed to be a "sponsor" of the Trust as such term is defined in PTE
90-30, or any affiliate of any such party, to which PTE 90-30 does not
apply.
"RETAINED YIELD" means a portion of the interest payable on each SAM
set as a fixed rate and not part of the Trust Fund.
"RULES" means the rules, regulations and procedures creating and
affecting DTC and its operations.
"S&P" means Standard & Poor's, a division of the McGraw-Hill companies.
"SAM PERCENTAGE" means a percentage of a SAM which is equal to the
Appreciation Share.
"SAM POOL" means a pool of shared appreciation mortgage loans.
"SAMS" means fixed or adjustable rate shared appreciation mortgage
loans, which currently pay interest or currently pay no interest.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"SALE AND SERVICING AGREEMENT" means an agreement by which SAMs are
sold to EMC Mortgage Corporation by an Originator or seller.
"SALES PRICE" means the sales price, if any, of Mortgaged Property.
"SENIOR CERTIFICATES" means one or more classes of certificates of a
series, which may be Appreciation Certificates, holders of which receive,
if so specified in the applicable prospectus supplement, payments that
otherwise would have been payable to the holders of the Subordinated
Certificates.
"SERVICING AGREEMENT" means any contract entered into by the master
servicer or Trustee for the performance of certain administrative and
servicing functions for the SAMs, which may be the related Sale and
Servicing Agreement.
"SERVICING FEES" means the amounts payable as fees to the Trustee and
the master servicer or servicer, if any, and other similar fees.
"SETTLEMENT VALUE" means the appraised value of the Mortgaged
Property on the Termination Date; provided that (i) there is no sale of the
Mortgaged Property; (ii) the purchaser is not a relative of the mortgagor;
or (iii) the variance between the Sales Price and the appraised value is
less than or equal to five percent.
"SIMPLIFICATION ACT" means the Tax Simplification and Technical
Corrections Bill of 1993, presently pending before the United States
Congress, which would apply a tax on an annual basis to "large
partnerships."
"SINGLE VARIABLE RATE" means a rate for payment of "qualified stated
interest," which is either (i) a single fixed rate that appropriately takes
into account the length of the interval between payments or (ii) the
current values of a single "qualified floating rate" or "objective rate."
"SPECIAL HAZARD INSTRUMENT" means one or more of a Letter of Credit,
Reserve Fund or a Special Hazard Insurance Policy which may provide
coverage with respect to Special Hazard Losses, as set forth in the
applicable prospectus supplement.
"SPECIAL HAZARD INSURANCE POLICY" means an insurance policy, the
amount of which is specified in the prospectus supplement, which protects
holders of the related Certificates from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and,
to a limited extent, tidal waves and related water damage) not insured
against under the standard form of Hazard Insurance Policy for the
respective states in which the Mortgaged Properties are located or under a
flood insurance policy if the Mortgaged Property is located in a federally
designated flood area, and (ii) loss caused by reason of the application of
the coinsurance clause contained in Hazard Insurance Policies, but does not
cover losses occasioned by war, civil insurrection, certain governmental
action, errors in design, faulty workmanship or materials (except under
certain circumstances), nuclear reaction, flood (if the Mortgaged Property
is located in a federally designated flood area), chemical contamination
and certain other risks.
"SPECIAL HAZARD INSURER" means the insurer named in the prospectus
supplement responsible for issuing a separate Special Hazard Insurance
Policy.
"SPECIAL HAZARD LOSS" means any loss of a type generally covered by a
Special Hazard Insurance Policy, as set forth in the applicable prospectus
supplement.
"STATED INTEREST" means the amount of fixed interest paid on a SAM.
"STRIP" means an interest that represents beneficial ownership of a
disproportionate part of the principal and interest payments on a class of
certificates.
"STRIPPED CERTIFICATE" means a certificate issued in respect of a SAM
Pool that (i) is classified as a grantor trust for federal income tax
purposes and (ii) contains interests representing either (A) Additional
Interest Payments or (B) principal and interest payments other than
Additional Interest Payments on shared appreciation mortgages.
