As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
KEYBANK NATIONAL ASSOCIATION
(Seller to the Trusts described herein)
(Exact name of registrant as specified in its Charter)
United States 34-0797057
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
Incorporation or
Organization)
Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 689-6300
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Daniel R. Stolzer, Esq.
Senior Vice President and Associate General Counsel
KeyBank National Association
Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 689-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Gail G. Watson, Esq. Robert C. Wipperman, Esq.
Brown & Wood LLP Stroock & Stroock & Lavan LLP
One World Trade Center 180 Maiden Lane
New York, New York 10048 New York, New York, 10038
(212) 839-5300 (212) 806-6000
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the registration statement,
as determined by market conditions.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. |_|
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, please check
the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b), under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. |_|
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================--------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
=========================================================================================================================
<S> <C> <C> <C> <C>
Asset-Backed Securities ........... $1,000,000 100% $1,000,000 $278
=========================================================================================================================
</TABLE>
(1) This Registration Statement also relates to market-making
transactions that may be made by McDonald Investments Inc., A KeyCorp
Company, an affiliate of the Registrant, the volume of which cannot be
determined.
(2) Estimated for the purpose of calculating the registration
fee.
This Registration Statement is also being used to register
securities that may be sold in market-making transaction by an
affiliate of the Registrant. 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 the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 2, 1999
To Prospectus dated _____________
$___________ (approximate)
[ ] HOME EQUITY LOAN TRUST 199_-_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
[ ] KEYBANK NATIONAL ASSOCIATION
as Master Servicer as Seller
THE TRUST
o will issue [5] classes of senior Class A Certificates
o will issue a single Residual Certificate
o will make a REMIC election for federal income tax purposes
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are
a pool of closed-end fixed rate first and second lien mortgage loans
o currently have no trading market
o are not guaranteed
o are obligations of the trust only and are not obligations of the
seller and master servicer or their affiliates
CREDIT ENHANCEMENT
o will be provided in the form of [overcollateralization] and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-9 AND ON PAGE 2 IN THE
PROSPECTUS.
o For complete information about the Class A Certificates, read both
this prospectus supplement and the prospectus.
o [____________], the Underwriter, will buy the Class A Certificates
from KeyBank National Association at a price equal to ________ of
their face value. The Underwriter will sell the Class A Certificates
from time to time in negotiated transactions.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE
UNDERWRITER
___________, 199_
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
SUMMARY......................................................................S-3
RISK FACTORS.................................................................S-8
THE CERTIFICATE INSURER.....................................................S-12
KEYBANK NATIONAL ASSOCIATION................................................S-12
THE MASTER SERVICER.........................................................S-12
DESCRIPTION OF THE MORTGAGE LOANS...........................................S-13
PREPAYMENT AND YIELD CONSIDERATIONS.........................................S-17
DESCRIPTION OF THE CERTIFICATES.............................................S-22
USE OF PROCEEDS.............................................................S-39
FEDERAL INCOME TAX CONSEQUENCES.............................................S-39
STATE TAXES.................................................................S-41
ERISA CONSIDERATIONS........................................................S-42
LEGAL INVESTMENT CONSIDERATIONS.............................................S-43
UNDERWRITING................................................................S-43
EXPERTS.....................................................................S-43
LEGAL MATTERS...............................................................S-43
RATINGS.....................................................................S-43
INDEX OF DEFINED TERMS......................................................S-45
ANNEX I.....................................................................S-48
PROSPECTUS
RISK FACTORS...................................................................4
THE TRUSTS.....................................................................6
USE OF PROCEEDS...............................................................10
THE LOAN PROGRAM..............................................................11
DESCRIPTION OF THE SECURITIES.................................................13
CREDIT ENHANCEMENT............................................................23
YIELD AND PREPAYMENT CONSIDERATIONS...........................................27
THE AGREEMENTS................................................................29
CERTAIN LEGAL ASPECTS OF THE LOANS............................................40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................46
STATE TAX CONSIDERATIONS......................................................68
ERISA CONSIDERATIONS..........................................................68
LEGAL INVESTMENT..............................................................72
METHOD OF DISTRIBUTION........................................................73
LEGAL MATTERS.................................................................74
FINANCIAL INFORMATION.........................................................74
RATINGS.......................................................................74
INDEX OF DEFINED TERMS........................................................76
<PAGE>
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making
your investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the Class A
Certificates.
<TABLE>
<CAPTION>
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
------------------------- ------------------ ------------------------- ----------------------
INITIAL CLASS LAST SCHEDULED
CLASS CERTIFICATE RATE PRINCIPAL BALANCE (1) DISTRIBUTION DATE(2)
----- ---------------- ------------------ -------
------------------------- ------------------ ------------------------- ----------------------
<S> <C> <C> <C>
Class A-1 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-2 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-3 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-4 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-5 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class R N/A $0 -
------------------------- ------------------ ------------------------- ----------------------
</TABLE>
(1) This amount is subject to a variance of 5%.
(2) We expect the actual last distribution date for each Class A
Certificate to be significantly earlier than its last scheduled
distribution date.
(3) The Class R Certificates are not offered pursuant to this
prospectus supplement and prospectus.
<PAGE>
THE SELLER
o KeyBank National Association.
o KeyBank National Association maintains its principal office at
127 Public Square, Cleveland, Ohio 44114. Its telephone number
is (212) 689-6300.
WE REFER YOU TO "KEYBANK NATIONAL ASSOCIATION" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
THE MASTER SERVICER
o [ ].
o [ ] maintains its principal office at [ ]. Its telephone
number is [ ].
o The master servicer will receive a monthly fee from the interest
payments on the mortgage loans equal to __% per annum on the principal
balance of each mortgage loan.
WE REFER YOU TO "THE MASTER SERVICER" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
TRUST FUND
o [ ] Home Equity Loan Trust 199_-_.
TRUSTEE
o [____________________________]
CERTIFICATE INSURER
o [__________________].
WE REFER YOU TO "THE CERTIFICATE INSURER" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
CUT-OFF DATE
o ____________, 199_.
CLOSING DATE
o ________________, 199_.
DISTRIBUTION DATE
o The 25th day of each month, or if such day is not a business day, the
next business day. The first distribution date is ___________ 199_.
DUE PERIOD
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
DESIGNATIONS
o OFFERED CERTIFICATES - The Class A Certificates.
o NON-OFFERED CERTIFICATES - The Class R Certificates.
o REGULAR CERTIFICATES - All classes of certificates other than the
Class R Certificates.
o RESIDUAL CERTIFICATES - The Class R Certificates.
o CLASS A CERTIFICATES - Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates.
REGISTRATION OF CLASS A CERTIFICATES
We will issue the Class A Certificates in book-entry form. You will hold
your interests either through a depository in the United States or through
one of two depositories in Europe. While the certificates are book-entry,
they will be registered in the name of the applicable depository, or in
the name of the depository's nominee.
WE REFER YOU TO "RISK FACTORS--CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY
BECAUSE OF OWING BOOK-ENTRy CERTIFICATES", "DESCRIPTION OF THE
CERTIFICATES--BOOK-ENTRY CERTIFICATES" AND "ANNEX I" IN THIS PROSPECTUs
SUPPLEMENT FOR ADDITIONAL INFORMATION.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
o a pool of closed-end fixed mortgage loans, secured by first and second
deeds of trust or mortgages on one- to four-family residential
properties;
o payments on the mortgage loans received on and after the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
o rights under any hazard insurance policies covering the mortgaged
properties; and
o amounts on deposit in certain accounts described in this prospectus
supplement.
o the certificate of insurance policy issued by [insurer]
THE MORTGAGE LOANS
On the closing date, the trust fund will acquire a pool of fixed rate home
equity loans, or "mortgage loans" with an aggregate principal balance as of
the cut-off date of $____________.
The mortgage loans will have the following characteristics as of the cut-off
date:
o number of mortgage loans: _______
o aggregate principal balance: $___________
o mortgaged property location: __ states and the District of Columbia
o average principal balance: $___________
o maximum principal balance: $___________
o interest rates range: _____% to ____%
o weighted average interest rate: _________% (approximate)
o weighted average remaining term to stated maturity, based on
principal balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o combined loan-to-value ratio range: ____% to _____% (approximate)
o balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
WE REFER YOU TO "DESCRIPTION OF THE MORTGAGE LOANS" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
MONTHLY ADVANCES
If the master servicer reasonably believes that cash advances can be
recovered from future payments or collections on the mortgage loans, the
master servicer will make cash advances to the trust fund to cover
delinquent mortgage loan payments in respect of interest. The master
servicer will make advances only to maintain a regular flow of scheduled
interest and principal payments on the certificates, not to guarantee or
insure against losses.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--MONTHLY ADVANCES" IN
THIS PROSPECTUS SUPPLEMENT FOr ADDITIONAL INFORMATION.
THE CERTIFICATES
1. General
o Each month the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you
will be entitled to receive payments on the distribution date in the
next month.
WE refer YOU TO "DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
2. Interest Distributions
o Interest accrues on the certificates from the first day of a calendar
month through the last day of that calendar month.
On each distribution date, you will be entitled to the following:
o Interest at the related certificate rate that accrued during the
related interest period; and
o any interest that was due on a prior distribution date and not paid.
In addition, interest will have accrued on the amount of interest
which was previously due and not paid.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--INTEREST" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAl INFORMATION.
3. Principal Distributions
o Principal distributions are payable on each distribution date.
However, no class of certificates will receive a principal
distribution until the other classes with a lower numerical class
designation are paid in full.
o Shortfalls in available funds may result in a class receiving less
than what is due.
o The calculation of the amount a class is entitled to receive on each
distribution date and the priority of principal distributions among
the certificates is described in this prospectus supplement under
"DESCRIPTION OF THE CERTIFICATES --Principal."
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAl INFORMATION.
CREDIT ENHANCEMENTS
1. THE CERTIFICATE INSURANCE POLICY: The Certificate Insurance Policy
guarantees the payment of:
o accrued and unpaid interest on the Class A Certificates;
o principal losses on the mortgage loans in excess of
overcollateralization; and
o any principal amounts owed to the certificateholders on the last
scheduled distribution date.
WE REFER YOU TO "THE CERTIFICATE INSURER" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
2. OVERCOLLATERALIZATION: On the closing date the aggregate principal balance
of the mortgage loans will equal the aggregate principal balance of the
certificates. The interest payments on the mortgage loans are expected to
exceed the amount of interest due and payable on the certificates. This
excess will be applied as principal payments to the Class of Class A
Certificates then entitled to principal on that distribution date. This
will result in a limited acceleration of principal payments on the
certificates relative to the amortization of the related mortgage loans,
thereby creating overcollateralization for the Class A Certificates. Once
the required level of overcollateralization is reached, the application of
the excess interest payments will stop, until it is again needed to
maintain the required level of overcollateralization.
The level of required overcollateralization will increase and decrease
over time. For example, an increase in the required level of
overcollateralization will result if the delinquency or default experience
on the mortgage loans exceeds certain set levels. In that event,
amortization of the Class A Certificates would be accelerated until the
level of overcollateralization reaches its required level.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--OVERCOLLATERALIZATION"
IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
PRE-FUNDING ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
pre-funding account. The trust will use the amounts on deposit in the
pre-funding account to acquire additional mortgage loans from the seller.
The trustee may only acquire such additional mortgage loans until
_________________.
If any amounts are left in the pre-funding account on ___________________,
holders of the certificates will receive amounts left in the pre-funding
account on the next distribution date as payment of principal.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PRE-FUNDING ACCOUNT" IN
THIS PROSPECTUS SUPPLEMENT FOr ADDITIONAL INFORMATION.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
capitalized interest account. The trust will use the amounts on deposit in
the capitalized interest accounts to cover interest shortfalls on the
certificates expected to occur prior to the trust's purchase of the
additional mortgage loans. Until the trust purchases the additional
mortgage loans or prepays the certificates, interest payments on the loans
will not cover the amount of interest due on the certificates.
Any amounts left in the capitalized interest account after _______________
will be paid to KeyBank.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--CAPITALIZED INTEREST
ACCOUNT" IN THIS PROSPECTUS SUPPLEMENt FOR ADDITIONAL INFORMATION.
OPTIONAL TERMINATION
If the total pool principal balance declines below __% of the total pool
principal balance as of the cut-off date, then the seller may purchase all
of the mortgage loans and the related properties in the trust fund. If the
seller purchases all of the mortgage loans, you will receive a final
distribution and the trust fund will be terminated.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--TERMINATION; PURCHASE OF
THE MORTGAGE LOANS" IN THIs PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o An election will be made to treat the trust fund as a "real estate
mortgage investment conduit" or REMIC
o The Class A Certificates will be "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC
o The Class R Certificates will represent the beneficial ownership of the
sole class of "residual interest" in the REMIC.
WE REFER YOU TO "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THIS PROSPECTUS FOR ADDITIONAL INFORMATION.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, or ERISA, can limit investments by certain pension
and other employee benefit plans. For example, the acquisition of
certificates by certain plans may be considered a "prohibited transaction"
under ERISA. Certain exemptions from the prohibited transaction rules
could be applicable to the acquisition of the Class A Certificates. If you
are a fiduciary of a pension or other employee benefit plan which is
subject to ERISA, you should consult with your counsel regarding the
applicability of the provisions of ERISA and the tax code before
purchasing a Class A Certificate.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS FOR ADDITIONAL INFORMATION.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines "mortgage
related securities" to include only first mortgages, and not second
mortgages. Because the pool of mortgage loans owned by the trust fund
includes second mortgage loans, the certificates will not be "mortgage
related securities" under that definition. Some institutions may be
limited in their legal investment authority to only first mortgages or
"mortgage related securities" and will be unable to invest in the Class A
Certificates.
WE REFER YOU TO "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "LEGAL INVESTMENT" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
CERTIFICATE RATING
The Trust Fund will not issue the Class A Certificates unless they receive
the following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal by either rating agency.
WE REFER YOU TO "RATINGS" AND "RISK FACTORS--RATING OF THE SECURITIES" IN
THE PROSPECTUS FOR ADDITIONAl INFORMATION.
<PAGE>
-RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY
CERTIFICATES
o LIMIT ON LIQUIDITY OF CERTIFICATES. Issuance of certificates in
book-entry form may reduce the liquidity of such certificates in the secondary
trading market since investors may be unwilling to purchase certificates for
which they cannot obtain physical certificates.
o LIMIT ON ABILITY TO TRANSFER OR PLEDGE. Since transactions in the
book-entry certificates can be effected only through DTC, participating
organizations, indirect participants and certain banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do not
participate in the DTC system or otherwise to take actions in respect of such
certificates, may be limited due to lack of a physical certificate representing
the book-entry certificates.
o DELAYS IN DISTRIBUTIONS. You may experience some delay in the
receipt of distributions on the book-entry certificates since the distributions
will be forwarded by the trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--BOOK-ENTRY
CERTIFICATE" IN THIS PROSPECTUs SUPPLEMENT.
[BALLOON LOAN RISK
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the
certificate insurer fails to perform its obligations under the policy.
Approximately ___% of the mortgage loans are balloon loans.]
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS THAN
MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such as
legal fees, real estate taxes and maintenance and preservation expenses will
reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the certificate insurer fails to perform its
obligations under the certificate insurance policy.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF LOANS--FORECLOSURE ON
MORTGAGES" IN THE PROSPECTUS.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. [However, some mortgage loans require that the mortgagor pay a fee with
any prepayment. This may result in the rate of prepayments being slower than
otherwise be the case.]
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the master servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
o The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic conditions,
interest rates, the availability of alternative financing and homeowner
mobility.
o We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies or
statistics on the rate of prepayment of mortgage loans similar to the mortgage
loans in the pool.
WE REFER YOU TO "PREPAYMENT AND YIELD CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE CERTIFICATE
INSURER
The rating on the certificates depends primarily on the claim's paying
ability of the certificate insurer. Therefore, a reduction of the rating
assigned to the claims-paying ability of the certificate insurer may have a
corresponding reduction on the ratings assigned to the certificates. A
reduction in the rating assigned to the certificates would reduce the market
value of the certificates and may affect your ability to sell them. In general,
the rating on your certificate addresses credit risk and does not address the
likelihood of prepayments.
WE REFER YOU TO "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Some of the mortgage loans are secured by mortgages which are junior
in priority. For mortgage loans in the trust fund secured by first mortgages,
the master servicer may consent under certain circumstances to a new first
priority lien regardless of the principal amount, which has the effect of
making the first mortgage a junior mortgage. Mortgage loans that are secured by
junior mortgages will receive proceeds from a sale of the related mortgaged
property only after any senior mortgage loans and prior statutory liens have
been paid. If the remaining proceeds are insufficient to satisfy the mortgage
loan in the trust fund and the certificate insurer fails to perform its
obligations under the policy, then:
o there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF SELLER
The sale of the mortgage loans from the seller to the trust will be
treated by the seller and the trust as a sale of the mortgage loans. If the
seller were to become insolvent, a receiver or conservator for, or a creditor
of, the seller, may argue that the transaction between the seller and the trust
is a pledge of mortgage loans as security for a borrowing rather than a sale.
Such an attempt, even if unsuccessful, could result in delays in distributions
to you.
[The seller will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the seller's long-term debt rating is reduced
below [describe]. Within 30 days of any such occurrence, the seller is required
to deliver the mortgage documents to the trustee and to either record the
assignments or deliver a legal opinion to the effect that recordation of such
assignments is not necessary in order to perfect the interest of trust in the
mortgages. Prior to delivery and recording, the interest of the trustee in the
mortgages, the mortgage notes and any proceeds from the mortgage loans may be
subject to the claims of creditors or to sale to a third party, as well as to a
receiver or conservator appointed in the event of the insolvency of the
seller.]
In an insolvency proceeding of the seller, if the mortgage notes have
not been delivered to the trustee and the mortgages have not been assigned of
record in the real property recording office to the trustee, the trust may be a
general unsecured creditor of the seller. If the trust were determined to be a
general unsecured creditor of the seller, the mortgages, the mortgage notes and
the proceeds thereof would not be available to make payments on the
certificates.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o PREPAYMENTS OF PRINCIPAL MAY REDUCE INTEREST PAYMENTS. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only up to the
date of the prepayment, instead of a full month. This may result in an interest
shortfall. The master servicer is obligated to pay that interest shortfall,
without any right of reimbursement, up to the amount of its servicing fee for
that month. If the servicing fee is insufficient to pay such interest
shortfalls attributed to prepayments, they will be covered by the certificate
insurance policy.
o CERTAIN INTEREST SHORTFALLS ARE NOT COVERED BY THE MASTER SERVICER OR
THE CERTIFICATE INSURANCE POLICY. The Soldiers' and Sailors' Civil Relief Act
of 1940 permits certain modifications to the payment terms for mortgage loans,
including a reduction in the amount of interest paid by the borrower, under
certain circumstances. Neither the master servicer nor the certificate insurer
will pay for any interest shortfalls created by the Soldiers' and Sailors'
Civil Relief Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
[The mortgaged properties relating to the mortgage loans are located
in __ states and the District of Columbia. However, __% of the mortgaged
properties (by principal balance as of the cut-off date) are located in ______.
If ______ experiences in the future weaker economic conditions or greater rates
of decline in real estate values than the United States generally then, the
mortgage loans may experience higher rates of delinquencies and foreclosures
than would otherwise be the case.]
[RISK OF PREPAYMENT DUE TO LACK OF SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the seller until
_______. The seller will sell mortgage loans to the trust if it has mortgage
loans to sell. The ability of the seller to originate and acquire additional
mortgage loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. If the full amount deposited in the pre-funding account
for the purpose of purchasing additional mortgage loans cannot be used for that
purpose within [three] months from the closing date, any remaining amounts will
be paid to you as a prepayment on the certificates.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their
operations, the master servicer is faced with the task of preparing its
computer systems for year 2000. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the servicer's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Major computer system failure or miscalculations may occur
as a result. The servicer is presently engaged in various procedures to ensure
that their computer systems and software will be year 2000 compliant.
However, if the servicer or any of its suppliers, customers, brokers
or agents do not successfully and timely achieve year 2000 compliance, the
performance of obligations of the servicer could be materially adversely
affected. This could result in delays in processing payments on the mortgage
loans and may cause a related delay in payments to you.
<PAGE>
THE CERTIFICATE INSURER
[TO BE PROVIDED BY CERTIFICATE INSURER]
KEYBANK NATIONAL ASSOCIATION
KeyBank National Association , the Seller (the "Seller"), is a wholly
owned subsidiary of KeyCorp. The Seller is a national banking association
headquartered in Cleveland, Ohio. The Seller provides: (i) retail and private
banking services to customers; (ii) commercial banking services to small
businesses, middle-market and large corporate customers; (iii) capital market
services; and (iv) trust and asset management services. The Seller's retail
banking services include consumer lending (including residential mortgage, home
equity and direct installment), deposit services and private banking services.
The principal executive offices of the Seller are located at Key Tower, 127
Public Square, Cleveland, Ohio 44114 (Telephone: (216) 689-6300). None of the
Servicer, the Trustee, the Seller or any of their respective affiliates has
guaranteed or is otherwise obligated with respect to the Securities of any
Series.
THE MASTER SERVICER
___________________- ("___________-"), as Master Servicer (the "Master
Servicer") will be responsible for servicing the Mortgage Loans for the Trust
Fund in accordance with the terms of the pooling and servicing agreement (the
"Agreement") to be dated as of _____, 199_, among the Seller, the Master
Servicer, and ____ ________, ____ as ____ trustee ____ (the ____ "Trustee").
____ [Beginning ____ on ____ _______________, __________________________ (the
"Subservicer" will service the Mortgage Loans for ___________ pursuant to a
Subservicing Agreement, dated as of _____________, 199__, between ______ and
the Subservicer. The terms and conditions of the Subservicing Agreement are
consistent with and do not violate the provisions of the Agreement. Such
subservicing does not relieve ___________ from any of its obligations to
service the Mortgage Loan in accordance with the terms and conditions of the
Agreement.] See "--Servicing and Collection Procedures."
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by ___________ with respect to Mortgage Loans which it
purchases or originates.
[ ]
SERVICING AND COLLECTION PROCEDURES
The following is a description of the servicing policies and
procedures customarily and currently employed by _____________ with respect to
the portion of its mortgage loan portfolio which it services.
[ ]
DELINQUENCY EXPERIENCE
The following table sets forth _____________'s delinquency experience
on its serving portfolio of home equity loans (which includes home equity loans
subserviced by others for __________) similar to the Mortgage Loans for the
periods indicated.
[ ]
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this prospectus supplement is
only with respect to the Mortgage Loans included in the trust and is based on
the characteristics of the Mortgage Loans as of _______, 199_, (the "Cut-Off
Date").
The Mortgage Loans to be purchased by the trust will be originated or
purchased by the seller and transferred by the seller to the trust.
The mortgage pool consists of Mortgage Loans with an aggregate
Principal Balance, or "Pool Principal Balance ", as of the Cut-Off Date of
$_________. The "Principal Balance" of a mortgage loan (other than a liquidated
mortgage loan) on any day is equal to its Cut-Off Date Principal Balance minus
all collections applied in reduction of the Cut-Off Date Principal Balance of
such Mortgage Loan.
In no event will more than 5% of the Cut-Off Date Pool Principal
Balance deviate from the characteristics of the Mortgage Loans described below.
The Mortgage Loans provide that interest is charged to the borrowers
and payments are due from the borrowers, as of a scheduled day of each month
which is fixed at the time of origination. Scheduled monthly payments made by
the borrowers on the Mortgage Loans either earlier or later than the scheduled
due dates will not affect the amortization schedule or the application of the
payments to principal and interest.
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages set
forth herein with respect to the Mortgage Loans are percentages of the Cut-Off
Date Pool Principal Balance.
<PAGE>
CUT-OFF DATE PRINCIPAL BALANCES
Range of Cut-Off Number of Cut-Off Date % of Cut-Off Date
Date Principal Balances Mortgage Loans Pool Balance Pool Balance
GEOGRAPHIC DISTRIBUTION BY STATE
Number of Cut-Off Date % of Cut-Off Date
State Mortgage Loans Pool Balance Pool Balance
LOAN-TO-VALUE RATIOS
Number of Cut-Off Date % of Cut-Off Date
Loan-to-Value Ratio Mortgage Loans Pool Balance Pool Balance
LOAN RATES
Number of Cut-Off Date % of Cut-Off Date
Loan Rates Mortgage Loans Pool Balance Pool Balance
ORIGINAL TERM TO STATED MATURITY
Original Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Pool Balance Pool Balance
<PAGE>
REMAINING MONTHS TO STATED MATURITY
Remaining Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Pool Balance Pool Balance
MONTHS SINCE ORIGINATION
Number of Cut-Off Date % of Cut-Off Date
Months Since Origination Mortgage Loans Pool Balance Pool Balance
PROPERTY TYPE
Number of Cut-Off Date % of Cut-Off Date
Property Type Mortgage Loans Pool Balance Pool Balance
OCCUPANCY TYPE
Number of Cut-Off Date % of Cut-Off Date
Occupancy Type Mortgage Loans Pool Balance Pool Balance
[CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The Agreement permits the Trust Fund to purchase from __________,
subsequent to the date hereof and prior to _______, 19__, Subsequent Mortgage
Loans in an amount not to exceed approximately $________ in aggregate principal
balance for inclusion in the Trust Fund. Each Subsequent Mortgage Loan will
have been originated or purchased by __________ in accordance with the
underwriting guidelines set forth above under "Underwriting and Credit
Guidelines." Accordingly, the statistical characteristics of the Mortgage Pool
set forth above are based exclusively on the Initial Mortgage Loans and the
statistical characteristics of the Mortgage Pool after giving effect to the
acquisition of any Subsequent Mortgage Loans will likely differ from the
information specified herein. The date on which __________ transfers a
Subsequent Mortgage Loan to the Trust Fund shall be referred to herein as the
"Subsequent Transfer Date".
In any event, each conveyance of Subsequent Mortgage Loans will be
subject to, among other things, the following conditions: (i) such Subsequent
Mortgage Loans must (a) satisfy the eligibility criteria set forth in the
prospectus (the "Prospectus") under "The Loan Program--Representations by
Sellers; Repurchases" and (b) comply with each representation and warranty as
to the Mortgage Loans set forth in the Agreement; (ii) such Subsequent Mortgage
Loan must not have been selected by either the Seller or __________ in a manner
that it believes is adverse to the interests of the Certificateholders, (iii)
no Subsequent Mortgage Loan may be ___ or more days contractually delinquent as
of the applicable Cut-Off Date; (iv) no Subsequent Mortgage Loan may have a
remaining term to maturity in excess of ___ years; (v) no Subsequent Mortgage
Loan may have a Mortgage Rate less than ____%; (vi) following the purchase of
such Subsequent Mortgage Loans by the Trust Fund, the Mortgage Loans (a) will
have a weighted average Mortgage Rate of at least ____%; (b) will have a
weighted average Loan-to-Value Ratio of not more than ____%; (c) will not have
a weighted average remaining term to stated maturity of more than ____ months;
and (d) will, in each case, have a principal balance in excess of $_______ as
of the Cut-Off Date; (vii) __________ [and the Trustee shall not have been
notified by either Rating Agency that the conveyance of such Subsequent
Mortgage Loans will result in a qualification, modification or withdrawal of
its then-current rating of any class of Certificates] [shall have notified each
Rating Agency of such conveyance as required by the Agreement]; and (viii) the
Trustee shall have received certain opinions of counsel as to, among other
things, the enforceability and validity of the transfer agreements relating to
such conveyance of such Subsequent Mortgage Loans.]
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A Certificates will be related to the rate and timing of
payments of principal on the Mortgage Loans. The rate of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the
Seller). The Mortgage Loans may be prepaid by the Mortgagors at any time.
[However, approximately __% of the Mortgage Loans are subject to prepayment
penalties which vary from jurisdiction to jurisdiction.]
Prepayments, liquidations and purchases of the Mortgage Loans
(including any optional purchase by the Master Servicer of the remaining
Mortgage Loans in connection with the termination of the Trust Fund) will
result in distributions on the related Class A Certificates of principal
amounts which would otherwise be distributed over the remaining terms of such
Mortgage Loans. Since the rate of payment of principal of the Mortgage Loans
will depend on future events and a variety of factors, no assurance can be
given as to such rate or the rate of principal prepayments. The extent to which
the yield to maturity of a Class A Certificate may vary from the anticipated
yield will depend upon the degree to which a Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of such Mortgage Loans.
The rate of prepayment on the Mortgage Loans cannot be predicted. The
prepayment experience of the Trust Fund with respect to the Mortgage Loans may
be affected by a wide variety of factors, including economic conditions,
prevailing interest rate levels, the availability of alternative financing and
homeowner mobility and changes affecting the deductibility for federal income
tax purposes of interest payments on loans. All of the Mortgage Loans contain
"due-on-sale" provisions, and, with respect to the Mortgage Loans, the Master
Servicer is required by the Agreement to enforce such provisions, unless such
enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the
related Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF LOANS--Due-on-Sale Clauses
in Mortgage Loans" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans is affected
by prevailing market rates for mortgage loans of a comparable term and risk
level. When the market interest rate is below the interest rate on a mortgage,
mortgagors may have an increased incentive to refinance their mortgage loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to
meet cash flow needs or to make other investments.
In addition to the foregoing factors affecting the weighted average
life of the Class A Certificates, the use of Excess Spread to pay principal of
the Class A Certificates to the extent required by the Agreement will result in
the acceleration of the Class ___ and Class ___ Certificates, as applicable,
relative to the amortization of the Mortgage Loans in early months of the
transaction as well as, accelerating the first date on which each other Class
of Certificates will begin to receive distributions of principal than would
otherwise be the case. This acceleration feature creates overcollateralization
which results from the excess of the aggregate Principal Balance of Mortgage
Loans over the Aggregate Class A Principal Balance. Once the required level of
overcollateralization is reached, the acceleration feature will cease, unless
necessary to maintain the required level of overcollateralization. See
"DESCRIPTION OF THE CERTIFICATES--Overcollateralization Provisions."
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on the Class A Certificates purchased at a price less than
par and will decrease the yield on the Class A Certificates purchased at a
price greater than par. The effect on an investor's yield due to principal
prepayments on the Mortgage Loans occurring at a rate that is faster (or
slower) than the rate anticipated by the investor in the period immediately
following the issuance of the Certificates will not be entirely offset by a
subsequent like reduction (or increase) in the rate of principal payments. The
weighted average life of the Class A Certificates will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
recoveries, if any, on defaulted Mortgage Loans and foreclosed properties.
The "weighted average life" of a Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The weighted
average life of any class of Class A Certificates will be influenced by, among
other factors, the rate at which principal payments are made on the Mortgage
Loans, including final payments made upon the maturity of Balloon Loans.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding
principal balance of the pool of mortgage loans for the life of such mortgage
loans. A 100% Prepayment Assumption assumes a conditional prepayment rate
("CPR") of [ ]% per annum of the outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and an additional [
]% (precisely [ ]) (expressed as a percentage per annum) in each month
thereafter until the twelfth month; beginning in the twelfth month and in each
month thereafter during the life of the mortgage loans, a conditional
prepayment rate of 20% per annum each month is assumed. As used in the table
below, 0% Prepayment Assumption assumes a conditional prepayment rate equal to
0% of the Prepayment Assumption, i.e., no prepayments. Correspondingly, [200]%
Prepayment Assumption assumes prepayment rates equal to [200]% of the
Prepayment Assumption, and so forth. The Prepayment Assumption does not purport
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. KeyBank believes that no existing statistics of which it is
aware provide a reliable basis for holders of the Class A Certificates to
predict the amount or the timing of receipt of prepayments on the Mortgage
Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Principal Balances outstanding and weighted average lives of
the Class A Certificates set forth in the tables. In addition, since the actual
Mortgage Loans in the Trust Fund have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on the Class A Certificates may be made earlier or later than as indicated in
the tables.
For the purpose of the tables below, it is assumed that: [(i) the
Mortgage Loans consist of pools of loans with the level-pay and balloon
amortization characteristics set forth below, (ii) the Closing Date for the
Class A Certificates is ________________, (iii) distributions on the Class A
Certificates are made on the 25th day of each month regardless of the day on
which the Distribution Date actually occurs, commencing in _____________ and
are made in accordance with the priorities described herein, (iv) the scheduled
monthly payments of principal and interest on the Mortgage Loans will be timely
delivered on the first day of each month (with no defaults), commencing in
_______________, (v) the Mortgage Loans' prepayment rates are a multiple of the
Prepayment Assumption, (vi) all prepayments are prepayments in full received on
the last day of each month (commencing ______________) and include 30 days'
interest thereon, (vii) no optional termination is exercised, (viii) the Class
A Certificates of each Class have the respective Certificate Rates and initial
Class A Principal Balances as set forth herein, (ix) the overcollateralization
levels are set initially as specified in the Agreement, and thereafter decrease
in accordance with the provisions of the Agreement, [(x) with respect to pools
of loans with an assumed Cut-Off Date of _________________, interest will be
calculated at a rate of % per annum for one month], (xi) six-month LIBOR for
each Interest Period will be % and (xii) one-month LIBOR for each Interest
Period will be ______ %.]
<TABLE>
<CAPTION>
Original Original Remaining Term
Principal Amortization Term Term to Maturity to Maturity
Amortization Methodology Balance Loan Rate (months) (months) (months)
<S> <C> <C> <C> <C> <C>
Balloon........... $
Level Pay.......... $
Level Pay.......... $
</TABLE>
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each Class of Class A
Certificates, and sets forth the percentages of the initial Class A Principal
Balance of each such Class of Class A Certificates that would be outstanding
after each of the dates shown at various percentages of Prepayment Assumption.
<PAGE>
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years)*....
</TABLE>
- -------------------------------------------------------------------------------
* The weighted average life of a Certificate of any class is
determined by (i) multiplying the amount of each distribution in
reduction of the related Class A Principal Balance by the number of
years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum
by the highest related Principal Balance of the Certificate.
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years)*....
- -------------------------------------------------------------------------------
* The weighted average life of a Certificate of any class is
determined by (i) multiplying the amount of each distribution in
reduction of the related Class A Principal Balance by the number of
years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum
by the highest related Principal Balance of the Certificate.
CLASS A-5
DISTRIBUTION DATE % % % %
<S> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100
Weighted Average
Life (years)*....
</TABLE>
- -------------------------------------------------------------------------------
* The weighted average life of a Certificate of any class is
determined by (i) multiplying the amount of each distribution in
reduction of the related Class A Principal Balance by the number of
years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum
by the highest related Principal Balance of the Certificate.
These tables have been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the Mortgage Loans, which differ from the actual characteristics and
performance thereof) and should be read in conjunction therewith.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Home Equity Loan Asset - Backed Certificates, Series 199_-_ (the
"Certificates") will be issued pursuant to the Agreement. The form of the
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following
summaries describe certain provisions of the Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
GENERAL
The Offered Certificates will be issued in denominations of $[1,000]
and multiples of $[1] in excess thereof and will evidence specified undivided
interests in the Trust Fund. The property of the trust fund (the "Trust Fund")
will consist of, to the extent provided in the Agreement: (i) the Mortgage
Loans; (ii) payments on the Mortgage Loans received on and after the Cut-Off
Date (exclusive of payments in respect of interest on the Mortgage Loans due
prior to the Cut-Off Date and received thereafter); (iii) Mortgaged Properties
relating to the Mortgage Loans that are acquired by foreclosure or deed in lieu
of foreclosure; (iv) the Collection Account and the Distribution Account and
funds on deposit therein (excluding net earnings thereon); and (v) rights under
certain hazard insurance policies covering the Mortgaged Properties. In
addition, KeyBank has caused the Certificate Insurer to issue an irrevocable
and unconditional certificate guaranty insurance policy (the "Policy") for the
benefit of the holders of the Class A Certificates, pursuant to which the
Certificate Insurer will guarantee payments to such Certificateholders as
described herein. Definitive Certificates (as defined below) will be
transferable and exchangeable at the corporate trust office of the Trustee,
which will initially act as Certificate Registrar. See "--Book-Entry
Certificates" below. No service charge will be made for any registration of
exchange or transfer of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
The principal amount of a Class of Class A Certificates (each, a
"Class A Principal Balance") on any Distribution Date is equal to the
applicable Class A Principal Balance on the Closing Date minus the aggregate of
amounts actually distributed as principal to the holders of such Class of Class
A Certificates. On any date, the "Aggregate Class A Principal Balance" is the
aggregate of the Class A Principal Balances of the Class A-1, Class A-2, Class
A-3, Class A-4 and Class A-5 Certificates.
The Trust Fund will issue five classes (each, a "Class") of Class A
Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-2 (the "Class
A-2 Certificates"), Class A-3 (the "Class A-3 Certificates"), Class A-4 (the
"Class A-4 Certificates") and Class A-5 (the "Class A-5 Certificates") and one
Class of subordinated Certificates (the "Class R Certificates"). Only the Class
A Certificates (the "Offered Certificates") are being offered hereby. Each
Class of Offered Certificates represents the right to receive payments of
interest at the Certificate Rate for such Class and payments of principal as
described below.
The Person in whose name a Certificate is registered as such in the
Certificate Register is referred to herein as a "Certificateholder."
The "Percentage Interest" of a Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such Certificate by the Class A Principal Balance for the
related Class as of the Cut-Off Date.
