AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999
REGISTRATION NO. 333-80417
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 2
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
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Approximate date of commencement of proposed sales to the public:
From time to time after the effective date of this Registration Statement.
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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. [ ]
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<TABLE>
<CAPTION>
Calculation of Registration Fee(1)
----------------------------------
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT PRICE(2) REGISTRATION FEE
- --------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shared Appreciation
Mortgage $[ ] 100% $[ ] $[ ]
Pass-Through 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.
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PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], [1999]
SAMCO MORTGAGE SECURITIES CORP.
DEPOSITOR
[ ] TRUST [1999]-[ ]
SHARED APPRECIATION MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES [1999]-[ ]
$[ ]
CONSIDER The [ ] Trust [1999]-[ ] will issue [ ] classes of
CAREFULLY offered certificates. The table on page S-[ ] of this
THE RISK prospectus supplement contains a list of the classes of
FACTORS BE offered certificates, including the principal balance,
GINNING ON interest rate and any special characteristics of each
PAGE S-[ ] class.
IN THIS PRO
SPECTUS OFFERED CERTIFICATES
SUPPLEMENT
AND PAGE [ ] [Class [ ]] [Appreciation Certificates]
IN THE PRO Total [principal][notional] Amount $[ ]
SPECTUS. First payment date [ ], [1999]
Interest paid/principal paid [Monthly] (25th)
Last possible payment date [ ], 20[ ]
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.
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.
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 KNOWLEDGE AND INFORMATION NECESSARY TO EVALUATE THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN THE CONTEXT OF THAT INVESTOR'S FINANCIAL SITUATION.
If and when included in this prospectus supplement and the
accompanying prospectus or in documents incorporated in this prospectus
supplement and the accompanying prospectus by reference, the words
"expects," "intends," "anticipates," "estimates" and analogous expressions
are intended to identify forward-looking statements. Any forward-looking
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. The risks
and uncertainties include, among others, overall 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 in this prospectus supplement and the accompanying
prospectus 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 forward-looking 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
Introduction........................................................S-12
The Sellers/Originators.............................................S-15
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-20
Last Scheduled Distribution to Certificateholders...................S-20
The Master Servicer.................................................S-21
The Servicer........................................................S-21
Servicing Compensation, Retained Yield and Payment
of Expenses.........................................................S-21
Optional Termination of the Trust...................................S-22
Yield, Appreciation and Prepayment Considerations...................S-22
Yield Considerations with Respect to the Adjustable
Strip Certificates..................................................S-28
Yield Considerations with Respect to the ...........................S-29
Residual Certificate Yield Considerations...........................S-31
Additional Information..............................................S-31
The Pooling and Servicing Agreement and Sale and Servicing Agreement......S-32
Representations and Warranties......................................S-32
Credit Enhancements.......................................................S-32
The Pool Insurance Policy...........................................S-32
The Special Hazard
[Insurance Policy][Reserve
Fund] [Letter of Credit]............................................S-33
The SAM Repurchase
[Reserve Fund] [Letter of
Credit] [Bond]......................................................S-35
The Bankruptcy [Reserve
Fund] [Letter of Credit]
[Bond]..............................................................S-36
Legal Investment Aspects..................................................S-37
ERISA Considerations......................................................S-37
Federal Income Tax Consequences...........................................S-37
Method of Distribution....................................................S-38
Legal Matters.............................................................S-39
Certificate Ratings.......................................................S-39
Glossary of Terms.........................................................S-41
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 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 other assets, as described under "The Trust" in this prospectus
supplement. The value of the underlying mortgage properties will, as of the
date of the appraisal of each underlying SAM, be equal to or greater than
the outstanding principal balance of the offered certificates. 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 Certificate
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 SAM is When SAM
originated terminates or
matures
- -------------------------------------------------------------
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 pay-off N/A $112,000
due to lender at
time of maturity or
termination
- -------------------------------------------------------------
If the home N/A $73,000
is sold, proceeds to
borrower
- -------------------------------------------------------------
- -------------------------------------------------------------
When SAM is When SAM
originated terminates
or matures
- -------------------------------------------------------------
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 pay-off N/A $ 97,470
due to lender
at time
of maturity
or termination
- -------------------------------------------------------------
If the home N/A $27,530
is sold, proceeds to
borrower
- -------------------------------------------------------------
In the first example, over the period that the mortgagor had the SAM, the
home increased in value by $60,000 and the SAM amortized by $18,000. In the
second example, over the period that the mortgagor had the SAM, the value
of the home remains the same and the SAM amortized by $2,530. Since the
appreciation share is calculated on the basis of the increase in the value
of the home over the period that the mortgagor had the SAM, in the first
example the mortgagor would owe at the maturity or termination of the SAM
an appreciation share payment of $30,000 (the $60,000 increase in value
times an appreciation share of 50%) and in the second example the mortgagor
would owe an appreciation share payment of zero (the zero increase in value
times an appreciation share of 50%). So, in the first example, the holder
is due $112,000 (the outstanding loan amount plus the apprecation share
payment of $30,000), and, in the second example, the holder is only due the
outstanding loan amount of $97,470. If the home is sold in connection with
the payoff of the SAM, in both cases the borrower is entitled to the
remaining proceeds on the sale of the home.
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 the 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
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 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 that mortgage loan and accrued and unpaid interest,
including additional interest, on the balance. LOSSES WILL BE ALLOCATED TO
THE CERTIFICATES BY DEDUCTING THE 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 the 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 the 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 that 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
those 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 additional interest payments, which are referred
to as appreciation certificates. Appreciation certificates are certificates
that represent an interest in only all or a portion of the additional
interest payments made on the shared appreciation mortgage loans. Stripped
certificates are certificates issued in respect of a SAM Pool that
represent either payments of principal or interest other than additional
interest payments on shared appreciation mortgage loans.
The level of appreciation of the mortgaged properties underlying the shared
appreciation mortgaged properties in your trust and, 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 the 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 overall level of inflation and unemployment in the economy;
o the overall 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.
Some classes of certificates may 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 most circumstances, 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 certificates offered pursuant hereto will not
be initially rated below investment grade. 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. The 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
"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.
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
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
[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 losses arising from special hazards, some 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 the 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 the 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.
INTRODUCTION
The SAM Pools will consist of SAMs having an [approximate] aggregate
principal balance outstanding as of [ ], [1999], after deducting payments
due on or before that date. Some 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 real property. These properties are 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. The SAMs will have the additional
characteristics described in this prospectus supplement and in the
prospectus. All of the SAMs will be acquired by SAMCO Mortgage Securities
Corp. from EMC Mortgage Corporation. EMC Mortgage Corporation acquired the
SAMs from [list Originators/sellers] under 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
that 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 that 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. The additional interest
payment is equal to the Appreciation Share and also equals the amount by
which the Settlement Value of the SAM exceeds the Adjusted Value of the SAM
at the earlier of the maturity date of the 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 in most
circumstances 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 some 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 related Distribution
Date, DTC will forward 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 that 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 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 some 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 their certificates, may be limited due to the lack of a physical
certificate for their 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 permitted 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
those actions are taken on behalf of Participants whose holdings include
those 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 those procedures and
those 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 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 the 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 certificates at the offices of the
Transfer Agent and Registrar, which shall initially be [ ], or the office
or agency which is specified in the notice of final distribution to holders
of certificates of the class being retired. The Trustee will provide 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 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 amounts passed through to certificateholders as
interest among classes, if any]
DISTRIBUTIONS OF PRINCIPAL
[description of amounts passed through to certificateholders as
principal and allocation of amounts passed through to certificateholders as
principal 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 the rights
of the holders of the Senior Certificates and to each class of Subordinated
Certificates having a lower numerical designation than the holders of the
Subordinated Certificates. 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 the Subordinated Certificateholders protection against
losses resulting from defaults on SAMs to the extent described above.
However, in some 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 the
Distribution Date out of the Distribution Account, prior to any
distribution being made on that date on each class of certificates
subordinated to that class of Subordinated Certificates.
As a result of the subordination of any class of certificates, that
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 some circumstances investors in that class of
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 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. Any 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
usually 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 the 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]. The servicer's authority to waive fees or charges or to
permit loans to remain delinquent will be set forth in the relevant pooling
and servicing agreements.
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] [some] 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 some other fees and expenses of the trust, as prescribed by the
Pooling and Servicing Agreement.
Any 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 the SAMs, plus
accrued interest thereon at the applicable [stated interest rates] through
the last day of the month of the repurchase plus the Indexed Appreciation
Payments for all the 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 the 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 the certificates, because principal and interest distributions
will not be payable to the 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 any 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:
o economic conditions in the area where the mortgaged property is
located,
o the overall level of inflation and unemployment in the economy,
o the overall level of liquidity in the economy, and, more
specifically,
o 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 the 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. The existence
of a call feature on a class of certificates will have a similar effect on
the yield of that class to a holder of the certificates as an increase in
the rate of prepayments of the certificates. 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 the overall economic conditions and homeowner
mobility. In general, if prevailing interest rates fall significantly below
the effective interest rates on the SAMs, that is, 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 that 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 those 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 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 the 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 the SAMs, is
expected to be a substantial amount, will depend in part on the mortgagor's
ability to obtain refinancing of the SAM or to sell the mortgaged property
prior to the maturity of the 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 economic conditions.]