"SUBORDINATED CERTIFICATES" means one or more Classes of Certificates
of a Series, which may be Appreciation Certificates, distributions for
which are, if so specified in the applicable prospectus supplement, payable
to holders of the Senior Certificates.
"TERMINATION DATE" means the earlier of the maturity of the Mortgage
Subsidy SAM and the occurrence of such Mortgage Termination Event.
"TERMS AND CONDITIONS" means the Terms and Conditions Governing Use
of Euroclear and the related Operating Procedures of the Euroclear System
and applicable Belgian law which govern transfers of securities and cash
within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in
the Euroclear System.
"TIL ACT" means the federal Truth in Lending Act, the disclosure
provisions of which require creditors to disclose to consumers the terms of
all consumer credit transactions.
"TRUST" means a SAM Pool classified as a grantor trust for federal
income tax purposes.
"TRUST ASSETS" means the SAMs included in one or more SAM Pools for
that series and related property.
"TRUST CERTIFICATES" means Pass-Through Certificates and Stripped
Certificates.
"TRUST FUND" means a trust consisting of the SAMs included in one or
more SAM Pools for that series and any related property, in which the
certificates of each series represent undivided interests.
"TRUSTEE" means an independent bank or trust company acting as
trustee for the benefit of a Series of Certificateholders and designated as
such in each prospectus supplement.
"U.S. PERSON" means
o a citizen or resident of the United States,
o a corporation or partnership (including any entity treated as a
partnership or corporation for federal income tax purposes) created
or organized in or under the laws of the United States, any state or
the District of Columbia, or
o an estate or trust that is subject to U.S. federal income tax
regardless of the source of its income or
o a trust if a United States court is able to exercise primary
supervision over its administrators and one or more United States
person have the authority to control all of its substantial
decisions.
"VA" means Veterans Administration.
"VA LOANS" means a pool of mortgage loans partially guaranteed by the
VA under the Servicemen's Readjustment Act of 1944, as amended, or Chapter
37 of Title 38, United States
Code.
"WEIGHTED AVERAGE LIFE" means the average amount of time that elapses
from the date of issuance of a certificate until each dollar of principal
is repaid to the certificateholders.
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Global Securities to be
issued in series from time to time will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of the 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.
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 such capacity, and as DTC Participants.
Non-U.S. holders of Global Securities will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organization or
their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result,
Cedelbank and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Mortgage Pass-Through
Certificates. 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
Mortgage Pass-Through Certificates issues in same-day funds.
Trading between Cedelbank Customers or Euroclear Participants.
Secondary market trading between Cedelbank Customers 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 Customer or a Euroclear
Participant, the purchaser will send instructions to Cedelbank or Euroclear
through a Cedelbank Customer 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. Payment will then be made by the respective Depositary
to 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 Customer's or Euroclear
Participant's account. The Global Securities credit will appear the next
day, European time, and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date, i.e., the trade
fails, the Cedelbank or Euroclear cash debit will be valued instead as of
the actual settlement date.
Cedelbank Customers 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
pre-position 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 Customers or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Cedelbank Customers or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities
were credited to their accounts. However, interest on the Global Securities
would accrue from the value date. Therefore, in many cases the investment
income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Cedelbank Customer'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 Depositary for the benefit of Cedelbank
Customers or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participant 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 Customers 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
Customer 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 bonds to the DTC
Participant's account 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. The payment will then be
reflected in the account of the Cedelbank Customer or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedelbank
Customer'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 Customer or Euroclear Participant have a
line of credit with its respective clearing system and elect to be in debit
in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date,
i.e., the trade fails, receipt of the cash proceeds in the Cedelbank
Customer'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 Customers 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 Customer or Euroclear Participant.
CERTAIN 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, under currently applicable
law, each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in
the chain of intermediaries between such beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements and such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
certificates that are non-U.S. Persons generally can obtain a
complete exemption from the withholding tax by filing a signed Form
W-8 (Certificate of Foreign Status). If the information shown on Form
W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected
income (Form 4224). A non-U.S. Person, including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income
is effectively connected with its conduct of a trade or business in
the United States, can obtain an exemption from the withholding tax
by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the conduct of a Trade or Business in the
United States).