The Certificates will not be listed on any securities exchange.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through the Depository Trust Company ("DTC") in the United States,
or Cedel Bank SOCIETE ANONYME (the "CEDEL") or the Euroclear System
("Euroclear") (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate principal balance of the Offered Certificates and will initially
be registered in the name of Cede, the nominee of DTC. CEDEL and Euroclear will
hold omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
N.A. ("Citibank") will act as depositary for CEDEL and Chemical Bank
("Chemical") will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing Certificate Principal
Balances of $1,000 and in multiples of $1 in excess thereof. Except as
described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede, as nominee of
DTC. Certificate Owners will not be Certificateholders as that term is used in
the Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer
their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Offered Certificates,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Offered Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Certificate
Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "FEDERAL INCOME TAX
CONSEQUENCES--Foreign Investors" and "Backup Withholding" herein and "GLOBAL
CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES--Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing DTC and DTC
participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect
to Certificates held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See "FEDERAL INCOME TAX
CONSEQUENCES--Foreign Investors" and "Backup Withholding" herein. Because DTC
can only act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust Fund will be provided to Cede,
as nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. CEDEL or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Certificateholder under the
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the direction of the related Participants, with respect to
some Class A Certificates which conflict with actions taken with respect to
other Class A Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or KeyBank advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and KeyBank or the
Trustee is unable to locate a qualified successor, (b) KeyBank, at its sole
option, with the consent of the Trustee, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Servicing
Termination (as defined under "--Events of Servicing Termination), beneficial
owners having Percentage Interests aggregating not less than 51% of the
aggregate Class A Principal Balance of the Book-Entry Certificates advise the
Trustee and DTC through the Financial Intermediaries and the DTC participants
in writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither KeyBank, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
On ______________ (the "Closing Date"), KeyBank will transfer to the
Trust Fund all of its right, title and interest in and to each Mortgage Loan,
the related Mortgage Notes, Mortgages and other related documents
(collectively, the "Related Documents"), including all payments received on or
with respect to each such Mortgage Loan on or after the applicable Cut-Off Date
(exclusive of payments in respect of interest on the Mortgage Loans due prior
to the Cut-Off Date and received thereafter). The Trustee, concurrently with
such transfer, will deliver the Certificates to KeyBank. Each Mortgage Loan
transferred to the Trust Fund will be identified on a schedule (the "Mortgage
Loan Schedule") delivered to the Trustee pursuant to the Agreement. The
Mortgage Loan Schedule will include information as to the Principal Balance of
each Mortgage Loan as of the Cut-Off Date, its Loan Rate as well as other
information.
[Under the terms of the Agreement, KeyBank will maintain possession of
the documentation relating to each Mortgage Loan (the "Mortgage File") for so
long as an Assignment Event has not occurred. Within [ ] days of an Assignment
Event, the Seller will cause as soon as practicable the Mortgage Files
pertaining to each Mortgage Loan to be delivered to the Trustee. In the
Agreement, the Trustee will acknowledge the assignment of the Mortgage Loans to
the Trust Fund and KeyBank will agree to hold the Mortgage Files for and on
behalf of the Trustee.]
[An "Assignment Event" will occur on the [ ]th day following either
(i) the occurrence and continuance of an Event of Default, (ii) the reduction
of the Seller's long-term unsecured debt rating below "Baa2" by Moody's or
"BBB" by S&P or Fitch or (iii) the suspension, termination or withdrawal of the
Seller's long-term unsecured debt rating by Moody's or S&P.]
Within [ ] days of an Assignment Event, the Trustee will review the
Mortgage Loans and the Related Documents pursuant to the Agreement and if any
Mortgage Loan or Related Document is found to be defective in any material
respect and such defect is not cured within [ ] days following notification
thereof to the Seller, the Seller will be obligated to either (i) substitute
for such Mortgage Loan an Eligible Substitute Mortgage Loan; however, such
substitution is permitted only within two years of the Closing Date and may not
be made unless an opinion of counsel is provided to the effect that such
substitution will not disqualify the Trust Fund as a real estate mortgage
investment conduit ("REMIC") or result in a prohibited transaction tax under
the Internal Revenue Code of 1986, as amended (the "Code") or (ii) purchase
such Mortgage Loan at a price (the "Purchase Price") equal to the outstanding
Principal Balance of such Mortgage Loan as of the date of purchase, plus all
accrued and unpaid interest thereon, computed at the Loan Rate, net of the
Master Servicing Fee (if KeyBank is the Master Servicer), plus the amount of
any unreimbursed Servicing Advances made by the Master Servicer. The Purchase
Price will be deposited in the Collection Account on or prior to the next
succeeding Determination Date after such obligation arises. The "Determination
Date" is the eighteenth day of each month. The obligation of the Seller to
repurchase or substitute for a Defective Mortgage Loan is the sole remedy
regarding any defects in the Mortgage Loans and Related Documents available to
the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Seller will be required to deposit in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises an
amount (the "Substitution Adjustment") equal to the excess of the Principal
Balance of the related Defective Mortgage Loan over the Principal Balance of
such Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a Mortgage Loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of and not more than [ ]% less than
the Principal Balance of the Defective Mortgage Loan; (ii) have a Loan Rate not
less than the Loan Rate of the Defective Mortgage Loan and not more than [ ]%
in excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a
Mortgage of the same or higher level of priority as the Mortgage relating to
the Defective Mortgage Loan at the time such Mortgage was transferred to the
Trust Fund; (iv) have a remaining term to maturity not more than six months
earlier and not later than the remaining term to maturity of the Defective
Mortgage Loan; (v) comply with each representation and warranty set forth in
the Agreement (deemed to be made as of the date of substitution); (vi) have an
original Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (vii) be of the same type of Mortgaged Property as the Defective
Mortgage Loan or a detached single family residence. More than one Eligible
Substitute Mortgage Loan may be substituted for a Defective Mortgage Loan if
such Eligible Substitute Mortgage Loans meet the foregoing attributes in the
aggregate and such substitution is approved in writing in advance by the
Certificate Insurer.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-Off Date Principal
Balance and the Loan Rate). In addition, the Seller will represent and warrant,
on the Closing Date, that, among other things: (i) at the time of transfer to
the Trust Fund, the Seller has transferred or assigned all of its right, title
and interest in each Mortgage Loan and the Related Documents, free of any lien;
and (ii) each Mortgage Loan complied, at the time of origination, in all
material respects with applicable state and federal laws. Upon discovery of a
breach of any such representation and warranty which materially and adversely
affects the interests of the Trust Fund, the Certificateholders or the
Certificate Insurer in the related Mortgage Loan and Related Documents, the
Seller will have a period of [ ] days after discovery or notice of the breach
to effect a cure. If the breach cannot be cured within the [ ]-day period, the
Seller will be obligated to (i) substitute for such Defective Mortgage Loan an
Eligible Substitute Mortgage Loan or (ii) purchase such Defective Mortgage Loan
from the Trust Fund. The same procedure and limitations that are set forth
above for the substitution or purchase of Defective Mortgage Loans as a result
of deficient documentation relating thereto will apply to the substitution or
purchase of a Defective Mortgage Loan as a result of a breach of a
representation or warranty in the Agreement that materially and adversely
affects the interests of the Certificateholders or the Certificate Insurer.
Mortgage Loans required to be transferred to the Seller as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Agreement, the Master Servicer will service and
administer the Mortgage Loans as more fully set forth above.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The Master Servicer shall establish and maintain in the name of the
Trustee a separate trust account (the "Collection Account") for the benefit of
the holders of the Certificates. The Collection Account will be an Eligible
Account (as defined below). Subject to the investment provision described in
the following paragraphs, upon receipt by the Master Servicer of amounts in
respect of the Mortgage Loans (excluding amounts representing the Master
Servicing Fee), the Master Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Eligible Investments (as
described in the Agreement) maturing no later than two Business Days prior to
the next succeeding date on which amounts on deposit therein are required to be
deposited in the Distribution Account.
The Trustee will establish an account (the "Distribution Account")
into which will be deposited amounts withdrawn from the Collection Account for
distribution to Certificateholders on a Distribution Date. The Distribution
Account will be an Eligible Account. Amounts on deposit therein may be invested
in Eligible Investments maturing on or before the Business Day prior to the
related Distribution Date.
An "Eligible Account" is an account that is [(i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies, and
whose accounts are fully insured by either the Savings Association Insurance
Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation established by such fund with a minimum long-term
unsecured debt rating of "A2" by Moody's and "A" by S&P, otherwise acceptable
to each Rating Agency and the Certificate Insurer as evidenced by a letter from
each Rating Agency and the Certificate Insurer to the Trustee, without
reduction or withdrawal of their then current ratings of the Certificates.]
Eligible Investments are specified in the Agreement and are limited to
investments which meet the criteria of the Rating Agencies from time to time as
being consistent with their then current ratings of the Certificates. "Eligible
Investments" are limited to [(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the United States
or any agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States; (ii) repurchase
agreements on obligations specified in clause (i) maturing not more than three
months from the date of acquisition thereof, provided that the short-term
unsecured debt obligations of the party agreeing to repurchase such obligations
are at the time rated by each Rating Agency in its highest short-term rating
category; (iii) certificates of deposit, time deposits and bankers' acceptances
(which, if Moody's is a Rating Agency, shall each have an original maturity of
not more than 90 days and, in the case of bankers' acceptances, shall in no
event have an original maturity of more than 365 days) of any U.S. depository
institution or trust company incorporated under the laws of the United States
or any state thereof and subject to supervision and examination by federal
and/or state banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date of
acquisition thereof have been rated by each of the Rating Agencies in its
highest unsecured short-term debt rating category; (iv) commercial paper
(having original maturities of not more than 90 days) of any corporation
incorporated under the laws of the United States or any state thereof which on
the date of acquisition has been rated by the Rating Agencies in their highest
short-term rating categories; (v) short term investment funds sponsored by any
trust company or bank incorporated under the laws of the United States or any
state thereof which on the date of acquisition has been rated by the Rating
Agencies in their respective highest rating category of long term unsecured
debt; (vi) interests in any money market fund which at the date of acquisition
of the interests in such fund and throughout the time as the interest is held
in such fund has the rating specified by each Rating Agency; and (vii) other
obligations or securities that are acceptable to each Rating Agency as an
Eligible Investment hereunder and will not result in a reduction in the then
current rating of the Certificates, as evidenced by a letter to such effect
from such Rating Agency and with respect to which the Master Servicer has
received confirmation that, for tax purposes, the investment complies with the
last clause of this definition; provided that no instrument described hereunder
shall evidence either the right to receive (a) only interest with respect to
the obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument and the interest
and principal payments with respect to such instrument provided a yield to
maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may
be prepaid or called at a price less than its purchase price prior to its
stated maturity.]
ADVANCES
Not later than two Business Days prior to each Distribution Date, the
Master Servicer will remit to the Trustee for deposit in the Distribution
Account an amount, to be distributed on the related Distribution Date, equal to
the sum of the interest accrued due on each Mortgage Loan through the related
Due Date but not received by the Master Servicer as of the close of business on
the last day of the related Due Period (net of the Master Servicing Fee) (the
"Monthly Advance"). Such obligation of the Master Servicer continues with
respect to each Mortgage Loan until such Mortgage Loan becomes a Liquidated
Mortgage Loan.
In the course of performing its servicing obligations, the Master
Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) the preservation, restoration and
protection of the Mortgaged Properties, (ii) any enforcement or judicial
proceedings, including foreclosures, and (iii) the management and liquidation
of Mortgaged Properties acquired in satisfaction of the related Mortgage. Each
such expenditure will constitute a "Servicing Advance".
The Master Servicer's right to reimbursement for Servicing Advances is
limited to late collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Master Servicer from the related Mortgagor or otherwise relating to the
Mortgage Loan in respect of which such unreimbursed amounts are owed. The
Master Servicer's right to reimbursement for Monthly Advances shall be limited
to late collections of interest on any Mortgage Loan and to Liquidation
Proceeds and Insurance Proceeds on the related Mortgage Loan. The Master
Servicer's right to such reimbursements is prior to the rights of
Certificateholders.
Notwithstanding the foregoing, the Master Servicer is not required to
make any Monthly Advance or Servicing Advance if in the good faith judgment and
sole discretion of the Master Servicer, the Master Servicer determines that
such advance will not be ultimately recoverable from collections received from
the Mortgagor in respect of the related Mortgage Loan or other recoveries in
respect of such Mortgage Loan (a "Nonrecoverable Advance"). However, if any
Servicing Advance or Monthly Advance is determined by the Master Servicer to be
nonrecoverable from such sources, the amount of such Nonrecoverable Advance may
be reimbursed to the Master Servicer from other amounts on deposit in the
Collection Account.
DISTRIBUTION DATES
On the [25th] day of each month, or if such day is not a Business Day,
then the next succeeding Business Day, commencing in ______________________,
(each such day, a "Distribution Date"), the holders of the Offered Certificates
will be entitled to receive, from amounts then on deposit in the Distribution
Account, to the extent of funds available therefor in accordance with the
priorities and in the amounts described below under "Priority of
Distributions," an aggregate amount equal to the sum of (a) the Class Interest
Distribution for each Class of Offered Certificates and (b) the Class A
Principal Distribution Distributions will be made (i) in immediately available
funds to holders of Offered Certificates, the aggregate principal balance of
which is at least $1,000,000, by wire transfer or otherwise, to the account of
such Certificateholder at a domestic bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the Trustee in
accordance with the Agreement, or (ii) by check mailed to the address of the
person entitled thereto as it appears on the register (the "Certificate
Register") maintained by the Trustee as registrar (the "Certificate
Registrar").
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than one Business Day prior to each Distribution Date, the
following amounts and the previous Due Period shall be deposited into the
Distribution Account and shall constitute the "Available Funds" for such
Distribution Date: (i) payments of principal and interest on the Mortgage Loans
(net of amounts representing the Master Servicing Fee with respect to each
Mortgage Loan and reimbursement for related Monthly Advances and Servicing
Advances); (ii) Net Liquidation Proceeds and Insurance Proceeds with respect to
the Mortgage Loans (net of amounts applied to the restoration or repair of a
Mortgaged Property); (iii) the Purchase Price for repurchased Defective
Mortgage Loans with respect to the Mortgage Loans and any related Substitution
Adjustment Amounts; (iv) payments from the Master Servicer in connection with
(a) Monthly Advances, (b) Prepayment Interest Shortfalls and (c) the
termination of the Trust Fund with respect to the Mortgage Loans as provided in
the Agreement; and (v) any amounts paid under the Policy.
PRIORITY OF DISTRIBUTIONS
On each Distribution Date the Trustee shall withdraw from the
Distribution Account the sum of (a) the Available Funds, and make
distributions thereof as described below and to the extent of the
Available Fund in the following order of priority:
[(i) to the Trustee, the Trustee fee for such Distribution
Date;
(ii) to holders of each Class Certificates, an amount equal
to the related Class Interest Distribution for such Distribution Date;
(iii) sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificateholders, in that order, until the
respective Class A Principal Balance of each such Class is reduced to
zero, the related Class A Principal Distribution (other than the
portion constituting the Distributable Excess Spread) for such
Distribution Date; provided, however, that after the occurrence and
continuance of an Insurer Default, such portion of the Class A
Principal Distribution will be distributed pro rata to the holders
thereof based on the respective Class A Principal Balances;
(iv) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for the premium
payable in respect of the Certificates; and
(v) sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificateholders, in that order, until the
respective Class A Principal Balance of each such Class is reduced to
zero, the related Distributable Excess Spread for such Distribution
Date; provided, however, that after the occurrence and continuance of
an Insurer Default, such Distributable Excess Spread for the will be
distributed pro rata to the holders thereof based on the respective
Class A Principal Balances.
(vi) to the Master Servicer, the amount of any accrued and
unpaid Master Servicing Fee;
(vii) to the Certificate Insurer, amounts owing to the
Certificate Insurer for reimbursement for prior draws made on the
Policy;
(viii) to the Master Servicer, the amount of Nonrecoverable
Advances not previously reimbursed;
(ix) to the Certificate Insurer, any other amounts owing to
the Certificate Insurer under the Insurance Agreement; and
(x) to the Class R Certificateholders, the balance.]
THE CERTIFICATE RATE
The "Certificate Rate" for any Interest Period with respect to: the
Class A-1 Certificates will be % per annum, the Class A-2 Certificates will be
% per annum, the Class A-3 Certificates will be % per annum, the Class A-4
Certificates will be % per annum and the Class A-5 Certificates will be % per
annum. "Interest Period " means, with respect to each Distribution Date, the
period from the first day of the calendar month preceding the month of such
Distribution Date through the last day of such calendar month. Interest in
respect of any Distribution Date will accrue on the Certificates during each
Interest Period on the basis of a 360-day year consisting of twelve 30-day
months.
INTEREST
On each Distribution Date, to the extent of funds available therefor
as described herein, interest will be distributed with respect to each Class of
Class A Certificates in an amount (each, a "Class Interest Distribution") equal
to the sum of (a) one month's interest at the related Certificate Rate on the
related Class A Principal Balance immediately prior to such Distribution Date
(the "Class Monthly Interest Distributable Amount") and (b) any Class Interest
Carryover Shortfall for such Class of Class A Certificates for such
Distribution Date. As to any Distribution Date and Class of Class A
Certificates, the "Class Interest Carryover Shortfall" is the sum of (i) the
excess of the related Class Monthly Interest Distributable Amount for the
preceding Distribution Rate and any outstanding Class Interest Carryover
Shortfall with respect to such Class on such preceding Distribution Date, over
the amount in respect of interest that is actually distributed to such Class on
such preceding Distribution Date plus (ii) one month's interest on such excess,
to the extent permitted by law, at the related Certificate Rate. [The interest
entitlement described in (a) above will be reduced by such Class' pro rata
share of Civil Relief Act Interest Shortfalls, if any, for such Distribution
Date. Civil Relief Act Interest Shortfalls will not be covered by payments
under the Policy.]
On each Distribution Date, the Class Interest Distribution for each
Class of Class A Certificates will be distributed on an equal priority and any
shortfall in the amount required to be distributed as interest thereon to each
such Class will be allocated between such Classes pro rata based on the amount
each such Class would have been ____ distributed in the absence of such
shortfall. ____ See "--Crosscollateralization" below.
PRINCIPAL
On each Distribution Date, to the extent of funds available thereof,
in accordance with the priorities described above under "--Priorities of
Distributions," principal will be distributed to the holders of Class A
Certificates then entitled to distributions of principal in an amount equal to
the lesser of (A) the related Aggregate Class A Principal Balance and (B) the
related Class A Principal Distribution for such Distribution Date. "Class A
Principal Distribution" means, with respect to any Distribution Date, the sum
of the related Class A Monthly Principal Distributable Amount for such
Distribution Date and any outstanding Class A Principal Carryover Shortfall as
of the close of business on the preceding Distribution Date.
"Class A Monthly Principal Distributable Amount" means, with respect
to any Distribution Date, to the extent of funds available therefor as
described herein the amount equal to the sum of the following amounts (without
duplication) with respect to the immediately preceding Due Period (as defined
below): [(i) each payment of principal on a Mortgage Loan received by the
Master Servicer during such Due Period, including all full and partial
principal prepayments, (ii) the Principal Balance as of the end of the
immediately preceding Due Period of each Mortgage Loan that became a Liquidated
Mortgage Loan for the first time during the related Due Period, (iii) the
portion of the Purchase Price allocable to principal of all repurchased
Defective Mortgage Loans with respect to such Due Period, (iv) any Substitution
Adjustment Amounts received on or prior to the previous Determination Date and
not yet distributed and (v) such portion (not greater than 100%) of Excess
Spread, if any, required to be distributed on such Distribution Date to satisfy
the required level of overcollateralization for such Distribution Date (the
"Distributable Excess Spread").]
"Class A Principal Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the sum of the related Class A Monthly
Principal Distributable Amount for the preceding Distribution Date and any
outstanding Class A Principal Carryover Shortfall on such preceding
Distribution Date over the amount in respect of principal that is actually
distributed to the Class A Certificateholders on such preceding Distribution
Date.
If the required level of overcollateralization is reduced below the
then existing amount of overcollateralization (described below) or if the
required level of overcollateralization is satisfied, the amount of the related
Class A Monthly Principal Distributable Amount on the following Distribution
Date will be correspondingly reduced by the amount of such reduction or by the
amount necessary such that the overcollateralization will not exceed the
required level of overcollateralization after giving effect to the distribution
in respect of principal to be made on such Distribution Date.
The application of Distributable Excess Spread is intended to create
overcollateralization to provide a source of additional cashflow to cover
losses on the Mortgage Loans. A draw on the Policy in respect of principal will
not be made until the Class A Principal Balance exceeds the aggregate Principal
Balance of the Mortgage Loans. See "--The Policy" herein. Accordingly, there
may be Distribution Dates on which Class A Certificateholders receive little or
no distributions in respect of principal.
So long as an Insurer Default has not occurred and is continuing,
distributions of the Class A Principal Distribution will be applied,
sequentially, to the distribution of principal to the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Certificates, in that order, such that no
Class of Certificates having a higher numerical designation is entitled to
distributions of principal until the Class A Principal Balance of each such
Class of Certificates having a lower numerical designation has been reduced to
zero. On any Distribution Date if an Insurer Default has occurred and is
continuing, the Class A Principal Distribution will be applied to the
distribution of principal of each such Class outstanding on a pro rata basis in
accordance with the Class A Principal Balance of each such Class.
On each Distribution Date following an Insurer Default, net losses
realized in respect of Liquidated Mortgage Loans (to the extent such amount is
not covered by Available Funds or the crosscollateralization mechanics
described herein) will reduce the amount of overcollateralization, if any.
"Due Period" means, with respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such Determination
Date or Distribution Date, as the case may be.
A "Liquidated Mortgage Loan", as to any Distribution Date, is a
Mortgage Loan with respect to which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Agreement, as of the
end of the preceding Due Period, that all Liquidation Proceeds which it expects
to recover with respect to such Mortgage Loan (including disposition of the
related REO Property) have been recovered.
"Excess Spread" means, with respect to any Distribution Date, the
positive excess, if any, of (x) Available Funds for such Distribution Date over
(y) the amount required to be distributed pursuant to items (i) through (iv) as
set forth under the heading "DESCRIPTION OF CERTIFICATES--Priority of
Distributions" on such Distribution Date.
An "Insurer Default" will occur in the event the Certificate Insurer
fails to make a payment required under the Policy or if certain events of
bankruptcy or insolvency occur with respect to the Certificate Insurer.
THE POLICY
The following information has been supplied by the Certificate Insurer
for inclusion in this Prospectus Supplement. Accordingly, neither KeyBank nor
the Master Servicer makes any representation as to the accuracy and
completeness of such information.
[TO BE PROVIDED BY CERTIFICATE INSURER]
OVERCOLLATERALIZATION
The credit enhancement provisions of the Trust Fund result in a
limited acceleration of the Class A Certificates relative to the amortization
of the Mortgage Loans in the early months of the transaction. The accelerated
amortization is achieved by the application of Distributable Excess Spread to
principal distributions on the Class A Certificates. This acceleration feature
creates overcollateralization (i.e., the excess of the aggregate outstanding
Principal Balance of the Mortgage Loans over the related Aggregate Class A
Principal Balance). Once the required level of overcollateralization is
reached, and subject to the provisions described in the next paragraph, the
acceleration feature will cease, until necessary to maintain the required level
of overcollateralization.
The Agreement provides that, subject to certain floors, caps and
triggers, the required level of overcollateralization may increase or decrease
over time. Any decrease in the required level of overcollateralization will
occur only at the sole discretion of the Certificate Insurer. Any such decrease
will have the effect of reducing the amortization of the Class A Certificates
below what it otherwise would have been.
[PRE-FUNDING ACCOUNT
On the Closing Date, $___________ (the "Pre-Funded Amount") will be
deposited in an account (the "Pre-Funding Account"), which account shall be in
the name of and maintained by the Trustee and shall be part of the Trust Fund
and will be used to acquire Subsequent Mortgage Loans. During the period
beginning on the Closing Date and terminating on _____________, 19__ (the
"Funding Period"), the Pre-Funded Amount will be reduced by the amount thereof
used to purchase Subsequent Mortgage Loans in accordance with the Agreement.
Any Pre-Funded Amount remaining at the end of the Funding Period will be
distributed to holders of the classes of Certificates entitled to receive
principal on the Distribution Date in ______________, 19__ in reduction of the
related Certificate Principal Balances (thus resulting in a partial principal
prepayment of the related Certificates on such date).
Amounts on deposit in the Pre-Funding Account will be invested in
Permitted Investments. All interest and any other investment earnings on
amounts on deposit in the Pre-Funding Account will be deposited in the
Capitalized Interest Account. The Pre-Funding Account shall not be an asset of
the REMIC. All reinvestment earnings on the Pre-Funding Account shall be owned
by, and be taxable to, the Seller.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date there will be deposited in an account (the
"Capitalized Interest Account") maintained with and in the name of the Trustee
on behalf of the Trust Fund a portion of the proceeds of the sale of the
Certificates. The amount deposited therein will be used by the Trustee on the
Distribution Dates in __________________ 19__, _____________ 19__ and
______________, 19__ to cover shortfalls in interest on the Certificates that
may arise as a result of the utilization of the Pre-Funding Account for the
purchase by the Trust Fund of Subsequent Mortgage Loans after the Closing Date.
Any amounts remaining in the Capitalized Interest Account at the end of the
Funding Period which are not needed to cover shortfalls on the Distribution
Date in ___________ 19__ are required to be paid directly to KeyBank. [The
Capitalized Interest Account shall not be an asset of the REMIC. All
reinvestment earnings on the Capitalized Interest Account shall be owned by,
and be taxable to, the Seller.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the Certificateholders, the
Trustee will forward to each Certificateholder a statement (based solely on
information received from the Master Servicer) setting forth among other items
with respect to each Distribution Date:
(i) the aggregate amount of the distribution to each Class
of Certificateholders on such Distribution Date;
(ii) the amount of distribution set forth in paragraph (i)
above in respect of interest and the amount thereof in respect of any
Class Interest Carryover Shortfall, and the amount of any Class
Interest Carryover Shortfall remaining;
(iii) the amount of distribution set forth in paragraph (i)
above in respect of principal and the amount thereof in respect of the
Class A Principal Carryover Shortfall, and any remaining Class A
Principal Carryover Shortfall;
(iv) the amount of Excess Spread and the amount applied as
to a distribution on the Certificates;
(v) the Guaranteed Principal Amount, if any, for such
Distribution Date;
(vi) the amount paid under the Policy for such Distribution
Date in respect of the Class Interest Distribution to each Class of
Certificates;
(vii) the Master Servicing Fee;
(viii) the Pool Principal Balance, as of the close of
business on the last day of the preceding Due Period;
(ix) the Aggregate Class A Principal Balance after giving
effect to payments allocated to principal above;
(x) the amount of overcollateralization as of the close of
business on the Distribution Date, after giving effect to distributions
of principal on such Distribution Date;
(xi) the number and aggregate Principal Balances of the
Mortgage Loans as to which the minimum monthly payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, as of the
end of the preceding Due Period;
(xii) the book value of any real estate which is acquired
by the Trust Fund through foreclosure or grant of deed in lieu of
foreclosure;
(xiii) the aggregate amount of prepayments received on the
Mortgage Loans during the previous Due Period; and
(xiv) the weighted average Loan Rate on the Mortgage Loans
as of the first day of the month prior to the Distribution Date.
In the case of information furnished pursuant to clauses (ii) and
(iii) above, the amounts shall be expressed as a dollar amount per Certificate
with a $1,000 denomination.
Within 60 days after the end of each calendar year, the Trustee will
forward to each Person, if requested in writing by such Person, who was a
Certificateholder during the prior calendar year a statement containing the
information set forth in clauses (ii) and (iii) above aggregated for such
calendar year.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled Distribution Date for each Class of Offered
Certificates is as follows: Class A-1 Certificates, ______ ; _____ Class _____
A-2 ______ Certificates, ______ ; _____ Class _____ A-3 _____ Certificates, ;
Class A-4 Certificates, ; Class A-_ Certificates, ; and Class A-_
Certificates,. It is expected that the actual last Distribution Date for each
Class of Offered Certificates will occur significantly earlier than such
scheduled Distribution Dates. See "PREPAYMENT AND YIELD CONSIDERATIONS".
Such last scheduled Distribution Dates are based on a 0% Prepayment
Assumption with no Distributable Excess Spread used to make accelerated
payments of principal to the holders of the related Offered Certificates ____
and the assumptions set forth above under ____ "PREPAYMENT AND YIELD
CONSIDERATIONS--Weighted Average Lives"; provided that the last scheduled
Distribution Dates for the Class A-5 Certificates have been calculated assuming
that the Mortgage Loan having the latest maturity date allowed by the Agreement
amortizes according to its terms, plus one year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Agreement, follow such collection procedures as it follows from time to time
with respect to the loans in its servicing portfolio comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may in its discretion
waive any late payment charge or any assumption or other fee or charge that may
be collected in the ordinary course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, PROVIDED that any such arrangement is consistent with the Master
Servicer's policies with respect to the mortgage loans it owns or services.
HAZARD INSURANCE
The Master Servicer will cause to be maintained fire and hazard
insurance with extended coverage customary in the area where the Mortgaged
Property is located, in an amount which is at least equal to the lesser of [(i)
the maximum insurable value of the improvements securing such Mortgage Loan
from time to time and (ii) the combined principal balance owing on such
Mortgage Loan and any mortgage loan senior to such Mortgage Loan.] The Master
Servicer shall also maintain on property acquired upon foreclosure, or by deed
in lieu of foreclosure, hazard insurance with extended coverage in an amount
which is at least equal to the lesser of [(i) the maximum insurable value from
time to time of the improvements which are a part of such property and (ii) the
combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan.] In cases in which any Mortgaged Property is
located in a federally designated flood area as designated by the Federal
Emergency Management Agency, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance to the extent such flood
insurance is available and the Master Servicer has determined such insurance to
be necessary in accordance with accepted first and second mortgage loan
servicing standards, as applicable. All such flood insurance shall be in
amounts equal to the lesser of [(A) the amount in clause (ii) above and (B) the
maximum amount of insurance available under the National Flood Insurance Act of
1968, as amended.] The Master Servicer will also maintain on REO Property, to
the extent such insurance is available, fire and hazard insurance in the
applicable amounts described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968, as
amended, and the Master Servicer determines that such insurance is necessary in
accordance with accepted mortgage servicing practices of prudent lending
institutions, flood insurance in an amount equal to that required above. Any
amounts collected by the Master Servicer under any such policies (other than
amounts to be applied to the restoration or repair of the Mortgaged Property,
or to be released to the Mortgagor in accordance with customary mortgage
servicing procedures) will be deposited in the Collection Account, subject to
retention by the Master Servicer to the extent such amounts constitute
servicing compensation or to withdrawal pursuant to the Agreement.
In the event that the Master Servicer obtains and maintains a blanket
policy as provided in the Agreement insuring against fire and hazards of
extended coverage on all of the Mortgage Loans, then, to the extent such policy
names the Master Servicer as loss payee and provides coverage in an amount
equal to the aggregate unpaid principal balance of the Mortgage Loans without
coinsurance, and otherwise complies with the requirements of the first
paragraph of this subsection, the Master Servicer will be deemed conclusively
to have satisfied its obligations with respect to fire and hazard insurance
coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably
convert to ownership Mortgaged Properties securing such of the Mortgage Loans
as come into default when, in accordance with applicable servicing procedures
under the Agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with such foreclosure or other
conversion, the Master Servicer will follow such practices as it deems
necessary or advisable and as are in keeping with its general mortgage
servicing activities, PROVIDED that the Master Servicer will not be required to
expend its own funds in connection with foreclosure or other conversion,
correction of default on a related senior mortgage loan or restoration of any
property unless, in its sole judgment, such foreclosure, correction or
restoration will increase Net Liquidation Proceeds. The Master Servicer will be
reimbursed out of Liquidation Proceeds for advances of its own funds as
liquidation expenses before any Net Liquidation Proceeds are distributed to
Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Due Period, the Master Servicer will receive from
interest payments in respect of the Mortgage Loans, on behalf of itself, a
portion of such interest payments as a monthly servicing fee (the "Master
Servicing Fee") in the amount equal to 0.__% per annum (the "Master Servicing
Fee Rate") on the Principal Balance of each Mortgage Loan as of the first day
of each such Due Period. All assumption fees, late payment charges and other
fees and charges, to the extent collected from borrowers, will be retained by
the Master Servicer as additional servicing compensation.
The Master Servicer's right to reimbursement for unreimbursed
Servicing Advances is limited to late collections on the related Mortgage Loan,
including Liquidation Proceeds, Insurance Proceeds and such other amounts as
may be collected by the Master Servicer from the related Mortgagor or otherwise
relating to the Mortgage Loan in respect of which such unreimbursed amounts are
owed. The Master Servicer's right to reimbursement for unreimbursed Monthly
Advances shall be limited to late collections of interest on any Mortgage Loan
and to liquidation proceeds and insurance proceeds on the related Mortgage
Loan. The Master Servicer's right to such reimbursements is prior to the rights
of Certificateholders. However, if any Servicing Advance or Monthly Advance is
determined by the Master Servicer to be nonrecoverable from such sources, the
amount of such nonrecoverable advances may be reimbursed to the Master Servicer
from other amounts on deposit in the Collection Account.
Civil Relief Act Interest Shortfalls will not be covered by the
Policy, although Prepayment Interest Shortfalls, after application of the
Master Servicing Fee, will be so covered. The Master Servicer is not obligated
to offset any of the Master Servicing Fee against, or to provide any other
funds to cover, any shortfalls in interest collections on the Mortgage Loans
that are attributable to the application of the Civil Relief Act ("Civil Relief
Act Interest Shortfalls"). See "RISK FACTORS--Payments on the Mortgage Loans"
in this Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before [the last day of the
fifth month following the end of the Master Servicer's fiscal year, beginning
in 199_,] to the Trustee, KeyBank, the Certificate Insurer and the Rating
Agencies of an annual statement signed by an officer of the Master Servicer to
the effect that the Master Servicer has fulfilled its material obligations
under the Agreement throughout the preceding fiscal year, except as specified
in such statement.
On or before [the last day of the fifth month] following the end of
the Master Servicer's fiscal year, beginning in 199_, the Master Servicer will
furnish a report prepared by a firm of nationally recognized independent public
accountants (who may also render other services to the Master Servicer or
KeyBank) to the Trustee, KeyBank, the Certificate Insurer and the Rating
Agencies to the effect that such firm has examined certain documents and the
records relating to servicing of the Mortgage Loans under the Uniform Single
Attestation Program for Mortgage Bankers and such firm's conclusion with
respect thereto.
The Master Servicer's fiscal year is the calendar year.
EVENTS OF DEFAULT
"Events of Default" will consist of: (i) (A) any failure of the Master
Servicer to make any required Monthly Advance or (B) any other failure of the
Master Servicer to deposit in the Collection Account or Distribution Account
any deposit required to be made under the Agreement, which failure continues
unremedied for two Business Days after the giving of written notice of such
failure to the Master Servicer by the Trustee, or to the Master Servicer and
the Trustee by the Certificate Insurer or any Certificateholder; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Agreement which, in
each case, materially and adversely affects the interests of the
Certificateholders or the Certificate Insurer and continues unremedied for [ ]
days after the giving of written notice of such failure to the Master Servicer
by the Trustee, or to the Master Servicer and the Trustee by the Certificate
Insurer or any Certificateholder; (iii) any failure by the Master Servicer to
make any required Servicing Advance, which failure continues unremedied for a
period of [ ] days after the giving of written notice of such failure to the
Master Servicer by the Trustee, or to the Master Servicer and the Trustee by
the Certificate Insurer or any Certificateholder; or (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings relating to the Master Servicer and certain actions by the
Master Servicer indicating insolvency, reorganization or inability to pay its
obligations (an "Insolvency Event").
Upon the occurrence and continuation beyond the applicable grace
period of the event described in clause (i) (A) above, if any Monthly Advance
is not made by [ ] P.M., New York City time, on the second Business Day
following written notice to the Master Servicer of such event, the Trustee will
make such Monthly Advance and either the Trustee or a successor master servicer
will immediately assume the duties of the Master Servicer.