[With respect to Equity Release SAMs, payments of the principal
balance and any additional interest due at maturity will [also] depend in
part on the mortgagor's ability to obtain refinancing of the 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:
o real estate values,
o the mortgagor's financial situation,
o prevailing mortgage loan interest rates,
o whether SAMs are being offered,
o tax laws and
o prevailing economic conditions.
In addition, refinancing of Equity Release SAMs may be more difficult than
for other mortgage loans and SAMs, since the typical mortgagor of an Equity
Release SAM may have less current income available to repay the refinancing
than would be acceptable to most financial institutions that would
facilitate the 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 the
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 the principal prepayments.
Certificateholders 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 the 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. 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 entire shared appreciation
mortgage loan market. 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 the 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 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 the 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 the Adjustable Strip
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 will therefore 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 the 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 the appreciation 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 will therefore 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 the 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 the 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 the
residual certificateholders in connection with the purchase of the residual
certificates on after-tax rates of return on the residual certificates. See
"Federal Income Tax Consequences" in the prospectus.]
[ADDITIONAL INFORMATION
SAMCO Mortgage Securities Corp. intends to file with the commission
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 [ ]. Tables and materials were prepared by the Underwriter at the
request of prospective investors, based on assumptions provided by, and
satisfying the special requirements of, prospective investors. 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
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. The pool insurance policy covers loss by reason of default in
payment on single family loans in the SAM Pool. 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 that 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 the
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 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 the 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 the anniversary of the Cut-Off Date to return the amount in the fund to
the 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 the 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 the
Special Hazard Insurance Policy initially will be limited to an amount
equal to the greatest of:
(a) [ ]% of the aggregate unpaid principal balance of the
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 the
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 the
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 SAM for
which primary insurance policy coverage is ultimately not available solely
by reason of the 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
that 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 the
Reserve Fund may be invested for the benefit of the [master] servicer in
instruments rated not less than " " by [ ]. The 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 the
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 the 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 the 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 the 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
some 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 that 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 because, in
the case of a REMIC, such Additional Interest Payments would not flow to a
holder of a REMIC regular interest, but rather, would flow to a holder of a
REMIC residual interest, and, in the case of a FASIT, such Additional
Interest Payments would not constitute permitted assets.
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 REMIC or FASIT
regular 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". Holders of REMIC or
FASIT regular 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 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 holders of pass-through certificates
and stripped certificates 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 those certificates. Holders of pass-through certificates and stripped
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.] The 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 the 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 some 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 the transactions. 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 a secondary market will develop. The
Underwriter[s] intends to establish a market in the offered certificates,
but it is not obligated to do so. Any secondary 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
Some 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 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
"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 the 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 the 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 the SAMs to fixed stated interest rates] during
the month;
(e) all amounts in the Distribution Account which are due and
reimbursable to the [master servicer][servicer][seller][Originator]
under 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 the Distribution Date.]
"BANKRUPTCY COVERAGE" means the amount of $[ ].
"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].
"DETERMINATION DATE" means the Due Date related to each Distribution
Date, or the first day of the month in which the 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 the 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 the SAM is a Mortgage Subsidy SAM or Equity Release SAM, the
stated maturity of each SAM and various material information about each
mortgagor.
"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
the 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 the SAM.
"SALE AND SERVICING AGREEMENT" means each Agreement between EMC
Mortgage Corporation and each seller of the SAMs.
"SAM REPURCHASE" means a repurchase by the [master] servicer of any
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.
"SENIOR CERTIFICATES" means the class [ ] certificates.
"SUBORDINATED CERTIFICATES" means the class [ ] certificates, class [
] certificates, class [ ] certificates, and class [ ] certificates.
"TRANSFER AGENT" means [ ].
"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
Consider carefully the risk factors beginning on page [ ] of this
prospectus before buying the certificates.
SAMCO Mortgage Securities Corp. may periodically issue certificates in
series, and each series of certificates will represent interests in a
separate trust established by SAMCO Mortgage Securities Corp. Certificates
of each series will be paid only from the assets of the related trust. Each
series may be divided into multiple classes of certificates, and, if so,
each class may have differing characteristics.
CONSIDER CAREFULLY THE RISK, FACTORS BEGINNING ON PAGE [ ] IN THIS
PROSPECTUS AND PAGE S-[ ] IN THE PROSPECTUS SUPPLEMENT.
EACH TRUST WILL CONSIST OF:
1. a pool or pools of shared appreciation mortgage loans secured
by residential properties;
2. related property and interests in property or other interests in
shared appreciation mortgage loans;
3. mortgage pass through securities issued or guaranteed by government
or government sponsored agencies;
4. privately issued mortgaged-backed securities; and 5. other property as
described in the accompanying prospectus supplement.
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 transactions and 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.
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
Agency Certificates...................................................19
Private Mortgage-Backed Securities....................................27
Use of Proceeds.............................................................29
Yield Considerations........................................................29
Effective Interest Rate...............................................30
Maturity, Average Life, Appreciation and
Prepayment Assumptions................................................32
SAMCO Mortgage Securities Corp..............................................34
EMC Mortgage Corporation..............................................34
Mortgage Purchase Program.............................................35
Loan Standards........................................................35
Credit, Appraisal and
Underwriting Standards................................................36
Representations and Warranties
and Indemnification of SAMCO
Mortgage Securities Corp..............................................37
Mortgage Subsidy SAMs and
Equity Release SAMs...................................................38
Description of the Certificates.............................................40
Introduction..........................................................40
Book-Entry Registration...............................................42
Definitive Certificates...............................................46
Assignment of SAMs....................................................48
Substitution of SAMs..................................................50
Representations and Warranties........................................50
Retained Yield........................................................52
Payments on SAMs; Deposits to
Accounts..............................................................52
Distributions on Certificates.........................................54
Advances..............................................................57
Termination and Optional Termination..................................58
Reports to Certificateholders.........................................58
Description of the Pooling and Servicing
Agreement and the Sale and Servicing Agreement........................60
Introduction..........................................................60
Servicing.............................................................61
Collection and Other Servicing Procedures.............................61
Servicing Compensation and Payment of Expenses........................62
Rights Upon Event of Default..........................................63
Amendment.............................................................64
List of Certificateholders............................................65
The Trustee...........................................................65
Duties of the Trustee.................................................66
Resignation of Trustee................................................66
Evidence as to Compliance.............................................67
Matters Regarding the Master
Servicer, the Servicer and the
Certificate Administrator.............................................68
Exchangeable Certificates...................................................69
Introduction..........................................................69
Exchanges.............................................................70
Procedures and Exchange
Proportions...........................................................75
Primary Insurance, Hazard Insurance; Claims.................................76
Primary Insurance.....................................................77
Hazard Insurance......................................................78
Maintenance of Mortgage
Impairment Insurance..................................................79
Maintenance of Fidelity Bond and
Errors and Omissions Insurance........................................80
Description of Credit Enhancements..........................................80
Pool Insurance Policies...............................................81
Subordination.........................................................83
Fraud Bond............................................................85
Bankruptcy Bond.......................................................85
Special Hazard Insurance Policies.....................................86
Letter of Credit......................................................87
Reserve Fund..........................................................88
Certificate Insurance Policies........................................88
Maintenance of Credit Enhancements; Claims and Other
Realization Upon Defaulted SAMs.......................................89
Legal Considerations Concerning SAMS........................................92
Legal Authority to Originate
SAMs..................................................................92
Applicability of Usury Laws...........................................93
Disclosure Requirements related
to SAMs...............................................................95
Some State Law Considerations.........................................95
Some Legal Considerations
Applicable to SAMs....................................................96
ERISA Considerations.......................................................101
Plan Assets Regulation...............................................102
Prohibited Transaction Class
Exemption 83-1.......................................................103
Other Exemptions.....................................................105
Final Considerations.................................................108
Federal Income Tax Consequences............................................108
Tax Status of SAM Pools..............................................109
Characterization of REMIC and
FASIT Regular Certificates...........................................110
Taxation of Owners of REMIC
and FASIT Regular Certificates.......................................111
Taxation of Owners of REMIC
Residual Certificates................................................115
Taxation of Owners of FASIT
Ownership Certificates...............................................120
Sales of REMIC or FASIT
Certificates.........................................................123
Prohibited Transactions and Other
Possible REMIC Taxes.................................................125
Termination of a REMIC or
FASIT................................................................125
Reporting and Other
Administrative Matters of
REMICs...............................................................125
Backup Withholding with Respect
to REMIC and FASIT Certificates......................................127
Foreign Investors in REMIC or
FASIT Certificates...................................................127
Classification as a Grantor Trust....................................129
Taxation of Holders of Pass-
Through Certificates.................................................130
Taxation of Holders of Stripped
Certificates.........................................................133
Information Reporting................................................133
Taxation of Holders of Classes of
Exchangeable Certificates............................................134
State and Local Taxation.............................................137
Methods of Distribution....................................................137
Legal Investment Aspects.............................................138
Legal Matters..............................................................139
Financial Information......................................................140
Reports to Certificateholders..............................................140
Where You Can Find More Information........................................140
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.
THE SERVICERS WILL HAVE LIMITED The servicers of the shared
OBLIGATIONS appreciation mortgage loans will have
limited obligations. These will
usually include: the obligation
under some 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.