Exemption or reduced rate for non-U.S. Persons resident in
treaty countries (Form 1001). Non-U.S. Persons that are
certificateholders 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 certificateholder 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.
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. Further, the U.S. Treasury Department has recently finalized
new regulations that will revise some aspects of the current system for
withholding on amounts paid to foreign persons. Under these regulations,
interest or original issue discount paid to a nonresident alien would
continue to be exempt from U.S. withholding taxes, including backup
withholding, provided that the holder complies with the new certification
procedures.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration fee..................... $278.00
Printing and engraving............... *
Legal fees and expenses ............. *
Accounting fees and expenses......... *
Trustee's fees and expenses ......... *
Blue Sky Qualification Fees and
Expenses
(including Counsel Fees)....... *
Rating Agency Fee.................... *
Miscellaneous ....................... *
Total.................... $278.00
- ------------
* To be determined based upon the number of issuances and the specific
circumstances of each issuance.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of
Delaware, as amended, under which the Registrant is incorporated, empowers
a corporation, subject to certain limitations, to indemnify its directors
and officers against the actual and reasonable expenses of defending
litigation against them in their capacities as directors and officers.
Section 13 of Article III of SAMCO Mortgage Securities Corp.'s
By-Laws provides as follows:
The provisions of this Section 13 shall apply to the directors
and officers of the corporation in accordance with Article III and V
of these By-Laws as more fully set forth in this prospectus.
(1) As used in this Article:
(a) "acted properly" as to any person shall mean that such
person acted in good faith; acted in a manner not clearly
opposed to any written policy of the corporation or which
he reasonably believed to be in the best interests of the
corporation; and with respect to any criminal action or
proceeding, had no reasonable cause to believe that this
conduct was unlawful. The termination of any proceeding
by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act
properly.
(b) "agent" shall mean any person who is or was a director,
officer or employee of the corporation and/or any
subsidiary; a trustee or a fiduciary under any employee
pension, profit sharing, welfare or similar plan or trust
of the corporation and/or any subsidiary; serving at the
request of the corporation as a director, officer or
employee of or in a similar capacity in another
corporation, partnership, joint venture, trust or other
enterprise (which shall, for the purpose of this Article
be deemed to include not-for-profit or for-profit
entities of any type), whether acting in such capacity or
in any other capacity including, without limitation, as a
trustee or fiduciary under any employee pension, profit
sharing, welfare or similar plan or trust.
(c) "expenses" shall include attorneys' fees and any expenses
of establishing a right to indemnification under this
Article.
(d) "proceeding" shall mean any threatened, pending or
completed action or proceeding, whether civil or
criminal, and whether judicial, legislative or
administrative and shall include investigative action by
any person or body.
(e) "subsidiary" shall mean a corporation, 50% or more of the
shares of which at the time outstanding have voting power
for the election of directors, is owned directly or
indirectly by the corporation or by one or more
subsidiaries or by the corporation and one or more
subsidiaries.
(2) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the corporation),
by reason of the fact that such person is or was an agent
against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such proceeding if such person acted properly.
(3) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding by
or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person is or was an agent
against amounts paid in settlement and against expenses
actually and reasonably incurred by him in connection with the
defense or settlement of such proceeding if he acted properly,
except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to
the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem
proper.
(4) Expenses incurred in deferring a proceeding shall be paid by
the corporation to or on behalf of an agent in advance of the
final disposition of such proceeding if:
(a) there is a reasonable basis to believe that such agent
may be entitled to indemnification under this Article;
(b) such advance payments would not result in undue financial
hardship to the corporation; and
(c) the corporation shall have received an undertaking by or
on behalf of such agent to repay such amount unless it
shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this
Article.