Upon removal or resignation of the Master Servicer, the Trustee will
be the successor master servicer (the "Successor Master Servicer"). The
Trustee, as Successor Master Servicer, will be obligated to make Monthly
Advances and Servicing Advances and certain other advances unless it determines
reasonably and in good faith that such advances would not be recoverable.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of [ ]Business Days or referred
to under clause (ii) above for a period of [ ] Business Days, shall not
constitute an Event of Default if such delay or failure could not be prevented
by the exercise of reasonable diligence by the Master Servicer and such delay
or failure was caused by an act of God or other similar occurrence. Upon the
occurrence of any such event the Master Servicer shall not be relieved from
using its best efforts to perform its obligations in a timely manner in
accordance with the terms of the Agreement and the Master Servicer shall
provide the Trustee, the Certificate Insurer and the Certificateholders prompt
notice of such failure or delay by it, together with a description of its
efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Trustee,
Certificateholders holding Certificates evidencing at least 51% of the voting
rights in the Trust Fund, with the consent of the Certificate Insurer, or the
Certificate Insurer may terminate all of the rights and obligations of the
Master Servicer under the Agreement and in and to the Mortgage Loans, whereupon
the Trustee will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under the Agreement and will be entitled to similar
compensation arrangements. In the event that the Trustee would be obligated to
succeed to all the responsibilities, duties and liabilities of the Master
Servicer but is unwilling or unable so to act, it may appoint, or petition a
court of competent jurisdiction for the appointment of, a housing and home
finance institution or other mortgage loan or home equity loan servicer with
all licenses and permits required to perform its obligations under the
Agreement and having a net worth of at least [$50,000,000] and acceptable to
the Certificate Insurer to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee will be obligated to act in
such capacity unless prohibited by law. Such successor will be entitled to
receive the same compensation that the Master Servicer would otherwise have
received (or such lesser compensation as the Trustee and such successor may
agree). A receiver or conservator for the Master Servicer may be empowered to
prevent the termination and replacement of the Master Servicer if the only
Event of Default that has occurred is an Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by the Seller, the
Master Servicer, and the Trustee and with the consent of the Certificate
Insurer, but without the consent of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the Agreement, to add to the duties
of the Seller or the Master Servicer to comply with any requirements imposed by
the Internal Revenue Code or any regulation thereunder, or to add or amend any
provisions of the Agreement as required by the Rating Agencies in order to
maintain or improve any rating of the Offered Certificates (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Seller, the Trustee, the Certificate Insurer nor the Master Servicer is
obligated to obtain, maintain, or improve any such rating) or to add any other
provisions with respect to matters or questions arising under the Agreement
which shall not be inconsistent with the provisions of the Agreement; provided
that such action will not, as evidenced by an opinion of counsel, materially
and adversely affect the interests of any Certificateholder or the Certificate
Insurer; provided, further, that any such amendment will not be deemed to
materially and adversely affect the Certificateholders and no such opinion will
be required to be delivered if the person requesting such amendment obtains a
letter from the Rating Agencies stating that such amendment would not result in
a downgrading of the then current rating of the Offered Certificates. The
Agreement may also be amended from time to time by the Seller, the Master
Servicer, and the Trustee, with the consent of Certificateholders evidencing at
least 51% of the Percentage Interests of each Class affected thereby and the
Certificate Insurer for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or of
modifying in any manner the rights of the Certificateholders, provided that no
such amendment will (i) reduce in any manner the amount of, or delay the timing
of, collections of payments on the Certificates or distributions or payments
under the Policy which are required to be made on any Certificate without the
consent of the Certificateholder or (ii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the holders
of all Offered Certificates then outstanding.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The Trust Fund will terminate on the Distribution Date following the
later of (A) payment in full of all amounts owing to the Certificate Insurer
unless the Certificate Insurer shall otherwise consent and (B) the earliest of
(i) the Distribution Date on which the Aggregate Class A Principal Balance has
been reduced to zero, (ii) the final payment or other liquidation of the last
Mortgage Loan in the Trust Fund, (iii) the optional purchase by the Master
Servicer of the Mortgage Loans, as described below and (iv) the Distribution
Date in [ ] on which date the Policy will be available to pay the outstanding
Aggregate Class A Principal Balance of the Class A Certificates.
Subject to provisions in the Agreement concerning adopting a plan of
complete liquidation, the Master Servicer may, at its option, terminate the
Agreement on any date on which the Pool Principal Balance is less than 5% of
the sum of the Cut-Off Date Pool Principal Balance by purchasing, on the next
succeeding Distribution Date, all of the outstanding Mortgage Loans at a price
equal to the sum of the outstanding Pool Principal Balance (subject to
reduction as provided in the Agreement if the purchase price is based [in part
on the appraised value of any REO Property included in the Trust Fund and such
appraised value is less than the Principal Balance of the related Mortgage
Loan) and accrued and unpaid interest thereon at the weighted average of the
Loan Rates through the end of the Due Period preceding the final Distribution
Date together with all amounts due and owing to the Certificate Insurer.]
Any such purchase shall be accomplished by deposit into the
Distribution Account of the purchase price specified above.
VOTING RIGHTS
Under the Agreement, the voting rights (the "Voting Rights") will be
allocated to the Class A Certificates among such Classes in proportion to their
respective Class Principal Balances. Voting Rights allocated to a Class of
Certificates will be further allocated among the Certificates of such Class on
the basis of their respective Percentage Interests. [So long as no Insurer
Default is continuing, the Certificate Insurer will be entitled to exercise the
Voting Rights of the Class A Certificates].
THE TRUSTEE
________________________________________, has been named Trustee
pursuant to the Agreement.
The Trustee may have normal banking relationships with KeyBank and the
Master Servicer.
The Trustee may resign at any time, in which event KeyBank will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. KeyBank may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, KeyBank will be obligated
to appoint a successor Trustee, as approved by the Certificate Insurer. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders holding Certificates evidencing at least 51% of the
Percentage Interests in the Trust Fund have made written requests upon the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity and the Trustee for 60 days
has neglected or refused to institute any such proceeding. The Trustee will be
under no obligation to exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the Certificateholders, unless
such Certificateholders have offered to the Trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred
therein or thereby.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by KeyBank towards general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code"). In the opinion of
Tax Counsel, the Class A Certificates will be designated as "regular interests"
in the REMIC and the Class R Certificates will be designated as the sole class
of residual interests in the REMIC. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the REMIC and its Holders" in the Prospectus.
The Offered Certificates generally will be treated as debt instruments
issued by the REMIC for Federal income tax purposes. Income on such
Certificates must be reported under an accrual method of accounting.
The Offered Certificates may, depending on their issue price, be
issued with original issue discount ("OID") for federal income tax purposes.
Holders of such Certificates issued with OID will be required to include OID in
income as it accrues under a constant yield method, in advance of the receipt
of cash attributable to such income. The OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6) which applies to
prepayable securities such as the Offered Certificates. Until the Treasury
issues guidance to the contrary, the Trustee intends to base its OID
computation on Code Section 1272(a)(6) and the OID Regulations as described in
the Prospectus. However, because no regulatory guidance currently exists under
Code Section 1272(a)(6), there can be no assurance that such methodology
represents the correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the
Offered Certificates with OID will be the original yield to maturity of such
Certificates, determined by assuming that the Mortgage Loans will prepay in
accordance with % of the Prepayment Assumption. No representation is made as to
the actual rate at which the Mortgage Loans will prepay.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Assumption model used in this
Prospectus is based on a Constant Prepayment Rate ("CPR"). CPR represents a
constant rate of prepayment on the Mortgage Loans each month relative to the
aggregate outstanding principal balance of the Mortgage Loans. CPR does not
purport to be either an historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans, and
there is no assurance that the Mortgage Loans will prepay at the specified CPR.
KeyBank does not make any representation about the appropriateness of the CPR
model.
In the opinion of Tax Counsel, the Offered Certificates will be
treated as regular interests in a REMIC under section 860G of the Code.
Accordingly, the Offered Certificates will be treated as (i) assets described
in section 7701(a)(19)(C) of the Code, and (ii) "real estate assets" within the
meaning of section 856(c)(4)(A) of the Code, in each case to the extent
described in the Prospectus. Interest on the Offered Certificates will be
treated as interest on obligations secured by mortgages on real property within
the meaning of section 856(c)(3)(B) of the Code to the same extent that the
Offered Certificates are treated as real estate assets. See "Certain Federal
Income Tax Consequences" in the Prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fails to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to
each Offered Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their
status as nonresidents). As long as the only "Class A Certificateholder" of
record is Cede, as nominee for DTC, Certificate Owners and the IRS will receive
tax and other information including the amount of interest paid on such
Certificates owned from Participants and Indirect Participants rather than from
the Trustee. (The Trustee, however, will respond to requests for necessary
information to enable Participants, Indirect Participants and certain other
persons to complete their reports.) Each non-exempt Certificate Owner will be
required to provide, under penalty of perjury, a certificate on IRS Form W-9
containing his or her name, address, correct Federal taxpayer identification
number and a statement that he or she is not subject to backup withholding.
Should a nonexempt Certificate Owner fail to provide the required
certification, the Participants or Indirect Participants (or the Paying Agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's Federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate
owner for all purposes of the Certificates, the Agreement and the Policy.
Final regulations dealing with withholding tax on income paid to
foreign persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to certain transition rules. Prospective Certificate
Owners are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investor" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity organized in or under the laws of the United States, any state
thereof or the District of Columbia, (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(iii) an estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source, (iv) a trust fund
if a court within the United States is able to exercise primary supervision
over the administration of the trust fund and one or more United States persons
have authority to control all substantial decisions of the trust fund, or (v)
certain trusts treated as United States persons before August 20, 1996 that
elect to continue to be so treated to the extent provided in regulations.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The Offered
Certificates will be issued in registered form, therefore if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Offered Certificates.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 or similar form
signed under penalty of perjury by the Certificate Owner stating that the
Certificate Owner is a Foreign Investor and providing such Certificate Owner's
name and address. The statement must be received by the withholding agent in
the calendar year in which the interest payment is made, or in either of the
two preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on the
sale, exchange, or redemption of such Offered Certificate, PROVIDED that (i)
such gain is not effectively connected with a trade or business carried on by
the Certificate Owner in the United States, (ii) in the case of a Certificate
Owner that is an individual, such Certificate Owner is not present in the
United States for 183 days or more during the taxable year in which such sale,
exchange or redemption occurs and (iii) in the case of gain representing
accrued interest, the conditions described in the immediately preceding
paragraph are satisfied.
In addition, prospective Certificate Owners are strongly urged to
consult their own tax advisors with respect to the New Withholding Regulations.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES - Backup Withholding".
STATE TAXES
KeyBank makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Certificates
should consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Offered Certificates should consult with its counsel with respect to the
potential consequences under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Code, of the Plan's acquisition and
ownership of such Certificates. See "ERISA CONSIDERATIONS" in the Prospectus.
The U.S. Department of Labor has granted to _________________________
(the "Underwriter") Prohibited Transaction Exemption _____ (the "Exemption")
which exempts from the application of the prohibited transaction rules
transactions relating to (1) the acquisition, sale and holding by Plans of
certain certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which _____________ or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of such
asset-backed pass-through trusts, PROVIDED that the general conditions and
certain other conditions set forth in the Exemption are satisfied. The
Exemption will apply to the acquisition, holding and resale of the Class A
Certificates by a Plan, PROVIDED that certain conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to
apply are the following:
(1) The acquisition of the Class A Certificates by a Plan is
on terms (including the price for such Certificates) that are at least
as favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust Fund;
(3) The Class A Certificates acquired by the Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch IBCA, Inc.;
(4) The sum of all payments made to and retained by the
Underwriter in connection with the distribution of the Class A
Certificates represents not more than reasonable compensation for
underwriting such Certificates; the sum of all payments made to and
retained by the Seller pursuant to the sale of the Mortgage Loans to
the Trust Fund represents not more than the fair market value of such
Mortgage Loans; the sum of all payments made to and retained by the
Master Servicer represents not more than reasonable compensation for
the Master Servicer's services under the Agreement and reimbursement of
the Master Servicer's reasonable expenses in connection therewith;
(5) The Trustee is not an affiliate of any Underwriter, the
Seller, the Master Servicer, the Certificate Insurer, any borrower
whose obligations under one or more Mortgage Loans constitute more than
5% of the aggregate unamortized principal balance of the assets in the
Trust Fund, or any of their respective affiliates; and
(6) The Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of
1933, as amended.
The Underwriter believes that the Exemption as amended will apply to
the acquisition and holding of the Class A Certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met.
Any Plan fiduciary considering whether to purchase any Class A
Certificates on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Among other things, before
purchasing any Class A Certificates, a fiduciary of a Plan subject to the
fiduciary responsibility provisions of ERISA or an employee benefit plan
subject to the prohibited transaction provisions of the Code should make its
own determination as to the availability of the exemptive relief provided in
the Exemption, and also consider the availability of any other prohibited
transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization and, as such,
are legal investments for certain entities to the extent provided in SMMEA.
Institutions whose investment activities are subject to review by
federal or state regulatory authorities should consult with their counsel or
the applicable authorities to determine whether an investment in the Offered
Certificates complies with applicable guidelines, policy statements or
restrictions. See "LEGAL INVESTMENT" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________________ (the "Underwriting Agreement"), between
KeyBank and ______________________ (the "Underwriter"), KeyBank has agreed to
sell to the Underwriter and the Underwriter has agreed to purchase from KeyBank
the Class A Certificates.
Distributions of the Offered Certificates will be made from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to KeyBank from the sale of the Offered
Certificates will be approximately $ , plus accrued interest, before deducting
expenses payable by KeyBank, estimated to be $ in the aggregate. In connection
with the purchase and sale of the Offered Certificates, the Underwriter may be
deemed to have received compensation from KeyBank in the form of underwriting
discounts.
KeyBank has been advised by the Underwriter that it presently intends
to make a market in the Offered Certificates; however, it is not obligated to
do so, any market-making may be discontinued at any time, and there can be no
assurance that an active public market for the Offered Certificates will
develop.
The Underwriting Agreement provides that KeyBank will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
EXPERTS
[----------]
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for KeyBank by _____________________, and ___________________, and
for the Underwriter by ____________________.
RATINGS
It is a condition to the issuance of the Class A Certificates that
they receive ratings of "AAA" by _______ and "Aaa" by ______ (each, a "Rating
Agency" and together, the "Rating Agencies").
A securities rating addresses the likelihood of the receipt by Class A
Certificateholders of distributions on the Mortgage Loans. The rating takes
into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Class A Certificates. The
ratings on the Class A Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans or
the possibility that Class A Certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the Class A Certificates will depend primarily
upon the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
ratings initially assigned to the Class A Certificates may result in a
reduction of one or more of the ratings assigned to the Class A Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
TERMS PAGE
Aggregate Class A Principal Balance.......................................S-38
Agreement...........................................................S-13, S-51
Amount Available..........................................................S-46
Assignment Event..........................................................S-43
Available Funds...........................................................S-46
Balloon Loans.............................................................S-17
Beneficial owner..........................................................S-39
BIF.......................................................................S-44
Book-Entry Certificates...................................................S-39
Business Day..............................................................S-51
Capitalized Interest Account..............................................S-53
Cede......................................................................S-69
CEDEL.....................................................................S-39
CEDEL Participants........................................................S-40
Certificate Insurer.......................................................S-12
Certificate Owners........................................................S-39
Certificate Rate..........................................................S-48
Certificate Register......................................................S-46
Certificate Registrar.....................................................S-46
Certificateholder...................................................S-38, S-39
Certificates..............................................................S-38
Chemical..................................................................S-39
Citibank..................................................................S-39
Civil Relief Act Interest Shortfalls......................................S-56
Class.....................................................................S-38
Class A Certificateholder.................................................S-61
Class A Monthly Principal Distributable Amount......................S-48, S-49
Class A Principal Balance.................................................S-38
Class A Principal Carryover Shortfall.....................................S-49
Class A Principal Distribution............................................S-49
Class A-1 Certificates....................................................S-38
Class A-2 Certificates....................................................S-38
Class A-3 Certificates....................................................S-38
Class A-4 Certificates....................................................S-38
Class A-5 Certificates....................................................S-38
Class A-6 Certificates....................................................S-38
Class A-6 Interest Carryover..............................................S-47
Class Interest Carryover Shortfall........................................S-48
Class Interest Distribution...............................................S-48
Class Monthly Interest Distributable Amount...............................S-48
Class R Certificates......................................................S-38
Closing Date..............................................................S-42
Code................................................................S-43, S-60
Collection Account........................................................S-44
Cooperative...............................................................S-41
CPR.................................................................S-34, S-61
Cut-Off Date..............................................................S-16
Cut-Off Date Principal Balance............................................S-17
Cut-Off Date Pool Principal Balance.......................................S-16
Defective Mortgage Loans..................................................S-44
Deficiency Amount.........................................................S-51
Definitive Certificate....................................................S-39
Determination Date........................................................S-43
Distributable Excess Spread...............................................S-49
Distribution Account......................................................S-44
Distribution Date.........................................................S-46
DTC.......................................................................S-39
Due Period................................................................S-50
Eligible Account..........................................................S-44
Eligible Investments......................................................S-44
Eligible Substitute Mortgage Loan.........................................S-43
ERISA.....................................................................S-63
Euroclear.................................................................S-39
Euroclear Operator........................................................S-41
Euroclear Participants....................................................S-41
European Depositaries.....................................................S-39
Events of Default.........................................................S-58
Excess Spread.............................................................S-50
Exemption.................................................................S-63
Financial Intermediary....................................................S-39
Fiscal Agent..............................................................S-51
Fitch.....................................................................S-13
Foreign Investor..........................................................S-62
Foreign Investors.........................................................S-62
Funding Period............................................................S-53
GAAP......................................................................S-12
Global Securities.........................................................S-69
Certificates..............................................................S-38
Guaranteed Principal Amount.........................................S-51, S-52
Insolvency Event..........................................................S-58
Insured Payment...........................................................S-52
Insurer Default...........................................................S-50
Interest Period...........................................................S-48
KeyBank...................................................................S-12
LIBOR Rate................................................................S-48
Liquidated Mortgage Loan..................................................S-50
Loan Rate.................................................................S-17
Loan-to-Value Ratio.................................................S-20, S-28
Loss Pay of Clause........................................................S-14
Master Servicer...........................................................S-13
Master Servicing Fee......................................................S-56
Master Servicing Fee Rate.................................................S-56
Monthly Advance...........................................................S-45
Moody's...................................................................S-13
Mortgage Clause...........................................................S-14
Mortgage File.............................................................S-42
Mortgage Loan Schedule....................................................S-42
Mortgage Loans............................................................S-16
Mortgage Pool.............................................................S-16
Mortgaged Properties......................................................S-17
Net Funds Cap.............................................................S-48
New Withholding Regulations...............................................S-62
Nonrecoverable Advance....................................................S-45
Notice....................................................................S-52
Offered Certificates......................................................S-38
OID.......................................................................S-60
Owner.....................................................................S-52
Percentage Interest.......................................................S-39
Policy....................................................................S-38
Pool Principal Balance....................................................S-17
Preference Amount.........................................................S-52
Pre-Funded Amount.........................................................S-53
Pre-Funding Account.......................................................S-53
Prepayment Assumption.....................................................S-34
Principal Balance.........................................................S-16
Prospectus................................................................S-24
Prospectus Supplement.....................................................S-16
Purchase Price............................................................S-43
Rating Agency.............................................................S-65
Rating Agencies...........................................................S-65
Related Documents.........................................................S-42
Relevant Depositary.......................................................S-39
REMIC...............................................................S-43, S-60
Rules.....................................................................S-39
SAIF......................................................................S-44
SAP.......................................................................S-12
S&P.......................................................................S-13
Seller....................................................................S-13
Servicing Advance.........................................................S-45
SMMEA.....................................................................S-64
STIFS.....................................................................S-45
Subsequent Transfer Date..................................................S-24
Subservicer...............................................................S-13
Substitution Adjustment...................................................S-43
Successor Master Servicer.................................................S-58
Terms and Conditions......................................................S-41
Trust Fund................................................................S-38
Trustee...................................................................S-50
U.S. Person...............................................................S-72
Underwriter.........................................................S-63, S-64
Underwriting Agreement....................................................S-64
Voting Rights.............................................................S-60
Weighted average life.....................................................S-34
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered [ ] Home
Equity Loan Asset-Backed Certificates, Series 199___ (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold such Global Securities through any of DTC, CEDEL or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Mortgage Pass-Through Certificates
issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. ("Cede") as nominee of DTC. Investors' interests in the
Global Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Mortgage Pass-Through
Certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Mortgage
Pass-Through Certificates issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of either the actual
number of days in such accrual period and a year assumed to consist of 360 days
or a 360-day year of 12 30-day months as applicable to the related class of
Global Securities. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and the
cash debt will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited to
their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although this result will depend on each
CEDEL Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of either the actual number of days in such accrual period and a year
assumed to consist of 360 days or a 360-day year of 12 30-day months as
applicable to the related class of Global Securities. For transactions settling
on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the CEDEL Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
CEDEL Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States trustees have authority to control
all substantial decisions of the trust. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and disposing of
the Global Securities.
<PAGE>
[ ] HOME EQUITY
LOAN TRUST 199_-_
$-------------
$ _________ Class A-1 _____% Certificates
$ _________ Class A-2 _____% Certificates
$ _________ Class A-3 _____% Certificates
$ _________ Class A-4 _____% Certificates
$ _________ Class A-5 _____% Certificates
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 199_-_
KEYBANK NATIONAL ASSOCIATION,
AS SELLER
[ ]
AS MASTER SERVICER
Until [Date], all dealers selling the Class A Certificates will
deliver a prospectus supplement and prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters of the
Class A Certificates and with respect to their unsold allotments or
subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Class A Certificates in any state where the
offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
PROSPECTUS SUPPLEMENT
________, 199_
- -------------------------------------------------------------------------------
UNDERWRITER
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED JULY 2, 1999
To Prospectus dated _____________
$___________ (approximate)
[ ] HOME EQUITY LOAN TRUST 199_-_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
[ ] KEYBANK NATIONAL ASSOCIATION
as Master Servicer as Seller
THE TRUST
o will issue [5] classes of senior Class A Certificates
o will issue a single Residual Certificate
o will make a REMIC election for federal income tax purposes
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are
a pool of closed-end fixed rate first and second lien mortgage loans
o currently have no trading market
o are not guaranteed
o are obligations of the trust only and are not obligations of the
seller and master servicer or their affiliates
CREDIT ENHANCEMENT
o will be provided in the form of [overcollateralization] and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-9 AND ON PAGE 2 IN THE
PROSPECTUS.
o For complete information about the Class A Certificates, read both
this prospectus supplement and the prospectus.
o [____________], the Underwriter, will buy the Class A Certificates
from KeyBank National Association at a price equal to ________ of
their face value. The Underwriter will sell the Class A Certificates
from time to time in negotiated transactions.
This Prospectus Supplement and the Prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp. Company and an affiliate of
the Seller, in connection with offers and sales related to market-making
transactions in the securities in which it acts as principal and/or agent.
Sales will be made at prices related to the prevailing prices at the time of
sale.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE
UNDERWRITER
___________, 199_
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus Supplement and the Prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp Company and an affiliate of
the Seller ("McDonald"), or its successors, in connection with offers and sales
related to market-making transactions in the Securities in which McDonald acts
as principal. McDonald may also act as agent in such transactions. Sales will
be made at prices related to prevailing prices at the time of sale. Any
obligations of McDonald are the sole obligations of McDonald and do not create
any obligations on the part of any affiliate of McDonald.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 2, 1999
Prospectus Supplement dated ________ __, ____
To Prospectus dated _________ __, ____
$----------
[ ] HOME EQUITY LOAN TRUST ____-_
Home Equity Loan Asset-Backed Certificates, Series ____-_
<TABLE>
<CAPTION>
[ ] KeyBank National Association,
as Servicer as Transferor
Principal Certificate Price to Public Underwriting Proceeds to the
Balance Rate (1) Discount (2) Transferor (3)
--------- ----------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Class $ % % % %
Total $ N/A $ $ $
</TABLE>
(1) Plus accrued interest, if any, at the Certificate Rate from
_____________, _____.
(2) The Transferor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, payable by the Transferor, estimated to be
$____________.
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are a
pool of (1) home equity revolving credit line loans secured primarily by
[second liens] on residential properties that are primarily one- to
four-family properties, and (2) home improvement installment sales
contracts and installment loan agreements.
o currently have no trading market
o are obligations of the trust only and are not obligations of the transferor
and the master servicer or its affiliates
CREDIT ENHANCEMENT
o [Letter of Credit] [Surety Bond]
REVIEW THE INFORMATION IN RISK FACTORS ON PAGE S-9 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 2 IN THE PROSPECTUS.
For complete information about the Home Equity Loan Asset-Backed Certificates,
Series ____-_, read both this prospectus supplement and the prospectus. This
prospectus supplement must be accompanied by a prospectus if it is being used
to offer and sell the certificates.
Neither the Securities Exchange Commission or any state securities commission
has approved or disapproved of these certificates or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
[Underwriter]
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Home Equity Loan Asset-Backed Certificates,
Series ____-_ in any state where the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when
acting as underwriters of the Home Equity Loan Asset-Backed Certificates,
Series ____-_ and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling Home Equity Loan Asset-Backed Certificates,
Series ____-_ will be required to deliver a prospectus supplement and
prospectus for ninety days following the date of this prospectus supplement.
PAGE
PROSPECTUS SUPPLEMENT
SUMMARY.....................................................................S-3
RISK FACTORS................................................................S-9
THE [LETTER OF CREDIT] [SURETY BOND] ISSUER................................S-10
THE HOME EQUITY LINE OF CREDIT LENDING PROGRAM.............................S-10
THE MASTER SERVICER........................................................S-11
THE HELOCS.................................................................S-15
PREPAYMENT AND YIELD CONSIDERATIONS........................................S-16
DESCRIPTION OF THE CERTIFICATES............................................S-18
USE OF PROCEEDS............................................................S-29
LEGAL INVESTMENT CONSIDERATIONS............................................S-29
ERISA CONSIDERATIONS.......................................................S-29
UNDERWRITING...............................................................S-30
LEGAL MATTERS..............................................................S-31
RATING.....................................................................S-31
INDEX OF DEFINED TERMS.....................................................S-32
PROSPECTUS
RISK FACTORS.......................................................... 2
DESCRIPTION OF THE SECURITIES......................................... 5
THE TRUSTS............................................................ 10
ENHANCEMENTS.......................................................... 17
SERVICING OF LOANS.................................................... 19
THE AGREEMENTS........................................................ 26
CUSTODY RECEIPTS; CUSTODY AGREEMENTS.................................. 38
CERTAIN LEGAL ASPECTS OF LOANS........................................ 41
THE TRANSFEROR........................................................ 52
USE OF PROCEEDS....................................................... 53
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................. 53
STATE TAX CONSIDERATIONS.............................................. 78
ERISA CONSIDERATIONS.................................................. 79
LEGAL INVESTMENT...................................................... 83
RATINGS............................................................... 83
PLAN OF DISTRIBUTION.................................................. 83
LEGAL MATTERS......................................................... 84
AVAILABLE INFORMATION................................................. 84
<PAGE>
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the offering of the
certificates, read carefully this entire document and the accompanying
prospectus.
This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
LAST SCHEDULED
CERTIFICATE CLASS INTEREST RATE PRINCIPAL BALANCE DISTRIBUTION DATE1
$
1 We expect the actual last distribution date for each certificate
will be significantly earlier its last scheduled distribution date.
THE TRUST
[ ] Home Equity Loan Trust ____-_ will be formed on _________ __, ____ by
KeyBank National Association, [servicer] and [trustee]. KeyBank National
Association [the Transferor] will sell the mortgage loans to the trust.
[Trustee] will act as trustee for the benefit of the securityholders.
CERTIFICATES OFFERED
On the closing date, __________ __, ____, the trust will issue the
certificates. Each certificate represents an undivided interest in the
trust. KeyBank National Association will hold the remaining undivided
interest in the trust not represented by the certificates.
The certificates will be offered for purchase in denominations of [$1,000]
and integral multiples thereof.
REGISTRATION OF CERTIFICATES
We will issue the certificates in book-entry form. You will hold your
interests through a depository. While the certificates are book-entry they
will be registered in the name of the depository. The limited
circumstances under which definitive certificates will replace the
book-entry certificates are described in this prospectus supplement.
TRUST PROPERTY
The trust property is held by the trustee for the benefit of the
certificateholders. The trust property includes:
o a pool of home equity loans, the "mortgage loans," which are secured
primarily by [second liens] on primarily one- to four-family
residential properties.
o payments on the mortgage loans received on and after [the cut-off
date].
o any additions to the loan balances on the mortgage loans during the
life of the trust. The mortgage loans arise under home equity lines of
credit, or "HELOCs". Principal amounts may be drawn down by the
borrower under the HELOC from time to time, subject to the borrower's
credit limit. The draws are funded by the [bank][servicer][transferor].
A borrower may repay principal at any time.
o the [deed of trust] [mortgage] related to each mortgage loan.
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure.
o the benefits of the [Letter of Credit][Surety Bond].
o rights of the Transferor under any hazard insurance policies covering
the mortgaged properties.
THE MORTGAGE LOANS
On [the closing date], the trust will acquire the pool of mortgage loans.
The information below is based on the pool as it existed on [the cut-off
date] of $__________. The mortgage loans have the following
characteristics as of [the cut-off date]:
o number of mortgage loans:
o aggregate principal balance: $
o mortgaged property location: __states other than __% of mortgaged
properties located in [state], no state represents more than ___% of
the mortgage loans, by loan balance
o maximum combined loan to value ratio at origination: ____% (based on
credit limit)
o weighted average combined loan-to-value ratio: ____% (approximate)
o combined loan-to-value ratio range: ____% to ____% (approximate)
o loan balance range: $____ to $____________
o credit limit range $___________ to $__________ (approximate)
o mortgage loan origination range from __________ to __________, ____
o weighted average loan utilization rate: ___% (approximate)
o average loan balance: $____________
o maximum principal balance: $_________
o interest rates range: ____% to ____%
o weighted average interest rate: ____% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ____ months (approximate)
o term to stated maturity range: __ months to __ months
o last maturity date:
o average credit limit: $_________
o [use and type of each mortgaged property: ____% owner occupied; ____%
second vacation home;
o [____% first priority and ____% second priority lien]
WE REFER YOU TO "THE HOME EQUITY LENDING PROGRAM"; AND "THE HELOCS"; IN
THIS PROSPECTUS SUPPLEMENT AND "CERTAIN LEGAL ASPECTS OF
LOANS--APPLICABILITY OF USURY LAWS" IN THE PROSPECTUS.
INTEREST ON THE MORTGAGE LOANS
Interest on each mortgage loan is payable monthly and computed on the
average daily outstanding loan balance for each billing cycle at a
variable rate per annum (subject to minimum and maximum rates, including
applicable usury limitations) equal to the sum of
(1) the [index], and
(2) a margin, currently __%.
Principal amounts may be drawn down by the borrower under the HELOC from
time to time, subject to the borrower's credit limit. A borrower may repay
principal at any time.
WE REFER YOU TO ""THE HOME EQUITY LENDING PROGRAM--HELOC TERMS" IN THIS
PROSPECTUS SUPPLEMENT AND "CERTAIN LEGAL ASPECTS OF LOANS-APPLICABILITY OF
USURY LAWS" IN THE PROSPECTUS.
SERVICER
The servicer of the mortgage loans and the private securities will be
[_______ ].
WE REFER YOU TO "SERVICING OF THE MORTGAGE LOANS--THE SERVICER."
SERVICING
The servicer will be responsible for servicing, managing and making
collections on the mortgage loans. The servicer will receive a monthly
servicing fee equal to, on an annualized basis, __% of the pool balance.
The servicer will also be entitled to certain other amounts as servicing
compensation from the trust.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--DISTRIBUTIONS ON THE
CERTIFICATES"; AND "SERVICING OF THE MORTGAGE LOANS--SERVICING
COMPENSATION AND PAYMENT OF EXPENSES."
In certain limited circumstances, the servicer may resign or be removed,
in which event either the trustee or a third-party servicer will be
appointed as successor servicer.
WE REFER YOU TO "SERVICING OF LOANS--CERTAIN MATTERS REGARDING THE
SERVICER" AND "THE AGREEMENTS--EVENTS of DEFAULT; RIGHTS UPON EVENTS OF
DEFAULT" IN THE PROSPECTUS.
COLLECTIONS
The servicer will allocate collections received on the trust property as
either interest collections or principal collections. All such amounts
will then be allocated in accordance with the interests of the
certificateholders, based on the investor interest, and the interests of
the transferor based on the transferor interest.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PAYMENTS ON MORTGAGE
LOANS; DEPOSITS TO COLLECTION ACCOUNT" HEREIN AND "SERVICING OF
LOANS--DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT" IN THE
PROSPECTUS.
DISTRIBUTION OF CERTIFICATEHOLDERS
You are entitled to receive monthly payments of interest at the
certificate rate, and monthly payments of principal during the
amortization period. These payments will be funded from a percentage of
the payments received with respect to the mortgage loans, in certain
circumstances, from draws on the [letter of credit] [surety bond.]
The distribution date will be the ____ day of each month, or if the ____
day is not a business day the next business day, starting with __________
__, ____.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES" IN THE PROSPECTUS.
Payments to you of principal will be based on the investor interest in the
trust. The investor interest is the aggregate undivided interest in the
trust represented by the certificates and will initially represent
$___________ of principal. The investor interest will decline as principal
is paid to the certificateholders during the amortization period, except
as described in this prospectus supplement. The transferor will hold the
transferor interest which represents the remaining undivided interest in
the trust not represented by the certificates.
On the ______ business day, but no later than the ______ calendar day, of
each month, the servicer will calculate, and instruct the trustee
regarding, the amounts to be paid to you.
The pool balance is the aggregate amount of the loan balances for the
mortgage loans, including the additional balances. The pool balance will
fluctuate from day to day because the amount of draws by borrowers and the
amount of principal payments by borrowers will usually differ on each day.
Because the transferor interest represents the interest in the trust not
represented by the certificates, the amount of the transferor interest
will fluctuate from day to day as draws are made and principal is paid
under the mortgage loans.
[The interest in the loan balances represented by the certificates will
never exceed the aggregate certificate principal balance. If, for example,
draws by borrowers under the HELOCs causes the aggregate loan balance held
by the trust to exceed the aggregate certificate balance, the excess will
be part of the transferor interest.]
INTEREST
Interest will be distributed monthly on the distribution date, starting on
__________ __, ____. Interest will accrue during the period starting on
the preceding distribution date (or in the case of the first distribution
date, from the closing date) through the day preceding the current
distribution date on the basis of the [actual number of days in the
interest period and a 360-day year].
Interest payments will be funded from the portion of the interest
collections collected during the immediately preceding calendar month (or,
in the case of the initial distribution date, the period from
_____________, ___ through the last day of the calendar month immediately
preceding such distribution date) allocable to the investor interest and,
if necessary from draws on the [Letter of Credit] [Surety Bond].
WE REFER YOU TO "DESCRIPTION OF THE SECURITIES" AND "RISK FACTORS--LIMITS
ON CREDIT ENHANCEMENT" IN THe PROSPECTUS.
PAYMENTS OF PRINCIPAL; REVOLVING PERIOD
You will not be entitled to receive payments of principal during the
revolving period. The revolving period is expected to last from the
closing date through __________ __, ____. The revolving period will
terminate earlier if an early amortization event occurs. In order to
maintain the certificate principal balance at $__________ (except in
certain limited circumstances) during the revolving period, principal
collections allocable to the investor interest will be paid to the
transferor rather than the certificateholders. During the revolving period
the certificateholders will maintain the same investor interest in the
trust. Unless earlier terminated by the occurrence of an early
amortization event, the revolving period will end on -----------.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES."
PRINCIPAL PAYMENTS; AMORTIZATION PERIOD
During the amortization period the principal collections allocated to the
investor interest will be paid to you and will no longer be paid to the
transferor. The amortization period will begin __________ __, ____ or, if
prior to that date an early amortization event occurs, ____________. The
amortization period will end when the certificate principal balance has
been reduced to zero or when the trust terminates. The distributions of
principal collections will be made monthly on each distribution date
starting on the distribution date in the month following the month in
which the amortization period commences.
Payments to you of principal will be based on the investor interest in the
trust. The investor interest is the aggregate undivided interest in the
trust represented by the certificates and will initially represent
$___________ of principal. The investor interest will decline as principal
is paid to the certificateholders during the amortization period, except
as described in the prospectus supplement.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--EARLY AMORTIZATION
EVENTS" for a discussion of the events which might lead to the early
commencement of the amortization period.
On each distribution date you will be entitled to receive an amount equal
to the investor percentage multiplied by the principal collections
received during the preceding calendar month. On the last day of the
revolving period, the trustee will determine the "investor percentage".
The investor percentage will equal the principal balance of the
certificates divided by the balance of the pool of mortgage loans.
Allocations based upon the investor percentage during the amortization
period may result in distributions of principal in amounts that are
greater relative to the declining balance of the certificate principal
balance than would be the case if a fixed investor percentage were not
used to determine the percentage of principal collections distributed in
respect of the investor interest.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PAYMENTS ON MORTGAGE
LOANS; "DEPOSITS TO COLLECTION ACCOUNT."
[LETTER OF CREDIT] [SURETY BOND]
On [the closing date], [issuer] will issue a [letter of credit] [surety
bond]. If available amounts on deposit in the collection account on any
distribution date are insufficient to provide for the payment of the
amount required to be distributed to you and the servicer, the trustee
will draw on the [letter of credit] [surety bond], to the extent of the
[letter of credit] [surety bond] amount for such distribution date. Any
amounts remaining in the collection account with respect to the preceding
collection period, after all other distributions have been made, will be
distributed to the [letter of credit] [surety bond] issuer.
WE REFER YOU TO "THE [LETTER OF CREDIT] [SURETY] BOND ISSUER";
"DESCRIPTION OF THE CERTIFICATES--THE [LETTER Of CREDIT] [SURETY BOND]";
"--DISTRIBUTIONS ON THE CERTIFICATES" HEREIN AND "RISK FACTORS--LIMITS ON
CREDiT ENHANCEMENT" AND "ENHANCEMENT" IN THE PROSPECTUS.