RISKS ASSOCIATED WITH DECLINING Because your certificates represent an
REAL ESTATE VALUES interest in the shared appreciation
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 residential real estate
market experiences an overall
decline in property values, the
rates of delinquencies,
foreclosures and losses could be
higher than those now experienced
in the mortgage lending industry
as to mortgage loans that are not
shared appreciation mortgage
loans.
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.
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 Shared appreciation mortgage loans are
LOANS MAY BE PRONE TO DEFAULTS sometimes referred to as balloon
loans. Shared appreciation
mortgage loans will require a
large payment at their stated
maturity. These mortgage loans
involve risk, 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, often 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 financing at
maturity, the mortgagor may
default.
Your trust may include shared
appreciation mortgage loans with a
negative amortization feature. The
principal balances of shared
appreciation mortgage loans may be
increased to amounts greater than
the value of the underlying
mortgaged property and the value
may decrease as described above.
This increases the likelihood of
default.
THE VALUE OF SHARED APPRECIATION The value of a mortgaged property
MORTGAGE LOANS MAY FALL BECAUSE OF subject to an equity release
THE MORTGAGOR'S DISINCENTIVE TO mortgage loan may decline more
PROMOTE APPRECIATION than would have been the case had
the 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.
ESCALATING OR VARIABLE PAYMENTS Your trust may include shared
REQUIRED BY SOME SHARED appreciation mortgage loans that
APPRECIATION MORTGAGE LOANS MAY BE provide for escalating or variable
PRONE TO DEFAULT payments by the mortgagor. The
mortgagor may have qualified for
the 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 some regions,
states or zip code areas of the
United States. The 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
special risk loans are present in
the mortgage pool applicable to
your certificates.
CREDIT ENHANCEMENTS MAY BE LIMITED The prospectus supplement related to
OR REDUCED AND THIS MAY CAUSE YOUR your certificates may specify that
CERTIFICATES TO BEAR MORE LOSSES OF credit enhancements will provide some
MORTGAGOR DEFAULTS protection to cover some losses on
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 some types
of losses, such as hazard
losses (which are normally
covered by standard
homeowner's policies) or
special hazard losses (which
are not so covered), on the
shared appreciation mortgage
loans, and not to other
losses;
o the particular form of credit
enhancements may provide
coverage only to some
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, some 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
IS DIFFERENT THAN EXPECTED, YOUR on the price you paid for your
YIELD MAY BE CONSIDERABLY LOWER THAN certificates and the rate of principal
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 the
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 CERTIFICATES Your certificates may be subject to
OR THE UNDERLYING SHARED redemption or other call features.
APPRECIATION MORTGAGE LOANS WILL Likewise, the underlying shared
AFFECT YOUR YIELD appreciation mortgage loans may be
subject to a call feature which
would result in the retirement of
the certificates. That event would
affect the average life and yield
of each class of certificates in a
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
ESPECIALLY AFFECTED BY CHANGES IN additional interest payments
THE VALUE OF THE MORTGAGED PROPERTY generated by the 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 the 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 often regulate
STATE LAWS MAY RESULT IN interest rates and other charges
LOSSES ON THE SHARED and require disclosures. In
APPRECIATION MORTGAGE LOANS addition, most states have other
laws, public policies and
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 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
some 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 the laws, policies
and 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 and thus an investor in
the appreciation certificates
could lose some or all of its
investment. However, it is not
certain whether any damages and
administrative sanctions will be
used against the owner of shared
appreciation mortgage loans, thus
subjecting an investor in the
appreciation certificates to a
loss.
APPRECIATION CERTIFICATES MAY BE If the additional interest provision
SUBJECT TO USURY LAWS of 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 shared
appreciation mortgage 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.
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
o attached or detached single-family residences, including residences
in planned unit developments,
o two- to four-family primary residences,
o condominiums or other attached dwelling units and owner-occupied
leasehold interests in the underlying mortgaged properties and
o 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, whereby
"beneficial interests" means the right to receive payments of
interest, principal and/or shared appreciation payments made
under the SAMs to the holders of the related private
mortgage-backed securities, and such mortgage loans are the
mortgage loans that are specifically held by or on behalf of a
pass-through trust or vehicle (or participation interest) for
such beneficial interests,
o CMOs secured by 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 on some 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 on GNMA, FNMA, FHLMC or other government agency
or government-sponsored agency certificates and usually
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 the 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". With respect to mortgage pass-through
certificates to be issued in series from time to time, an entity, often
being or affiliated with the seller, set forth in the related prospectus
supplement will be responsible for the servicing and administration of the
SAMs and will perform some 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 the 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 the 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
some 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 the 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 the SAMs
in specified age groups. For each SAM Pool, the related prospectus
supplement will 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 which shall be 95%;
(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 the 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 credit enhancement will
be described in the applicable prospectus supplement. The credit
enhancements may be limited to one or more classes of certificates and may
include any of the following:
o a pool insurance policy,
o a Special Hazard Insurance Policy,
o a Fraud Bond, a Bankruptcy Bond,
o a Letter of Credit,
o a Reserve Fund,
o a Certificate Insurance Policy, or
o any combination of the foregoing.
Coverage of some 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 the 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 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,
servicing functions for the 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 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 that event, the servicing of the SAMs will be performed by
the servicer specified in the applicable prospectus supplement. The master
servicer may have the right to remove any related servicer of any SAM at
any time if the master servicer considers removal to be in the best
interests of certificateholders, but only for cause as described in the
prospectus supplement. In that event, the master servicer must designate a
replacement servicer, which may include a related master servicer or
servicer, or an affiliate of the 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 the 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 some 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
each 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 the SAM or if specified in the prospectus
supplement, be paid from additional interest payments in another 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. A series may 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 the 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 the Advances
are not made by the servicers. Any Advances by a master servicer, the
servicer, the seller or the Originator will be limited to amounts which, in
the judgment of the entity, ultimately will be reimbursable with respect to
the 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 other entity will
be obligated to make Advances with respect to SAMs delinquent longer than
the time period specified in the 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 the amounts have been collected
or advanced by the servicers or advanced by the master servicer and are due
certificateholders under the terms of the Pooling and Servicing Agreement
for the 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 the 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 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 and is secured by a one- to
four-family residential property or a manufactured home. GNMA will approve
the issuance of each GNMA certificate in accordance with a guaranty
agreement between GNMA and the GNMA Issuer. Under 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 GNMA certificate, even if the
payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each GNMA certificate are less than the amounts due on each 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 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 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 the 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 the 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 the GNMA certificate and
liquidation proceeds in the event of a foreclosure or other disposition of
any 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
the payment. Upon notification and request, GNMA will make the payments
directly to the registered holder of the 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 the payment, the holder of the GNMA certificate will
have recourse only against GNMA to obtain the 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 the 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 the
GNMA I certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying the GNMA I certificate,
less one-half percentage point per annum of the unpaid principal balance of
the mortgage loans.
Mortgage loans underlying a particular GNMA II certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each GNMA II certificate will be between
one-half percentage point and one and one-half percentage points lower than
the highest interest rate on the mortgage loans included in the pool of
mortgage loans underlying the GNMA II certificate, except for pools of
mortgage loans secured by manufactured homes.
Regular monthly installment payments on each GNMA certificate
held in a trust fund will be comprised of interest due as specified on the
GNMA certificate plus the scheduled principal payments on the FHA Loans or
VA Loans underlying the GNMA certificate due on the first day of the month
in which the scheduled monthly installments on the GNMA certificate is due.
Regular monthly installments on each 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 the loan will be passed through to the Trustee as the registered holder
of the 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
the 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 the mortgage
loans, will be less than the amount of stated interest on the mortgage
loans. The interest not so paid will be added to the principal of the
graduated payment mortgage loans and, together with interest 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 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
usually 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 each registered holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by the FNMA certificate on the
underlying mortgage loans, whether or not received, and each registered
holder's proportionate share of the full principal amount of any foreclosed
or other finally liquidated mortgage loan, whether or not the principal
amount is actually recovered. The obligations of 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 the 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 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 the 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 the quality, type and class which
meet most of 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 the other period as provided in the related
prospectus supplement. Each mortgage loan underlying the FHLMC certificates
held by a trust fund 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 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 the FHLMC
certificate, whether or not received. FHLMC also guarantees to each
registered holder of a FHLMC certificate collection by the holder of all
principal on the underlying mortgage loans, without any offset or
deduction, to the extent of the 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 the month of distribution. Under 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 the 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 the 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 that 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, the
remittance will be distributed monthly to the registered holder so as to be
received normally by the 15th day of each month. The Federal Reserve Bank
of New York maintains book-entry accounts with respect to 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 the holders' instructions.
Stripped Mortgage-Backed Securities
Agency Securities may consist of one or more stripped mortgage-backed
securities, each as described in this prospectus and in the related
prospectus supplement. Each Agency Security 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 on 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 will guarantee
each stripped Agency Security to the same extent as the entity guarantees
the underlying securities backing the stripped Agency Security. In the
event stripped mortgage backed securities are issued by an agency other
than the agency that issued the underlying agency certificates that
information will be set forth in the related prospectus supplement.
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 the 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.