(5) Any indemnification or advance under paragraph (b), (c) or (d)
of this Article (unless ordered by a court), shall be made by
the corporation only as authorized in the specific proceeding
upon a determination that indemnification or advancement to
such person is proper in the circumstances. Such determination
shall be made
(a) by the Chairman of the Board so long as he was not made a
party to such proceeding;
(b) if the Chairman of the Board were made a party by the
Board of Directors, by a majority vote of a quorum
consisting of directors who were not made parties to such
proceeding;
(c) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written
opinion, or
(d) by the shareholders.
(6) The corporation shall indemnify or advance funds to any person
described in Section (a)(ii)(C) only after such person shall
have sought indemnification or an advance from the corporation,
partnership, pint venture, trust or other enterprise in which
he was serving at the corporation's request, shall have failed
to receive such indemnification or advance and shall have
assigned irrevocable to the corporation any right to receive
indemnification which he might be entitled to assert against
such other corporation, partnership, joint venture, trust or
other enterprise.
(7) The indemnification provided to an agent by this Article
(a) shall not be deemed exclusive of any other rights to
which such agent may be entitled by law or under any
articles of incorporation, By-Law, agreement, vote of
shareholders or disinterested directors or otherwise; and
(b) shall inure to the benefit of the legal representatives
of such agent or his estate, whether such representatives
are court appointed or otherwise designated, and to the
benefit of the heirs of such agent.
(8) The indemnification and advances provided to an agent by this
Article shall extend to and include claims for such payments
arising out of any proceeding commenced or based on actions of
an agent taken prior to the effective date of this Article;
provided that payment of such claims had not been agreed to or
denied by the corporation at the effective date.
(9) The invalidity or unenforceability of any provision in this
Article shall not affect the validity or enforceability of the
remaining provisions of this Article.
There is directors' and officers' liability insurance presently
outstanding, which insures directors and officers of SAMCO Mortgage
Securities Corp. against claims arising out of the performance of their
duties.
The Pooling and Servicing Agreement for each series of certificates
will provide that no director, officer, employee or agent of SAMCO Mortgage
Securities Corp. is liable to any holder of certificates or to the trustee
on behalf of the holders of such certificates, or to any other person,
except on account of such director's, officer's, employee's or agent's own
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Pooling and Servicing Agreement for each series will further
provide that, with the exceptions stated above, a director, officer,
employee or agent of SAMCO Mortgage Securities Corp. is entitled to be
indemnified by the Trust Fund against all liability in connection with the
mortgage pool evidenced by such series.
ITEM 16. EXHIBITS
Exhibit Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement (to be utilized for firm
commitment underwritings and public reoffering by
underwriters).
1.2 Form of Purchase Agreement (to be utilized for sales by the
Registrant and placement agents primarily to institutional
purchasers).
3.1 Certificate of Incorporation of SAMCO Mortgage Securities Corp.
3.2 By-Laws of SAMCO Mortgage Securities Corp.
4.1 Form of Sale and Servicing Agreement between SAMCO Mortgage
Securities Corp. and applicable master servicer or servicer,
including Forms of certificates as exhibits thereto.
4.2 Form of Pooling and Servicing Agreement between SAMCO Mortgage
Securities Corp. and Trustee, including Forms of certificates
as exhibits thereto.
4.3 Form of typical Pool Insurance Policy.
4.4 Form of typical Special Hazard Insurance Policy.
4.5 Form of typical Primary Insurance Policy.
4.6 Form of typical Bankruptcy Bond.
4.7 Form of typical Fraud Bond.
4.8 Form of typical Letter of Credit.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to the certificates.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to tax matters.
24.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 5.1 hereto).
24.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 8.1 hereto).
25.1 Powers of Attorney (included in signature page hereto).
ITEM 17. UNDERTAKINGS.
SAMCO Mortgage Securities Corp. hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
o to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
o 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 of the
Registration Statement), which individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
o to include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
4. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
under Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling SAMCO Mortgage Securities Corp. under the foregoing provisions,
SAMCO Mortgage Securities Corp. has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities, other
than the payment by SAMCO Mortgage Securities Corp. of expenses incurred or
paid by a director, officer or controlling person of SAMCO Mortgage
Securities Corp. 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, SAMCO Mortgage Securities
Corp. will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SAMCO Mortgage Securities Corp. hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report under Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, except for
the security rating requirement which it will meet by the time of sale, and
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, hereunto duly authorized, in the City of New York, State
of New York, on the 24th day of September, 1999.