[LETTER OF CREDIT] [SURETY BOND] AMOUNT
The amount available under the [letter of credit] [surety bond] for the
first distribution date will be $----------.
For each distribution date after the first distribution date, the amount
will equal the lesser of a percentage of the pool balance and an amount
based on amounts drawn under the [letter of credit] [surety bond] and
amounts paid to the issuer of the [letter of credit] [surety bond].
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The trust will terminate on the distribution date following the earlier
of:
(1) the reduction of the certificate principal balance to zero and after
which there is no unreimbursed certificate principal balance loss
deduction amount; and
(2) the final payment or other liquidation of the last mortgage loan and
private security in the trust.
On any distribution date when the certificate principal balance is less
than or equal to $________ ([5]% of the initial certificate principal
balance) the investor interest will be subject to optional retransfer to
the transferor. The retransfer price will be equal to the sum of the
outstanding certificate principal balance and accrued and unpaid interest
thereon at the certificate rate through the day preceding the final
distribution date.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--OPTIONAL TERMINATION"
HEREIN AND "THE AGREEMENTS--TERMINATIOn" IN THE PROSPECTUS.
FEDERAL TAX CONSIDERATIONS
[Brown & Wood LLP is of the opinion that, the certificates are debt of the
transferor for Federal income tax purposes. The transferor will treat the
certificates as indebtedness for Federal, state and local income and
franchise tax purposes.
WE REFER YOU TO "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" IN THE
PROSPECTUS FOR ADDITIONAL INFORMATION CONCERNING THE APPLICATION OF
FEDERAL INCOME TAX LAWS.]
ERISA CONSIDERATIONS
[A fiduciary of any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the
Internal Revenue Service should carefully review with its legal advisors
whether the purchase or holding of certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA or the
Code.]
[The certificates generally may not be transferred to a fiduciary of any
employee benefit plan subject to ERISA or Section 4975 of the Code.]
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THE PROSPECTUS AND IN THIS
PROSPECTUS SUPPLEMENT.
CERTIFICATE RATING
Before the certificates can be issued, the trust must obtain a rating on
the certificates of:
[Rating][Rating Agency]
The ratings address credit risk. When evaluating credit risk, the rating
agencies look at the likelihood of whether or not you will receive your
interest and principal payments. Credit risk does not relate to the
likelihood of prepayments on the mortgage loans. Prepayments affect the
timing of your payments, such that your actual return could differ
substantially from your anticipated return on your investment.
WE REFER YOU TO "RATING" AND "RISK FACTORS--RATING OF THE SECURITIES
RELATE TO CREDIT RISK ONLY" IN THE PROSPECTUS.
<PAGE>
RISK FACTORS
[SERVICER'S ABILITY TO CHANGE THE TERMS OF THE HELOCS MAY AFFECT PAYMENTS ON
THE HELOCS.
Under certain conditions, the servicer may permit an increase in the
credit limit under a HELOC, subject to the trustee's consent.
The servicer may agree to other changes in the terms of a loan
agreement, provided that such changes do not materially adversely affect the
interest of the certificateholders.
(i) are consistent with prudent business practice,
(ii) are also being applied to the comparable segment of home equity
credit lines being held for the servicer's own account, and
(iii) do not change the terms of the HELOC so as to change the terms
for the amortization of principal. The servicer may also extend
the period during which draws under the HELOCS may be made.
In addition, there can be no assurance that changes in applicable law
or the marketplace for home equity loans or prudent business practice will not
result in changes in the terms of the loan agreements.
These modifications could result in changes to the payments on the
mortgage loans and corresponding changes in amounts available to make payments
to you. The rate and timing of payments, prepayments or delinquencies could
increase or decrease.]
[DELINQUENT MORTGAGE LOANS INCLUDED IN TRUST PROPERTY MAY BE MORE LIKELY TO
DEFAULT THAN NON-DELINQUENT MORTGAGE LOANS.
The trust will include mortgage loans which are ___ days or fewer
delinquent. As of the cut-off date, the aggregate loan balance of such
delinquent mortgage loan was $__________. [In addition, the mortgage loans in
all likelihood include obligations of borrowers who are or are about to become
bankrupt or insolvent.] If there are not sufficient funds from interest
collections allocated to the investor interest to cover the [liquidation loss
amount] for any collection period and the [letter of credit] [surety bond]
amount has been reduced to zero, the certificate principal balance will be
reduced which (unless otherwise later reimbursed) would result in a reduction
in the aggregate amount of principal returned to the certificateholders and in
the amount of interest collections allocable to the investor interest and
available to provide protection against defaults in subsequent collection
periods.]
[RECHARACTERIZATION OF CERTIFICATES BY IRS COULD RESULT IN TAX LIABILITY.
In the opinion of special tax counsel to the transferor, the
certificates are properly characterized as debt of the transferor for federal
income tax purposes. If the IRS were to contend successfully that the
certificates were not debt obligations of the transferor for federal income tax
purposes, the arrangement among the transferor and the certificateholders might
be classified for federal income tax purposes as either a partnership or an
association taxable as a corporation that owns the mortgage loans. Any tax
liability associated with such recharacterization will be an obligation of the
Trust and will reduce the amount of money available to pay you and may result
in a loss to you. We refer you to "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS"
in the prospectus.]
CONSEQUENCES OF OWNING BOOK-ENTRY CERTIFICATES.
LIMIT ON LIQUIDITY OF CERTIFICATES. Issuance of the certificates in
book-entry form may reduce the liquidity of such certificates in the secondary
trading market since investors may be unwilling to purchase certificates for
which they cannot obtain physical certificates.
LIMIT ON ABILITY TO TRANSFER OR PLEDGE. Since transactions in the
Certificates can be effected only through DTC, Cedelbank, Euroclear,
participating organizations, indirect participants and certain banks, your
ability to pledge your certificate to persons or entities that do not
participate in the DTC, Cedelbank or Euroclear system or otherwise to take
actions in respect of such certificates, may be limited due to lack of a
physical certificate representing the certificates.
DELAYS IN DISTRIBUTIONS. As a beneficial owner, you may experience
some delay in your receipt of distributions of interest on and principal of
your certificates since such distributions will be forwarded by the trustee to
DTC and DTC will credit such distributions to the accounts of its participants
which will thereafter credit them to the accounts of the beneficial owners
either directly or indirectly through indirect PARTICIPANTS.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--BOOK-ENTRY
CERTIFICATES."
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their
operations, the servicer is faced with the task of preparing its computer
systems and programs for the year 2000. The year 2000 issue is the result of
prior computer programs being written using two digits, rather than four
digits, to define the applicable year. Any of the servicer's computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. Major computer system failure or
miscalculations may occur as a result. The servicer is presently engaged in
various procedures to ensure that their computer systems and software will be
year 2000 compliant.
However, if the servicer or any of its suppliers, customers, brokers
or agents do not successfully and timely achieve year 2000 compliance, the
performance of obligations of the servicer could be materially adversely
affected. This could result in delays in processing payments on the mortgage
loans and may cause a related delay in payments to you.
THE [LETTER OF CREDIT] [SURETY BOND] ISSUER
[DESCRIPTION OF LC/SURETY ISSUER]
The following information with respect to _________ ______________
("___________") has been furnished by _____________.
THE HOME EQUITY LINE OF CREDIT LENDING PROGRAM
GENERAL
The mortgage loans (the "Mortgage Loans") were originated by
___________________ (the "Transferor") under its home equity lending program.
The Transferor has offered variable-rate home equity revolving credit lines
since ____________. As of _____________, _____, the Transferor owned
approximately $__________ million aggregate principal amount of outstanding
loans originated in the State of ____________ under home equity credit lines
(the "Transferor's Portfolio").
THE MASTER SERVICER
[The Servicer is a ___________ which is wholly owned by _____________.
The Servicer conducts a general banking business throughout the
_________, and, with its subsidiaries, offers a broad array of commercial and
retail loan and deposit products and services, mortgage banking and brokerage
and investment services. At _________, the Servicer had total assets of
approximately $________ billion and total deposits of approximately $_________
billion.
The principal executive offices of the Servicer are located at
_________________________________ (telephone (___-___-_____)).]
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by ________ with respect to Mortgage Loans which it
purchases or originates.
[ ]
SERVICING AND COLLECTION PROCEDURES
The following is a description of the servicing policies and
procedures customarily and currently employed by ___________ with respect to
the portion of its mortgage loan portfolio which it services.
[ ]
DELINQUENCY EXPERIENCE
The following table sets forth __________'s delinquency experience on
its serving portfolio of home equity loans (which includes home equity loans
subserviced by others for ____________) similar to the Mortgage Loans for the
periods indicated.
SERVICING OF HELOCS
[Centralized controls and standards have been established by the
Servicer for the servicing and collection of home equity lines of credit.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance processing, collections and liquidations. The
collection process is initiated ten days after the payment due date with the
computer generation of a late notice. To make payment arrangements, a collector
attempts to contact the borrower when the home equity line of credit is 15 to
30 days past due.
During the period when an account is 45 to 60 days past due, a credit
bureau report is obtained, homeowner's insurance is verified, the status of
senior mortgages and property taxes is checked and a title search and
"drive-by" appraisal are ordered.
If arrangements have not been made to cure the delinquency within 61
days of the line becoming past due, drawing privileges are cancelled. The line
is referred to outside counsel and is placed on a "non-accrual" status after 90
days of delinquency. All legal expenses are assessed to the account and become
the responsibility of the borrower. When it is determined by the Servicer that
there is no possibility of recovery from the mortgaged property or from other
leviable assets or wage attachments, the line is charged-off.
Reinstatement arrangements can be made up until the point of sale. Any
foreclosures initiated on a junior mortgage are subject to the senior mortgage
or mortgages and any outstanding property taxes. If the Servicer purchases the
property through the foreclosure action, the account is transferred to the
Servicer's REO Department which is maintained at __________________. The REO
Department is responsible for maintaining and marketing the property.
The Servicer may not foreclose on the property securing a junior
mortgage loan unless the Servicer forecloses subject to any senior mortgages,
in which case the Servicer may pay the entire amount due on the senior mortgage
to the senior mortgagees at or prior to the foreclosure sale. If a senior
mortgage is in default after the Servicer has initiated its foreclosure action,
the Servicer may advance funds to keep senior mortgages current until such time
as the Servicer satisfies such senior mortgages. In the event that foreclosure
proceedings have been instituted on a senior mortgage prior to the initiation
of the Servicer's foreclosure action, the Servicer may either satisfy the
senior mortgage at the time of the foreclosure sale or take other action to
protect the Trust's interest in the related property.]
See "SERVICING OF LOANS" in the Prospectus for additional information
regarding the Servicer's servicing of the Mortgage Loans pursuant to the
Agreement.
DELINQUENCY AND LOSS EXPERIENCE OF THE SERVICER'S PORTFOLIO
The following tables set forth the delinquency and loss experience for
each of the periods shown for the Servicer's portfolio of home equity lines of
credit. The Servicer believes that there have been no material trends or
anomalies in the historical delinquency and loss experience as represented in
the following tables. The information in the tables below has not been adjusted
to eliminate the effect of the growth in the size of the Servicer's portfolio
during the periods shown. Accordingly, loss and delinquency as percentages of
aggregate principal balance of such loans for each period may be higher than
those shown if a group of such loans were artificially isolated at a point in
time and the information showed the activity only in that isolated group. The
data presented in the following tables are for illustrative purposes only, and
there is no assurance that the delinquency and loss experience of the HELOCs
will be similar to that set forth below.
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
As of As of December 31,
-----------------------------------------------------------------
, 1998 1997 1996
1999(1)
----------------------- -------------------- ------------------- ----------------------
Number of Number of Number of Number of
Loans Amount Loans Amount Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
Period End............... $ $ $ $
Delinquency (1) $ $ $ $
30-59 Days...............
60-89 Days...............
90 or More Days (2)......
------------ ---------- ----------- --------- ------------------ --------- ----------
Total Delinquencies........ $ $ $ $
Total Delinquencies
as a Percentage of
the Portfolio at
Period End............... % % % % % % % %
</TABLE>
- ---------
(1) The period of delinquency is based on the number of days payments are
contractually past due for all loans other than mortgage loans
previously charged off.
(2) Includes mortgage loans in foreclosure and not charged off.
<PAGE>
LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
As of As of December 31,
-------------------------------------------------------------------
, 1999(1) 1998 1997 1996
-----------------------------------------------------------------------------------------
Number of Number of Number of Number of
Loans Amount Loans Amount Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Principal
Outstanding at
Period End.............. $ $ $ $
Gross Losses.............. $ $ $ $
Recoveries................ $ $ $ $
Net Losses................ $ $ $ $
Net Losses as a
Percentage of
Portfolio at
Period End.............. %(2) %(2) % % % % % %
</TABLE>
- -----------
(1) Net Losses equal total principal charged off less recoveries. The
customary policy of the Transferor is to charge off mortgage loans in
full that are 120 days past due unless foreclosure proceedings are
planned or there are indications that the account will be brought
current. An account that is not charged off because there are
indications that payment is imminent generally will be charged off
after an additional 60 to 90 days if such payments is not forthcoming.
(2) This percentage represents the three-month period ended
______________, 1999 annualized and is not necessarily indicative of
the results which may occur for the full year.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation to be paid to the Servicer in respect of
its servicing activities relating to the Mortgage Loans will be paid to it from
collections allocable to interest ("Interest Collections") at the time such
collections are received or from amounts drawn on the [Letter of Credit]
[Surety Bond] and will be equal to ____% per annum, (the "Servicing Fee Rate")
of the principal balance of the Mortgage Loans (the "Pool Balance"). The
Investor Percentage of such servicing fee (the "Investor Servicing Fee") will
be paid as described under "DESCRIPTION OF THE CERTIFICATES--Distribution on
the Certificates--Distribution of Interest Collections and Draw Amounts"
herein. All assumption fees, late payment charges and other fees and charges,
to the extent collected from borrowers, will be retained by the Servicer as
additional servicing compensation.
[The Servicer will pay certain ongoing expenses associated with the
Trust and incurred by it in connection with its responsibilities under the
Agreement, including, without limitation, payment of the fees and disbursements
of the Trustee, any custodian appointed by the Trustee, the Certificate
Registrar and any paying agent.] In addition, the Servicer will be entitled to
reimbursement for certain expenses incurred by it in connection with defaulted
Mortgage Loans and in connection with the restoration of Mortgaged Properties,
such right of reimbursement being prior to the rights of Certificateholders to
receive any related Liquidation Proceeds.
<PAGE>
THE HELOCS
The Trust will be formed in accordance with the laws of the State of
New York pursuant to the Agreement. The Transferor will transfer the Mortgage
Loans to the Trust, without recourse, in exchange for the Certificates and a
certificate to be held by it representing the Transferor's interest in the
Trust (the "Transferor Certificate"). The property of the Trust will consist of
the Mortgage Loans, all proceeds of the Mortgage Loans, all monies on deposit
in the Collection Account and the Certificate Account, the Mortgages on the
properties securing the Mortgage Loans, including any properties acquired by
foreclosure or deed in lieu of foreclosure, the benefits of the [Letter of
Credit] [Surety Bond], and the proceeds on any insurance policies covering the
Mortgage Loans or Mortgaged Properties or any obligors on the Mortgages.
[Pursuant to the Agreement, the Transferor will be required to transfer
Eligible Additional Mortgage Loans (to the extent available) to the Trust, in
order to avoid the occurrence of any Early Amortization Event resulting from a
decline in the Transferor's Interest, and otherwise will be allowed to transfer
Eligible Additional Mortgage Loans to the Trust (subject to certain limitations
and conditions) from time to time. See "DESCRIPTION OF THE
CERTIFICATES--Transfers of Eligible Additional Mortgage Loans to the Trust"
herein.] In addition, the Transferor may, subject to certain limitations and
conditions specified in the Agreement, cause the retransfer from the Trust to
it of certain Mortgage Loans. See "DESCRIPTION OF THE CERTIFICATES--Optional
Retransfers of Mortgage Loans to the Transferor" herein.
The Mortgage Loans to be transferred to the Trust (collectively, the
"Pool") are evidenced by credit line loan agreements (each, a "Loan Agreement")
secured by [deeds of trust] [mortgages] (which are primarily second [deeds of
trust] [mortgages] on Mortgaged Properties, approximately ____% of which are
located in _____________ and approximately ____% of which are located in other
states, with no single state accounting for more than ____% of the Cut-Off Date
Pool Balance[, and represent substantially all of the home equity credit lines
originated by the Transferor which meet the criteria specified in the Agreement
and described below] (the "Mortgage Loans"). Because the Mortgage Loans include
the loans generated under substantially all of the HELOCs and because the Loan
Balances will include all amounts payable by borrowers under such HELOCs, some
of the Mortgage Loans will be generated under recently solicited, unseasoned
HELOCs [and the Pool will include delinquent Mortgage Loans and may include
obligations of borrowers who are or are about to become bankrupt or insolvent].
Many of the Mortgage Loans are less than the Credit Limit under the
corresponding HELOC. Additional Balances on such Mortgage Loans will be
property of the Trust and will increase the Pool Balance. The amount of the
[Letter of Credit] [Surety Bond] was determined taking into account, among
other considerations, the nature of the HELOCs and the Mortgage Loans.
Each Mortgage Loan included in the Pool was generated under a HELOC
that, as of the Cut-Off Date, was an Eligible HELOC. An "Eligible HELOC" is
defined in the Agreement as any home equity credit line that: [selection
criteria of HELOCs to be added]. Each HELOC was originated between __________
and the Cut-Off Date [in the ordinary course of the Transferor's home equity
revolving credit program]. Subject to exceptions deemed appropriate by the
[Transferor] as to individual HELOCs, the [Transferor's] general policy was to
require that the Combined Loan-to-Value Ratio under the HELOC at the
origination not exceed 80% of the market value of the Mortgaged property, based
upon an appraisal or the tax assessed value of the Mortgaged Property at the
time the HELOC was originated, as described under "THE HOME EQUITY LENDING
PROGRAM" herein. Substantially all of the Mortgage Properties were one- to
four-family residential properties. As of the Cut-Off Date, the weighted
average loan utilization rate was approximately _____%.
Set forth below is a description of certain additional characteristics
of the HELOC's as of the Cut-Off Date:
[TABULAR INFORMATION]
No assurance can be given that the values of the Mortgaged Properties
as of the dates of origination of the related HELOCs have remained or will
remain constant or have not declined. If the residential real estate market
generally or the residential real estate market in ________________ should
experience an overall decline in property values such that the outstanding Loan
Balances under the HELOCs, together with any senior financing on the Mortgaged
Properties, equal or exceed the value of the Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those
currently experienced in the mortgage lending industry in general. For
information concerning possible declines in value of the Mortgaged Properties,
see "RISK FACTORS--Decrease in Value of Mortgaged Property Would
Disproportionately Affect Junior Lienholders" in the Prospectus. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by borrowers of scheduled payments under the
Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the Pool. To the extent that such
losses are not covered by draws on the [Letter of Credit] [Surety Bond], they
will be borne by holders of the Certificates.
The descriptions in this Prospectus Supplement of the Pool and the
Mortgaged Properties are based upon the Pool as it is expected to be
constituted as of the close of business on the Cut-Off Date, as adjusted for
the scheduled principal and interest payments due on or before such date. Prior
to the issuance of the Certificates, Mortgage Loans may be removed from the
Pool as a result of prepayments, delinquencies, incomplete documentation, or
otherwise if the Transferor deems such removal necessary or desirable. A
limited number of other mortgage loans may be included in the Pool prior to the
issuance of the Certificates, unless including such mortgage loans would
materially alter the characteristics of the Pool as described herein. The
Transferor believes that the information set forth herein will be
representative of the characteristics of the Pool as it will be constituted at
the time the Certificates are issued, although the range of Loan Rates and
maturities and certain other characteristics of the Mortgage Loans in the Pool
may vary.
A Current Report on Form 8-K (the "Form 8-K") containing a detailed
description of the Mortgage Loans will be available to purchasers of the
Certificates on or shortly after the Closing Date and will be filed with the
Securities and Exchange Commission within fifteen days after the Closing Date,
if there is a material difference between the description of the Pool contained
herein and the Pool as constituted on the Closing Date. The Form 8-K will
specify the precise aggregate outstanding principal balance of the Mortgage
Loans as of the Cut-Off Date and will set forth on a precise basis the other
information presented herein on an approximate basis.
PREPAYMENT AND YIELD CONSIDERATIONS
The Agreement provides that the Certificateholders will not receive
payments of principal until the Distribution Date on ___________ (i.e., the
first Distribution Date after the first Collection Period following the end of
the Revolving Period) or, if earlier, the Distribution Date in the month after
the first Collection Period of an Early Amortization Event. During the
Amortization Period, Certificateholders will be entitled to receive on each
distribution Date the Investor Percentage described herein of the Principal
Collections received in the preceding Collection Period until the Certificate
Principal Balance is reduced to zero. Allocations of Principal Collections
based on the Investor Percentage (which is fixed for the Amortization Period to
equal the percentage derived from dividing the Certificate Principal Balance by
the Pool Balance, in each case at the end of the Revolving Period) may result
in distributions of principal to the Certificateholders greater than those that
would result from distributions of principal based upon the proportion that the
declining Certificate Principal Balance bears to the Pool Balance. [The
Agreement permits the Transferor, at its option, but subject to the
satisfaction of certain conditions specified in the Agreement, including the
conditions described herein, to remove Mortgage Loans from the Trust at any
time during the life of the Trust (including the Amortization Period), so long
as the Pool Balance after such removal is not less than the Pool Balance at the
Closing Date. The Transferor may also, under certain circumstances, add
Eligible Additional Mortgage Loans to the Trust. Such removals and additions
may affect the rate at which principal is distributed to Certificateholders.
See "DESCRIPTION OF THE CERTIFICATES--Transfers of Eligible Additional Mortgage
Loans to the Trust" and "--Optional Retransfers of Mortgage Loans to the
Transferor."]
[All] of the Mortgage Loans may be prepaid without penalty in full or
in part at any time. The prepayment experience with respect to the Mortgage
Loans will affect the life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted. Home
equity credit lines such as the Mortgage Loans have been originated in
significant volume only during the past few years and the Transferor is not
aware of any publicly available studies or statistics on the rate of prepayment
of such loans. Generally, home equity credit lines are not viewed by borrowers
as permanent financing. Accordingly, the Mortgage Loans may experience a higher
rate of prepayment than traditional first mortgage loans. On the other hand, if
the Mortgage Loans amortize as described herein, then absent voluntary borrower
prepayments the rates of principal payment could be slower than, or similar to,
those of traditional full-amortizing first mortgages. The prepayment experience
of the Trust with respect to the Mortgage loans may be affected by a wide
variety of factors, including general economic conditions, economic conditions
in _____________, prevailing interest rate levels, the availability of
alternative financing and homeowner mobility, the frequency and amount of any
future draws on the HELOCs and changes affecting the deductibility for federal
income tax purposes of interest payments on home equity credit lines.
Substantially all of the Mortgage Loans contain "due-on-sale" provisions, and
the Servicer intends to enforce such provisions, unless such enforcement is not
permitted by applicable law. The enforcement of a "due-on-sale" provision will
have the same effect as a prepayment of the related Mortgage Loan. See "CERTAIN
LEGAL ASPECTS OF LOANS--Due-on-Sale Clauses In Mortgage Loans" in the
Prospectus. The yield to an investor who purchases the Certificates in the
secondary market at a price other than par will vary from the anticipated yield
if the actual rate of prepayment on the Mortgage Loans is different than the
rate anticipated by such investor at the time such Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other
things, borrowers may make payments during any month as low as the minimum
monthly payment for such month or as high as the entire principal outstanding
balance plus accrued interest and the fees and charges thereon. It is possible
that borrowers may fail to make scheduled payments. Collections on the Mortgage
Loans may vary due to seasonal purchasing and payment habits of borrowers.
Because the Mortgage Loans have a variable interest rate and a fixed payment,
changes in underlying interest rates will vary the allocation of payments
between interest and principal.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See
"DESCRIPTION OF THE SECURITIES--Weighted Average Life of the Securities" in the
Prospectus.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form of
the Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the Prospectus is a part. The following
summaries describe certain provisions of the Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
GENERAL
The Certificates will be issued in denominations of [$1,000] and
integral multiples thereof and will evidence specified undivided interests in
the Trust. [Definitive Certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee, which will initially
act as Certificate Registrar. See "--Registration of Certificates" below. No
service charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.]
The outstanding principal amount of the Certificates (the "Certificate
Principal Balance") will be equal to the initial principal amount of the
Certificates, minus the amount of principal payments paid to the
Certificateholders, and minus the amount of any Certificate Loss Amounts which
have not been reimbursed as provided herein. See "--Distributions on the
Certificates" below. Each Certificate represents the right to receive payments
of interest at the Certificate Rate and payments of principal during the
Amortization Period funded from Interest Collections and Principal Collections,
respectively, allocated to the investor interest and draws on the [Letter of
Credit] [Surety Bonds].
The Transferor will own the interest (the "Transferor Interest") not
represented by the Certificates. The Transferor Interest will represent an
undivided interest in the Trust, including the right to receive certain
percentages (the "Transferor Percentage") of Interest Collections and Principal
Collections. The initial amount of the Transferor Interest was determined,
among other factors, to be able to absorb reductions in the aggregate amount of
Loan Balances in the Trust without causing an Early Amortization Event, which
would result in the early commencement of the Amortization Period. There can be
no assurance that the Transferor Interest will be sufficient for such purpose.
During the Revolving Period, the Certificate Principal Balance will
remain constant except in certain limited circumstances. See "--Distributions
on the Certificates" below. The Pool Balance, however, will vary each day as
principal is paid on the Mortgage Loans, liquidation losses are incurred,
Additional Balances are drawn down by borrowers under the HELOCs, Mortgage
Loans are retransferred to the Transferor or Eligible Additional Mortgage Loans
are transferred to the Trust. Consequently, the amount of the Transferor
Interest will fluctuate each day to reflect the changes in the Pool Balance.
During the Amortization Period, the Certificate Principal Balance will decline
as the Investor Percentage of Principal Collections is distributed to the
Certificateholders.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Transferor will
transfer to the Trust all of its right, title and interest in and to each
Mortgage Loan (including any Additional Balances arising in the future)
conveyed by it to the Trust, including all principal (including Net Liquidation
Proceeds) and interest received on or with respect to each such Mortgage Loan
subsequent to the Closing Date (other than any amounts received in respect of
taxes, insurance premiums, assessments and similar items, as provided in the
Agreement) plus the Investor Percentage of Interest Collections on the Mortgage
Loans during the period from the Cut-Off Date to the second business day
preceding the Closing Date, but not in excess of the amount needed to
distribute the required interest to Certificateholders on the first
Distribution Date and to pay the related Investor Servicing Fee. The Trustee,
concurrently with such transfer, will deliver the Certificates and the
Transferor Interest to the Transferor. Each HELOC under which a Mortgage Loan
assigned to the Trust was generated will be identified in a schedule appearing
as an exhibit to the Agreement.
The Transferor will deliver the files containing, among other things,
the Loan Agreement, the Mortgage Note and the Mortgage relating to each
Mortgage Loan (the "Mortgage Files") to the Trustee. The Trustee (or a
custodian on its behalf) will review each Mortgage File within ___ days of
receipt thereof. If any such document is found not to have been executed or
received or to be unrelated to the Mortgage Loan or to have not been recorded
as required by the Agreement, the Trustee (or custodian on its behalf) will
notify the Transferor, which shall have a period of ____ days after such notice
to correct or cure such defect. If the defect cannot be cured within such
period, the Transferor will be obligated to accept the retransfer of such
Mortgage Loan from the Trust. Upon such retransfer, the Loan Balance of such
Mortgage Loan will be deducted from the Pool Balance, thus reducing the amount
of the Transferor Interest by the same amount. If the deduction would cause the
Transferor Interest to become less than zero, the Transferor will be obligated
to make a deposit in the Collection Account in the amount ("Retransfer Deposit
Amount") by which the Transferor Interest is less than zero. Notwithstanding
the foregoing, however, no such retransfer shall be considered to have occurred
unless such deposit is actually made. The obligation of the Transferor to
accept a retransfer of a defective Mortgage Loan and, if applicable, pay the
Retransfer Deposit Amount, is the sole remedy regarding any defects in the
Mortgage Files available to the Trustee or the Certificateholders.
The Transferor will make certain representations and warranties as to
the accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan on the schedule of Mortgage Loans
appearing as an exhibit to the Agreement. In addition, the Transferor will
represent and warrant that, among other things:
[(i) each Mortgage Loan has been generated under an eligible HELOC;
(ii) at the time of transfer to the Trust, the Transferor has
transferred all of the Transferor's right, title and interest in
each Mortgage Loan, free of any lien (subject to certain
exceptions);
(iii) each Mortgage Loan was generated under a HELOC that complied, at
the time of origination, in all material respects with
applicable state and federal laws; and
(iv) as of the date of origination of the related HELOC, the related
Mortgaged Property was covered by hazard insurance in the amount
at least equal to the lesser of (a) the maximum insurable value
of the improvements thereon and (b) the combined Credit Limit
under the HELOC and the unpaid principal balance of any mortgage
loan senior thereto].
Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Trust, the
Certificateholders or the [Letter of Credit] [Surety Bond] Issuer in the
related Mortgage Loan, the Transferor will have a period of ____ days after
discovery or notice of the breach to effect a cure. If the breach cannot be
cured within such period, the Transferor will obligated to accept a retransfer
of the Mortgage Loan from the Trust. The same procedure and limitations that
are set forth in the preceding paragraph for the retransfer of a Mortgage Loan
respecting which there is a defect in the Mortgage File will apply to the
retransfer of a Mortgage Loan that is required to be retransferred because of a
breach of a representation or warranty in the Agreement that materially and
adversely affects the interests of the Certificateholders.
Any Mortgage Loan required to be retransferred to the Transferor as
described in the preceding two paragraphs is referred to as a "Defective
Mortgage Loan".
The Transferor may, but is not obligated to, retransfer a Defective
Mortgage Loan to the Trust within ____ days of the transfer of such Defective
Mortgage Loan to the Transferor if all defects in respect of such Defective
Mortgage Loan have been cured and such Defective Mortgage Loan satisfies the
applicable representations and warranties in the Agreement at the time of such
retransfer to the Trust.
[TRANSFERS OF ELIGIBLE ADDITIONAL MORTGAGE LOANS TO THE TRUST
If, for each of [five] consecutive business days during the Revolving
Period, the Transferor Interest for each such date is less than [10]% of the
Pool Balance, then not later than the first business day of the calendar month
beginning at least ten business days after such fifth business day thereafter
the Transferor will be obligated to transfer to the Trust Eligible Additional
Mortgage Loans (but only to the extent available in the [Transferor's]
portfolio), which may be generated under home equity credit lines in any
billing cycle, so that, after giving effect to such transfer, the Transferor
Interest will equal at least 10% of the Pool Balance on such date. An Eligible
Additional Mortgage Loan is a home equity loan that was originated under a
HELOC that, as of the date of notice by the Transferor to the Trustee, the
Servicer and the [Letter of Credit] [Surety Bond] Issuer of its transfer to the
Trust (the "Notice Date"), was an Eligible HELOC and that, as of the Notice
Date, complies with the representations and warranties described under
"Assignment of Mortgage Loans" above. The Transferor must satisfy the following
conditions, among others, in order to transfer Eligible Additional Mortgage
Loans to the Trust: (i) the Pool Balance, after giving effect to such transfer,
will not exceed $___________; (ii) the Mortgage Files for such Eligible
Additional Mortgage Loans shall have been delivered to the Trustee (or a
custodian on its behalf); and (iii) the Transferor shall have given notice of
the proposed transfer to the Rating Agency and the Rating Agency has not
notified the Transferor in writing prior to the transfer date that such
transfer will result in a reduction or withdrawal of its then-current rating
for the Certificates.
[In addition, the Transferor may, at its election, transfer Eligible
Additional Mortgage Loans subject to satisfaction of the conditions described
above.]
[OPTIONAL RETRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
Subject to the conditions specified in the Agreement, the Transferor
may, at its option, require the retransfer of one or more Mortgage Loans (which
may have been generated under a HELOC in any billing cycle) from the Trust to
it on the last day of any Collection Period. The Pool Balance after giving
effect to such retransfer must not be less than the Pool Balance on the Closing
Date. The retransfer will be required to satisfy the following conditions,
among others:
(i) no Early Amortization Event shall have occurred, and the
Transferor shall reasonably believe that such retransfer will
not cause an Early Amortization Event to occur;
(ii) as of the fifth business day prior to the proposed transfer, not
more than 10% (based on Loan Balances) of the Mortgage Loans
(after giving effect to the proposed transfer) are delinquent
more than 30 days and the weighted average delinquency of all of
the Mortgage Loans (before and after giving effect to the
proposed transfer) is not more than 60 days;
(iii) the Transferor shall have represented that no selection
procedures reasonably believed by the Transferor to be adverse
to the interests of the Certificateholders or the [Letter of
Credit] [Surety Bond] Issuer were used to select the Mortgage
Loans to be removed;
(iv) the Transferor shall have received evidence satisfactory to it
that the reassignment will not, as of the date thereof, prevent
the transfer of the Mortgage Loans (including any Additional
Balances) to the Trust from being recognized as a sale under
generally accepted accounting principles and shall have received
no evidence that such reassignment will, as of the date thereof,
prevent such transfer from being recognized as a sale for
regulatory purposes; and
(v) each Rating Agency shall have been notified of the proposed
retransfer and prior to the date of retransfer has not notified
the Transferor in writing that such retransfer would result in a
reduction or withdrawal of its then-current rating of the
Certificates.]
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The Servicer will follow such collection procedures with respect to
the Mortgage Loans as it follows from time to time with respect to mortgage
loans in its servicing portfolio comparable to the Mortgage Loans. See
"SERVICING OF LOANS--Collection Procedures; Escrow Accounts" in the Prospectus.
The Servicer will establish and maintain a separate account in the
name of the Trustee for the benefit of the Certificateholders and the [Letter
of Credit] [Surety Bond] Issuer (the "Collection Account"). See "SERVICING OF
LOANS--Deposits to and Withdrawals from the Collection Account" in the
Prospectus. [The Collection Account will be established initially with the
trust department of the Trustee.] Funds in the Collection Account may be
invested in Eligible Investments maturing in general not later than the
business day preceding the next Distribution Date. Eligible Investments consist
of certain investments acceptable to each Rating Agency for a structured
transaction having the rating initially assigned to the Certificates. All net
income and gain realized from any such investment will be paid to the Servicer.
[INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE. Pursuant to the
Agreement, the Servicer will allocate between the Investor Interest and the
Transferor Interest all amounts (including any Net Liquidation Proceeds)
collected under the Mortgage Loans on account of principal ("Principal
Collections") and the amount of the unrecovered Loan Balance of any Defaulted
Mortgage Loan at the end of the Collection Period in which such Defaulted
Mortgage Loan became a Defaulted Mortgage Loan (the "Liquidation Loss Amount").
A "Defaulted Mortgage Loan" is a Mortgage Loan that has been written off as
uncollectible by the Servicer. The Collection Period for a Distribution Date is
the calendar month preceding such Distribution Date or, in the case of the
first Distribution Date, the period from the Cut-Off Date through the last day
of the calendar month preceding the month in which such Distribution Date
occurs. The Servicer will make each allocation by reference to the Investor
Percentage and the Transferor Percentage applicable in each case during a
Collection Period.
For convenience, this Prospectus Supplement refers to the Investor
Percentage with respect to Interest Collections, Principal Collections and
Liquidation Loss Amounts as if the Investor Percentage were the same percentage
at all times in each case. The Investor Percentage may be a different
percentage for each Collection Period, and will vary primarily as a result of
changes in the Pool Balance.
The Investor Percentage will be calculated as follows:
INTEREST COLLECTIONS AND LIQUIDATION LOSS AMOUNTS. When used
with respect to Interest Collections and Liquidation Loss Amounts at
any time, and principal collections during the Revolving Period
"Investor Percentage" means the percentage equivalent of a fraction
the numerator of which is the Certificate Principal Balance and the
denominator of which is the Pool Balance, in each case as of the end
of the immediately preceding Collection Period (or, in the case of the
first Collection Period, as of the Closing Date). Principal
Collections during the Revolving Period.
When used with respect to Principal Collections during the
Amortization Period, "Investor Percentage" means the percentage
equivalent of a fraction the numerator of which is the amount of the
Certificate Principal Balance and the denominator of which is the Pool
Balance, in each case as of the end of the Revolving Period.
The "Transferor Percentage" will, in all cases, be equal to
100% minus the applicable Investor Percentage.
As a result of the calculation described above, Interest Collections
in each Collection Period will be allocated to the Certificateholders based on
the relationship of the Certificate Principal Balance to the Pool Balance
(which may fluctuate from month to month). During the Amortization Period the
amount of Principal Collections allocated to the Investor Interest will be
determined by reference to a fixed percentage which will be equal to the
Investor Percentage with respect to Principal Collections on the last day of
the Revolving Period.