Private mortgage-backed securities will
o either have been previously registered under the Securities Act
of 1933, as amended, or will at the time be eligible for sale
under Rule 144(k) under the Securities Act; and
o will be acquired in bona fide secondary market transactions not
from the issuer or its affiliates.
The obligations of the PMBS Issuer will mostly be limited to
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 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
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 credit supports 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 some 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 the 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 the private mortgage-backed securities;
o some 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 the
private mortgage-backed securities themselves;
o the terms on which the underlying mortgage loans or SAMs for
the private mortgage-backed securities, or the 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 the 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 the 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
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 the certificate is an appreciation certificate, the
amount of any additional interest payments passed through to the
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 the 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
prepayments on the yield to maturity to certificateholders depends on
several factors. For example, if the certificates are purchased above par,
which means for more than 100% of the outstanding principal balance of the
SAMs they represent, prepayments will tend to decrease the yield to
maturity. If the certificates are purchased at a discount, which means for
less than 100% of the outstanding principal balance, prepayments will tend
to increase the yield to maturity. Moreover, in either case, any effect on
the yield may be negatively affected by the payment of smaller than
anticipated additional interest payments. See "Some Legal
Considerations--Some Legal Considerations Applicable to
SAMs--Enforceability of Some Provisions" for a description of 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 that 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. The exercise of a call
feature on a class of certificates will have a similar effect on the yield
of that class to a holder of the certificates as an increase in the rate of
prepayments of the certificates. 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, during the period immediately
following the issuance of a series of certificates, the effect on an
investor's yield to maturity of principal payments and repurchases
occurring at a rate higher than anticipated would not be fully offset by a
subsequent like reduction in the rate of principal payments. Additionally,
during the period immediately following the issuance of a series of
certificates, the effect on an investor's yield to maturity of principal
payments and repurchases occurring at a rate lower than anticipated would
not be fully offset by a subsequent like 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 some 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 SAM,
as set forth in the applicable prospectus supplement. Because the stated
interest rates may vary in a SAM Pool, and the servicing and administrative
compensation 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 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 will often 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 interest to certificateholders
at the applicable Pass-Through Rate usually will be made on a later day,
which will be stated in the applicable prospectus supplement, or, if that
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 nt 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 the prepaid amount.
To the extent that Compensating Interest is not paid, the effect of a
Prepayment in full or 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 the
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
the month will be passed through, without Compensating Interest and without
interest accrued from the first day of the month to the date of the
prepayment in full, on the Distribution Date in the month, and prepayments
in full received during the period from the 15th day of a calendar month
through the last day of the 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 the 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 SAMs will have maturities at origination of either 15 to 30 years
and the 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 any 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 and the availability of
mortgage funds may affect prepayment experience. Most Mortgages 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 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 the SAMs or the
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:
o economic conditions in the area where the mortgaged property is
located,
o the level of inflation and unemployment in the economy,
o the level of liquidity in the economy and
o 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 that 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 the fluctuation due to a number of
factors, including those discussed above, and that those 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. The 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 the series and the percentage of the original
principal amounts or notional principal amounts of each class that would be
outstanding on specified Distribution Dates for the 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. Neither SAMCO Mortgage Securities Corp. nor any
of its affiliates is currently a party to any legal proceeding that could
have a material impact on any trust or the interests of a particular Series
of Certificates. If SAMCO Mortgage Securities Corp. or any affiliate does
become a party to such proceeding it will disclose such information in the
related prospectus supplement.
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 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 its
criteria which include the Originator's depth of mortgage origination
experience, servicing experience and financial stability. Originators will
ordinarily be required to have experience in originating and servicing
conventional residential mortgages and to 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 usually did not exceed 95% of the value of the mortgaged properties,
unless the 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 the SAM. See "Primary Insurance, Hazard
Insurance; Claims." Each mortgage insurer must be
o a mortgage guaranty insurance company,
o duly qualified under the laws of each state in which the mortgaged
properties are located,
o duly authorized and licensed in those 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,
o 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 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 some SAMs will 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. The 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 usually
review only a limited portion of the SAMs in any delivery of the 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 the
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 conform largely to the 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 factors such 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.
Some states where the mortgaged properties may be located are
"anti-deficiency" states where lenders providing credit on one- to
four-family residential properties must usually look solely to the property
for repayment in the event of foreclosure. See "Some Legal
Considerations--Some 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 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 the 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 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 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. A lower LTV and higher Appreciation Share will usually
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." 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 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 the death.
The principal balance of an Equity Release SAM will not exceed an
amount that would create an LTV in excess of 25%.
Introduction
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 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 the Mortgage Termination
Event, which earlier date is referred to as the Termination Date. A
Mortgage Termination Event occurring as a result of the voluntary or
involuntary bankruptcy of the related mortgagor will be enforced subject to
applicable bankruptcy law. The appreciation certificates will receive all
or a portion of the future capital appreciation in the related Mortgage
Property as disclosed in the applicable prospectus supplement
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 the mortgaged
property and the appraised value is less than or equal to
five percent.
In the event that the 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
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 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
the Casualty is greater than 5% of the Adjusted Value determined
prior to the 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
the time minus its Original Value.
DESCRIPTION OF THE CERTIFICATES
INTRODUCTION
The certificates of each series will represent undivided interests in
the trust fund created under the Pooling and Servicing Agreement for the
series. The trust fund for each series will consist, to the extent provided
in the Pooling and Servicing Agreement, of:
o the SAMs as from time to time are subject to the Pooling and
Servicing Agreement, exclusive of any related Retained Yield;
o the assets as from time to time are held in the Distribution
Account and the Collection Account or Accounts related to the
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;" and
o the Eligible Investments.
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 some of which may be subordinated to others. Any 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 the 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 the series.
The certificates will be freely transferable and exchangeable for
certificates of the same series and class at the office set forth in the
certificates; provided, however, that some classes of certificates may be
subject to transfer restrictions set forth in the 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 the 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 the 25th day is not a business day, the business day
immediately following the 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 the 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 the Exchangeable Classes will be entitled to exchange all or
a portion of the 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 usually will not be called
unless the market value of the assets in the trust fund for the Callable
Class exceeds the outstanding principal balance of the assets. After the
issuance of the Callable Class, there may be a specified "lockout period"
during which the certificates could not be called. It is anticipated that
Call Classes usually 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 the 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
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 the 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, the cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in the 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 the credits or any transactions
in the securities settled during processing will be reported to the
relevant Cedelbank Customer or Euroclear Participant on the 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 the 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 some 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 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 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.
Accordingly, 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. The 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 the 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 the procedures and the
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 the 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 the
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 the 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 the
certificate at the office or agency specified in the notice of final
distribution to certificateholders. The Trustee will provide notice to
registered certificateholders not later than the tenth day of the month of
the final distribution.
Definitive certificates will be transferable and exchangeable at the
offices of the Trustee, or at the 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 the 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. The schedule will include information as of the close of business
on the Cut-Off Date as to:
o the principal balance of each SAM,
o the stated interest rate and the maturity of each Mortgage Note,
o the Appreciation Shares,
o the servicing, master servicing and certificate Administrator's
Fee, if applicable,
o whether a primary insurance policy has been obtained for each SAM
and
o 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 the SAM, if applicable. In some instances where
original documents respecting a SAM may not be available prior to execution
of the Pooling and Servicing Agreement, the seller will deliver the
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 the 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 the 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 some 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 the 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 the 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 the documents for each series
in trust for the benefit of certificateholders of the 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 the 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:
o 100% of the outstanding principal balance of the SAM, plus
o accrued interest on that amount 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 the 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 the repurchase, plus
o 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 a defect
in a constituent document.
An assignment of each SAM to the Trustee will be recorded or filed.
In some states, the assignment may not be recorded where, in the written
opinion of counsel admitted to practice in the state acceptable to SAMCO
Mortgage Securities Corp. and the Trustee, the 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 the defective SAM or the related mortgaged property. Any
shared appreciation mortgage loan, to be eligible for substitution, must
fit within the 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 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 the policies are not widely
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 SAM and the 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 some 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 the 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, the Originator or seller will be obligated to repurchase or
substitute for the 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 the 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 the SAM or
repurchase the SAM, or any mortgaged property acquired with respect
thereto, on the terms set forth above under "--Assignment of SAMs." The
proceeds of any 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 breach.
RETAINED YIELD
For some 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 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
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
the 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 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 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 the 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--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 some 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 the 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 the 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 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 that day is not a business
day, the next succeeding business day, subject to the master servicer's or
servicer's determination that the 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 the 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 the holder multiplied by the sum of the Class Principal
Distribution Amount for the related class, if that class is entitled to
payments of interest on the Distribution Date, one month's interest at the
applicable pass-through rate on the principal balance or notional principal
balance of that class specified in the applicable prospectus supplement,
less that 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 the
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 the
amount as is allocated to the 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 the holder
multiplied by the sum of the Class Appreciation Distribution Amount for the
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 the related 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 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 the 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 the certificates, an amount equal to the
aggregate of payments of principal and interest that were delinquent on the
related Determination Date, subject to the person's determination that the
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 the funds on or before any future
Distribution Date to the extent that funds in the applicable account on the
Distribution Date would be less than the amount required to be available
for distributions to certificateholders on that 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 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 the time as the Originator, the
seller, the master servicer or the servicer determines that any the
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 the time that 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 some 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 the
prospectus supplement.