SAMCO MORTGAGE SECURITIES CORP.
as Depositor
By: /S/ Joseph T. Jurkowski, Jr
----------------------------
Joseph T. Jurkowski, Jr
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/S/ Jeffery Mayer* President/Chairman of September 24, 1999
- ----------------------------- the Board of Directors
Jeffery Mayer (Principal Executive
Officer)
/S/ Samuel L. Molinaro Jr.* Vice President/Treasurer September 24, 1999
- ----------------------------- (Principal Financial
Samuel L. Molinaro Jr. Officer)
/S/ Paul M. Friedman* Director/Vice September 24, 1999
- ----------------------------- President/Assistant
Paul M. Friedman Secretary
/S/ Susan R. Mitchell* Controller September 24, 1999
- -----------------------------
Susan R. Mitchell
* By Power-of-Attorney.
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1 Form of Underwriting Agreement (to be utilized for firm
commitment underwritings and public reoffering by
underwriters).
1.2 Form of Purchase Agreement (to be utilized for sales by the
Registrant and placement agents primarily to institutional
purchasers).
3.1 Certificate of Incorporation of SAMCO Mortgage Securities Corp.
3.2 By-Laws of SAMCO Mortgage Securities Corp.
4.1 Form of Sale and Servicing Agreement between SAMCO Mortgage
Securities Corp. and applicable master servicer or servicer,
including Forms of certificates as exhibits thereto.
4.2 Form of Pooling and Servicing Agreement between SAMCO Mortgage
Securities Corp. and Trustee, including Forms of certificates
as exhibits thereto.
4.3 Form of typical Pool Insurance Policy.
4.4 Form of typical Special Hazard Insurance Policy.
4.5 Form of typical Primary Insurance Policy.
4.6 Form of typical Bankruptcy Bond.
4.7 Form of typical Fraud Bond.
4.8 Form of typical Letter of Credit.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to the certificates.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect
to tax matters.
24.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 5.1 hereto).
24.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included
in Exhibit 8.1 hereto).
25.1 Powers of Attorney.
- ------------
* Filed previously.
EXHIBITS
EXHIBIT 5.1
_________________________
_________________________
_________________________
_________________________
_________________, [1999]
Board of Directors
_________________________
_________________________
_________________________
_________________________
Gentlemen:
I have examined the Registration Statement on Form S-3 as prepared for
filing with the Securities and Exchange Commission on ________, [1999] by
_________________________ (the "DEPOSITOR"), in connection with the
registration under the Securities Act of 1933, as amended, of SAMCO
Mortgage Securities Corp.'s Mortgage Pass-Through Certificates (the
"CERTIFICATES"), to be issued under various Pooling and Servicing
Agreements (the "POOLING AND SERVICING AGREEMENTS"), between SAMCO Mortgage
Securities Corp. and a bank or trust company, as Trustee (the "TRUSTEE").
The Certificates are to be primarily sold to underwriters and to
institutional investors as set forth in the Registration Statement.
I have also examined the proceeds relating to the authorization and
execution of the various Pooling and Servicing Agreements and the issuance
and sale of the Certificates.
I am of the opinion that:
1. Each Pooling and Servicing Agreement, when it has been duly
executed and delivered by SAMCO Mortgage Securities Corp. and
the Trustee, will be a valid and binding obligation of SAMCO
Mortgage Securities Corp..
2. The Certificates, when sold and duly executed, authenticated
and delivered in the manner referred to in the Registration
Statement and in accordance with the terms of the related
Pooling and Servicing Agreement, will be legally and validly
issued, fully-paid and non-assessable, and the holders of the
Certificates will be entitled to the benefits of the Pooling
and Servicing Agreement.
I consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of my name under "Legal Matters"
in the Registration Statement and in the prospectus which is a part
thereof.
Very truly yours,
EXHIBIT 8.1
[TO COME]