DEPOSITS IN THE COLLECTION ACCOUNT AND PAYMENTS TO THE TRANSFEROR. On
the Closing Date, the Servicer will deposit in the Collection Account funds in
the amount of the Investor Percentage of Interest Collections on the Mortgage
Loans received during the period from the Cut-Off Date to the second business
day preceding the Closing Date, but not in excess of the amount needed to
distribute the required interest on the Certificates and the Investor Servicing
Fee to be distributed on the initial Distribution Date. On and after the
Closing Date, the Servicer will, subject to the following paragraph, deposit on
a daily basis within two business days following receipt thereof (i) during
each Collection Period in the Revolving Period, the Investor Percentage of
Interest Collections and (ii) during each Collection Period in the Amortization
Period, the Investor Percentage of all Interest Collections and Principal
Collections. The Servicer will pay to the Transferor within two business days
of its receipt thereof (i) during each Collection Period in the Revolving
Period, the Transferor Percentage of all Interest Collections and, if the
Transferor Interest (after giving effect to any transfers of Additional
Balances or Eligible Additional Mortgage Loans to the Trust on such day) is
equal to or greater than zero, the Transferor Percentage of all Principal
Collections and the Investor Percentage of all Principal Collections and (ii)
during each Collection Period in the Amortization Period, the Transferor
Percentage of Interest Collections and, if the Transferor Interest (after
giving effect to any transfers of Additional Balances or Eligible Additional
Mortgage Loans to the Trust on such day) is greater than zero, the Transferor
Percentage of all Principal Collections.]
The Trustee will establish and maintain a separate account (the
"Distribution Account"). On the business day preceding each Distribution Date
the Servicer will transfer amounts in the Collection Account for distribution
to Certificateholders to the Distribution Account.
The Trustee will deposit in the Distribution Account any amounts drawn
on the [Letter of Credit] [Surety Bond] as described below.
Any Principal Collections not paid to the Transferor because of the
limitations described above ("Unallocated Principal Collections"), will be
deposited and retained in the Collection Account for payment to the Transferor,
during the Revolving Period, if and when the Transferor Interest is greater
than zero and, during the Amortization Period, to the Certificateholder.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the Distribution Date occurring on ____________,
distributions on the Certificates will be made by the Trustee out of amounts on
deposit in the Distribution Account on each Distribution Date to the persons in
whose names such Certificates are registered at the close of business on the
[day prior to each Distribution Date] (the "Record Date"), except as provided
in "Registration of Certificates" below. The term "Distribution Date" means the
___ day of each month (or if such day is not a business day the next succeeding
business day). Distributions will be made by check mailed (or upon the request
of a Certificateholder owning Certificates having denominations aggregating at
lease $___________, by wire transfer or otherwise) to the address of the person
entitled thereto [(which, in the case of Book-Entry Certificates, will be DTC
or its nominee)] as it appears on the Certificate Register in amounts
calculated as described herein on the ______ business day (but no later than
the ______ calendar day) of the month in which the related Distribution Date
occurs (the "Determination Date"). However, the final distribution in respect
of the Certificates will be made only upon presentation and surrender thereof
at the office or the agency of the Trustee specified in the notice to
Certificateholders of such final distribution.
DISTRIBUTIONS OF INTEREST COLLECTIONS AND REQUIRED AMOUNTS. On each
Distribution Date, the Trustee, on behalf of the Trust, shall pay the following
amounts in the following order of priority to the following persons from the
Investor Interest of all Interest Collections collected during the related
Collection Period, together with the Required Amount, if any, drawn on the
[Letter of Credit] [Surety Bond] for such Distribution Date.
(1) [to the Certificateholders, interest at the Certificate Rate for
the Interest Period preceding such Distribution Date on the
Certificate Principal Balance outstanding immediately prior to
such Distribution Date;
(2) to the Certificateholders, any interest on the Certificates
accrued in accordance with clause (1) that has not been
previously distributed to Certificateholders plus, to the extent
legally permissible, interest thereon at the Certificate Rate
applicable from time to time (an "Unpaid Interest Shortfall");
(3) to the Servicer, the Investor Servicing Fee for the related
Interest Period and all accrued and unpaid Investor Servicing
Fees for previous Interest Periods;
(4) if such Distribution Date is in the Revolving Period, to the
Transferor, the Investor Percentage of the aggregate of all
Liquidation Loss Amounts incurred in the preceding Collection
Period; provided that the Transferor Interest (after giving
effect to any transfers of Additional Balances and Eligible
Additional Mortgage Loans on such date and to the distribution
of such Liquidation Loss Amount) is equal to or greater than
zero;
(5) if such Distribution Date is in the Amortization Period, to the
Certificateholders, the Investor Percentage of the aggregate of
all Liquidation Loss Amounts incurred in the preceding
Collection Period;
(6) to the Certificateholders, the aggregate of the amounts
allocable pursuant to clause (5) that were not previously
distributed pursuant to such clause (each such undistributed
amount being referred to herein as a "Certificate Loss Amount");
and
(7) to the Certificateholder, accrued and unpaid interest on each
unreimbursed Certificate Loss Amount (such interest being
calculated at the Certificate Rate for each Interest Period
during which such unreimbursed amount was outstanding.]
Any amounts remaining in the Collection Account collected during or
with respect to the preceding Collection Period, after all other distributions
have been made, will be distributed to the [Letter of Credit] [Surety Bond]
Issuer.
A Certificate Loss Amount represents a loss of principal in respect of
Defaulted Mortgage Loans allocable to the Investor Interest and will arise when
the Investor Percentage of Interest Collections and the Required Amount are not
sufficient to cover such loss, in accordance with the priority of distributions
described above. As described under "General" above, any Certificate Loss
Amounts which have not been reimbursed, as provided herein, will reduce the
Certificate Principal Balance.
The Required Amount for each Distribution Date will be the lesser of
(i) the [Letter of Credit] [Surety Bond] Amount and (ii) the amount, if any, by
which (a) the full amount distributable on such Distribution Date pursuant to
clauses (1) through (7) above exceeds (b) the Investor Percentage of the
Interest Collections for the related Collection Period. The Required Amount
will be drawn on the [Letter of Credit] [Surety Bond].
DISTRIBUTIONS OF PRINCIPAL. On each Distribution Date after the first
Collection Period in the Amortization Period, the Trustee will distribute to
the Certificateholders the Investor Percentage of Principal Collections
received in the preceding Collection Period. In addition, the Trustee will
distribute to the Certificateholders on any Distribution Date during the
Amortization Period any Retransfer Deposit Amount (or drawn on the [Letter of
Credit] [Surety Bond] in respect thereof) received in the preceding Collection
Period and any Unallocated Principal Collections then on deposit in the
Distribution Amount. The aggregate distributions of principal to the
Certificateholders will not exceed the Initial Certificate Principal Balance.
[CALCULATION OF CERTIFICATE RATE. With respect to the initial
Distribution Date, the Certificate Rate will be equal to ____% per annum.
Thereafter, on each Distribution Date, the Certificate Rate will be equal to
LIBOR as of the second London Business Day (as defined below) prior to the
immediately preceding Distribution Date plus 0.___% per annum. However, if the
Certificate Rate calculated as described in the preceding sentence for any such
Distribution Date is greater than the weighted average of the Net Loan Rates
for the Mortgage Loans for the preceding Collection Period, the Certificate
Rate for any such Distribution Date will be equal to the weighted average of
the Net Loan Rates. The Net Loan Rate for a Mortgage Loan is its Loan Rate less
the Servicing Fee Rate. Interest payable on any Distribution Date will accrue
on the Certificates from the preceding Distribution Date (or, in the case of
the first Distribution Date, from the Closing Date) through the day preceding
such Distribution Date (an ("Interest Period"). All calculations of interest
accrued on the Certificates will be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days.
The term "Certificate Principal Balance" means (i) the original
principal amount of the Certificates less (ii) all amounts previously
distributed to Certificateholders under "--Distributions of Principal" above,
less (iii) the aggregate of all unreimbursed Certificate Loss Amounts.
CALCULATION OF LIBOR. "LIBOR" with respect to any Distribution Date
will be determined by the Trustee and will be equal to the offered rates for
deposits in United States dollars having a maturity of one month (the "Index
Maturity") commencing on the second London Business Day (as defined below)
prior to the previous Distribution Date, which appear on the Reuters Screen
LIBO Page as of approximately 11:00 A.M., London Time, on such date of
calculation. If at least two such offered rates appear on the Reuters Screen
LIBO Page, LIBOR will be the arithmetic mean (rounded upwards, if necessary, to
the nearest one-sixteenth of a percent) of such offered rates. If fewer than
two such quotations appear, LIBOR with respect to such Distribution Date will
be determined at approximately 11:00 A.M., London time, on such determination
date on the basis of the rate at which deposits in United States dollars having
the Index Maturity are offered to prime banks in the London interbank market by
four major banks in the London interbank market selected by the Trustee and in
a principal amount equal to an amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Trustee will request the principal London office of each of such banks to
provide a quotation of its rate. If at least two such quotations are provided,
LIBOR will be the arithmetic mean (rounded upwards as aforesaid) of such
quotations. If fewer than two quotations are provided, LIBOR with respect to
such Distribution Date will be the arithmetic mean (rounded upwards as
aforesaid) of the rates quoted at approximately 11:00 A.M., New York City time,
on such determination date by three major banks in New York, New York selected
by the Trustee for loans in United States dollars to leading European banks
having the Index Maturity and in a principal amount equal to an amount of not
less than U.S. $1,000,000 and is representative for a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid by the Transferor are not quoting as mentioned in this sentence,
LIBOR in effect for the applicable period will be LIBOR in effect for the
previous period.]
[For purposes of calculating LIBOR, a "London Business Day" will be
any Business Day on which dealings in deposits in United States dollars are
transacted in the London interbank market and "Reuters Screen LIBO Page" will
be the display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service for
the purpose of displaying London interbank offered rates of major banks.)]
THE [LETTER OF CREDIT] [SURETY BOND]
On the Closing Date, the [Letter of Credit] [Surety Bond] Issuer will
issue the [Letter of Credit] [Surety Bond] in favor of the Trustee on behalf of
the Trust to support payments on the Certificates. On each Determination Date,
the Servicer will determine the amounts required to be drawn on the [Letter of
Credit] [Surety Bond], up to the [Letter of Credit] [Surety Bond] Amount, on
the related Distribution Date. On each Distribution Date, any amounts remaining
in the Collection Account with respect to the preceding Collection Period,
after all other distributions have been made as described above, will be
distributed to the [Letter of Credit] [Surety Bond] Issuer. See "Distributions
on Certificates" above.
The amount available under the [Letter of Credit] [Surety Bond] (the
"[Letter of Credit] [Surety Bond] Amount") for the initial Distribution Date
will be $ ____ . For each Distribution Date thereafter, the [Letter of Credit]
[Surety Bond] Amount will equal the lesser of (i) __% of the Pool Balance as of
the first day of the preceding Collection Period (after giving effect to any
amounts distributed with respect to principal of the Mortgage Loans on the
Distribution Date occurring in such preceding Collection Period) and (ii) the
[Letter of Credit] [Surety Bond] Amount as of the first day of the preceding
Collection Period, minus any amounts drawn under the [Letter of Credit] [Surety
Bond] during such preceding Collection Period, plus any amounts paid to the
[Letter of Credit] [Surety Bond] Issuer on the Distribution Date occurring in
such preceding Collection Period up to the amount of any previous draws on the
[Letter of Credit] [Surety Bond].
EARLY AMORTIZATION EVENTS
As described above, the Revolving Period will continue until the close
of business on the last day of __________ unless an Early Amortization Event
occurs prior thereto. The term "Early Amortization Event" refers to any of the
following events:
[(a) failure on the part of the Servicer or the Transferor:
(i) to make any payment or deposit on the date required under
the Agreement within five business days after such payment
or deposit is required to be made;
(ii) to observe or perform in any material respect certain
covenants of the Servicer or the Transferor; or
(iii) to observe or perform in any material respect any other
covenants or agreements of the Servicer or the Transferor
set forth in the Agreement, which failure, in each case,
materially and adversely affects the interests of the
Certificateholders and which, in the case of clause (iii),
continues unremedied for a period of 60 days after written
notice and continues to materially and adversely affect the
interests of the Certificateholders for such period;
(b) any representation or warranty made by the Servicer or the
Transferor in the Agreement proves to have been incorrect in any material
respect when made, as a result of which the interests of the Certificateholders
are materially and adversely affected, which continues to be incorrect in any
material respect for a period of 60 days after written notice and which
continues to materially and adversely affect the interests of the
Certificateholders for such period; provided, however, that an Early
Amortization Event shall not be deemed to occur thereunder if the Transferor
has accepted retransfer of the related Mortgage Loan or all such Mortgage
Loans, if applicable, during such period (or such longer period (not to exceed
an additional 60 days) as the Trustee may specify) in accordance with the
provisions of the Agreement;
(c) the Trust becomes subject to registration as an investment company
under the Investment Company Act of 1940, as amended;
(d) if the Transferor fails to transfer to the Trust Eligible
Additional Mortgage Loans by the time it is required to do so;
(e) an Event of Default under the Trust Agreement (as described in the
Prospectus under "THE AGREEMENTS--Events of Default") occurs;
(f) the [Letter of Credit] [Surety Bond] Amount is less than [ ]% of
the Certificate Principal Balance; or
(g) if the average of the Investor Percentage of Interest
Collections for any three consecutive Collection Periods is less than the
amounts to be distributed to Certificateholders as set forth in subsections (i)
through (vii) under "Distributions on the Certificates--Distributions of
Interest Collections and Required Amounts" above for the three Distribution
Dates relating to such Collection Periods.]
[In the case of any event described in clauses (a) or (b), an Early
Amortization Event will be deemed to have occurred only if, after the
expiration of the applicable grace period, if any, described in such clauses,
either the Trustee or holders of Certificates evidencing Percentage Interests
aggregating more than 51% or the [Letter of Credit] [Surety Bond] Issuer (but
only if the [Letter of Credit] [Surety Bond] is outstanding or the [Letter of
Credit] [Surety Bond] Issuer has not been fully reimbursed for all amounts paid
to the Trust by the [Letter of Credit] [Surety Bond] Issuer), by written notice
to the Transferor and the Servicer (and to the Trustee if given by the
Certificateholders or the [Letter of Credit] [Surety Bond] Issuer) declare that
an Early Amortization Event has occurred as of the date of such notice. In the
case of any event described in clauses (c), (d), (e) or (f), an Early
Amortization Event will be deemed to have occurred without any notice or other
action on the part of the Trustee or the Certificateholders or the [Letter of
Credit] [Surety Bond] Issuer immediately upon the occurrence of such event. On
the date on which an Early Amortization Event is deemed to have occurred, the
Amortization Period will commence. In such event, distributions of principal to
the Certificateholders will begin on the first Distribution Date following the
month in which the Early Amortization Date occurs. If, because of the
occurrence of an Early Amortization Event, the Amortization Period begins
earlier than ____________, the date on which the Amortization Period is
scheduled to commence, Certificateholders will begin receiving distributions of
principal earlier than they would otherwise have under the Agreement, which may
shorten the final maturity of the Certificates.]
OPTIONAL TERMINATION
The Transferor may effect a retransfer of the Certificateholders'
interest in each Mortgage Loan, and all property acquired in respect of any
Mortgage Loan, remaining in the Trust for an amount equal to the sum of the
Certificate Principal Balance plus accrued and unpaid interest thereon at the
applicable Certificate Rate through the day preceding the final Distribution
Date if the Certificate Principal Balance immediately prior to the final
Distribution Date is less than or equal to [ ]% of the original Certificate
Principal Balance. The purchase price will be distributed to the
Certificateholders in lieu of the amount that would otherwise be distributed if
such options were not exercised, which will be applied as provided in the
Agreement.
[REGISTRATION OF CERTIFICATES
The Certificates will initially be registered in the name of Cede, the
nominee of DTC. DTC is a limited- purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also 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 ("Indirect Participants").
Certificate Owners who are not Participants but desire to purchase,
sell or otherwise transfer ownership of the Certificates may do so only through
Participants (unless and until Definitive Certificates are issued). In
addition, Certificate Owners will receive all distributions of principal of and
interest on the Certificates from the Trustee through Participants. Certificate
Owners will not receive or be entitled to receive certificates representing
their respective interests in the Certificates, except under the limited
circumstances described below.
Unless and until Definitive Certificates are issued, it is anticipated
that the only Certificateholder of the Certificates will be Cede, as nominee of
DTC, Certificate Owners will not be Certificateholders as that term is used in
the Agreement. Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants.
While the Certificates are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
the Certificates and is required to receive and transmit distributions of
principal of and interest on the Certificates. Participants with whom
Certificate Owners have accounts with respect to Certificates are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess certificates, the rules provide a
mechanism by which Certificate Owners will receive distributions and will be
able to transfer their interests.
Unless and until Definitive Certificates are issued, Certificate
Owners who are not Participants may transfer ownership of Certificates only
through Participants by instructing such Participants to transfer Certificates,
by book-entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
respective Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificate Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
Certificates will be issued in registered form to Certificate Owners,
or their nominees, rather than to DTC (such Certificates being referred to
herein as "Definitive Certificates"), only if (i) DTC or the Servicer 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 Servicer or the Trustee is unable to locate a qualified successor, (ii)
the Servicer, at its sole option, advises the Trustee in writing that it elects
to terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Servicing Termination, DTC, at the direction of Certificate Owners
owning Certificates evidencing Percentage Interests aggregating at lease 51%,
advises the Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) to the exclusion of any physical
certificates being issued to Certificate Owners is no longer in the best
interests of Certificate Owners. Upon the issuance of Definitive Certificates
to Certificate Owners, such Certificates will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions. If
Definitive Certificates are issued, the Record Date may be changed to the last
day of the month immediately preceding the related Distribution Date.
DTC has advised the Servicer and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose accounts with DTC the Certificates are credited.
DTC has advised the Servicer that DTC will take such action with respect to any
Percentage Interests of the Certificates only at the direction of and on behalf
of such Participants with respect to such Percentage Interests of the
Certificates. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates which conflict with actions
taken with respect to other Certificates.]
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Transferor towards the purchase of the Mortgage Loans. The
Mortgage Loans will have been acquired by the Transferor in privately
negotiated transactions.
LEGAL INVESTMENT CONSIDERATIONS
[Although, as a condition to their issuance, the Certificates will be
rated in the [highest] rating category of the Rating Agency, the Certificates
will not constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), because most of the
Mortgages securing the Mortgage Loans are not first mortgages. Accordingly,
many institutions with legal authority to invest in comparably rated securities
based on first mortgage loans may not be legally authorized to invest in the
Certificates, which because they evidence interests in a pool that includes
junior mortgage loans are not "mortgage related securities" under SMMEA. See
"LEGAL INVESTMENT" in the Prospectus.]
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit or other plan (such as an individual
retirement account or a Keogh plan) that is subject to Title I of ERISA or to
Section 4975 of the Code from engaging in certain transactions involving "plan
assets" with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. Certain
governmental plans, although not subject to ERISA or the Code, are subject to
federal, state or locals laws ("Similar Law") that impose similar requirements
(such plans subject to ERISA, Section 4975, or Similar Law referred to herein
as "Plans"). A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code or under Similar Law
for such persons.
ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan.
It is expected that the Certificates will be considered equity
interests in the Trust for purposes of the Plan Assets Regulation, and that the
assets of the Trust may therefore constitute plan assets if Certificates are
acquired by Plans. It is not expected that the Certificates will constitute
"publicly-offered securities" and the Trustee will not monitor ownership of the
Certificates to ensure that ownership by benefit plan investors is not
significant.
[Furthermore, the Trust does not contain only assets to which the
Exemption, described in the Prospectus, applies.
As a result, Certificates shall not be transferred and the Trustee
shall not register any proposed transfer of Certificates unless it receives (i)
a representation substantially to the effect that the proposed transferee is
not a Plan and is not acquiring the Certificates on behalf of or with the
assets of a Plan (including assets that may be held in an insurance company's
separate or general accounts where assets in such accounts may be deemed "plan
assets" for purposes of ERISA), or (ii) an opinion of counsel in form and
substance satisfactory to the Trustee and the Transferor that the purchase or
holding of the Certificates by or on behalf of a Plan will not constitute a
prohibited transaction and will not result in the assets of the Trust being
deemed to be "plan assets" and subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of ERISA and the
Code or any Similar Law or subject the Trustee, the Certificate Administrator
or the Transferor to any obligation in addition to those undertaken in the
Trust Agreement.]
[It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Certificates, and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single mortgagor that is the obligor on five
percent of the obligations included in the Trust by aggregate unamortized
principal balance of the assets of the Trust.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the
Exemption, and the potential consequences in their specific circumstances,
prior to making an investment in the Certificates.]
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, special tax counsel to the Trust,
for federal income tax purposes, the Certificates will be treated as debt and
the Trust will not be characterized as an association, a publicly traded
partnership taxable as a corporation, or a taxable mortgage pool. The Trust and
each Certificateholder will agree to treat the Certificates as indebtedness for
federal income tax purposes. Alternative characterizations of the Trust and the
Certificates are possible, and prospective investors should consult their tax
advisors regarding the federal income tax consequences of any such alternative
characterization. The taxable income allocated to a Certificateholder that is a
tax-exempt entity will constitute "unrelated business taxable income" generally
to such a holder. Based on their anticipated offering prices, it is expected
that the Certificates will not be issued with original issue discount ("OID").
The prepayment assumption to be used for calculating the accrual of OID and
market discount and amortization of bond premium will be [ ]. For additional
information regarding federal income tax consequences, see "Certain Federal
Income Tax Consequences" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ______________ (the "Underwriting Agreement"), between the
Transferor and [the Underwriter] (the "Underwriter"), the Transferor has agreed
to sell to the Underwriter, and the Underwriter has agreed to purchase from the
Transferor, all of the Certificates.
The Underwriting Agreement provides that the Underwriter's obligations
hereunder are subject to certain conditions precedent, and that the Underwriter
will be obligated to purchase all of the Certificates if any are purchased.
The distribution of the Certificates by the Underwriter will be
effected from time to time in one or more negotiated transactions or otherwise
at varying prices to be determined, in each case, at the time of sale. The
Underwriter may effect such transactions by selling the Certificates to or
through dealers, and such dealers may receive from the Underwriter compensation
in the form of underwriting discounts, concessions or commissions. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Certificates may be deemed to be underwriters, and any
discounts, commissions or concessions received by them, and any profit on the
resale of the Certificates purchased by them, may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Act").
The Underwriting Agreement provides that the Transferor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed
upon for the Transferor by [ ] and for the Underwriter by [
_______________________________ ].
RATING
It is a condition to issuance that each Class of the Certificates be
rated not lower than "____"by [Rating Agency] and "____" by [Rating Agency].
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes
into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Certificates. The ratings
on the Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the Mortgage Loans or the possibility
that Certificateholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
<PAGE>
[Letter of Credit] [Surety Bond] Amount............25
Certificate Loss Amount............................24
Certificate Principal Balance..................18, 25
Defaulted Mortgage Loan............................21
Defective Mortgage Loan............................20
Definitive Certificates............................28
Determination Date.................................23
Distribution Account...............................22
Distribution Date..................................23
Early Amortization Event...........................26
Eligible HELOC.....................................15
ERISA..............................................29
Form 8-K...........................................16
Index Maturity.....................................25
Indirect Participants..............................27
Investor Percentage................................22
Investor Servicing Fee.............................14
LIBOR..............................................25
Liquidation Loss Amount............................21
London Business Day................................25
Mortgage Files.....................................19
Mortgage Loans.....................................15
Notice Date........................................20
Participants.......................................27
Plans..............................................29
Principal Collections..............................21
Record Date........................................23
Registration of Certificates.......................23
Retransfer Deposit Amount..........................19
Rules..............................................28
Servicing Fee Rate.................................14
Similar Law........................................29
SMMEA..............................................29
Transferor.........................................10
Transferor Certificate.............................15
Transferor Interest................................18
Transferor Percentage..............................18
Transferor's Portfolio.............................11
Unallocated Principal Collections..................23
Underwriting Agreement.............................30
Unpaid Interest Shortfall..........................23
<PAGE>
$---------
[ ] HOME EQUITY
LOAN TRUST ____-_
$_________ [FIXED] [FLOATING] RATE
ASSET-BACKED CERTIFICATES
SERIES ____-_
KEYBANK NATIONAL ASSOCIATION
(TRANSFEROR)
-----------------
PROSPECTUS SUPPLEMENT
[ , --- ]
---------------------
[UNDERWRITER]
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED JULY 2, 1999
Prospectus Supplement dated ________ __, ____ To Prospectus dated _________ __,
____
$----------
[ ] HOME EQUITY LOAN TRUST ____-_
Home Equity Loan Asset-Backed Certificates, Series ____-_
<PAGE>
<TABLE>
<CAPTION>
[ ] KeyBank National Association,
as Servicer as Transferor
<S> <C> <C> <C> <C> <C>
Principal Balance Certificate Price to Public Underwriting Proceeds to the
Rate (1) Discount (2) Transferor (3)
Class $ % % % %
Total $ N/A $ $ $
</TABLE>
(1) Plus accrued interest, if any, at the Certificate Rate from
_____________, _____.
(2) The Transferor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(4) Before deducting expenses, payable by the Transferor, estimated to be
$____________.
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are a
pool of (1) home equity revolving credit line loans secured primarily by
[second liens] on residential properties that are primarily one- to
four-family properties, and (2) home improvement installment sales
contracts and installment loan agreements.
o currently have no trading market
o are obligations of the trust only and are not obligations of the transferor
and the master servicer or its affiliates
CREDIT ENHANCEMENT
o [Letter of Credit] [Surety Bond]
REVIEW THE INFORMATION IN RISK FACTORS ON PAGE S-9 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 2 IN THE PROSPECTUS.
For complete information about the Home Equity Loan Asset-Backed
Certificates, Series ____-_, read both this prospectus supplement and the
prospectus. This prospectus supplement must be accompanied by a prospectus
if it is being used to offer and sell the certificates.
This Prospectus Supplement and the Prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp. Company and an affiliate of
the Seller, in connection with offers and sales related to market-making
transactions in the securities in which it acts as principal and/or agent.
Sales will be made at prices related to the prevailing prices at the time of
sale.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE
[Underwriter]
___________, 199_
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus Supplement and the Prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp Company and an affiliate of
the Seller ("McDonald"), or its successors, in connection with offers and sales
related to market-making transactions in the Securities in which McDonald acts
as principal. McDonald may also act as agent in such transactions. Sales will
be made at prices related to prevailing prices at the time of sale. Any
obligations of McDonald are the sole obligations of McDonald and do not create
any obligations on the part of any affiliate of McDonald.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
securities and exchange commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to completion, dated July 2, 1999.
Prospectus
KEYBANK NATIONAL ASSOCIATION
Asset-Backed Certificates
Asset-Backed Notes
(Issuable in Series)
KeyBank National Association, as the seller, may offer from time to time under
this prospectus and a related prospectus supplement asset-backed notes and
asset-backed certificates which may be sold from time to time in one or more
series. Each series of securities will be issued in one or more classes.
The related prospectus supplement will set forth the specific assets of the
trust fund and the seller or sellers from whom such assets are acquired. The
assets may include:
(a) one or more pools of:
(i) closed-end and/or revolving home equity loans or certain
balances thereof and/or loans of which the proceeds have
been applied to the purchase of the related mortgaged
property, secured by mortgages primarily on one- to
four-family residential properties and properties that
include residential, and semi commercial or retail units;
(ii) home improvement installment sales contracts and
installment loan agreements which may be unsecured, secured
by mortgages primarily on one- to four-family residential
properties, or secured by purchase money security interests
in the related home improvements;
(iii) private securities; and
(iv) agency securities;
(b) all monies due under the above assets (which may be net of
certain amounts payable to the servicer); and
(c) certain funds, credit enhancements and other assets.
The assets comprising the trust fund may be divided into one or more asset
groups and each class of the related series will evidence beneficial ownership
of the corresponding asset group, as applicable.
The prospectus supplement will state if the trust fund will make a REMIC
election for federal income tax purposes.
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE RISK FACTORS ON PAGE 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the offered securities or determined if
this prospectus is accurate or complete. Making any contrary representation is
a criminal offense.
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors prior to any
purchase of the securities.
LIMITED LIQUIDITY MAY RESULT IN DELAYS IN LIQUIDATIONS OR LOWER RETURNS
There will be no market for the securities of any series prior to its
issuance, and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide holders with liquidity of
investment or that any such market will continue for the life of the securities
of such series. One or more underwriters, as specified in the related
prospectus supplement, may expect to make a secondary market in the securities,
but have no obligation to do so. Absent a secondary market for the securities
you may experience a delay if you choose to sell your securities or the price
you receive may be less than that which is offered for a comparable liquid
security.
LIMITED ASSETS
THE SELLER. The securities of a series will be payable solely from the
assets of the trust fund for such securities. There will be no recourse to the
seller or any other person for any default on the notes or any failure to
receive distributions on the certificates.
Further, unless otherwise stated in the related prospectus supplement,
at the times set forth in the related prospectus supplement, certain primary
assets and/or any balance remaining in the collection account or distribution
account immediately after making all payments due on the securities of such
Series and other payments specified in the related prospectus supplement, may
be promptly released or remitted to the seller, the servicer, the provider of
any credit enhancement or any other person entitled thereto and will no longer
be available for making payments to holders. Consequently, holders of
securities of each series must rely solely upon payments with respect to the
primary assets and the other assets constituting the trust fund for a series of
securities, including, if applicable, any amounts available pursuant to any
credit enhancement for such series, for the payment of principal of and
interest on the securities of such series.
Holders of notes will be required under an indenture to proceed only
against the assets of the trust fund in the case of a default with respect to
such notes and may not proceed against the assets of the seller. If payments
from the assets of the trust were insufficient to make payments on such notes,
no other assets would be available for payment of the deficiency and you could
experience a loss.
The only obligations of the seller will be the representations and
warranties it makes regarding the trust assets.
WE REFER YOU TO "THE AGREEMENTS - ASSIGNMENT OF PRIMARY ASSETS."
LIMITS ON CREDIT ENHANCEMENT
Although credit enhancement is intended to reduce the risk of
delinquent payments or losses to holders of securities, the amount of such
credit enhancement, if any, will be limited, as set forth in the related
prospectus supplement. In addition the amount available will decline and could
be depleted under certain circumstances prior to the payment in full of the
related series of securities, and as a result you may suffer losses.
SEE "ENHANCEMENT."
TIMING AND RATE OF PREPAYMENTS MAY RESULT IN LOWER YIELD
The yield to maturity experienced by a holder of securities may be
affected by the rate of payment of principal of the trust assets. The timing of
principal payments of the securities of a series will be affected by a number
of factors, including the following: (i) the extent of prepayments of the loans
and the underlying loans relating to the private securities and the agency
securities, which prepayments may be influenced by a variety of factors, (ii)
the manner of allocating principal payments among the classes of securities of
a series as specified in the related prospectus supplement and (iii) the
exercise by the party entitled thereto of any right of optional termination.
Prepayments may also result from repurchases of these assets due to material
breaches of the Seller's warranties.
WE REFER YOU TO "DESCRIPTION OF THE SECURITIES--WEIGHTED AVERAGE LIFE
OF SECURITIES."
Interest payable on the securities of a series on a distribution date
will include all interest accrued during the period specified in the related
prospectus supplement. In the event interest accrues during the calendar month
prior to a distribution date, the effective yield to holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
security were to accrue through the day immediately preceding each distribution
date, and the effective yield (at par) to holders will be less than the
indicated coupon rate.
WE REFER YOU TO "DESCRIPTION OF THE SECURITIES--PAYMENTS OF INTEREST."
JUNIOR LIENS MAY RESULT IN LOSSES IN FORECLOSURE PROCEEDINGS
Since some of the mortgages are junior liens subordinate to the rights
of the mortgagee under the related senior mortgage or mortgages, the proceeds
from any liquidation, insurance or condemnation proceedings will be available
to satisfy the outstanding balance of such junior mortgage only to the extent
that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, a junior mortgagee may
not foreclose on the property securing a junior mortgage unless it forecloses
subject to the senior mortgages, in which case it must either pay the entire
amount due on the senior mortgages to the senior mortgagees at or prior to the
foreclosure sale or undertake the obligation to make payments on the senior
mortgages in the event the mortgagor is in default thereunder. The trust fund
will not have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
DECREASE IN VALUE OF MORTGAGED PROPERTY WOULD DISPROPORTIONATELY AFFECT JUNIOR
LIENHOLDERS
There are several factors that could adversely affect the value of
properties such that the outstanding balance of the related loan, together with
any senior financing on the properties, would equal or exceed the value of the
properties. Among the factors that could adversely affect the value of the
properties are an overall decline in the residential real estate market in the
areas in which the properties are located or a decline in the general condition
of the properties as a result of failure of borrowers to maintain adequately
the properties or of natural disasters that are not necessarily covered by
insurance, such as earthquakes and floods. Any such decline could extinguish
the value of a junior interest in property before having any effect on the
related senior interest therein. If such a decline occurs, the actual rates of
delinquencies, foreclosure and losses on the junior loans could be higher than
those currently experienced in the mortgage lending industry in general.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
clean-up. In several states, such a lien has priority over the lien of an
existing mortgage or owner interest against such property. In addition, under
the laws of some states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, a lender may be liable, as
an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the operations
of the borrower, regardless of whether or not the environmental damage or
threat was caused by a prior owner. A lender also risks such liability on
foreclosure of a property underlying a mortgage.
VIOLATIONS OF LENDING LAWS COULD RESULT IN LOSSES ON PRIMARY ASSETS
Applicable state laws generally regulate interest rates and other
charges and require certain disclosures. In addition, other state laws, public
policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and debt collection practices may
apply to the origination, servicing and collection of the loans. Depending on
the provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the servicer to collect all or part of the principal of or interest
on the loans, may entitle the borrower to a refund of amounts previously paid
and, in addition, could subject the owner of the loan to damages and
administrative enforcement.
The loans are also subject to federal laws, including laws that
require certain disclosures to borrowers, that prohibit discrimination and that
regulate the use and reporting of information relating to the borrower's credit
experience. Violations of certain provisions of these federal laws may limit
the ability of the servicer to collect all or part of the principal of or
interest on the loans and in addition could subject the trust fund to damages
and administrative enforcement.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS."
The home improvement contracts are also subject to the Preservation of
Consumers, Claims and Defenses regulations of the Federal Trade Commission and
other similar federal and state statutes and regulations (collectively, the
"Holder in Due Course Rules"), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the obligor
to withhold payment if the work does not meet the quality and durability
standards agreed to by the homeowner and the contractor. The Holder in Due
Course Rules have the effect of subjecting any assignee of the seller in a
consumer credit transaction, such as the trust fund with respect to the loans,
to all claims and defenses which the obligor in the credit sale transaction
could assert against the seller of the goods.
RATING OF THE SECURITIES RELATE TO CREDIT RISK ONLY
The ratings of the securities will be based on, among other things,
the adequacy of the value of the trust assets and any credit enhancement with
respect to a series. Such ratings should not be deemed a recommendation to
purchase, hold or sell securities, inasmuch as it does not address market price
or suitability for a particular investor. There is also no assurance that any
such rating will remain in effect for any given period of time or may not be
lowered or withdrawn entirely by the rating agency if in its judgment
circumstances so warrant. In addition to being lowered or withdrawn due to any
erosion in the adequacy of the value of the trust assets, such ratings might
also be lowered or withdrawn, among other reasons, because of an adverse change
in the financial or other condition of a credit enhancement provider or a
change in the rating of such credit enhancement provider's long term debt.
LIQUIDATION VALUE OF TRUST ASSETS MAY BE INSUFFICIENT TO SATISFY ALL CLAIMS
AGAINST TRUST
There is no assurance that the market value of the trust assets for a
series will at any time be equal to or greater than the aggregate principal
amount of the securities of such series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the indenture for a series of
notes and a sale of the assets in the trust fund or upon a sale of the assets
of a trust fund for a series of certificates, the trustee, the servicer, if
any, the credit enhancement provider and any other service provider generally
will be entitled to receive the proceeds of any such sale to the extent of
unpaid fees and other amounts owing to such persons prior to distributions to
holders of securities. Upon any such sale, the proceeds thereof may be
insufficient to pay in full the principal of and interest on the securities of
such series.
Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted loan having a small remaining principal balance as it would in
the case of a defaulted loan having a larger principal balance, the amount
realized after expenses of liquidation would be smaller as a percentage of the
outstanding principal balance of the smaller loan than would be the case with a
larger loan. Because the average outstanding principal balances of the loans
are small relative to the size of the loans in a typical pool of first
mortgages, realizations net of liquidation expenses on defaulted loans may also
be smaller as a percentage of the principal amount of the loans than would such
net realizations in the case of a typical pool of first mortgage loans.
DESCRIPTION OF THE SECURITIES
GENERAL
The notes (the "Notes") will be issued in series (each, a "Series")
pursuant to an indenture (the "Indenture") between the related trust fund (the
"Trust") and the entity named in the related prospectus supplement (the
"Prospectus Supplement") as trustee (the "Trustee") with respect to such
Series. A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The certificates (the
"Certificates") will also be issued in Series pursuant to separate agreements
(each, a "Pooling and Servicing Agreement" or a "Trust Agreement", and together
with the Indenture, the "Agreements") among KeyBank National Association (the
"Seller"), the servicer specified in the Prospectus Supplement (the
"Servicer"), if the Series relates to Loans, and the Trustee. A form of Pooling
and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. A Series may consist of both
Notes and Certificates (each, a "Security").