TERMINATION AND OPTIONAL TERMINATION
The obligations created by the Pooling and Servicing Agreement for a
series of certificates will usually 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 the Pooling and Servicing Agreement
following the later of 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 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
"Federal Income Tax Consequences."
Any 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. The 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; that is, 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 the 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 the series outstanding. The exercise of the right will
effect early retirement of the certificates, but the right of the seller or
the other entity to so purchase will 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 CutOff 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 another time 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
the series of certificates, among other things:
o the amount of the distribution allocable to principal,
separately identifying the aggregate amount of any
principal prepayments and if so specified in the related
prospectus supplement, prepayment penalties included in
the distribution;
o the amount of the 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 otherwise allocable to the
subordinated certificateholders on the Distribution Date,
and 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 the class after giving effect to the
distribution of principal on the Distribution Date;
o the percentage of principal payments on the SAMs, if any,
which the class will be entitled to receive on the following
Distribution Date;
o the percentage of principal prepayments on the SAMs, if any,
which the 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 the calendar year a
report as to the aggregate of amounts reported for the calendar year and
the 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
INTRODUCTION
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. Under 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 the 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, the breach shall be cured if the 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 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 some
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 the 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 some other administrative services specified in
the Pooling and Servicing Agreement. The master servicer will perform
largely the same services and duties as a servicer under a Sale and
Servicing Agreement, as well as 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 the 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 the 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 the 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 will, to the
extent it has knowledge of the transfer, exercise or cause to be exercised
its rights to accelerate the maturity of the SAM as a Mortgage Termination
Event, but only if the exercise of those 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 some 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 the 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 the SAM during the month for which the
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 the 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 the 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 the 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 the charges will depend
upon their origination and servicing policies.
The master servicer and the servicer, as applicable, are entitled to
reimbursement for some expenses incurred by them in connection with the
liquidation of related defaulted SAMs. Certificateholders of the series
will suffer no loss by reason of the expenses to the extent claims are paid
under any applicable credit enhancements. In the event, however, that
claims are not paid under the policies or alternative coverages, or if
coverage has been exhausted, certificateholders of the series will suffer a
loss to the extent that the proceeds of liquidation of a defaulted SAM,
after reimbursement of each master servicer's and the servicer's expenses,
as applicable, are less than the principal balance of the 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, the 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 the
Pooling and Servicing Agreement, may terminate all of the rights and
obligations of the defaulting master servicer or the servicer, as
applicable, under the Pooling and Servicing Agreement, and in and to the
trust fund, whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of the 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 the
Pooling and Servicing Agreement and the 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
the Pooling and Servicing Agreement. Pending any appointment, the Trustee
is obligated to act in that capacity. In the event that the Trustee acts as
successor to the 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 the 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 the Pooling and Servicing Agreement as
limited by the 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
the Pooling and Servicing Agreement unless the 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 the
Pooling and Servicing Agreement, have made written request upon the Trustee
to institute the 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 the 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
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
the 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 the change does not adversely affect the then current rating
on the class or classes of certificates of the 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 the 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 the
action is necessary or helpful to maintain the qualification. Each Pooling
and Servicing Agreement may also be amended by the parties thereto with
consent of holders of certificates of the 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 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 the certificate, or reduce the aforesaid percentage of
certificates of any class of holders which are required to consent to any
amendment without the consent of the holders of all certificates of the
class covered by the 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 the amendment will not cause the trust fund to fail to qualify as a
REMIC.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more certificateholders of record of
a series of certificates, for purposes of communicating with other
certificateholders with respect to their rights under the Pooling and
Servicing Agreement for the series, the Trustee will afford the
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 some 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 the appointment of
co-trustees or separate trustees, 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 separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform required
acts, singly upon the separate trustee or co-trustee who will exercise and
perform the rights, powers, duties and obligations solely at the direction
of the 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
the 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
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 the
funds or adequate indemnity against the 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 the 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 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 the 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 the 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 the 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 the comparable program requires it to
report. In rendering its statement, the 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 the comparable program, rendered within one year of
the 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 the 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.
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 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 some 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 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 some 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 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 some 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 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 that
event, the legal expenses and costs of the action and any liability
resulting therefrom will be expenses, costs and liabilities of the trust
fund and the master servicer, 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 the 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 the merger, consolidation or
succession does not adversely affect the then current rating or ratings of
the class or classes of certificates of the trust.
EXCHANGEABLE CERTIFICATES
INTRODUCTION
Some series will provide for the issuance of one or more classes
of Exchangeable Certificates, as set forth in the related prospectus
supplement. In any 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 the 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 the 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 the
trust fund. The amount of Exchangeable Certificates issued by the
Exchangeable Certificate Trust Fund is a fixed and limited amount which
corresponds to the aggregate principal balance of the related class or
classes of certificates which are eligible for exchange. At any time after
their issuance, including immediately after the 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. An exchange
will result in a reduction in the outstanding principal balance of the
Exchangeable Certificates exchanged and an identical increase in the
aggregate principal balance of the related Combination. 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 the class or classes of certificates are exchangeable. The
Exchangeable Certificates can be exchanged only for proportionate interests
in one or more of the other specified classes of certificates that are
issued by the same trust that issued the Exchangeable Certificates.
Exchangeable Certificates received in an exchange may subsequently be
exchanged for other Exchangeable Certificates that are part of the same
Combination. The Exchangeable Certificates exchanged cannot be replaced,
except by an exchange of the Combination Certificates for the original
Exchangeable Certificates. 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 the 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 the trust fund.
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 the series. Similarly, the discussions under
"ERISA Considerations" and "Some Legal Considerations" apply to
Exchangeable Certificates as well as certificates.
EXCHANGES
Only a holder of an Exchangeable Certificate may initiate an
exchange. 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 the holder, regardless of whether the holder owns all
or a portion of the 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 the exchange with respect to their Exchangeable
Certificates.
The ability of a holder of a class or classes of Exchangeable
Certificates to exchange the 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 The 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 the 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, the accreted interest being
added to the principal of the class, and a class of Exchangeable
Certificates that receives principal payments from the 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 some 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 Interest Notional Interest
Class Amount Rate Class Principal 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 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 a
Combination:
Maximum
Original
Original Principal or
Principal Interest Notional Interest
Class Amount Rate Class Principal 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.
The 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 the 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 the 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, such as, interest
only classes, principal only classes and classes which have principal
amounts and bear interest. In some 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 the classes for a single Exchangeable Certificate that
entitles the holder to receive both payments of the Appreciation Share and
principal and stated interest from the SAMs. Further, in some 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 the class or classes or the
necessary amounts of the 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 some classes may have been purchased
and placed into other financial structures. ERISA or other transfer
restrictions may apply to some 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. 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 the proportions on
the original, rather than on the outstanding, principal or notional
principal amounts of the classes. If the classes receive principal payments
pro rata with each other, the exchange proportions also will apply to their
outstanding principal amounts. If the classes do not receive principal
payments pro rata with each other, an investor can calculate current
exchange proportions for the classes, based on their outstanding principal
amounts, by multiplying the exchange proportion shown in the related
prospectus supplement for each class by its current Class Factor and
dividing each resulting percentage by the sum of the 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. The 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.
Any payment will be made to the certificateholder of record as of the
applicable Record Date.
PRIMARY INSURANCE, HAZARD INSURANCE; CLAIMS
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 the coverage and does
not purport to describe all of the characteristics of each type of
insurance, although the material terms of the coverage are described in
this prospectus and in the prospectus supplement. The 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.
To the extent the descriptions of any insurance coverage in this prospectus
do not disclose all the material terms of any insurance coverage, the
related prospectus supplement and forms of policies and statutes or
regulations applicable to those policies will disclose all material terms
related to those policies.
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 the
coverage is required. The master servicer or servicer will be required not
to cancel or refuse to renew any 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 the cancelled or
nonrenewed policy is maintained with an insurer whose claims-paying ability
is sufficient to maintain the current rating of the classes of certificates
of the 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 usually will consist of the insured percentage of the unpaid
principal amount of the covered SAM and accrued and unpaid interest thereon
and reimbursement of some 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 some 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 some 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 the mortgaged property is located. The coverage will be in
an amount not less than the replacement value of the improvements securing
the SAM or the principal balance owing on the 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. The 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 the clause. Any additional insurance coverage for mortgaged properties
in a SAM Pool of multifamily loans will be specified in the related
prospectus supplement.
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 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 some cases, vandalism. The
foregoing list is merely indicative of some 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, usually 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, which is
approximately the replacement cost at the time and place of loss, less
physical depreciation, of the improvements damaged or destroyed or the
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 the 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 usually 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 some 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 the 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 policy relating to a SAM shall be deposited
in any Collection Account subject to withdrawal under the Pooling and
Servicing Agreement. The 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 the policy, a master servicer or servicer shall deposit in any
Collection Account at the time of the loss the amount not otherwise payable
under the blanket policy because of the deductible clause, the 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 the 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 the persons to handle
funds, money, documents or papers relating to the SAMs. Any 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 the master
servicer or servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of the
employees. The Fidelity Bond and Errors and Omissions Insurance Policy also
shall protect and insure the 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 covered by a Special Hazard Insurance Policy;
o attributable to some 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 the 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, some 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 the 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 the 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 the 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 some conditions precedent described in this prospectus. A
pool insurance policy usually 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 some permitted encumbrances.
Upon satisfaction of these conditions, the Pool Insurer will have the
option either 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 some expenses incurred by the master
servicer or servicer on behalf of the Trustee and certificateholders, or 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 some 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 the restoration will increase the proceeds to
certificateholders on liquidation of the SAM after reimbursement of the
master servicer or servicer for its expenses and the 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 usually 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 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 might, in turn, give rise
to an obligation on the part of the seller or Originator to purchase the
defaulted SAM if the breach cannot be cured by the 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 the 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 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 some 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 the 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 the 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, the 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 some 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 the
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 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 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
the coverage and some financial information with respect to the 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 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 denial of coverage unless, as described
above, the 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 some 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 the 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 the 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 the 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 the 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 some 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--Hazard Insurance." Special Hazard Insurance Policies will not cover
losses occasioned by war, civil insurrection, some governmental action,
errors in design, faulty workmanship or materials, except under some
circumstances, nuclear reaction, flood, if the mortgaged property is
located in a federally designated flood area, chemical contamination and
some 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 the 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 the property or upon transfer of the property to the Special
Hazard Insurer, the unpaid principal balance of the SAM at the time of
acquisition of the 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 some expenses incurred by the master servicer
or servicer with respect to the property. If the unpaid principal balance
of a SAM plus accrued interest and the related Interest Appreciation
Payments and some expenses are paid by the Special Hazard Insurer, the
amount of further coverage under the related Special Hazard Insurance
Policy will be reduced by the 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 the 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 some 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
usually 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 the 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 the certificates may be reduced so long as any
reduction will not result in a downgrading of the ratings of the
certificates by any rating agency.
The terms of any Special Hazard Insurance Policy relating to a SAM Pool
have been set forth herein and will be further described in the related
prospectus supplement as additional relevant information becomes available.
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 some 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 the prospectus supplement, which will be applied and
maintained in the manner and under the conditions specified in the
prospectus supplement. In the alternative or in addition to the 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 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 the 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 the class or
classes of certificates.
MAINTENANCE OF CREDIT ENHANCEMENTS; CLAIMS 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 the policy,
the 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 the 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 the 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 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 the 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 instrument for another, except under the
circumstances detailed in the preceding paragraph, if the 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%, the 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 the payments. See "Primary
Insurance, Hazard Insurance; Claims--Primary Insurance."
For each series of certificates which will be covered by a Special
Hazard Instrument, the 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 the 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 the 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 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 the Special Hazard Insurance
Policy with a total coverage which is equal to the then existing coverage
of the Special Hazard Insurance Policy; provided, however, that if the cost
of any replacement policy shall be greater than the cost of the original
Special Hazard Insurance Policy, the amount of coverage of the replacement
policy may be reduced to a level so 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, the 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 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, the 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 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 reasonable steps as
necessary to permit recovery under the 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 the 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 the 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 the 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 the 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 the 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 the 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
the difference plus the aggregate of expenses incurred by the master
servicer or the related servicer, as applicable, in connection with the
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 the 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 the 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 some 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 amount is legally permissible, the
insurer will exercise its right under any related pool insurance policy to
purchase the property and realize for itself any excess proceeds. Further,
with respect to some 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 the 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 the gain as additional
servicing compensation.
LEGAL CONSIDERATIONS CONCERNING SAMS
LEGAL 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 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. The 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 some 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 OTS
regulations applicable to federal thrift mortgage lending. The OTS by
regulation specifies that the 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 the protection to state bank lenders that comply with 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 the 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 some 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 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 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 the
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 the 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 the 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 like 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 variable-rate mortgages, 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 the 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.
SOME STATE LAW CONSIDERATIONS
If required given the concentration of SAMs originated in any one or
more states, some state law considerations applicable to the SAMs in the
SAM Pool are described in the applicable prospectus supplement.
SOME 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 usually 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 usually 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 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 some 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. Usually 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 the 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 equitable principles upon foreclosure proceedings.
These equitable principles are 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
Some 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 the 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 an unsecured creditor for the difference between the value of
the residence and the outstanding balance of the loan.
The Code provides priority to some 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 Some Provisions
The standard forms of note, mortgage and deed of trust used by
Originators usually 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 some
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, some states have continuing
restrictions on the enforceability of due-on-sale clauses for some 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, some 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 some 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 the 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 the 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 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 some 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, a lien has
priority over the lien of an existing mortgage against the 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 the 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," with the result 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 that 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 usually regulate interest rates and other charges
and require disclosures. In addition, most states have other laws, public
policies and 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 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 some
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 the laws, policies and 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
some 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 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 some 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 the plans may be invested in the
certificates subject to the provisions of applicable state law and, in the
case of any plan which is qualified under Section 401(a) of the Code, the
restrictions imposed under Section 503 of the Code.
In addition to imposing fiduciary standards, ERISA and the Code prohibit
a broad range of transactions involving Plan Assets and some persons who
have some 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 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 some 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 a person, is held by "benefit
plan investors" which are 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 conditions, some transactions involving the creation,
maintenance and termination of some residential mortgage pools and the
acquisition and holding of some residential mortgage pool pass-through
certificates by Plan Asset Investors, regardless of whether the mortgage
pool is exempt from "plan asset" treatment or 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 will be exempt from the prohibitions of Section 406(a) of
ERISA, relating 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 will be
exempt from the prohibitions of Sections 406(b)(1) and (2) of ERISA,
relating 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 conditions which must be satisfied for any
transaction to be eligible for exemption:
o the existence of a pool trustee who is not an affiliate of the pool
sponsor;
o the maintenance of a system of insurance or other protection
for the pooled shared appreciation mortgage loans and property
securing the loans, and for indemnifying certificateholders
against reductions in pass-through payments due to property
damage or defaults in loan payments; and
o 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 condition of PTCE 83-1 will be satisfied
for each series. With respect to the second 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 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 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 the 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
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 1% of the aggregate unpaid principal balance of
the SAMs or the unpaid principal balance of the largest single SAM, then
the SAM Pool relating to that series may no longer satisfy the conditions
of PTCE 83-1. In that 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 a forward delivery commitment 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 as amended by PTE 97-34, 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 some secured receivables,
loans and other obligations that meet the conditions and requirements of
PTE 90-30 from some 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 the arrangements do not involve swap
agreements or other notional principle contracts; and some 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 some 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 the 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 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 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 some 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 the 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
that term is defined in PTE 90-30, or any affiliate of any 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: 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 the
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. Under 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 some
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 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 plan invested in a separate account.
FINAL 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 the 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
o 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;
o whether any other prohibited transaction class exemption (if
required) is available under ERISA and Section 4975 of the Code;
or
o 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 a portion
of a SAM Pool, the SAM Pool or portion will be classified as a grantor
trust for federal income tax purposes. Some 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 some representations set forth in the Pooling Agreement are true,
o there is continued compliance with applicable provisions of the
Code and Treasury regulations,
o the designated portion of a SAM Pool will qualify as a REMIC,
FASIT, or grantor trust, as the case may be,
o 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,
o in the case of a FASIT, the classes of interests offered will
be considered to be regular interests or the ownership interest
in that FASIT within the meaning of the FASIT Provisions, and
o in the case of a grantor trust, each holder of a Trust
Certificate will be treated as owning its allocable share of
the underlying assets of the trust.
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 the year and thereafter. In that 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 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, 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 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 some 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 the
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 the 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
Some 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 the 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 the income. SAMCO Mortgage Securities Corp. will report annually (or
more often if required) to the Internal Revenue Service and to
certificateholders the 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. See
"--Reporting and Other Administrative Matters of REMICs and FASITs" below.
It is 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 de minimis rule, original issue discount on a REMIC or FASIT
regular certificate will be considered to be zero if the 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 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 the 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 the sum of 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 the
distributions made on the REMIC or FASIT regular certificate during the
accrual period of amounts included in the stated redemption price at
maturity, over the adjusted issue price of the 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 the
certificate, increased by the aggregate amount of OID with respect to the
REMIC or FASIT regular certificate that accrued in prior accrual periods,
and reduced by the amount of any distributions made on the 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 that 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 that day
occurs and the daily portions of original issue discount for all days
during the accrual period prior to that 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 the interest does not exceed 125% of its stated
principal amount, or
(3) the yield to maturity on the 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 the portion does not vary during the period the FASIT
certificate is outstanding.
A High-Yield Interest may not be held by a "disqualified holder," which
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 the 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 the
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 the 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 the
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
the 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
the holder's certificate becomes wholly worthless; that is, until its
outstanding principal balance has been reduced to zero, and 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, usually without regard 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 the 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 the 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 some 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 their proportionate share of the expense pertaining to the
servicing fee paid to SAMCO Mortgage Securities Corp. and 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 the expenses in
determining regular tax liability only to the extent that the expenses
together with some other miscellaneous itemized deductions of the
individual, estate or trust exceed 2% of adjusted gross income; in
addition, the holder may not deduct the 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 the persons should consult with
their own tax advisors regarding the advisability of an investment in the
certificates.