The following summaries describe certain provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreements and the Prospectus Supplement relating to
each Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
Each Series of Securities will consist of one or more classes of
Securities (each, a "Class"), one or more of which may be Compound Interest
Securities, Fixed Interest Securities, Variable Interest Securities, Planned
Amortization Class ("PAC") Securities, Zero Coupon Securities, Principal Only
Securities, Interest Only Securities or Participating Securities. A Series may
also include one or more Classes of subordinate securities (the "Subordinate
Securities"). The Securities of each Series will be issued only in fully
registered form, without coupons, in the authorized denominations for each
Class specified in the related Prospectus Supplement. Upon satisfaction of the
conditions, if any, applicable to a Class of a Series, as described in the
related Prospectus Supplement, the transfer of the Securities may be registered
and the Securities may be exchanged at the office of the Trustee without the
payment of any service charge other than any tax or governmental charge payable
in connection with such registration of transfer or exchange. If specified in
the related Prospectus Supplement, one or more Classes of a Series may be
available in book-entry form only.
Unless otherwise provided in the related Prospectus Supplement,
payments of principal of and interest on a Series of Securities will be made on
the distribution date (each, a "Distribution Date") specified in the Prospectus
Supplement relating to such Series by check mailed to Holders of such Series,
registered as such at the close of business on the record date specified in the
related Prospectus Supplement applicable to such Distribution Dates at their
addresses appearing on the security register, except that (a) payments may be
made by wire transfer (at the expense of the Holder requesting payment by wire
transfer) in certain circumstances described in the related Prospectus
Supplement and (b) final payments of principal in retirement of each Security
will be made only upon presentation and surrender of such Security at the
office of the Trustee specified in the Prospectus Supplement. Notice of the
final payment on a Security will be mailed to the holder of such Security
before the Distribution Date on which the final principal payment on any
Security is expected to be made to the holder of such Security.
Payments of principal of and interest on the Securities will be made
by the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, all payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other credit enhancement
specified in the Prospectus Supplement (the "Enhancement") will be deposited
directly into a separate account established by the Trustee or the Servicer
(the "Collection Account") and, net, if and as provided in the related
Prospectus Supplement, of certain amounts payable to the related Servicer and
any other person specified in the Prospectus Supplement, will thereafter be
deposited into the Distribution Account and will be available to make payments
on Securities of such Series on the next Distribution Date, as the case may be.
See "THE TRUSTS--Collection and Distribution Accounts."
VALUATION OF THE PRIMARY ASSETS
If specified in the related Prospectus Supplement for a Series of
Notes, each Primary Asset included in the related Trust for a Series will be
assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, at any time the Asset Value of the Primary Assets will
be equal to the product of the Asset Value Percentage as set forth in the
Indenture and the lesser of (a) the stream of remaining regularly scheduled
payments on the Primary Assets, net, unless otherwise provided in the related
Prospectus Supplement, of certain amounts payable as expenses, together with
income earned on each such scheduled payment received through the day preceding
the next Distribution Date at the Assumed Reinvestment Rate, if any, discounted
to present value at the highest interest rate on the Notes of such Series over
periods equal to the interval between payments on the Notes, and (b) the then
principal balance of the Primary Assets. Unless otherwise specified in the
related Prospectus Supplement, the initial Asset Value of the Primary Assets
will be at least equal to the principal amount of the Notes of the related
Series at the date of issuance thereof.
The "Assumed Reinvestment Rate", if any, for a Series will be the
highest rate permitted by the Rating Agency or a rate insured by means of a
surety bond, guaranteed investment contract, Deposit Agreement or other
arrangement satisfactory to the Rating Agency. If the Assumed Reinvestment Rate
is so insured, the related Prospectus Supplement will set forth the terms of
such arrangement.
PAYMENTS OF INTEREST
The Securities of each Class by their terms entitled to receive
interest will bear interest (calculated, unless otherwise specified in the
related Prospectus Supplement, on the basis of a 360-day year of twelve 30-day
months) from the date and at the rate per annum specified, or calculated in the
method described, in the related Prospectus Supplement. Interest on such
Securities of a Series will be payable on the Distribution Date and in the
priority specified in the related Prospectus Supplement. The rate of interest
on Securities of a Series may be fixed or variable or may change with changes
in the annual percentage rates of the Loans or Underlying Loans, as applicable
included in the related Trust and/or as prepayments occur with respect to such
Loans or Underlying Loans, as applicable. Principal Only Securities may not be
entitled to receive any interest distributions or may be entitled to receive
only nominal interest distributions. Any interest on Zero Coupon Securities
that is not paid on the related Distribution Date will accrue and be added to
the principal thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include
all interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the
yield that would otherwise be obtainable if interest payable on the Securities
were to accrue through the day immediately preceding such Distribution Date.
PAYMENTS OF PRINCIPAL
On each Distribution Date for a Series, principal payments will be
made to the holders of the Securities of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective
Classes of a Series in the manner, at the times and in the priority (which may,
in certain cases, include allocation by random lot) set forth in the related
Prospectus Supplement.
Interest Only Securities may be assigned a "Notional Amount" set forth
in the related Prospectus Supplement which is used solely for convenience in
expressing the calculation of interest and for certain other purposes and does
not represent the right to receive any distributions allocable to principal.
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date with respect to each Class of
Notes is the date no later than which principal thereof will be fully paid and
with respect to each Class of Certificates will be the date on which the entire
aggregate principal balance of such Class is expected to be reduced to zero, in
each case calculated on the basis of the assumptions applicable to such Series
described in the related Prospectus Supplement. The Final Scheduled
Distribution Date for each Class of a Series will be specified in the related
Prospectus Supplement. The Final Scheduled Distribution Date of a Class may
equal the maturity date of the Primary Asset in the related Trust which has the
latest stated maturity or will be determined as described herein and in the
related Prospectus Supplement.
The actual final Distribution Date of the Securities of a Series will
depend primarily upon the rate of payment (including prepayments, liquidations
due to default, the receipt of proceeds from casualty insurance policies and
repurchases) of the Loans and the Underlying Loans relating to the Private
Securities and the Agency Securities, as applicable, in the related Trust.
Since payments on the Primary Assets, including prepayments, will be used to
make distributions in reduction of the outstanding principal amount of the
Securities, it is likely that the actual final Distribution Date of any Class
will occur earlier, and may occur substantially earlier, than its Final
Scheduled Distribution Date. Furthermore, with respect to a Series of
Certificates, unless otherwise specified in the related Prospectus Supplement,
as a result of delinquencies, defaults and liquidations of the Primary Assets
in the Trust, the actual final Distribution Date of any Certificate may occur
later than its Final Scheduled Distribution Date. No assurance can be given as
to the actual prepayment experience with respect to the Primary Assets related
to a Series. See "Weighted Average Life of the Securities" below.
SPECIAL REDEMPTION
If so specified in the Prospectus Supplement relating to a Series of
Securities having other than monthly Distribution Dates, one or more Classes of
Securities of such Series may be subject to special redemption, in whole or in
part, on the day specified in the related Prospectus Supplement (a "Special
Redemption Date") if, as a consequence of prepayments on the Loans or
Underlying Loans, as applicable, relating to such Securities or low yields then
available for reinvestment, the entity specified in the related Prospectus
Supplement determines, based on assumptions specified in the applicable
Agreement, that the amount available for the payment of interest that will have
accrued on such Securities through the designated interest accrual date
specified in the related Prospectus Supplement (the "Available Interest
Amount") is less than the amount of interest that will have accrued on such
Securities to such date. In such event and as further described in the related
Prospectus Supplement, the Trustee will redeem a principal amount of
outstanding Securities of such Series as will cause the Available Interest
Amount to equal the amount of interest that will have accrued through such
designated interest accrual date for such Series of Securities outstanding
immediately after such redemption.
OPTIONAL REDEMPTION, PURCHASE OR TERMINATION
The Seller or the Servicer may, at its option, redeem, in whole or in
part, one or more Classes of Notes or purchase one or more Classes of
Certificates of any Series, on any Distribution Date under the circumstances,
if any, specified in the Prospectus Supplement relating to such Series.
Alternatively, if so specified in the related Prospectus Supplement for a
Series of Certificates, the Seller, the Servicer, or another entity designated
in the related Prospectus Supplement may, at its option, cause an early
termination of a Trust by repurchasing all of the Primary Assets from such
Trust on or after a date specified in the related Prospectus Supplement, or on
or after such time as the aggregate outstanding principal amount of the
Certificates or Primary Assets, as specified in the related Prospectus
Supplement, is less than the amount or percentage specified in the related
Prospectus Supplement. Notice of such redemption, purchase or termination must
be given by the Seller or the Trustee prior to the related date. The
redemption, purchase or repurchase price will be set forth in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, in
the event that a REMIC election has been made, the Trustee shall receive a
satisfactory opinion of counsel that the optional redemption, purchase or
termination will be conducted so as to constitute a "qualified liquidation"
under Section 860F of the Code.
In addition, the Prospectus Supplement may provide other circumstances
under which Holders of Securities of a Series could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the related Primary Assets.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. Unless otherwise specified in the
related Prospectus Supplement, the weighted average life of the Securities of a
Class will be influenced by the rate at which the amount financed under the
Loans or Underlying Loans, as applicable, included in the Trust for a Series is
paid, which may be in the form of scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to
a prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal
amount of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the Loans
or Underlying Loans, as applicable, included in the related Trust are made at
rates corresponding to various percentages of the prepayment standard or model
specified in such Prospectus Supplement.
There is, however, no assurance that prepayment of the Loans or
Underlying Loans, as applicable, included in the related Trust will conform to
any level of any prepayment standard or model specified in the related
Prospectus Supplement. The rate of principal prepayments on pools of loans is
influenced by a variety of economic, demographic, geographic, legal, tax,
social and other factors.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Loans or Underlying Loans, as applicable, for a Series, such loans are likely
to prepay at rates higher than if prevailing interest rates remain at or above
the interest rates borne by such loans. In this regard, it should be noted that
the Loans or Underlying Loans, as applicable, for a Series may have different
interest rates. In addition, the weighted average life of the Securities may be
affected by the varying maturities of the Loans or Underlying Loans, as
applicable. If any Loans or Underlying Loans, as applicable, for a Series have
actual terms-to-stated maturity of less than those assumed in calculating the
Final Scheduled Distribution Date of the related Securities, one or more
Classes of the Series may be fully paid prior to their respective Final
Scheduled Distribution Dates, even in the absence of prepayments and a
reinvestment return higher than the Assumed Reinvestment Rate.
THE TRUSTS
GENERAL
The Notes of each Series will be secured by the pledge of the assets
of the related Trust, and the Certificates of each Series will represent
interests in the assets of the related Trust, or in an Asset Group specified in
the related Prospectus Supplement. The Trust of each Series will include assets
purchased from the Seller composed of:
(i) the Primary Assets;
(ii) amounts available from the reinvestment of payments on such
Primary Assets at the Assumed Reinvestment Rate, if any,
specified in the related Prospectus Supplement;
(iii) any Enhancement;
(iv) any Property that secured a Loan but which is acquired by
foreclosure or deed in lieu of foreclosure or repossession;
and
(v) the amount, if any, initially deposited in the Collection
Account or Distribution Account for a Series as specified
in the related Prospectus Supplement.
The Securities will be non-recourse obligations of the related Trust.
The assets of the Trust specified in the related Prospectus Supplement for a
Series of Securities, unless otherwise specified in the related Prospectus
Supplement will serve as collateral only for that Series of Securities. Holders
of a Series of Notes may only proceed against such collateral securing such
Series of Notes in the case of a default with respect to such Series of Notes
and may not proceed against any assets of the Seller, any of its affiliates or
the related Trust not pledged to secure such Notes.
The Primary Assets for a Series will be sold by the Seller to the
related Trust. Private Securities will be purchased by the Seller in secondary
market transactions, not from the issuer of such securities or an affiliate
thereof. Agency Securities will be purchased either in the secondary market or
otherwise. Loans may be purchased by the Seller in privately negotiated
transactions, which may include transactions with affiliates of the Seller. The
Primary Assets will be transferred by the Seller to the Trust. Loans relating
to a Series will be serviced by the Servicer, which may be the Seller,
specified in the related Prospectus Supplement, pursuant to a Pooling and
Servicing Agreement, with respect to a Series of Certificates or a servicing
agreement (each, a "Servicing Agreement") between the Trust and Servicer, with
respect to a Series of Notes.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series of Notes, the Indenture and the Servicing Agreement, as the
context requires.
If so specified in the related Prospectus Supplement, a Trust relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a "Trust Agreement") between the Seller and the trustee of
such Trust specified in the related Prospectus Supplement.
With respect to each Trust, prior to the initial offering of the
related Series of Securities, the Trust will have no assets or liabilities. No
Trust is expected to engage in any activities other than acquiring, managing
and holding the related Primary Assets and other assets contemplated herein and
in the related Prospectus Supplement and the proceeds thereof, issuing
Securities and making payments and distributions thereon and certain related
activities. No Trust is expected to have any source of capital other than its
assets and any related Enhancement.
Primary Assets included in the Trust for a Series may consist of any
combination of Loans, Private Securities and Agency Securities, to the extent
and as specified in the related Prospectus Supplement.
THE LOANS
MORTGAGE LOANS. The property which secures repayment of the Loans is
referred to as the "Mortgaged Properties". The Primary Assets for a Series may
consist, in whole or in part, of closed-end and/or revolving home equity loans
or certain balances thereof and/or loans of which the proceeds have been
applied to the purchase of the related Mortgaged Property (the "Closed-End
Loans" and "Revolving Credit Line Loans" and collectively, the "Mortgage
Loans") secured by mortgages primarily on Single Family Properties which may be
subordinated to other mortgages on the same Mortgaged Property. The Mortgage
Loans may have fixed interest rates or adjustable interest rates and may
provide for other payment characteristics as described below and in the related
Prospectus Supplement.
As more fully described in the related Prospectus Supplement, interest
on each Revolving Credit Line Loan, excluding introductory rates offered from
time to time during promotional periods, may be computed and payable monthly on
the average daily outstanding principal balance of such loan. Principal amounts
on the Revolving Credit Line Loans may be drawn down (up to a maximum amount as
set forth in the related Prospectus Supplement) or repaid under each Revolving
Credit Line Loan from time to time. If specified in the related Prospectus
Supplement, new draws by borrowers under the Revolving Credit Line Loans will
automatically become part of the Trust for a Series. As a result, the aggregate
balance of the Revolving Credit Line Loans will fluctuate from day to day as
new draws by borrowers are added to the Trust and principal payments are
applied to such balances and the amounts of such draws and payments will
usually differ each day, as more specifically described in the related
Prospectus Supplement. Unless otherwise described in the related Prospectus
Supplement, the full principal amount of a Closed-End Loan is advanced at
origination of the loan and generally is repayable in equal (or substantially
equal) installments of an amount sufficient to fully amortize such loan at its
stated maturity. As more fully described in the related Prospectus Supplement,
interest on each Loan is calculated on the basis of the outstanding principal
balance of such loan multiplied by the Loan Rate thereon and further multiplied
by a fraction described in the related Prospectus Supplement. Unless otherwise
described in the related Prospectus Supplement, the original terms to stated
maturity of Loans generally will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan,
a borrower may choose an interest only payment option and is obligated to pay
only the amount of interest which accrues on the loan during the billing cycle.
An interest only payment option may be available for a specified period before
the borrower must begin paying at least the minimum monthly payment of a
specified percentage of the average outstanding balance of the loan.
The Mortgaged Properties will include primarily Single Family Property
(i.e., one- to four-family residential housing, including Condominium Units and
Cooperative Dwellings). The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums, townhouses, duplexes, row
houses, individual units in planned unit developments and other attached
dwelling units. Each Single Family Property will be located on land owned in
fee simple by the borrower or on land leased by the borrower for a term at
least ten years (unless otherwise provided in the related Prospectus
Supplement) greater than the term of the related Loan. Attached dwellings may
include owner-occupied structures where each borrower owns the land upon which
the unit is built, with the remaining adjacent land owned in common or dwelling
units subject to a proprietary lease or occupancy agreement in a cooperatively
owned apartment building.
The Mortgaged Properties may also include semi-commercial retail
properties ("Small Mixed Use Properties"). At least 50% of the square footage
of each of the Small Mixed Use Properties are residential. Also included in the
category of Small Mixed Use Properties are properties containing five or more
residential units and no commercial space. Small Mixed-Use Properties may be
owner occupied or investor properties and the loan purpose may be a refinancing
or a purchase.
Unless otherwise specified in the related Prospectus Supplement,
Mortgages on Cooperative Dwellings consist of a lien on the shares issued by
such Cooperative Dwelling and the proprietary lease or occupancy agreement
relating to such Cooperative Dwelling.
The aggregate principal balance of Loans secured by Mortgaged
Properties that are owner-occupied will be disclosed in the related Prospectus
Supplement. Unless otherwise specified in the Prospectus Supplement, the sole
basis for a representation that a given percentage of the Loans are secured by
Single Family Property that is owner-occupied will be either (i) the making of
a representation by the Mortgagor at origination of the Loan either that the
underlying Mortgaged Property will be used by the Mortgagor for a period of at
least six months every year or that the Mortgagor intends to use the Mortgaged
Property as a primary residence, or (ii) a finding that the address of the
underlying Mortgaged Property is the Mortgagor's mailing address as reflected
in the Servicer's records. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include non-owner occupied investment
properties and vacation and second homes.
The initial Combined Loan-to-Value Ratio of a Loan is computed in the
manner described in the related Prospectus Supplement and may take into account
the amounts of any related senior mortgage loans.
HOME IMPROVEMENT CONTRACTS. The Primary Assets for a Series may
consist, in whole or part, of home improvement installment sales contracts and
installment loan agreements (the "Home Improvement Contracts") originated by a
home improvement contractor in the ordinary course of business. As specified in
the related Prospectus Supplement, the Home Improvement Contracts will either
be unsecured or secured by the Mortgages primarily on Single Family Properties
which are generally subordinate to other mortgages on the same Mortgaged
Property or by purchase money security interest in the Home Improvements
financed thereby. Unless otherwise specified in the applicable Prospectus
Supplement, the Home Improvement Contracts will be fully amortizing and may
have fixed interest rates or adjustable interest rates and may provide for
other payment characteristics as described below and in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
home improvements (the "Home Improvements") securing the Home Improvement
Contracts include, but are not limited to, replacement windows, house siding,
new roofs, swimming pools, satellite dishes, kitchen and bathroom remodeling
goods and solar heating panels.
If applicable, the initial Loan-to-Value Ratio of a Home Improvement
Contract is computed in the manner described in the related Prospectus
Supplement.
ADDITIONAL INFORMATION. The selection criteria which shall apply with
respect to the Loans, including, but not limited to, the Combined Loan-to-Value
Ratios or Loan-to-Value Ratios, as applicable, original terms to maturity and
delinquency information, will be specified in the related Prospectus
Supplement.
Some Loans may be delinquent or non-performing as specified in the
related Prospectus Supplement. Loans may be originated by or acquired from an
affiliate of the Seller and an affiliate of the Seller may be an obligor with
respect to any such Loan. To the extent provided in the related Prospectus
Supplement, additional Loans may be periodically added to the Trust, or may be
removed from time to time if certain asset value tests are met, as described in
the related Prospectus Supplement.
The Loans for a Series may include Loans that do not amortize their
entire principal balance by their stated maturity in accordance with their
terms and require a balloon payment of the remaining principal balance at
maturity, as specified in the related Prospectus Supplement. As further
described in the related Prospectus Supplement, the Loans for a Series may
include Loans that do not have a specified stated maturity.
The related Prospectus Supplement for each Series will provide
information with respect to the Loans that are Primary Assets as of the Cut-off
Date, including, among other things, and to the extent relevant:
(a) the aggregate unpaid principal balance of the Loans (or the
aggregate unpaid principal balance included in the Trust for the
related Series);
(b) the range and weighted average Loan Rate on the Loans, and, in
the case of adjustable rate Loans, the range and weighted
average of the current Loan Rates and the Lifetime Rate Caps, if
any;
(c) the range and average outstanding principal balance of the
Loans;
(d) the weighted average original and remaining term-to-stated
maturity of the Loans and the range of original and remaining
terms-to-stated maturity, if applicable;
(e) the range and weighted average of Combined Loan-to-Value Ratios
or Loan-to-Value Ratios for the Loans, as applicable;
(f) the percentage (by outstanding principal balance as of the
Cut-off Date) of Loans that accrue interest at adjustable or
fixed interest rates;
(g) any special hazard insurance policy or bankruptcy bond or other
enhancement relating to the Loans;
(h) the percentage (by principal balance as of the Cut-off Date) of
Loans that are secured by Mortgaged Properties, Home
Improvements or are unsecured;
(i) the geographic distribution of any Mortgaged Properties securing
the Loans;
(j) the percentage of Loans (by principal balance as of the Cut-off
Date) that are secured by Single Family Properties, shares
relating to Cooperative Dwellings, Condominium Units, investment
property and vacation or second homes;
(k) the lien priority of the Loans;
(l) the credit limit utilization rate of any Revolving Credit Line
Loans; and
(m) the delinquency status and year of origination of the Loans.
The related Prospectus Supplement will also specify any other limitations on
the types or characteristics of Loans for a Series.
If information of the nature described above respecting the Loans is
not known to the Seller at the time the Securities are initially offered,
approximate or more general information of the nature described above will be
provided in the Prospectus Supplement and additional information will be set
forth in a Current Report on Form 8-K to be available to investors on the date
of issuance of the related Series and to be filed with the Commission within 15
days after the initial issuance of such Securities.
PRIVATE SECURITIES
GENERAL. Primary Assets for a Series may consist, in whole or in part,
of Private Securities which include (a) pass-through certificates representing
beneficial interests in loans of the type that would otherwise be eligible to
be Loans (the "Underlying Loans") or (b) collateralized obligations secured by
Underlying Loans. Such pass-through certificates or collateralized obligations
will have previously been (i) offered and distributed to the public pursuant to
an effective registration statement or (ii) purchased in a transaction not
involving any public offering from a person who is not an affiliate of the
issuer of such securities at the time of sale (nor an affiliate thereof at any
time during the three preceding months); provided a period of three years has
elapsed since the later of the date the securities were acquired from the
issuer or an affiliate thereof. Although individual Underlying Loans may be
insured or guaranteed by the United States or an agency or instrumentality
thereof, they need not be, and Private Securities themselves will not be so
insured or guaranteed.
All purchases of Private Securities for a Series by the Seller will be
made in secondary market transactions, not from the issuer of such Private
Securities or any affiliate thereof. As a result, no such purchases of Private
Securities offered and distributed to the public pursuant to an effective
registration statement will be made by the Seller for at least ninety days
after the initial issuance of such Private Securities.
Private Securities will have been issued pursuant to a pooling and
servicing agreement, a trust agreement or similar agreement (a "PS Agreement").
The seller/servicer of the Underlying Loans will have entered into the PS
Agreement with the trustee under such PS Agreement (the "PS Trustee"). The PS
Trustee or its agent, or a custodian, will possess the Underlying Loans.
Underlying Loans will be serviced by a servicer (the "PS Servicer") directly or
by one or more sub-servicers who may be subject to the supervision of the PS
Servicer.
The sponsor of the Private Securities (the "PS Sponsor") will be a
financial institution or other entity engaged generally in the business of
lending; a public agency or instrumentality of a state, local or federal
government; or a limited purpose corporation organized for the purpose of,
among other things, establishing trusts and acquiring and selling loans to such
trusts, and selling beneficial interests in such trusts. If so specified in the
Prospectus Supplement, the PS Sponsor may be an affiliate of the Seller. The
obligations of the PS Sponsor will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. Unless otherwise specified in the related Prospectus Supplement,
the PS Sponsor will not have guaranteed any of the assets conveyed to the
related trust or any of the Private Securities issued under the PS Agreement.
Additionally, although the Underlying Loans may be guaranteed by an agency or
instrumentality of the United States, the Private Securities themselves will
not be so guaranteed.
Distributions of principal and interest will be made on the Private
Securities on the dates specified in the related Prospectus Supplement. The
Private 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 Securities by the PS Trustee or the
PS Servicer. Unless otherwise specified in the Prospectus Supplement relating
to a Series of Securities, payments on the Private Securities will be
distributed directly to the Trustee as the registered owner of such Private
Securities. The PS Sponsor or the PS Servicer may have the right to repurchase
the Underlying Loans after a certain date or under other circumstances
specified in the related Prospectus Supplement.
The Underlying Loans may be fixed rate, level payment, fully
amortizing loans or adjustable rate loans or loans having balloon or other
irregular payment features. Such Underlying Loans will be secured by mortgages
on Mortgaged Properties.
ENHANCEMENT RELATING TO PRIVATE SECURITIES. Enhancement in the form of
reserve funds, subordination of other private securities issued under the PS
Agreement, guarantees, letters of credit, cash collateral accounts, insurance
policies or other types of enhancement may be provided with respect to the
Underlying Loans or with respect to the Private Securities themselves. The
type, characteristics and amount of enhancement will be a function of certain
characteristics of the Underlying Loans and other factors and will have been
established for the Private Securities on the basis of requirements of the
nationally recognized statistical rating organization that rated the Private
Securities.
ADDITIONAL INFORMATION. The Prospectus Supplement for a Series for
which the Primary Assets includes Private Securities will specify (such
disclosure may be on an approximate basis and will be as of the date specified
in the related Prospectus Supplement), to the extent relevant and to the extent
such information is reasonably available to the Seller and the Seller
reasonably believes such information to be reliable:
(i) the aggregate approximate principal amount and type of the
Private Securities to be included in the Trust for such
Series;
(ii) certain characteristics of the Underlying Loans including
(A) the payment features of such Underlying Loans (i.e.,
whether they are fixed rate or adjustable rate and whether
they provide for fixed level payments or other payment
features), (B) the approximate aggregate principal balance,
if known, of such Underlying Loans insured or guaranteed by
a governmental entity, (C) the servicing fee or range of
servicing fees with respect to the Underlying Loans, (D)
the minimum and maximum stated maturities of such
Underlying Loans at origination, (E) the lien priority and
credit utilization rates, if any, of such Underlying Loans,
and (F) the delinquency status and year of origination of
such Underlying Loans;
(iii) the maximum original term-to-stated maturity of the Private
Securities;
(iv) the weighted average term-to-stated maturity of the Private
Securities;
(v) the pass-through or certificate rate or ranges thereof for
the Private Securities;
(vi) the PS Sponsor, the PS Servicer (if other than the PS
Sponsor) and the PS Trustee for such Private Securities;
(vii) certain characteristics of credit support, if any, such as
reserve funds, insurance policies, letters of credit or
guarantees relating to the Underlying Loan or to such
Private Securities themselves;
(viii) the terms on which Underlying Loans may, or are required
to, be purchased prior to their stated maturity or the
stated maturity of the Private Securities; and
(ix) the terms on which Underlying Loans may be substituted for
those originally underlying the Private Securities.
If information of the nature described above representing the Private
Securities is not known to the Seller at the time the Securities are initially
offered, approximate or more general information of the nature described above
will be provided in the Prospectus Supplement and the additional information,
if available, will be set forth in a Current Report on Form 8-K to be available
to investors on the date of issuance of the related Series and to be filed with
the Commission within 15 days the initial issuance of such Securities.
AGENCY SECURITIES
Primary Assets for a Series may consist, in whole or in part, of
Agency Securities which include securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association ("FNMA").
All of the Agency Securities will be registered in the name of the
Trustee or its nominee or, in the case of Agency Securities issued only in
book-entry form, a financial intermediary (which may be the Trustee) that is a
member of the Federal Reserve System or of a clearing corporation on the books
of which the security is held. Each Agency Security will evidence an interest
in a pool of mortgage loans that would be eligible to be Mortgage Loans and in
principal distributions and interest distributions thereon.
The descriptions of GNMA, FHLMC and FNMA certificates that are set
forth below are descriptions of certificates representing proportionate
interests in a pool of mortgage loans and in the payments of principal and
interest thereon. GNMA, FHLMC or FNMA may also issue mortgage-backed securities
representing a right to receive distributions of interest only or principal
only or disproportionate distributions of principal or interest or to receive
distributions of principal and/or interest prior or subsequent to distributions
on other certificates representing interests in the same pool of mortgage
loans. The terms of any such certificates to be included in a Trust (and of the
underlying mortgage loans) will be described in the related Prospectus
Supplement, and the descriptions that follow are subject to modification as
appropriate to reflect the terms of any such certificates that are actually
included in a Trust.
GNMA. GNMA is a wholly owned corporate instrumentality of the United
States within the Department of Housing and Urban Development ("HUD"). Section
306(g) of Title III of the National Housing Act of 1934, as amended (the
"Housing Act"), authorizes GNMA to guarantee the timely payment of the
principal of and interest on certificates that are based on and backed by a
pool of loans ("FHA Loans") insured or guaranteed by the United States Federal
Housing Administration (the "FHA") under the Housing Act or Title V of the
Housing Act of 1949, or by the United States Department of Veteran Affairs (the
"VA") under the Servicemen's Readjustment Act of 1944, as amended, or Chapter
37 of Title 38, United States Code or by pools of other eligible mortgage
loans.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection". To meet its
obligations under its guaranties, GNMA is authorized, under Section 306(d) of
the Housing Act, to borrow from the United States Treasury with no limitations
as to amount.
FHLMC. FHLMC is a corporate instrumentality of the United States
created pursuant to Title III of the Emergency Home Finance Act of 1970, as
amended. FHLMC's common stock is owned by the Federal Home Loan Banks, and its
preferred stock is owned by the stockholders of such Federal Home Loan Banks.
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 residential mortgage loans or participation
interests in such mortgage loans and the resale of the mortgage loans so
purchased in the form of mortgage securities. FHLMC is confined to purchasing,
so far as practicable, conventional mortgage loans and participation interests
therein which it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
FHLMC certificates 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
guaranty are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC certificates would be
affected by delinquent payments and defaults on such mortgage loans.
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 such FHLMC certificate. Thereafter, such remittance will
be distributed monthly to the registered holder so as to be received normally
by the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC certificates sold by FHLMC on or
after January 2, 1985, and makes payments of principal and interest each month
to the registered holders thereof in accordance with such holders'
instructions.
FNMA. FNMA is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. 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 guarantees to each registered holder of a FNMA certificate that
it will distribute amounts representing scheduled principal and interest at the
applicable pass-through rate on the underlying mortgage loans, whether or not
received, and such holder's proportionate share of the full principal amount of
any foreclosed or other finally liquidated mortgage loan, whether or not such
principal amount is actually recovered. If FNMA were unable to perform such
obligations, distributions on FNMA certificates would consist solely of
payments and other recoveries on the underlying mortgage loans and,
accordingly, delinquencies and defaults would affect monthly distributions to
holders of FNMA certificates. 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.
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.
STRIPPED SECURITIES. Agency Securities may consist of one or more
stripped securities, each as described herein and in the related Prospectus
Supplement. Each such Agency Security will represent an undivided interest in
all or part of either the principal distributions (but not the interest
distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA or
GNMA certificates. The underlying securities will be held under a trust
agreement by FHLMC, FNMA or GNMA, each as trustee, or by another trustee named
in the related Prospectus Supplement. FHLMC, FNMA or GNMA will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
COLLECTION AND DISTRIBUTION ACCOUNTS
A separate Collection Account will be established by the Trustee or
the Servicer, in the name of the Trustee, for each Series of Securities for
receipt of the amount of cash, if any, specified in the related Prospectus
Supplement to be initially deposited therein by the Seller, all amounts
received on or with respect to the Primary Assets and, unless otherwise
specified in the related Prospectus Supplement, income earned thereon. Unless
otherwise provided in the related Prospectus Supplement, the Trustee shall be
required to apply a portion of the amount in the Collection Amount, together
with reinvestment earnings from Eligible Investments to the payment of certain
amounts payable to the Servicer under the related Agreement and any other
person specified in the Prospectus Supplement, and to deposit a portion of the
amount in the Collection Account into a separate account (the "Distribution
Account") to be established by the Trustee for such Series, each in the manner
and at the times established in the related Prospectus Supplement. Certain
amounts available pursuant to any Enhancement, as provided in the related
Prospectus Supplement, will also be deposited in a related Distribution
Account. All amounts deposited in such Distribution Account will be available,
unless otherwise specified in the related Prospectus Supplement, for (i)
application to the payment of principal of and interest on such Series of
Securities on the next Distribution Date, (ii) the making of adequate provision
for future payments on certain Classes of Securities and (iii) any other
purpose specified in the related Prospectus Supplement. After applying the
funds in the Collection Account as described above, any funds remaining in the
Collection Account may be paid over to the Servicer, the Seller, any provider
of Enhancement with respect to such Series (an "Enhancer") or any other person
entitled thereto in the manner and at the times established in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee will invest the funds in the Collection and
Distribution Accounts in Eligible Investments maturing, with certain
exceptions, not later, in the case of funds in the Collection Account, than the
day preceding the date such funds are due to be deposited in the Distribution
Account or otherwise distributed and, in the case of funds in the Distribution
Account, than the day preceding the next Distribution Date for the related
Series of Securities. Eligible Investments include, among other investments,
obligations of the United States and certain agencies thereof, federal funds,
certificates of deposit, commercial paper, demand and time deposits and
banker's acceptances, certain repurchase agreements of United States government
securities and certain guaranteed investment contracts, in each case,
acceptable to the Rating Agency.
Notwithstanding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any Deposit Agreement or Minimum Principal Payment
Agreement as specified in the related Prospectus Supplement.
ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of
Securities, simultaneously with the Seller's assignment of the Primary Assets
to the Trustee, the Seller will obtain Enhancement in favor of the Trustee on
behalf of the holders of the related Series or designated Classes of such
Series. Enhancement may take the form of an irrevocable letter of credit,
surety bond or insurance policy, Reserve Funds, Subordinate Securities or a
combination thereof or as otherwise specified in the Prospectus Supplement. The
Enhancement will support the payment of principal and interest on the
Securities, and may be applied for certain other purposes to the extent and
under the conditions set forth in such Prospectus Supplement. If so specified
in the related Prospectus Supplement, any of such Enhancement may be structured
so as to protect against losses relating to more than one Trust, in the manner
described therein.
SUBORDINATE SECURITIES
If specified in the related Prospectus Supplement, Enhancement for a
Series may consist of one or more Classes of Subordinate Securities. The rights
of holders of such Subordinate Securities to receive distributions on any
Distribution Date will be subordinate in right and priority to the rights of
holders of senior securities of the Series (the "Senior Securities"), but only
to the extent described in the related Prospectus Supplement.
INSURANCE
If stated in the related Prospectus Supplement, Enhancement for a
Series may consist of special hazard insurance policies, bankruptcy bonds and
other types of insurance relating to the Primary Assets, as described below and
in the related Prospectus Supplement.
POOL INSURANCE POLICY. If so specified in the Prospectus Supplement
relating to a Series of Securities, the Seller will obtain a pool insurance
policy for the Loans in the related Trust. The pool insurance policy will cover
any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default, but will not cover the portion of the
principal balance of any Loan that is required to be covered by any primary
mortgage insurance policy. The amount and terms of any such coverage will be
set forth in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICY. Although the terms of such policies
vary to some degree, a special hazard insurance policy typically provides that,
where there has been damage to Property securing a defaulted or foreclosed Loan
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the standard hazard insurance policy or any flood insurance
policy, if applicable, required to be maintained with respect to such Property,
or in connection with partial loss resulting from the application of the
coinsurance clause in a standard hazard insurance policy, the special hazard
insurer will pay the lesser of (i) the cost of repair or replacement of such
Property or (ii) upon transfer of such Property to the special hazard insurer,
the unpaid principal balance of such Loan at the time of acquisition of such
Property by foreclosure or deed in lieu of foreclosure, plus accrued interest
to the date of claim settlement and certain expenses incurred by the Servicer
with respect to such Property. If the unpaid principal balance plus accrued
interest and certain expenses is paid by the special hazard insurer, the amount
of further coverage under the special hazard insurance policy will be reduced
by such amount less any net proceeds from the sale of such Property. Any amount
paid as the cost of repair of such Property will reduce coverage by such
amount. Special hazard insurance policies typically do not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, flood (if the mortgaged property is in a federally designated
flood area), chemical contamination and certain other risks.
Restoration of the Property with the proceeds described under (i)
above is expected to satisfy the condition under any pool insurance policy that
such Property be restored before a claim under such pool insurance policy may
be validly presented with respect to the defaulted Loan secured by such
Property. The payment described under (ii) above will render unnecessary
presentation of a claim in respect of such Loan under any pool insurance
policy. Therefore, so long as such 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 Loan plus accrued interest and certain
expenses will not affect the total insurance proceeds paid to holders of the
Securities, but will affect the relative amounts of coverage remaining under
the special hazard insurance policy and pool insurance policy.