A "single-class REMIC" is a REMIC that either 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 is substantially
similar to 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
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 the REMIC residual certificate. Any amount included in the
gross income or allowed as a loss of any Residual Owner under this rule
will be treated as ordinary income or loss. Purchasers of REMIC residual
certificates should be aware that taxable income from the 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 the certificate will be taken into
account in determining the income of the holder for federal income tax
purposes. Although it appears likely that any the payment would be
includible in income immediately upon its receipt, the Internal Revenue
Service might assert that the 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 the
payments, holders of REMIC residual certificates should consult their tax
advisors concerning the treatment of the 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. The
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 some
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 usually 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 the 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 usually 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, the 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 the Residual Owner to the extent it does not exceed the
adjusted basis of the Residual Owner's interest in a REMIC residual
certificate. The distribution will reduce the adjusted basis of the
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 the 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 the
interest. See "--Taxation of Owners of REMIC Residual Certificates" above.
A Residual Owner is not allowed to take into account any net loss for
any calendar quarter to the extent the net loss exceeds the Residual
Owner's adjusted basis in its REMIC residual certificate as of the close of
the calendar quarter (determined without regard to the 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 some 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 the quarter that the REMIC residual
certificate was held by the 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 the REMIC residual certificate before the beginning of
the 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 the 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 the Residual Owners is generally
eligible for exemptions from the tax, an excess inclusion will be subject
to the 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 the
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 under which REMIC residual certificates are offered
will state whether the 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 some 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 under those assumptions.
In the case of any REMIC residual certificates held by a real estate
investment trust, under Treasury regulations not yet promulgated, the
aggregate excess inclusions with respect to the 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 the trust in proportion to the dividends received by the shareholders
from the 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 the 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 the transfer
is disregarded, the purported transferor will continue to remain liable for
any taxes due with respect to the income on the "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, 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 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 some
restrictions under the terms of the related Pooling and Servicing Agreement
that are intended to reduce the possibility of any the transfer being
disregarded. The restrictions will require each party to a transfer to
provide an affidavit that no purpose of the transfer is to impede the
assessment or collection of tax, including some 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 the REMIC residual certificate by
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 the 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 some
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 under the assumptions.
See "--Foreign Investors in REMIC Certificates" below for additional
restrictions applicable to transfers of some 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" under section 511 of
the Code are treated as "disqualified organizations" under provisions of
the Code. Under provisions of the Pooling and Servicing Agreement, the
organizations usually 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 the 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, may not ordinarily be marked to market.
TAXATION OF OWNERS OF FASIT OWNERSHIP CERTIFICATES
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 the 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 the certificate will be taken into account in determining
the income of the holder for federal income tax purposes. Although it
appears likely that any payment would be includible in income immediately
upon its receipt, the Internal Revenue Service could assert that the
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 the payments for income tax purposes, FASIT
Owners should consult their tax advisors.
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 the
distributions does not exceed the FASIT Owner's adjusted basis in its FASIT
Ownership Certificate. The distribution will reduce the adjusted basis of
the 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 the
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 the interest.
A FASIT Owner is not allowed to take into account any net loss for any
calendar quarter to the extent the net loss exceeds the FASIT Owner's
adjusted basis in its FASIT Ownership Certificate as of the close of the
calendar quarter (determined without regard to the 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 some
"prohibited transactions." Prohibited transactions generally include:
o the receipt of income from dispositions of assets other than cash
and cash equivalents, some permitted debt instruments, some
foreclosure property, some 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
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 the 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 the FASIT Ownership Certificate and pay tax thereon. Income
will not be reallocated, however, if the transferee furnishes the
transferor with an affidavit that the former is not a disqualified holder
or the Internal Revenue Service issues a waiver.
SALES OF REMIC OR FASIT CERTIFICATES
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 the
REMIC or FASIT regular certificate to the seller, increased by any original
issue discount included in the seller's gross income with respect to the
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 the 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 the gain does not exceed the excess, if any, of the
amount that would have been includible in the holder's income had income
accrued at a rate equal to 110% of the AFR as of the date of purchase over
the amount actually includible in the 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 the 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 the certificate is held as part of a "conversion
transaction" within the meaning of section 1258 of the Code. A conversion
transaction is ordinarily 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 the transaction. The
amount of gain so realized in a conversion transaction that is
recharacterized as ordinary income usually 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 the 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, the 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. The 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 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 some "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 the 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 the 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 usually 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 the
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 the entity, then a tax
will be imposed on the entity equal to the product of the amount of excess
inclusions on the REMIC residual certificate that are allocable to the
interest in the pass-through entity held by the disqualified organization
and 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 the entity furnishes to the
entity the holder's social security number and a statement under penalties
of perjury that the social security number is that of
the record holder or a statement under penalties of perjury that the record
holder is not a disqualified organization. For these purposes, a
"pass-through entity" means any regulated investment company, REIT, trust,
partnership or some 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 the 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 under
some specified exceptions, the receipt of income from a source other than a
qualified mortgage or some 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 under 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
transactions or receive any 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 the
termination occurs exceeds the amount of cash distributed to the 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
the excess. If a FASIT Owner's adjusted basis in its FASIT Ownership
Certificate at the time the termination occurs exceeds the amount of cash
distributed to the 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 the 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, some 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 sue 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 the 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 notice requirements and various restrictions and
limitations, ordinarily 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 usually be required to
report the 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 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
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 the payments fail
to furnish to the payor information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from
the tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against the recipient's federal
income tax. Furthermore, 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 a Certificateholder,
usually 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 the certificate,
o the holder of the certificate signs a statement under penalties of
perjury that certifies that the holder is a Non-U.S. Person and
provides the name and address of the holder, and
o the last U.S. Person in the chain of payment to the holder
received the statement from the holder or a financial
institution holding on its behalf and does not have actual
knowledge that the statement is false.
If the holder does not qualify for exemption, distributions of interest,
including distributions in respect of accrued original issue discount, to
the 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 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 the United
States shareholder's allocable portion of the interest or original issue
discount income earned by the controlled foreign corporation.
The United States Treasury Department has issued regulations that may
change the certification procedures regarding withholding on 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 the new
Treasury regulations on them.
REMIC Residual Certificates
Amounts paid to a Residual Owner that is a Non-U.S. Person usually 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. The payments would thus only qualify for the portfolio
interest exception if the underlying obligations held by the REMIC would so
qualify. The withholding tax ordinarily 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 the 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.
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 the transfer is disregarded, the purported
transferor of 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
the 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 the 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 under 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 the 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 the 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, the 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, the 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 usually be entitled to deduct Servicing Fees under
section 162 or section 212 of the Code to the extent that the 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 the holder's
regular tax liability only to the extent that the fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and
may not be deductible to any extent in computing the 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 3% of the excess of adjusted gross income
over the applicable amount or 80% of the amount of itemized deductions
otherwise allowable for the 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
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 the 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 the sum
of the present value of all remaining payments expected to be made with
respect to the pass-through certificate as of the close of the period and
the payments made during the accrual period with respect to the
pass-through certificate over 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 issuer intends to take the position
that 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. It is possible,
however, that the Internal Revenue Service could successfully assert that
the comparable yield is the long-term applicable federal rate. 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 in this prospectus,
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 usually will recognize market discount upon
receipt of a distribution of principal. In particular, a holder will
usually be required to allocate a payment of principal first to accrued
market discount and to recognize ordinary income to the extent the
principal payment does not exceed the aggregate amount of accrued market
discount on the pass-through certificate not previously included in income.
The market discount must be included in income in addition to any original
issue discount includible in income with respect to the 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, the election will
apply to all market discount bonds acquired by the holder on or after the
first day of the first taxable year to which the 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 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 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 the 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 the market discount is less than
0.25% of the stated redemption price at maturity of the 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 the time as regulations are
issued by the Treasury Department, some 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 the 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 the total remaining market discount, multiplied by 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 the total
remaining market discount, multiplied by 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 ordinarily 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 an
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 ordinarily 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. It is possible, however, that
the Internal Revenue Service could successfully assert the position that
the comparable yield should be determined in a different manner or that the
comparable yield should equal the long-term applicable federal rate.
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 the
certificates could potentially jeopardize its qualification for taxation as
a REIT and expose the 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 by 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 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 interest).
Where the interest represents a pro rata portion of a class of
certificates, the holder of the Exchangeable Class should account for the
interest as described under "--Taxation of Owners of REMIC Regular
Certificates" above. A holder of a Strip will likely be treated as owning,
under 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 the 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, 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 the 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 the prepayment assumption should take into
account the possibility of the retirement of the Strip concurrently with
the redemption of that 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 the amount only against future positive original issue
discount accruing from the Strip, and income is reported in all cases in
this manner. Although not entirely free from doubt, 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 the 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 the 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 the Strip. The holder's adjusted basis usually 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 the 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). The gain or loss will be ordinary
income or loss
o for a bank or thrift institution or
o to the extent income recognized by the holder is less than the
income that would have been recognized if the yield on the
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 the 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 the sale.
The holder is treated as purchasing the interest retained for the amount of
basis allocated to the 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. The 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
that 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 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 the offering and any agreements to be
entered into between SAMCO Mortgage Securities Corp. and purchasers of
certificates of the series.
SAMCO Mortgage Securities Corp. will indemnify Bear, Stearns & Co.
Inc. and any underwriters against some 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 the 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 the transactions. The 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 the 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 reoffer or sale.