BANKRUPTCY BOND. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Property securing the related
Loan at an amount less than the then outstanding principal balance of such
Loan. The amount of the secured debt could be reduced to such value, and the
holder of such Loan thus would become an unsecured creditor to the extent the
outstanding principal balance of such Loan exceeds the value so assigned to the
Property by the bankruptcy court. In addition, certain other modifications of
the terms of a Loan can result from a bankruptcy proceeding. See "Certain Legal
Aspects of Loans." If so provided in the related Prospectus Supplement, the
Seller or other entity specified in the related Prospectus Supplement will
obtain a bankruptcy bond or similar insurance contract (the "bankruptcy bond")
covering losses resulting from proceedings with respect to borrowers under the
Bankruptcy Code. The bankruptcy bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal of and
interest (the "Scheduled Payments") on a Loan or a reduction by such court of
the principal amount of a Loan and will cover certain unpaid interest on the
amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement for all Loans in the Trust for
such Series. Such amount will be reduced by payments made under such bankruptcy
bond in respect of such Loans, unless otherwise specified in the related
Prospectus Supplement, and will not be restored.
RESERVE FUNDS
If so specified in the Prospectus Supplement relating to a Series of
Securities, the Seller will deposit into one or more funds to be established
with the Trustee as part of the Trust for such Series or for the benefit of any
Enhancer with respect to such Series (the "Reserve Funds") cash, a letter or
letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of the Rating Agency rating any Series of the
Securities in the amount specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, a Reserve Fund for a Series may be
funded over time through application of all or a portion of the excess cash
flow from the Primary Assets for such Series, to the extent described in the
related Prospectus Supplement. If applicable, the initial amount of the Reserve
Fund and the Reserve Fund maintenance requirements for a Series of Securities
will be described in the related Prospectus Supplement.
Amounts withdrawn from any Reserve Fund will be applied by the Trustee
to make payments on the Securities of a Series, to pay expenses, to reimburse
any Enhancer or for any other purpose, in the manner and to the extent
specified in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee,
in Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
MINIMUM PRINCIPAL PAYMENT AGREEMENT
If stated in the Prospectus Supplement relating to a Series of
Securities, the Seller will enter into a Minimum Principal Payment Agreement
with an entity meeting the criteria of the Rating Agency pursuant to which such
entity will provide certain payments on the Securities of such Series in the
event that aggregate scheduled principal payments and/or prepayments on the
Primary Assets for such Series are not sufficient to make certain payments on
the Securities of such Series, as provided in the Prospectus Supplement.
DEPOSIT AGREEMENT
If specified in a Prospectus Supplement, the Seller and the Trustee
for such Series of Securities will enter into a guaranteed investment contract
or an investment agreement (the "Deposit Agreement") with the entity specified
in such Prospectus Supplement on or before the sale of such Series of
Securities. Pursuant to the Deposit Agreement, all or a portion of the amounts
held in the Collection Account, the Distribution Account or in any Reserve Fund
would be invested with the entity specified in the Prospectus Supplement. The
purpose of a Deposit Agreement would be to accumulate available cash for
investment so that such cash, together with income thereon, can be applied to
future distributions on one or more Classes of Securities. The Trustee would be
entitled to withdraw amounts invested pursuant to a Deposit Agreement, plus
interest at a rate equal to the Assumed Reinvestment Rate, in the manner
specified in the Prospectus Supplement. The Prospectus Supplement for a Series
of Securities pursuant to which a Deposit Agreement is used will contain a
description of the terms of such Deposit Agreement.
DERIVATIVE PRODUCTS
If specified in the related prospectus supplement, the Derivative
Products may be included as assets of the Trust. Derivative Products may
consist of a swap to convert floating or fixed rate payments, as applicable on
the Loans, Private Securities or Agency Securities into fixed or floating rate
payments, as applicable, on the Securities or in a cap or floor agreement
intended to provide protection against changes in floating rates of interest
payable on the Loans, Private Securities, Agency Securities or the Securities.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, LETTERS OF CREDIT AND SIMILAR
INSTRUMENTS OR AGREEMENTS
A Trust may also include insurance, guaranties, surety bonds, letters
of credit or similar arrangements for the purpose of (i) maintaining timely
payments to Securityholders or providing additional protection against losses
on the assets included in such Trust, (ii) paying administrative expenses or
(iii) establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets. Such arrangements may
include agreements under which Securityholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified in
the related Prospectus Supplement.
SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans comprising the
Primary Assets in the Trust will be provided by the Servicer directly pursuant
to the related Servicing Agreement or Pooling and Servicing Agreement, as the
case may be, with respect to a Series of Securities. In performing its
functions, the Servicer will exercise the same degree of skill and care that it
customarily exercises with respect to similar receivables or Loans owned or
serviced by it. In addition, the Servicer, if so specified in the related
Prospectus Supplement, will act as custodian and will be responsible for
maintaining custody of the Loans and related documentation on behalf of the
Trustee.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Servicer will make reasonable efforts to collect all payments
required to be made under the Loans and will, consistent with the terms of the
related Agreement for a Series and any applicable Enhancement, follow such
collection procedures as it follows with respect to comparable loans held in
its own portfolio. Consistent with the above, the Servicer may, in its
discretion, (i) waive any assumption fee, late payment charge, or other charge
in connection with a Loan and (ii) to the extent provided in the related
Agreement, arrange with an obligor a schedule for curing delinquencies by
modifying the dates (the "Due Dates") for Scheduled Payments on such Loan.
As specified in the related Prospectus Supplement, the Servicer, to
the extent permitted by law, may establish and maintain escrow or impound
accounts ("Escrow Accounts") with respect to Loans in which payments by
obligors to pay taxes, assessments, mortgage and hazard insurance premiums, and
other comparable items will be deposited. Loans may not require such payments
under the loan related documents, in which case the Servicer would not be
required to establish any Escrow Account with respect to such Loans.
Withdrawals from the Escrow Accounts are to be made to effect timely payment of
taxes, assessments and mortgage and hazard insurance, to refund to obligors
amounts determined to be overages, to pay interest to obligors on balances in
the Escrow Account to the extent required by law, to repair or otherwise
protect the property securing the related Loan and to clear and terminate such
Escrow Account. The Servicer will be responsible for the administration of the
Escrow Accounts and generally will make advances to such account when a
deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
Unless otherwise specified in the related Prospectus Supplement, the
Trustee or the Servicer will establish the Collection Account in the name of
the Trustee. Unless otherwise indicated in the related Prospectus Supplement,
the Collection Account will be an account maintained (i) at a depository
institution, the long-term unsecured debt obligations of which at the time of
any deposit therein are rated by each Rating Agency rating the Securities of
such Series at levels satisfactory to each Rating Agency or (ii) in an account
or accounts the deposits in which are insured to the maximum extent available
by the FDIC or which are secured in a manner meeting requirements established
by each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the
funds held in the Collection Account may be invested, pending remittance to the
Trustee, in Eligible Investments. If so specified in the related Prospectus
Supplement, the Servicer will be entitled to receive as additional compensation
any interest or other income earned on funds in the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Trustee or the Seller, as appropriate, will deposit into the
Collection Account for each Series on the Business Day following the Closing
Date any amounts representing Scheduled Payments due after the related Cut-off
Date but received by the Servicer on or before the Closing Date, and
thereafter, within two Business Days after the date of receipt thereof, the
following payments and collections received or made by it (other than, unless
otherwise provided in the related Prospectus Supplement, in respect of
principal of and interest on the related Primary Assets due on or before such
Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Primary Assets;
(ii) All payments on account of interest on such Primary Assets
after deducting therefrom, at the discretion of the
Servicer but only to the extent of the amount permitted to
be withdrawn or withheld from the Collection Account in
accordance with the related Agreement, the Servicing Fee in
respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with the
liquidation of Primary Assets or property acquired in
respect thereof, whether through foreclosure sale,
repossession or otherwise, including payments in connection
with such Primary Assets received from the obligor, other
than amounts required to be paid or refunded to the obligor
pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"),
exclusive of, in the discretion of the Servicer, but only
to the extent of the amount permitted to be withdrawn from
the Collection Account in accordance with the related
Agreement, the Servicing Fee, if any, in respect of the
related Primary Asset;
(iv) All proceeds under any title insurance, hazard insurance or
other insurance policy covering any such Primary Asset,
other than proceeds to be applied to the restoration or
repair of the related Property or released to the obligor
in accordance with the related Agreement;
(v) All amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the
related Agreement;
(vi) All advances of delinquent payments of principal and
interest on a Loan or of other payments specified in the
Agreement (the "Advances") made by the Servicer as required
pursuant to the related Agreement; and
(vii) All repurchase prices of any such Primary Assets
repurchased by the Servicer or the Seller pursuant to the
related Agreement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is permitted, from time to time, to make withdrawals from the
Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by it
pursuant to the related Agreement; the Servicer's right to
reimburse itself is limited to amounts received on or in
respect of particular Loans (including, for this purpose,
Liquidation Proceeds and amounts representing proceeds of
insurance policies covering the related Property) which
represent late recoveries of Scheduled Payments respecting
which any such Advance was made;
(ii) to the extent provided in the related Agreement, to
reimburse itself for any Advances for such Series that the
Servicer determines in good faith it will be unable to
recover from amounts representing late recoveries of
Scheduled Payments respecting which such Advance was made
or from Liquidation Proceeds or the proceeds of insurance
policies;
(iii) to reimburse itself from Liquidation Proceeds for
liquidation expenses and for amounts expended by it in good
faith in connection with the restoration of damaged
Property and, in the event deposited in the Collection
Account and not previously withheld, and to the extent that
Liquidation Proceeds after such reimbursement exceed the
outstanding principal balance of the related Loan, together
with accrued and unpaid interest thereon to the Due Date
for such Loan next succeeding the date of its receipt of
such Liquidation Proceeds, to pay to itself out of such
excess the amount of any unpaid Servicing Fee and any
assumption fees, late payment charges, or other charges on
the related Loan;
(iv) in the event it has elected not to pay itself the Servicing
Fee out of the interest component of any Scheduled Payment,
late payment or other recovery with respect to a particular
Loan prior to the deposit of such Scheduled Payment, late
payment or recovery into the Collection Account, to pay to
itself the Servicing Fee, as adjusted pursuant to the
related Agreement, from any such Scheduled Payment, late
payment or such other recovery, to the extent permitted by
the related Agreement;
(v) to reimburse itself for expenses incurred by and
recoverable by or reimbursable to it pursuant to the
related Agreement;
(vi) to pay to the applicable person with respect to each
Primary Asset or REO Property acquired in respect thereof
that has been repurchased or removed from the Trust by the
Servicer or the Seller pursuant to the related Agreement,
all amounts received thereon and not distributed as of the
date on which the related repurchase price was determined;
(vii) to make payments to the Trustee of such Series for deposit
into the Distribution Account, if any, or for remittance to
the Holders of such Series in the amounts and in the manner
provided for in the related Agreement; and
(viii) to clear and terminate the Collection Account pursuant to
the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
ADVANCES AND LIMITATIONS THEREON
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make Advances with respect to delinquent
payments on Loans. If specified in the related Prospectus Supplement, the
Servicer will be obligated to make Advances, and such obligations may be
limited in amount, or may not be activated until a certain portion of a
specified Reserve Fund is depleted. Advances are intended to provide liquidity
and, except to the extent specified in the related Prospectus Supplement, not
to guarantee or insure against losses. Accordingly, any funds advanced are
recoverable by the Servicer out of amounts received on particular Loans which
represent late recoveries of principal or interest, proceeds of insurance
policies or Liquidation Proceeds respecting which any such Advance was made. If
an Advance is made and subsequently determined to be nonrecoverable from late
collections, proceeds of insurance policies, or Liquidation Proceeds from the
related Loan, the Servicer may be entitled to reimbursement from other funds in
the Collection Account or Distribution Account, as the case may be, or from a
specified Reserve Fund as applicable, to the extent specified in the related
Prospectus Supplement.
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
STANDARD HAZARD INSURANCE; FLOOD INSURANCE. Except as otherwise
specified in the related Prospectus Supplement, the Servicer will be required
to maintain or either (i) cause the obligor on each Loan to maintain or (ii)
require the obligor to agree to acquire and maintain a standard hazard
insurance policy providing coverage of the standard form of fire insurance with
extended coverage for certain other hazards as is customary in the state in
which the related Property is located; however, in the case of clause (ii), the
Servicer may not verify compliance by the obligor. The standard hazard
insurance policies will provide for coverage at least equal to the applicable
state standard form of fire insurance policy with extended coverage for
property of the type securing the related Loans. In general, the standard form
of fire and extended coverage policy will cover physical damage to or
destruction of, the related Property caused by fire, lightning, explosion,
smoke, windstorm, hail, riot, strike and civil commotion, subject to the
conditions and exclusions particularized in each policy. Because the standard
hazard insurance policies relating to the Loans will be underwritten by
different hazard insurers and will cover Properties located in various states,
such policies will not contain identical terms and conditions. The basic terms,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides, and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all inclusive. Uninsured risks not covered by a special hazard insurance policy
or other form of Enhancement will adversely affect distributions to Holders.
When a Property securing a Loan is located in a flood area identified by HUD
pursuant to the Flood Disaster Protection Act of 1973, as amended, the Servicer
will be required to cause flood insurance to be maintained with respect to such
Property, to the extent available and, if such insurance is placed by the
Servicer, the associated premiums may be added to the balance of the related
Loan.
The standard hazard insurance policies covering Properties securing
Loans typically will contain a "coinsurance" clause which, in effect, will
require the insured at all times to carry hazard insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
Property, including the improvements on any Property, in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause will provide that the hazard insurer's
liability in the event of partial loss will not exceed the greater of (1) the
actual cash value (the replacement cost less physical depreciation) of the
Property, including the improvements, if any, damaged or destroyed or (2) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement
cost of such Property and improvements. Since the amount of hazard insurance to
be maintained on the improvements securing the Loans declines as the principal
balances owing thereon decrease, and since the value of the Properties will
fluctuate in value over time, the effect of this requirement in the event of
partial loss may be that hazard insurance proceeds will be insufficient to
restore fully the damage to the affected Property.
Unless otherwise specified in the related Prospectus Supplement,
coverage will be in an amount at least equal to the greater of (1) the amount
necessary to avoid the enforcement of any co-insurance clause contained in the
policy or (2) the outstanding principal balance of the related Loan. Unless
otherwise specified in the related Prospectus Supplement, the Servicer will
also maintain on REO Property that secured a defaulted Loan and that has been
acquired upon foreclosure, deed in lieu of foreclosure, or repossession, a
standard hazard insurance policy in an amount that is at least equal to the
maximum insurable value of such REO Property. No earthquake or other additional
insurance will be required of any obligor or will be maintained on REO Property
acquired in respect of a defaulted Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and shall require such
additional insurance.
Any amounts collected by the Servicer under any such policies of
insurance (other than amounts to be applied to the restoration or repair of the
Property, released to the obligor in accordance with normal servicing
procedures or used to reimburse the Servicer for amounts to which it is
entitled to reimbursement) will be deposited in the Collection Account. In the
event that the Servicer obtains and maintains a blanket policy insuring against
hazard losses on all of the Loans, written by an insurer then acceptable to
each Rating Agency which assigns a rating to such Series, it will conclusively
be deemed to have satisfied its obligations to cause to be maintained a
standard hazard insurance policy for each Loan or related REO Property. This
blanket policy may contain a deductible clause, in which case the Servicer
will, in the event that there has been a loss that would have been covered by
such policy absent such deductible clause, deposit in the Collection Account
the amount not otherwise payable under the blanket policy because of the
application of such deductible clause.
REALIZATION UPON DEFAULTED LOANS
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Properties
securing the related Loans as come into and continue in default and as to which
no satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer
will follow such practices and procedures as it deems necessary or advisable
and as are normal and usual in its servicing activities with respect to
comparable loans serviced by it. However, the Servicer will not be required to
expend its own funds in connection with any foreclosure or towards the
restoration of the Property unless it determines that: (i) such restoration or
foreclosure will increase the Liquidation Proceeds in respect of the related
Loan available to the Holders after reimbursement to itself for such expenses
and (ii) such expenses will be recoverable by it either through Liquidation
Proceeds or the proceeds of insurance. Notwithstanding anything to the contrary
herein, in the case of a Trust for which a REMIC election has been made, the
Servicer shall liquidate any Property acquired through foreclosure within three
years after the acquisition of the beneficial ownership of such Property. While
the holder of a Property acquired through foreclosure can often maximize its
recovery by providing financing to a new purchaser, the Trust, if applicable,
will have no ability to do so and neither the Servicer nor the Seller will be
required to do so.
The Servicer may arrange with the obligor on a defaulted Loan, a
modification of such Loan (a "Modification") to the extent provided in the
related Prospectus Supplement. Such Modifications may only be entered into if
they meet the underwriting policies and procedures employed by the Servicer in
servicing receivables for its own account and meet the other conditions set
forth in the related Prospectus Supplement.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Property is about to be conveyed by the obligor, the Servicer
will, to the extent it has knowledge of such prospective conveyance and prior
to the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of the related Loan under the applicable "due-on-sale"
clause, if any, unless it reasonably believes that such clause is not
enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. In such
event, the Servicer is authorized to accept from or enter into an assumption
agreement with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Loan and
pursuant to which the original obligor is released from liability and such
person is substituted as the obligor and becomes liable under the Loan. Any fee
collected in connection with an assumption will be retained by the Servicer as
additional servicing compensation.
The terms of a Loan may not be changed in connection with an assumption.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, the
Servicer will be entitled to a periodic fee as servicing compensation (the
"Servicing Fee") in an amount to be determined as specified in the related
Prospectus Supplement. The Servicing Fee may be fixed or variable, as specified
in the related Prospectus Supplement. In addition, unless otherwise specified
in the related Prospectus Supplement, the Servicer will be entitled to
servicing compensation in the form of assumption fees, late payment charges and
similar items, or excess proceeds following disposition of property in
connection with defaulted Loans.
When an obligor makes a principal prepayment in full between Due Dates
on the related Loan, the obligor will generally be required to pay interest on
the amount prepaid only to the date of prepayment. If and to the extent
provided in the related Prospectus Supplement, in order that one or more
Classes of the Holders of a Series will not be adversely affected by any
resulting shortfall in interest, the amount of the Servicing Fee may be reduced
to the extent necessary to include in the Servicer's remittance to the Trustee
for deposit into the Distribution Account an amount equal to one month's
interest on the related Loan (less the Servicing Fee). If the aggregate amount
of such shortfalls in a month exceeds the Servicing Fee for such month, a
shortfall to Holders may occur.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Loans. The related Holders will
suffer no loss by reason of such expenses to the extent expenses are covered
under related insurance policies or from excess Liquidation Proceeds. If claims
are either not made or paid under the applicable insurance policies or if
coverage thereunder has been exhausted, the related Holders will suffer a loss
to the extent that Liquidation Proceeds, after reimbursement of the Servicer's
expenses, are less than the outstanding principal balance of and unpaid
interest on the related Loan which would be distributable to Holders. In
addition, the Servicer will be entitled to reimbursement of expenditures
incurred by it in connection with the restoration of property securing a
defaulted Loan, such right of reimbursement being prior to the rights of the
Holders to receive any related proceeds of insurance policies, Liquidation
Proceeds or amounts derived from other Enhancement. The Servicer is generally
also entitled to reimbursement from the Collection Account for Advances.
Unless otherwise specified in the related Prospectus Supplement, the
rights of the Servicer to receive funds from the Collection Account for a
Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, are not subordinate to the
rights of Holders of such Series.
EVIDENCE AS TO COMPLIANCE
If so specified in the related Prospectus Supplement, the applicable
Agreement for each Series will provide that each year, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that
such firm has examined certain documents and records relating to the servicing
of the Loans by the Servicer and that, on the basis of such examination, such
firm is of the opinion that the servicing has been conducted in compliance with
such Agreement, except for (1) such exceptions as such firm believes to be
immaterial and (2) such other exceptions as are set forth in such statement.
If so specified in the related Prospectus Supplement, the applicable
Agreement for each Series will also provide for delivery to the Trustee for
such Series of an annual statement signed by an officer of the Servicer to the
effect that the Servicer has fulfilled its obligations under such Agreement,
throughout the preceding calendar year.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Seller and may
have other business relationships with the Seller and its affiliates.
In the event of an Event of Default under either a Servicing Agreement
or a Pooling and Servicing Agreement, the Servicer may be replaced by the
Trustee or a successor Servicer. Unless otherwise specified in the related
Prospectus Supplement, such Events of Default and the rights of the Trustee
upon such a default under the Agreement for the related Series will be
substantially similar to those described under "THE AGREEMENTS--Events of
Default; Rights Upon Events of Default--Pooling and Servicing Agreement;
Servicing Agreement."
Unless otherwise specified in the related Prospectus Supplement, the
Servicer does not have the right to assign its rights and delegate its duties
and obligations under the related Agreement for each Series unless the
successor Servicer accepting such assignment or delegation (i) services similar
loans in the ordinary course of its business, (ii) is reasonably satisfactory
to the Trustee for the related Series, (iii) has a net worth of not less than
the amount specified in the related Agreement, (iv) would not cause any Rating
Agency's rating of the Securities for such Series in effect immediately prior
to such assignment, sale or transfer to be qualified, downgraded or withdrawn
as a result of such assignment, sale or transfer and (v) executes and delivers
to the Trustee an agreement, in form and substance reasonably satisfactory to
the Trustee, which contains an assumption by such Servicer of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the servicer under the related Agreement from and
after the date of such agreement. No such assignment will become effective
until the Trustee or a successor Servicer has assumed the servicer's
obligations and duties under the related Agreement. To the extent that the
Servicer transfers its obligations to a wholly-owned subsidiary or affiliate,
such subsidiary or affiliate need not satisfy the criteria set forth above;
however, in such instance, the assigning Servicer will remain liable for the
servicing obligations under the related Agreement. Any entity into which the
Servicer is merged or consolidated or any successor corporation resulting from
any merger, conversion or consolidation will succeed to the Servicer's
obligations under the related Agreement, provided that such successor or
surviving entity meets the requirements for a successor Servicer set forth
above. However, the Servicer may have the right to enter into subservicing
arrangements which will be referred to in the related supplement. Any such
arrangement will not relieve the Servicer from its obligations under the
Servicing Agreement.
Except to the extent otherwise provided therein, each Agreement will
provide that neither the Servicer, nor any director, officer, employee or agent
of the Servicer, will be under any liability to the related Trust, the Seller
or the Holders for any action taken or for failing to take any action in good
faith pursuant to the related Agreement, or for errors in judgment; provided,
however, that neither the Servicer nor any such person will be protected
against any breach of warranty or representations made under such Agreement, or
the failure to perform its obligations in compliance with any standard of care
set forth in such Agreement, or liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
their duties or by reason of reckless disregard of their obligations and duties
thereunder. Each Agreement will further provide that the Servicer and any
director, officer, employee or agent of the Servicer is entitled to
indemnification from the related Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Securities, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the related Agreement will
provide that the Servicer is not under any obligation to appear in, prosecute
or defend any legal action which is not incidental to its servicing
responsibilities under such Agreement which, in its opinion, may involve it in
any expense or liability. The Servicer may, in its discretion, undertake any
such action which it may deem necessary or desirable with respect to the
related Agreement and the rights and duties of the parties thereto and the
interests of the Holders thereunder. In such event, the legal expenses and
costs of such action and any liability resulting therefrom may be expenses,
costs, and liabilities of the Trust and the Servicer may be entitled to be
reimbursed therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified
in their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
ASSIGNMENT OF PRIMARY ASSETS
GENERAL. At the time of issuance of the Securities of a Series, the
Seller will transfer, convey and assign to the Trust all right, title and
interest of the Seller in the Primary Assets and other property to be
transferred to the Trust for a Series. Such assignment will include all
principal and interest due on or with respect to the Primary Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for the
amount or percentage thereof which is not included in the Trust for the related
Series (the "Retained Interests")). The Trustee will, concurrently with such
assignment, execute and deliver the Securities.
ASSIGNMENT OF LOANS. Unless otherwise specified in the related
Prospectus Supplement, the Seller will, as to each Loan, deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus
Supplement, a custodian on behalf of the Trustee (the "Custodian"), the
Mortgage Note endorsed without recourse to the order of the Trustee or in
blank, the original Mortgage with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in
which case a copy of such Mortgage will be delivered, together with a
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. The Trustee, or,
if so specified in the related Prospectus Supplement, the Custodian, will hold
such documents in trust for the benefit of the Holders.
Unless otherwise specified in the related Prospectus Supplement, the
Seller will as to each Home Improvement Contract, deliver or cause to be
delivered to the Trustee (or the Custodian) the original Home Improvement
Contract and copies of documents and instruments related to each Home
Improvement Contract and, other than in the case of unsecured Home Improvement
Contracts, the security interest in the property securing such Home Improvement
Contract. In order to give notice of the right, title and interest of
Securityholders to the Home Improvement Contracts, the Seller will cause a
UCC-1 financing statement to be executed by the Seller identifying the Trustee
as the secured party and identifying all Home Improvement Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement,
the Home Improvement Contracts will not be stamped or otherwise marked to
reflect their assignment to the Trust. Therefore, if, through negligence, fraud
or otherwise, a subsequent purchaser were able to take physical possession of
the Home Improvement Contracts without notice of such assignment, the interest
of Securityholders in the Home Improvement Contracts could be defeated. See
"CERTAIN LEGAL ASPECTS OF THE LOANS--The Home Improvement Contracts."
With respect to Loans secured by Mortgages, if so specified in the
related Prospectus Supplement, the Seller will, at the time of issuance of the
Securities, cause assignments to the Trustee of the Mortgages relating to the
Loans for a Series to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's
interest in the related Loans. If specified in the related Prospectus
Supplement, the Seller will cause such assignments to be so recorded within the
time after issuance of the Securities as is specified in the related Prospectus
Supplement, in which event, the Agreement may, as specified in the related
Prospectus Supplement, require the Seller to repurchase from the Trustee any
Loan the related Mortgage of which is not recorded within such time, at the
price described below with respect to repurchases by reason of defective
documentation. Unless otherwise provided in the related Prospectus Supplement,
the enforcement of the repurchase obligation would constitute the sole remedy
available to the Holders or the Trustee for the failure of a Mortgage to be
recorded.
Each Loan will be identified in a schedule appearing as an exhibit to
the related Agreement (the "Loan Schedule"). Such Loan Schedule will specify
with respect to each Loan: the original principal amount and unpaid principal
balance as of the Cut-off Date; the current interest rate; the current
Scheduled Payment of principal and interest; the maturity date, if any, of the
related Mortgage Note; and, if the Loan is an adjustable rate Loan, the
Lifetime Rate Cap, if any, and the current index, if applicable.
ASSIGNMENT OF PRIVATE SECURITIES. The Seller will cause the Private
Securities to be registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its nominee or correspondent) will have
possession of any certificated Private Securities. Unless otherwise specified
in the related Prospectus Supplement, the Trustee will not be in possession of
or be assignee of record of any underlying assets for a Private Security. See
"THE TRUSTS--Private Securities." Each Private Security will be identified in a
schedule appearing as an exhibit to the related Agreement (the "Certificate
Schedule"), which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date, annual pass-through rate or interest
rate and maturity date for each Private Security conveyed to the Trust. In the
Agreement, the Seller will represent and warrant to the Trustee regarding the
Private Securities:
(i) that the information contained in the Certificate Schedule
is true and correct in all material respects;
(ii) that, immediately prior to the conveyance of the Private
Securities, the Seller had good title thereto, and was the
sole owner thereof (subject to any Retained Interest);
(iii) that there has been no other sale by it of such Private
Securities; and
(iv) that there is no existing lien, charge, security interest
or other encumbrance (other than any Retained Interest) on
such Private Securities.
REPURCHASE AND SUBSTITUTION OF NON-CONFORMING PRIMARY ASSETS. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Primary Assets delivered by the Seller to the Trustee (or
Custodian) is found by the Trustee within 90 days of the execution of the
related Agreement (or promptly after the Trustee's receipt of any document
permitted to be delivered after the Closing Date) to be defective in any
material respect and the Seller does not cure such defect within 90 days, or
within such other period specified in the related Prospectus Supplement, the
Seller will, not later than 90 days or within such other period specified in
the related Prospectus Supplement, after the Trustee's notice to the Seller, as
the case may be, of the defect, repurchase the related Primary Asset or any
property acquired in respect thereof from the Trustee at a price equal to,
unless otherwise specified in the related Prospectus Supplement, (a) the lesser
of (i) the outstanding principal balance of such Primary Asset and (ii) the
Trust's federal income tax basis in the Primary Asset and (b) accrued and
unpaid interest to the date of the next scheduled payment on such Primary Asset
at the rate set forth in the related Agreement (less any unreimbursed Advances
respecting such Primary Asset), provided, however, the purchase price shall not
be limited in (a) above to the Trust's federal income tax basis if the
repurchase at a price equal to the outstanding principal balance of such
Primary Asset will not result in any prohibited transaction tax under Section
860F(a) of the Code.
If provided in the related Prospectus Supplement, the Seller, as the
case may be, may, rather than repurchase the Primary Asset as described above,
remove such Primary Asset from the Trust (the "Deleted Primary Asset") and
substitute in its place one or more other Primary Assets (each, a "Qualifying
Substitute Primary Asset") provided, however, that (i) with respect to a Trust
for which no REMIC election is made, such substitution must be effected within
120 days of the date of initial issuance of the Securities and (ii) with
respect to a Trust for which a REMIC election is made, after a specified time
period, the Trustee must have received a satisfactory opinion of counsel that
such substitution will not cause the Trust to lose its status as a REMIC or
otherwise subject the Trust to a prohibited transaction tax.
Unless otherwise specified in the related Prospectus Supplement, any
Qualifying Substitute Primary Asset will have, on the date of substitution, (i)
an outstanding principal balance, after deduction of all Scheduled Payments due
in the month of substitution, not in excess of the outstanding principal
balance of the Deleted Primary Asset (the amount of any shortfall to be
deposited to the Certificate Account in the month of substitution for
distribution to Holders), (ii) an interest rate not less than (and not more
than 2% greater than) the interest rate of the Deleted Primary Asset, (iii) a
remaining term-to-stated maturity not greater than (and not more than two years
less than) that of the Deleted Primary Asset, and will comply with all of the
representations and warranties set forth in the applicable agreement as of the
date of substitution.
The Seller or another entity will make representations and warranties
with respect to Primary Assets for a Series. If the Seller or such entity
cannot cure a breach of any such representations and warranties in all material
respects within the time period specified in the related Prospectus Supplement
after notification by the Trustee of such breach, and if such breach is of a
nature that materially and adversely affects the value of such Primary Asset,
the Seller or such entity is obligated to repurchase the affected Primary Asset
or, if provided in the related Prospectus Supplement, provide a Qualifying
Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the
sole remedies available to the Holders or the Trustee for a material defect in
a document for a Primary Asset.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of
the aggregate voting rights of the Securities for such Series have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for 60 days has neglected or refused to institute any such
proceeding.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, on the related
Closing Date the Seller will deposit cash in an amount (the "Pre-Funded
Amount") specified in such Prospectus Supplement into an account (the
"Pre-Funding Account"). In no event shall the Pre-Funded Amount exceed 50% of
the initial aggregate principal amount of the Certificates and/or Notes of the
related Series of Securities. The Pre-Funded Amount will be used to purchase
Loans ("Subsequent Loans") in a period from the related Closing Date to a date
not more than one year after such Closing Date (such period, the "Funding
Period") from the Seller. The Pre-Funding Account will be maintained with the
Trustee for the related Series of Securities and is designed solely to hold
funds to be applied by such Trustee during the Funding Period to pay to the
Seller the purchase price for Subsequent Loans. Monies on deposit in the
Pre-Funding Account will not be available to cover losses on or in respect of
the related Loans. To the extent that the entire Pre-Funded amount has not been
applied to the purchase of Subsequent Loans by the end of the related Funding
Period, any amounts remaining in the Pre-Funding Account will be distributed as
a prepayment of principal to the holders of the related Securities on the
Distribution Date immediately following the end of the Funding Period, in the
amounts and pursuant to the priorities set forth in the related Prospectus
Supplement. Any reinvestment risk resulting from such prepayment will be borne
entirely by the holders of one or more classes of the related Series of
Securities. Monies on deposit in the Pre-Funding Account may be invested in
Permitted Investments under the circumstances and in the manner described in
the related Agreement. Earnings on investment of funds in the Pre-Funding
Account will be deposited into the trust account specified in the related
Prospectus Supplement and losses will be charged against the funds on deposit
in the Pre-Funding Account.
In addition, if so provided in the related Prospectus Supplement, on
the related Closing Date the Seller will deposit in an account (the
"Capitalized Interest Account") cash in such amount as is necessary to cover
shortfalls in interest on the related Series of Securities that may arise as a
result of utilization of the Pre-Funding Account as described above. The
Capitalized Interest Account shall be maintained with the Trustee for the
related Series of Securities and is designed solely to cover the
above-mentioned interest shortfalls. Monies on deposit in the Capitalized
Interest Account that have not been applied to cover shortfalls in interest on
the related Series of Securities by the end of the Funding Period will be paid
to the Seller.
REPORTS TO HOLDERS
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date,
or as soon thereafter as is practicable, a statement setting forth, to the
extent applicable to any Series, among other things:
(i) the amount of principal distributed to holders of the
related Securities and the outstanding principal balance of
such Securities following such distribution;
(ii) the amount of interest distributed to holders of the
related Securities and the current interest on such
Securities;
(iii) the amounts of (a) any overdue accrued interest included in
such distribution, (b) any remaining overdue accrued
interest with respect to such Securities or (c) any current
shortfall in amounts to be distributed as accrued interest
to holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining
overdue principal amounts with respect to such Securities,
(c) any current shortfall in receipt of scheduled principal
payments on the related Primary Assets or (d) any realized
losses or Liquidation Proceeds to be allocated as
reductions in the outstanding principal balances of such
Securities;
(v) the amount received under any related Enhancement, and the
remaining amount available under such Enhancement;
(vi) the amount of any delinquencies with respect to payments on
the related Primary Assets;
(vii) the book value of any REO Property acquired by the related
Trust; and
(viii) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each Holder of record at any time during such
calendar year: (a) the aggregate of amounts reported pursuant to (i), (ii), and
(iv)(d) above for such calendar year and (b) such information specified in the
related Agreement to enable Holders to prepare their tax returns including,
without limitation, the amount of original issue discount accrued on the
Securities, if applicable. Information in the Distribution Date and annual
statements provided to the Holders will not have been examined and reported
upon by an independent public accountant. However, the Servicer will provide to
the Trustee a report by independent public accountants with respect to the
Servicer's servicing of the Loans. See "SERVICING OF LOANS--Evidence as to
Compliance."
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; SALE AND SERVICING AGREEMENT;
SERVICING AGREEMENT. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the applicable Agreement for a series
relating to the servicing of Loans include:
(i) any failure by the Servicer to deposit amounts in the
Collection Account and Distribution Account to enable the
Trustee to distribute to Holders of such Series any
required payment, which failure continues unremedied for
the number of days specified in the related Prospectus
Supplement after the giving of written notice of such
failure to the Servicer by the Trustee for such Series, or
to the Servicer and the Trustee by the Holders of such
Series evidencing not less than 25% of the aggregate voting
rights of the Holders for such Series;
(ii) any failure by the Servicer duly to observe or perform in
any material respect any other of its covenants or
agreements in the applicable Agreement which continues
unremedied for the number of days specified in the related
Prospectus Supplement after the giving of written notice of
such failure to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Holders of such Series
evidencing not less than 25% of the aggregate voting rights
of the Holders; and
(iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar
proceedings and certain actions by the Servicer indicating
its insolvency, reorganization or inability to pay its
obligations.
So long as an Event of Default remains unremedied under the applicable
Agreement for a Series of Securities relating to the Servicing of Loans, unless
otherwise specified in the related Prospectus Supplement, the Trustee for such
Series or Holders of Securities of such Series evidencing not less than 51% of
the aggregate voting rights of the Securities for such Series may terminate all
of the rights and obligations of the Servicer as servicer under the applicable
Agreement (other than its right to recovery of other expenses and amounts
advanced pursuant to the terms of such Agreement which rights the Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Agreement
and will be entitled to reasonable servicing compensation not to exceed the
applicable servicing fee, together with other servicing compensation in the
form of assumption fees, late payment charges or otherwise as provided in such
Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the related Prospectus Supplement to act as successor Servicer under the
provisions of the applicable Agreement. The successor Servicer would be
entitled to reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and, unless
otherwise specified in the related Prospectus Supplement, Holders of Securities
evidencing not less than 51% of the aggregate voting rights of the Securities
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or
powers unless such Holders have offered the Trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred by
the Trustee therein or thereby. Also, the Trustee may decline to follow any
such direction if the Trustee determines that the action or proceeding so
directed may not lawfully be taken or would involve it in personal liability or
be unjustly prejudicial to the nonassenting Holders.