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
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 the
entities. Under SMMEA, if a state enacted legislation prior to October 4,
1991 specifically limiting the legal investment authority of any of the
entities with respect to "mortgage related securities," the certificates
will constitute legal investments for entities subject to the legislation
only to the extent provided in the legislation. Some states have enacted
legislation. Investors should consult their own legal advisors in
determining whether and to what extent the certificates constitute legal
investments for the 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 the
regulations as the applicable federal regulatory authority may prescribe.
Institutions whose investment activities are subject to review by some
regulatory authorities hereafter may become subject to restrictions on
investment in the certificates, and the 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 like
the certificates. Under the guidelines, regulated institutions are required
to evaluate the suitability of the 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 the investors.
There may be other restrictions on the ability of some investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of the
investors' assets. Investors should consult their own legal advisors in
determining whether and to what extent the certificates constitute legal
investments for the investors.
LEGAL MATTERS
Some 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 the 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." The 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 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 (the accreted interest being
added to the principal of the class).
"ACT" means Rule 903 or 904 of Regulation S under the Securities Act of
1933, as
amended.
"ADJUSTABLE STRIP CERTIFICATE" means a certificate belonging to one
or more classes of certificates of a series, the holder of which is
entitled to receive only interest at a floating rate based on a notional
amount.
"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 the certificates) of an amount equal to the
aggregate of payments of principal and interest that were delinquent on the
related Determination Date, subject to the person's determination that the
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 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 some 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 some 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 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 the SAM or if specified in the prospectus
supplement, paid from additional interest payments in another 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
the class or classes of certificates, subject to the 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 the class for the 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 the Class for the 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 the holder multiplied by the sum of the
Class Principal Distribution Amount for the class, if the class is entitled
to payments of interest on the Distribution Date, one month's interest at
the applicable pass-through rate on the principal balance or notional
principal balance of the class specified in the applicable prospectus
supplement, less the 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 the 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 the amount as is allocated to
the 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 the
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: the Adjusted
Value determined immediately prior to the adjustment, minus the product of
the Adjusted Value determined immediately prior to the 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 the 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.
"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 the 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 the 25th day is not a
business day, the business day immediately following the 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 some United States agencies, certificates of deposit,
some commercial paper, time deposits and bankers' acceptances sold by
eligible commercial banks and some 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 the
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, the master servicer or servicer against losses, including
forgery, theft, embezzlement, fraud, errors and omissions and negligent
acts of the 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 under the Pooling
and Servicing Agreement and the failure continues unremedied for two
business days or the other time period as is specified in the
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 the other time period as is specified in
the Pooling and Servicing Agreement, after the giving of written
notice of the 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 the Class;
o some events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and some 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 the assignment
or delegation under the Pooling and Servicing Agreement.
"EXCHANGEABLE CERTIFICATE TRUST FUND" means a trust fund, established
under 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 the 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, some
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 usually
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 the 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, the master
servicer or servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of the
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 the 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 the 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 some 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.
"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 the mortgaged property is located, the
amount of which is not less than the replacement value of the improvements
securing the SAM or the principal balance owing on the 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 the SAM or SAM
Pool had a Mortgage Termination Event occurred with respect to the 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 the 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 the 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 some 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 the
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 the loans and the
Appreciation Share that is calculated in connection with the 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.
"MORTGAGES" means first and secured mortgages, deeds of trust or security
deeds.
"MULTIPLE VARIABLE RATE" means a rate for stated interest at more
than one qualified floating rate, or at a single fixed rate and one or more
qualified floating rates or 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 ordinarily 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 the
certificate,
o the holder of the certificate signs a statement under penalties of
perjury that certifies that the holder is a Non-U.S. Person, and
provides the name and address of the holder, and
o the last U.S. Person in the chain of payment to the holder received
the statement from the holder or a financial institution holding on
its behalf and does not have actual knowledge that the 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 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 the 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 some other organizations including underwriters of any series of
certificates.
"PARTIES IN INTEREST" means some persons who have specified
relationships to the Plan, for whom a broad range of transactions involving
Plan Assets is prohibited.
"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 the certificate by the
aggregate initial amount or notional amount of all the certificates of the
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 some requirements are imposed by ERISA.
"PMBS AGREEMENT" means a pooling and servicing agreement under which
private mortgage-backed securities are issued.
"PMBS ISSUER" means a financial institution or other entity engaged
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 the trusts and selling beneficial interests in the
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 another servicer 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 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 under that section.
"PRIMARY INSURER" means the issuer of the related primary insurance
policy.
"PRINCIPAL BALANCE" means a balance equal to the initial principal
amount reduced by all voluntary prepayments of principal actually made on
or before the date; and the portion of all Liquidation Proceeds, Insurance
Proceeds or income from the mortgaged property applied to or prior to the
date as a payment of principal on the Equity Release SAM.
"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 conditions, some transactions involving the creation,
maintenance and termination of some residential mortgage pools and the
acquisition and holding of some residential mortgage pool pass-through
certificates by Plan Asset Investors, regardless of whether the mortgage
pool is exempt from "plan asset" treatment or 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 secured
receivables, loans and other obligations that meet the conditions and
requirements of PTE 90-30 from some of the prohibited transaction rules of
ERISA and the Code, and provide that the trust's assets may include yield
supplement agreements or similar yield maintenance arrangements of the type
described above, provided the arrangements do not involve swap agreements
or other notional principle contracts; and some pre-funding account
arrangements.
"QUALIFIED INSURER" means a mortgage guaranty insurance company which
is duly qualified as an insurer under the laws of each state in which the
mortgaged properties are located, duly authorized and licensed in the
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 some 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 the 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 some 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 the term is defined in PTE
90-30, or any affiliate of any 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 some 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
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 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 a single fixed rate that appropriately takes
into account the length of the interval between payments or 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 loss by reason of damage to
mortgaged properties caused by some 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, but does not
cover losses occasioned by war, civil insurrection, some governmental
action, errors in design, faulty workmanship or materials (except
under some circumstances), nuclear reaction, flood (if the mortgaged
property is located in a federally designated flood area), chemical
contamination and some 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 often 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.
"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 the 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.
"TRUSTEE" means an independent bank or trust company acting as
trustee for the benefit of a series of certificateholders and as designated
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 some 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 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, which involves 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 that capacity, and as DTC Participants.
Non-U.S. holders of Global Securities will be subject to U.S.
withholding taxes unless they meet 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 those
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 which is the day
that 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 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
which is the day that 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.
SOME 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 ordinarily
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 the beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements and the beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
certificates that are non-U.S. Persons usually can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of the change.
Exemption for non-U.S. Persons with effectively connected
income (Form 4224). A non-U.S. Person, including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income
is effectively connected with its conduct of a trade or business in
the United States, can obtain an exemption from the withholding tax
by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the conduct of a Trade or Business in the
United States).
Exemption or reduced rate for non-U.S. Persons resident in
treaty countries (Form 1001). Non-U.S. Persons that are
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 some 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 the
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 that 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 the person is or was an agent
against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with the proceeding if the 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 the 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 the proceeding if he acted properly,
except that no indemnification shall be made in respect of any
claim, issue or matter as to which the 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 the
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, the person is fairly and
reasonably entitled to indemnity for the expenses which the
Court of Chancery or 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 the proceeding if:
(a) there is a reasonable basis to believe that the agent may
be entitled to indemnification under this Article;
(b) 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 the agent to repay the 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 the
person is proper in the circumstances. That determination shall
be made
(a) by the Chairman of the Board so long as he was not made a
party to the 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 the
proceeding;
(c) if a quorum in (b) above 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 that 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 the indemnification or advance and shall have
assigned irrevocable to the corporation any right to receive
indemnification which he might be entitled to assert against
the 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 the 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 the agent or his estate, whether those representatives
are court appointed or otherwise designated, and to the
benefit of the heirs of the agent.
(8) The indemnification and advances provided to an agent by this
Article shall extend to and include claims for 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 those 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 those certificates, or to any other person,
except on account of the 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 that 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 the
information in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement relating to those securities, and
the offering of those securities at that time shall be deemed to be
the initial bona fide offering.
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 those securities, and the offering of those securities at that
time shall be deemed to be the initial bona fide offering.
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 the indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against those 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 the 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 the indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of the 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
those securities, and the offering of those securities at that time shall
be deemed to be the initial bona fide offering.
SIGNATURES
Under 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 7th day of January, 2000.
SAMCO MORTGAGE SECURITIES CORP.
as Depositor
By: /s/ Joseph T. Jurkowski, Jr
-----------------------------
Joseph T. Jurkowski, Jr
Under 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
--------- ----- ----
President/Chairman of the January 7, 2000
/s/ Jeffery Mayer * Board of Directors
- ---------------------------- (Principal Executive Office
Jeffery Mayer
/s/ Samuel L. Molinaro Jr.* Vice President/Treasurer January 7, 2000
- ---------------------------- (Principal Financial
Samuel L. Molinaro Jr. Officer)
/s/ Paul M. Friedman * Director/Vice January 7, 2000
- ------------------------------ President/Assistant
Paul M. Friedman Secretary
/s/ Susan R. Mitchell * Controller January 7, 2000
- -----------------------------
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 (included in signature page hereto).
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 proceedings relating to the authorization and
execution of the various Pooling and Servicing Agreements and the issuance
and sale of the Certificates and have reviewed other relevant documents and
have conducted reasonable investigations in order to give the following
opinions.
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]