INDENTURE. Unless otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include:
(i) a default for five (5) days or more in the payment of any
interest on any Note of such Series or the default in the
payment of principal of any Note at such Note's maturity;
(ii) failure to perform any other covenant of the Seller or the
Trust in the Indenture which continues for a period of
sixty (60) days after notice thereof is given in accordance
with the procedures described in the related Prospectus
Supplement;
(iii) any representation or warranty made by the Seller or the
Trust in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection
therewith with respect to or affecting such Series having
been incorrect in a material respect as of the time made,
and such breach is not cured within sixty (60) days after
notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement;
(iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Seller or the Trust; or
(v) any other Event of Default provided with respect to Notes
of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Zero
Coupon Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such
declaration may, under certain circumstances, be rescinded and annulled by the
holders of a majority in aggregate outstanding amount of the Notes of such
Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration
of acceleration if such collateral continues to provide sufficient funds for
the payment of principal of and interest on the Notes of such Series as they
would have become due if there had not been such a declaration. In addition,
the Trustee may not sell or otherwise liquidate the collateral securing the
Notes of a Series following an Event of Default, other than a default in the
payment of any principal or interest on any Note of such Series for thirty (30)
days or more, unless (a) the holders of 100% of the then aggregate outstanding
amount of the Notes of such Series consent to such sale, (b) the proceeds of
such sale or liquidation are sufficient to pay in full the principal of and
accrued interest, due and unpaid, on the outstanding Notes of such Series at
the date of such sale or (c) the Trustee determines that such collateral would
not be sufficient on an ongoing basis to make all payments on such Notes as
such payments would have become due if such Notes had not been declared due and
payable, and the Trustee obtains the consent of the holders of 66 2/3% of the
then aggregate outstanding amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in
the payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders would be less than would otherwise be the case. However, the
Trustee may not institute a proceeding for the enforcement of its lien except
in connection with a proceeding for the enforcement of the lien of the
Indenture for the benefit of the Holders of the Notes after the occurrence of
such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in
the event the principal of the Notes of a Series is declared due and payable,
as described above, the holders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee shall be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of Notes of such Series, unless such holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority of
the then aggregate outstanding amount of the Notes of such Series shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Notes of such Series, and the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant
or provision of the Indenture that cannot be modified without the waiver or
consent of all the holders of the outstanding Notes of such Series affected
thereby.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Seller or the Servicer. In addition,
for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Trustee shall be incompetent or unqualified to perform certain acts, singly
upon such separate trustee or co-trustee who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of the Trustee.
The Trustee may also appoint agents to perform any of the responsibilities of
the Trustee, which agents shall have any or all of the rights, powers, duties
and obligations of the Trustee conferred on them by such appointment; provided
that the Trustee shall continue to be responsible for its duties and
obligations under the Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency
of the Agreement, the Securities or of any Primary Asset or related documents.
If no Event of Default (as defined in the related Agreement) has occurred, the
Trustee is required to perform only those duties specifically required of it
under the 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 Agreement; however, the Trustee will not be responsible for the
accuracy or content of any such documents furnished by it or the Holders to the
Servicer under the 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 Holders in
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 Agreement, or in the exercise of any of its rights or
powers, if it has reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Seller, resign at any
time, in which event the Seller will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after giving such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee.
The Trustee may also be removed at any time:
(i) if the Trustee ceases to be eligible to continue as such
under the Agreement,
(ii) if the Trustee becomes insolvent, or
(iii) by the Holders of Securities evidencing over 50% of the
aggregate voting rights of the Securities in the Trust 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.
AMENDMENT OF AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Agreement
for each Series of Securities may be amended by the Seller, the Servicer (with
respect to a Series relating to Loans), and the Trustee with respect to such
Series, without notice to or consent of the Holders:
(i) to cure any ambiguity,
(ii) to correct any defective provisions or to correct or
supplement any provision therein,
(iii) to add to the duties of the Seller, the Trust or Servicer,
(iv) to add any other provisions with respect to matters or
questions arising under such Agreement or related
Enhancement,
(v) to add or amend any provisions of such Agreement as
required by a Rating Agency in order to maintain or improve
the rating of the Securities, or
(vi) to comply with any requirements imposed by the Code;
provided that any such amendment except pursuant to clause (vi) above will not
adversely affect in any material respect the interests of any Holders of such
Series, as evidenced by an opinion of counsel. Any such amendment except
pursuant to clause (vi) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any Holder if the
Trustee receives written confirmation from each Rating Agency rating such
Securities that such amendment will not cause such Rating Agency to reduce the
then current rating thereof.
Unless otherwise specified in the Prospectus Supplement, the Agreement for each
Series may also be amended by the Trustee, the Servicer, if applicable, and the
Seller with respect to such Series with the consent of the Holders possessing
not less than 51% of the aggregate outstanding principal amount of the
Securities of such Series or, if only certain Classes of such Series are
affected by such amendment, 51% of the aggregate outstanding principal amount
of the Securities of each Class of such Series affected thereby, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Agreement or modifying in any manner the rights
of Holders of such Series; provided, however, that no such amendment may (a)
reduce the amount or delay the timing of payments on any Security without the
consent of the Holder of such Security or (b) reduce the aforesaid percentage
of the aggregate outstanding principal amount of Securities of each Class, the
Holders of which are required to consent to any such amendment without the
consent of the Holders of 100% of the aggregate outstanding principal amount of
each Class of Securities affected thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series.
LIST OF HOLDERS
Upon written request of three or more Holders of record of a Series
for purposes of communicating with other Holders with respect to their rights
under the Agreement, which request is accompanied by a copy of the
communication which such Holders propose to transmit, the Trustee will afford
such Holders access during business hours to the most recent list of Holders of
that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Holders.
REMIC ADMINISTRATOR
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Trust may be performed by a REMIC administrator, who may be an
affiliate of the Seller.
TERMINATION
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT. The obligations
created by the Agreement for a Series will terminate upon the distribution to
Holders of all amounts distributable to them pursuant to such Agreement after
the earlier of (i) the later of (a) the final payment or other liquidation of
the last Primary Asset remaining in the Trust for such Series and (b) the
disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure or repossession in respect of any Primary Asset or (ii) the
repurchase, as described below, by the Servicer or other entity specified in
the related Prospectus Supplement from the Trustee for such Series of all
Primary Assets and other property at that time subject to such Agreement. The
Agreement for each Series permits, but does not require, the Servicer or other
entity specified in the related Prospectus Supplement to purchase from the
Trust for such Series all remaining Primary Assets at a price equal to, unless
otherwise specified in the related Prospectus Supplement, 100% of the aggregate
Principal Balance of such Primary Assets plus, with respect to any property
acquired in respect of a Primary Asset, if any, the outstanding Principal
Balance of the related Primary Asset at the time of foreclosure, less, in
either case, related unreimbursed Advances (in the case of the Primary Assets,
only to the extent not already reflected in the computation of the aggregate
Principal Balance of such Primary Assets) and unreimbursed expenses (that are
reimbursable pursuant to the terms of the Pooling and Servicing Agreement)
plus, in either case, accrued interest thereon at the weighted average rate on
the related Primary Assets through the last day of the Due Period in which such
repurchase occurs; provided, however, that if an election is made for treatment
as a REMIC under the Code, the repurchase price may equal the greater of (a)
100% of the aggregate Principal Balance of such Primary Assets, plus accrued
interest thereon at the applicable net rates on the Primary Assets through the
last day of the month of such repurchase and (b) the aggregate fair market
value of such Primary Assets plus the fair market value of any property
acquired in respect of a Primary Asset and remaining in the Trust. The exercise
of such right will effect early retirement of the Securities of such Series,
but such entity's right to so purchase is subject to the aggregate Principal
Balance of the Primary Assets at the time of repurchase being less than a fixed
percentage, to be set forth in the related Prospectus Supplement, of the
aggregate Principal Balance of the Primary Assets as of the Cut-off Date. In no
event, however, will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Agreement to each
Holder, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency specified in the notice
of termination. If so provided in the related Prospectus Supplement for a
Series, the Seller or another entity may effect an optional termination of the
Trust under the circumstances described in such Prospectus Supplement. See
"DESCRIPTION OF THE SECURITIES--Optional Redemption, Purchase or Termination."
INDENTURE. The Indenture will be discharged with respect to a Series
of Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes
of such Series or, with certain limitations, upon deposit with the Trustee of
funds sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series, the
related Trust will be discharged from any and all obligations in respect of the
Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Last Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects
of mortgage loans, home improvement installment sales contracts and home
improvement installment loan agreements which are general in nature. Because
certain of such legal aspects are governed by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor
reflect the laws of any particular state, nor encompass the laws of all states
in which the properties securing the Loans are situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Loans.
MORTGAGES
The Mortgage Loans for a Series will and certain Home Improvement
Contracts for a Series may be secured by either mortgages or deeds of trust or
deeds to secure debt (such Mortgage Loans and Home Improvement Contracts are
hereinafter referred to in this section as "mortgage loans"), depending upon
the prevailing practice in the state in which the property subject to a
mortgage loan is located. The filing of a mortgage, deed of trust or deed to
secure debt creates a lien or title interest upon the real property covered by
such instrument and represents the security for the repayment of an obligation
that is customarily evidenced by a promissory note. It is not prior to the lien
for real estate taxes and assessments or other charges imposed under
governmental police powers and may also be subject to other liens pursuant to
the laws of the jurisdiction in which the Mortgaged Property is located.
Priority with respect to such instruments depends on their terms, the knowledge
of the parties to the mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage, the mortgagor, who is the borrower/property owner or the land trustee
(as described below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties because title to
the property is held by a land trustee under a land trust agreement of which
the borrower/property owner is the beneficiary; at origination of a mortgage
loan, the borrower executes a separate undertaking to make payments on the
mortgage note. A deed of trust transaction normally has three parties, the
trustor, who is the borrower/property owner; the beneficiary, who is the
lender, and the trustee, a third-party grantee. Under a deed of trust, the
trustor grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the
obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
FORECLOSURE ON MORTGAGES
Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be
time-consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other
individual having an interest in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
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 of record in the
property. The trustor, borrower, or any person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Generally, state law controls the amount of foreclosure
expenses and costs, including attorney's fees, which may be recovered by a
lender. If the deed of trust is not reinstated, a notice of sale must be posted
in a public place and, in most states, published for a 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, recorded and sent to all parties
having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful
nor in bad faith or the mortgagee's action established a waiver, fraud, bad
faith, or oppressive or unconscionable conduct such as to warrant a court of
equity to refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an entirely
technical default where such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counter-claims are interposed, sometimes
requiring up to several years to complete. Moreover, a non-collusive, regularly
conducted foreclosure sale may be challenged as a fraudulent conveyance,
regardless of the parties' intent, if a court determines that the sale was for
less than fair consideration and such sale occurred while the mortgagor was
insolvent and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy. Similarly, a suit against the debtor on the
related mortgage note may take several years and, generally, is a remedy
alternative to foreclosure, the mortgagee being precluded from pursuing both at
the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party
purchasers at the sale have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is common for the lender to purchase
the property from the trustee or referee for an amount which may be equal to
the unpaid principal amount of the mortgage note secured by the mortgage or
deed of trust plus accrued and unpaid interest and the expenses of foreclosure,
in which event the mortgagor's debt will be extinguished or the lender may
purchase for a lesser amount in order to preserve its right against a borrower
to seek a deficiency judgment in states where such a judgment is available.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burdens of
ownership, including obtaining hazard insurance, paying taxes and making such
repairs at its own expense as are necessary to render the property suitable for
sale. The lender will commonly obtain the services of a real estate broker and
pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage guaranty insurance proceeds.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the payment of
the costs of clean-up. In several states such a lien has priority over the lien
of an existing mortgage against such property. In addition, under the
Comprehensive Environmental Response, Cooperation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may
impose a lien on property where EPA has incurred clean-up costs. However, a
CERCLA lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states and under CERCLA, it is conceivable that
a secured lender may be held liable as an "owner" or "operator" for the costs
of addressing releases or threatened releases of hazardous substances at a
property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any
and all "responsible parties," including owners or operators. However, CERCLA
excludes from the definition of "owner or operator" a secured creditor who
holds indicia of ownership primarily to protect its security interest but
without "actually participating in the management" of the Property (the
"Secured Creditor Exclusion"). Thus, if a lender's activities begin to encroach
on the actual management of a contaminated facility or property, the lender may
incur liability as an "owner or operator" under CERCLA. Similarly, if a lender
foreclosures and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to third party) or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute actual
participation in the management of a mortgaged property or the business of a
borrower so as to render the secured creditor exemption unavailable to a lender
has been a matter of judicial interpretation of the statutory language, and
court decisions have been inconsistent. In 1990, the Court of Appeals for the
Eleventh Circuit suggested 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.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996, which was signed into law by President Clinton on September 30, 1996. The
new legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the Secured Creditor
Exclusion only if it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling and disposal
practices, or assumes day-to-day management of all operational functions of the
mortgaged property. If a lender is or becomes liable, it can bring an action
for contribution against any other "responsible parties," including a previous
owner or operator, who created the environmental hazard, but those persons or
entities may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that such costs
arising from the circumstances set forth above would result in a loss to
Holders.
CERCLA does not apply to petroleum products, and the Secured Creditor
Exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
under ground storage tanks under Subtitle I of RCRA. Under such 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. In addition, under the Asset Conservation, Lender
Liability and Deposit Insurance Protection Act of 1996, the protections
accorded to lenders under CERCLA are also accorded to the holders of security
interests in underground storage tanks. Liability for cleanup of petroleum
contamination may, however, be governed by state law, which may not provide for
any specific protection for secured creditors.
Except as otherwise specified in the related Prospectus Supplement, at
the time the Loans were originated, no environmental or a very limited
environmental assessments of the Properties were conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the trustor or mortgagor and foreclosed junior lienors are given
a statutory period in which to redeem the property from the foreclosure sale.
The right of redemption should be distinguished from the equity of redemption,
which is a non-statutory right that must be exercised prior to the foreclosure
sale. In some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to foreclosure
or sale under a deed of trust. Consequently, the practical effect of a right of
redemption is to force the lender to retain the property and pay the expenses
of ownership until the redemption period has run. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES
The mortgage loans comprising or underlying the Primary Assets
included in the Trust for a Series will be secured by mortgages or deeds of
trust which may be second or more junior mortgages to other mortgages held by
other lenders or institutional investors. The rights of the Trust (and
therefore the Holders), as mortgagee under a junior mortgage, are subordinate
to those of the mortgagee under the senior mortgage, including the prior rights
of the senior mortgagee to receive hazard insurance and condemnation proceeds
and to cause the property securing the mortgage loan to be sold upon default of
the mortgagor, thereby extinguishing the junior mortgagee's lien unless the
junior mortgagee asserts its subordinate interest in the property in
foreclosure litigation and, possibly, satisfies the defaulted senior mortgage.
A junior mortgagee may satisfy a defaulted senior loan in full and, in some
states, may cure such default and bring the senior loan current, in either
event adding the amounts expended to the balance due on the junior loan. In
most states, absent a provision in the mortgage or deed of trust, no notice of
default is required to be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon
a failure of the mortgagor to perform any of these obligations, the mortgagee
is given the right under certain mortgages to perform the obligation itself, at
its election, with the mortgagor agreeing to reimburse the mortgagee for any
sums expended by the mortgagee on behalf of the mortgagor. All sums so expended
by the mortgagee become part of the indebtedness secured by the mortgage.
The form of credit line, trust deed or mortgage used by most
institutional lenders which make revolving home equity loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. The priority of the lien securing any
advance made under the clause may depend in most states on whether the deed of
trust or mortgage is called and recorded as a credit line deed of trust or
mortgage. If the beneficiary or lender advances additional amounts, the advance
is entitled to receive the same priority as amounts initially advanced under
the trust deed or mortgage, notwithstanding the fact that there may be junior
trust deeds or mortgages and other liens which intervene between the date of
recording of the trust deed or mortgage and the date of the future advance, and
notwithstanding that the beneficiary or lender had actual knowledge of such
intervening junior trust deeds or mortgages and other liens at the time of the
advance. In most states, the trust deed or mortgage lien securing mortgage
loans of the type which includes revolving home equity credit lines applies
retroactively to the date of the original recording of the trust deed or
mortgage, provided that the total amount of advances under the home equity
credit line does not exceed the maximum specified principal amount of the
recorded trust deed or mortgage, except as to advances made after receipt by
the lender of a written notice of lien from a judgment lien creditor of the
trustor.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the net amount realized upon the public sale of the real property and
the amount due to the lender.
Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure
sale to the excess of the outstanding debt over the fair market value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids
at the foreclosure sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Federal Soldiers' and Sailors' Relief Act, and state laws affording relief to
debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Moreover, a court
with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13
Bankruptcy Code rehabilitative plan to cure a monetary default with respect to
a loan on a debtor's residence by paying arrearages within a reasonable time
period and reinstating the original loan payment schedule even though the
lender accelerated the loan and the lender has taken all steps to realize upon
his security (provided no sale of the property has yet occurred) prior to the
filing of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default by permitting
the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan may be modified if the borrower has filed a
petition under Chapter 13. These courts have suggested that such modifications
may include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and
the outstanding balance of the loan. Federal bankruptcy law and limited case
law indicate that the foregoing modifications could not be applied to the terms
of a loan secured by property that is the principal residence of the debtor. In
all cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of
the security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is
precluded from foreclosing without authorization from the bankruptcy court. The
lender's lien may be transferred to other collateral and/or be limited in
amount to the value of the lender's interest in the collateral as of the date
of the bankruptcy. The loan term may be extended, the interest rate may be
adjusted to market rates and the priority of the loan may be subordinated to
bankruptcy court-approved financing. The bankruptcy court can, in effect,
invalidate due-on-sale clauses through confirmed Chapter 11 plans of
reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights
in respect of a defaulted Loan. In addition, substantive requirements are
imposed upon lenders in connection with the organization and the servicing of
mortgage loans by numerous federal and some state consumer protection laws. The
laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes and regulations. These federal laws
impose specific statutory liabilities upon lenders who originate loans and who
fail to comply with the provisions of the law. In some cases, this liability
may affect assignees of the loans.
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of
the loan if the borrower sells or transfers, whether voluntarily or
involuntarily, all or part of the real property securing the loan without the
lender's prior written consent. The enforceability of these clauses has been
the subject of legislation or litigation in many states, and in some cases,
typically involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, the Garn-St. Germain
Depository Institutions Act of 1982 (the "Garn-St. Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain exceptions. As a result, due-on-sale
clauses have become generally enforceable except in those states whose
legislatures exercised their authority to regulate the enforceability of such
clauses with respect to mortgage loans that were (i) originated or assumed
during the "window period" under the Garn-St. Germain Act which ended in all
cases not later than October 15, 1982, and (ii) originated by lenders other
than national banks, federal savings institutions and federal credit unions.
The Federal Home Loan Mortgage Corporation has taken the position in its
published mortgage servicing standards that, out of a total of eleven "window
period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St. Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if
the loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have been
fathomed include judicial requirements that the lender undertake affirmative
and expensive actions to determine the causes of the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon his
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under security agreements receive notices in addition to
the statutorily-prescribed minimums. For the most part, these cases have upheld
the notice provisions as being reasonable or have found that, in cases
involving the sale by a trustee under a deed of trust or by a mortgagee under a
mortgage having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full
or in part without penalty. The regulations of the Federal Home Loan Bank Board
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect
to mortgage loans having higher mortgage rates, may increase the likelihood of
refinancing or other early retirements of such mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. The Federal Home Loan Bank Board is authorized to issue
rules and regulations and to publish interpretations governing implementation
of Title V. Title V authorizes any state to reimpose interest rate limits by
adopting, before April 1, 1983, a state law, or by certifying that the voters
of such state have voted in favor of any provision, constitutional or
otherwise, which expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V is not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on mortgage loans
covered by Title V.
APPLICABILITY OF LENDING LAWS
The loans may be subject to the Home Ownership and Equity Protection
Act of 1994 (the "Act") which amended the Truth in Lending Act as it applies to
mortgages subject to the Act. The Act requires certain additional disclosures,
specifies the timing of such disclosures and limits or prohibits inclusion of
certain provisions in mortgages subject to the Act. The Act also provides that
any purchaser or assignee of a mortgage covered by the Act, such as the Trust
with respect to the Loans, is subject to all of the claims and defenses which
the borrower could assert against the original lender. The maximum damages that
may be recovered under the Act from an assignee is the remaining amount of
indebtedness plus the total amount paid by the borrower in connection with the
loan. If the Trust includes Loans subject to the Act, it will be subject to all
of the claims and defenses which the borrower could assert against the Seller.
Any violation of the Act which would result in such liability would be a breach
of the Seller's representations and warranties, and the Seller would be
obligated to cure, repurchase or, if permitted by the Agreement, substitute for
the Loan in question.
THE HOME IMPROVEMENT CONTRACTS
GENERAL
The Home Improvement Contracts, other than those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts are hereinafter referred to in this section as
"contracts") generally are "chattel paper" or constitute "purchase money
security interests" each as defined in the Uniform Commercial Code (the "UCC").
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar
to perfection of a security interest in chattel paper. Under the related
Agreement, the Seller will transfer physical possession of the contracts to the
Trustee or a designated custodian or may retain possession of the contracts as
custodian for the Trustee. In addition, the Seller will make an appropriate
filing of a UCC-1 financing statement in the appropriate states to give notice
of the Trustee's ownership of the contracts. Unless otherwise specified in the
related Prospectus Supplement, the contracts will not be stamped or otherwise
marked to reflect their assignment from the Seller to the Trustee. Therefore,
if through negligence, fraud or otherwise, a subsequent purchaser were able to
take physical possession of the contracts without notice of such assignment,
the Trustee's interest in the contracts could be defeated.
SECURITY INTERESTS IN HOME IMPROVEMENTS
The contracts that are secured by the Home Improvements financed
thereby grant to the originator of such contracts a purchase money security
interest in such Home Improvements to secure all or part of the purchase price
of such Home Improvements and related services. A financing statement generally
is not required to be filed to perfect a purchase money security interest in
consumer goods. Such purchase money security interests are assignable. In
general, a purchase money security interest grants to the holder a security
interest that has priority over a conflicting security interest in the same
collateral and the proceeds of such collateral. However, to the extent that the
collateral subject to a purchase money security interest becomes a fixture, in
order for the related purchase money security interest to take priority over a
conflicting interest in the fixture, the holder's interest in such Home
Improvement must generally be perfected by a timely fixture filing. In general,
under the UCC, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building
material or other goods that are deemed to lose such characterization, upon
incorporation of such materials into the related property, will not be secured
by a purchase money security interest in the Home Improvement being financed.
ENFORCEMENT OF SECURITY INTEREST IN HOME IMPROVEMENTS
So long as the Home Improvement has not become subject to the real
estate law, a creditor can repossess a Home Improvement securing a contract by
voluntary surrender, by "self-help" repossession that is "peaceful" (i.e.,
without breach of the peace) or, in the absence of voluntary surrender and the
ability to repossess without breach of the peace, by judicial process. The
holder of a contract must give the debtor a number of days' notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to
resale of the unit that the debtor may redeem it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgement from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgements, and in many cases
the defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the debtor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and defenses which the
debtor could assert against the seller of goods. Liability under this rule is
limited to amounts paid under a contract; however, the obligor also may be able
to assert the rule to set off remaining amounts due as a defense against a
claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the
origination and lending pursuant to the contracts, including the Truth in
Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the
Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt
Collection Practices Act and the Uniform Consumer Credit Code. In the case of
some of these laws, the failure to comply with their provisions may affect the
enforceability of the related contract.
APPLICABILITY OF USURY LAWS
Title V provides that, subject to the following conditions, state
usury limitations shall not apply to any contract which is secured by a first
lien on certain kinds of consumer goods. The contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice
period prior to instituting any action leading to repossession of the related
unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered by
Title V.
INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts. Under an
installment contract ("Installment Contract") the seller (hereinafter referred
to in this section as the "lender") retains legal title to the property and
enters into an agreement with the purchaser (hereinafter referred to in this
section as the "borrower") for the payment of the purchase price, plus
interest, over the term of such contract. Only after full performance by the
borrower of the contract is the lender obligated to convey title to the
property to the purchaser. As with mortgage or deed of trust financing, during
the effective period of the Installment Contract, the borrower is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the borrower
may be granted some grace period during which the Installment Contract may be
reinstated upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for
obtaining possession and clear title under an Installment Contract in a given
state are simpler and less time-consuming and costly than are the procedures
for foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or
(iii) above are subject to challenge by creditors and if, in the opinion of the
court, the ability of a person to comply with such obligations is not
materially impaired by military service, the court may apply equitable
principles accordingly. If a borrower's obligation to repay amounts otherwise
due on a Loan included in a Trust for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, none of the Trust, the
Servicer, the Seller nor the Trustee will be required to advance such amounts,
and any loss in respect thereof may reduce the amounts available to be paid to
the holders of the Certificates of such Series. Unless otherwise specified in
the related Prospectus Supplement, any shortfalls in interest collections on
Loans or Underlying Loans relating to the Private Securities, as applicable,
included in a Trust for a Series resulting from application of the Soldiers'
and Sailors' Civil Relief Act of 1940 will be allocated to each Class of
Securities of such Series that is entitled to receive interest in respect of
such Loans or Underlying Loans in proportion to the interest that each such
Class of Securities would have otherwise been entitled to receive in respect of
such Loans or Underlying Loans had such interest shortfall not occurred.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with originating, servicing
and enforcing loans secured by certain residential properties. Theses laws
include the federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, Real Estate Settlement Procedures Act and Regulation B promulgated
thereunder, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. In particular, Regulation Z
requires certain disclosures to borrowers regarding terms of the Loans; the
Equal Credit Opportunity Act and Regulation B promulgated thereunder prohibit
discrimination in the extension of credit on the basis of age, race, color,
sex, religion, martial status, national origin, receipt of public assistance or
the exercise of any right under the Consumer Credit Protection Act; and the
Fair Credit Reporting Act regulates the use and reporting of information
related to the borrower's credit experience. Certain provisions of these laws
impose specific statutory liabilities upon lenders who fail to comply
therewith. In addition, violations of such laws may limit the ability of the
Servicer to collect all or part of the principal of or interest on the Loans
and could subject the Servicer and in some cases its assignees to damages and
administrative enforcement.
THE SELLER
GENERAL
KeyBank National Association, the Seller, is a wholly owned subsidiary
of KeyCorp. The Seller is a national banking association headquartered in
Cleveland, Ohio. The Seller provides: (i) retail and private banking services
to consumers; (ii) commercial banking services to small businesses,
middle-market and large corporate customers; (iii) capital market services; and
(iv) trust and asset management services. The Seller's retail banking services
include consumer lending (including residential mortgage, home equity and
direct installment), deposit services, and private banking services. The
principal executive offices of the Seller are located at Key Tower, 127 Public
Square, Cleveland, Ohio 44114 (Telephone: (216) 689-6300). None of the
Servicer, the Trustee, the Seller or any of their respective affiliates has
guaranteed or is otherwise obligated with respect to the Securities of any
Series.
USE OF PROCEEDS
The Seller will apply all or substantially all of the net proceeds
from the sale of each Series of Securities for one or more of the following
purposes: (i) to purchase the related Primary Assets, (ii) to establish any
Reserve Funds described in the related Prospectus Supplement, (iii) to pay
costs of structuring and issuing such Securities, including the costs of
obtaining Enhancement, if any and (iv) for general corporate purposes. If so
specified in the related Prospectus Supplement, the purchase of the Primary
Assets for a Series may be effected by an exchange of Securities with the
Seller of such Primary Assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain anticipated United States
federal income tax consequences of the purchase, ownership, and disposition of
the Securities and is based on advise of Brown & Wood LLP, special counsel to
the Seller. The summary is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder,
including, where applicable, proposed regulations, and the judicial and
administrative rulings and decisions now in effect, all of which are subject to
change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this interpretation is based are
subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of United States
federal income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to
special treatment under the federal income tax laws. This summary focuses
primarily upon investors who will hold Securities as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Code, but much of the discussion is applicable to other investors as well.
Prospective Investors are advised to consult their own tax advisers concerning
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Securities.
The United States federal income tax consequences to Holders will vary
depending on whether (i) the Securities of a Series are classified as
indebtedness; (ii) an election is made to treat the Trust relating to a
particular Series of Securities as a real estate mortgage investment conduit
("REMIC") under the Code; (iii) the Securities represent an ownership interest
in some or all of the assets included in the Trust for a Series or (iv) an
election is made to treat the Trust relating to a particular Series of
Certificates as a partnership. The Prospectus Supplement for each Series of
Securities will specify how the Securities will be treated for federal income
tax purposes and will discuss whether a REMIC election, if any, will be made
with respect to such Series.
As used herein, the term "U.S. Person" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any state thereof,
including the District of Columbia (other than a partnership that is not
treated as a Unites States person under any applicable Treasury regulations),
an estate whose income is subject to United States federal income tax
regardless of its source of income, or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be treated as United States Persons shall be considered U.S.
persons as well.
TAXATION OF DEBT SECURITIES
STATUS AS REAL PROPERTY LOANS. Except to the extent provided otherwise
in a Prospectus Supplement as to each Series of Securities Brown & Wood LLP
will have advised the Seller that: (i) Securities held by a mutual savings bank
or domestic building and loan association will represent interests in
"qualifying real property loans" within the meaning of Code section 593(d);
(ii) Securities held by a domestic building and loan association will
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (iii) Securities held by a real
estate investment trust will constitute "real estate assets" within the meaning
of Code section 856(c)(4)(A) and interest on Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code section 856(c)(3)(B).
INTEREST AND ACQUISITION DISCOUNT. Securities representing regular
interests in a REMIC ("Regular Interest Securities") are generally taxable to
holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting,
regardless of the Holder's normal accounting method. Interest (other than
original issue discount) on Securities (other than Regular Interest Securities)
that are characterized as indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance with their usual methods
of accounting. Securities characterized as debt for federal income tax purposes
and Regular Interest Securities will be referred to hereinafter collectively as
"Debt Securities."
Debt Securities that are Compound Interest Securities will, and
certain of the other Debt Securities may, be issued with "original issue
discount" ("OID"). The following discussion is based in part on the rules
governing OID which are set forth in Sections 1271-1275 of the Code and the
Treasury regulations issued thereunder (the "OID Regulations"). A Holder should
be aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder
of a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the Closing Date, the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The issue price of a
Debt Security also includes the amount paid by an initial Debt Security holder
for accrued interest that relates to a period prior to the issue date of the
Debt Security. The stated redemption price at maturity of a Debt Security
includes the original principal amount of the Debt Security, but generally will
not include distributions of interest if such distributions constitute
"qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Security. The OID Regulations state that interest payments are unconditionally
payable only if a late payment or nonpayment is expected to be penalized or
reasonable remedies exist to compel payment. Certain Debt Securities may
provide for default remedies in the event of late payment or nonpayment of
interest. The interest on such Debt Securities will be unconditionally payable
and constitute qualified stated interest, not OID. However, absent
clarification of the OID Regulations, where Debt Securities do not provide for
default remedies, the interest payments will be included in the Debt Security's
stated redemption price at maturity and taxed as OID. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Distributions of interest on Debt Securities
with respect to which deferred interest will accrue will not constitute
qualified stated interest payments, in which case the stated redemption price
at maturity of such Debt Securities includes all distributions of interest as
well as principal thereon. Where the interval between the issue date and the
first Distribution Date on a Debt Security is either longer or shorter than the
interval between subsequent Distribution Dates, all or part of the interest
foregone, in the case of the longer interval, and all of the additional
interest, in the case of the shorter interval, will be included in the stated
redemption price at maturity and tested under the de minimis rule described
below. In the case of a Debt Security with a long first period which has non-de
minimis OID, all stated interest in excess of interest payable at the effective
interest rate for the long first period will be included in the stated
redemption price at maturity and the Debt Security will generally have OID.
Holders of Debt Securities should consult their own tax advisors to determine
the issue price and stated redemption price at maturity of a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of
the Debt Security. For this purpose, the weighted average maturity of the Debt
Security is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of
each distribution included in the stated redemption price at maturity of the
Debt Security and the denominator of which is the stated redemption price at
maturity of the Debt Security. Holders generally must report de minimis OID pro
rata as principal payments are received, and such income will be capital gain
if the Debt Security is held as a capital asset. However, accrual method
holders may elect to accrue all de minimis OID as well as market discount under
a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest
is unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such Debt Security. In
the case of Compound Interest Securities, certain Interest Weighted Securities,
and certain of the other Debt Securities, none of the payments under the
instrument will be considered qualified stated interest, and thus the aggregate
amount of all payments will be included in the stated redemption price.
The holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such OID. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a Debt Security that is not a Regular
Interest Security and the principal payments on which are not subject to
acceleration resulting from prepayments on the Loans, the amount of OID
includible in income of a Holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the Debt Security and the adjusted issue price of the
Debt Security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method
is to increase the portions of OID required to be included in income by a
Holder to take into account prepayments with respect to the Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero for
any period) the portions of OID required to be included in income by a Holder
of a Pay-Through Security to take into account prepayments with respect to the
Loans at a rate that is slower than the Prepayment Assumption. Although OID
will be reported to Holders of Pay-Through Securities based on the Prepayment
Assumption, no representation is made to Holders that Loans will be prepaid at
that rate or at any other rate.
The accrual of OID will, unless otherwise specified in the related
Prospectus Supplement, use the original yield to maturity of the Pay-Through
Securities calculated based on a reasonable assumed prepayment rate for the
mortgage loans underlying the Pay-Through Securities, and will take into
account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. The legislative history of the 1986 Act (the "Legislative
History") provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the offering price of such Securities. The prepayment assumption contained in
the Code literally only applies to debt instruments collateralized by other
debt instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, and, in tax years beginning after August 5,
1997, to pools of receivables the yield on which may be affected by prepayments
of the receivables such as the Pay-Through Securities represent. However, no
other legal authority provides guidance with regard to the proper method of
accruing OID on obligations that are subject to prepayment, and, until further
guidance is issued, the Servicer intends to calculate and report OID under the
method described below.
The Seller may adjust the accrual of OID on a Class of Regular
Interest Securities (or other regular interests in a REMIC) in a manner that it
believes to be appropriate, to take account of realized losses on the Loans,
although the OID Regulations do not provide for such adjustments. If the
Internal Revenue Service ("IRS") were to require that OID be accrued without
such adjustments, the rate of accrual of OID for a Class of Regular Interest
Securities could increase.
Certain classes of Regular Interest Securities may represent more than
one class of REMIC regular interests. Unless the applicable Prospectus
Supplement specifies otherwise, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the purposes
of computing OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Security will also be required to
include OID in gross income, but such a holder who purchases such Debt Security
for an amount that exceeds its adjusted issue price will be entitled (as will
an initial holder who pays more than a Debt Security's issue price) to offset
such OID by comparable economic accruals of portions of such excess.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Holders will be required to
report income with respect to the related Securities under an accrual method
without giving effect to delays and reductions in distributions attributable to
a default or delinquency on the Loans, except possibly to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income (including OID) reported by a holder of such a Security in any period
could significantly exceed the amount of cash distributed to such holder in
that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, holders of Securities should consult their own tax
advisors on this point.
INTEREST WEIGHTED SECURITIES. It is not clear how income should be
accrued with respect to Regular Interest Securities or Stripped Securities (as
defined under "--Tax Status as a Grantor Trust; General" herein) the payments
on which consist solely or primarily of a specified portion of the interest
payments on qualified mortgages held by the REMIC or on Loans underlying
Pass-Through Securities ("Interest Weighted Securities"). The Seller intends to
take the position that all of the income derived from an Interest Weighted
Security should be treated as OID and that the amount and rate of accrual of
such OID should be calculated by treating the Interest Weighted Security as a
Compound Interest Security. However, in the case of Interest Weighted
Securities that are entitled to some payments of principal and that are Regular
Interest Securities the IRS could assert that income derived from an Interest
Weighted Security should be calculated as if the Security were a security
purchased at a premium equal to the excess of the price paid by such holder for
such Security over its stated principal amount, if any. Under this approach, a
holder would be entitled to amortize such premium only if it has in effect an
election under Section 171 of the Code with respect to all taxable debt
instruments held by such holder, as described below. Alternatively, the IRS
could assert that an Interest Weighted Security should be taxable under the
rules governing bonds issued with contingent payments. Such treatment may be
more likely in the case of Interest Weighted Securities that are Stripped
Securities as described below. See "--Tax Status as a Grantor Trust--Discount
or Premium on Pass-Through Securities."
VARIABLE RATE DEBT SECURITIES. Debt Securities may provide for interest based
on a variable rate. Interest is treated as payable at a variable rate and not
as contingent interest if, generally, (i) the issue price does not exceed the
original principal balance by more than a specified amount and (ii) the
interest compounds or is payable at least annually at current value of certain
objective rates matured by or based on lending rates for newly borrowed funds.
For a debt instrument issued after August 13, 1996, an objective rate is a rate
(other than a qualified floating rate) that is determined using a single fixed
formula and that is based on objective financial or economic information. The
variable interest generally will be qualified stated interest to the extent it
is unconditionally payable at least annually and, to the extent successive
variable rates are used, interest is not significantly accelerated or deferred.
The amount of OID with respect to a Regular Interest Security bearing
a variable rate of interest will accrue in the manner described above under
"--Interest and Acquisition Discount" by assuming generally that the index used
for the variable rate will remain fixed throughout the term of the Security.
Appropriate adjustments are made for the actual variable rate.
MARKET DISCOUNT. A purchaser of a Security may be subject to the
market discount rules of Sections 1276-1278 of the Code. A Holder that acquires
a Debt Security with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Debt Security
over the purchaser's purchase price) will be required to include accrued market
discount in income as ordinary income in each month, but limited to an amount
not exceeding the principal payments on the Debt Security received in that
month and, if the Securities are sold, the gain realized. Such market discount
would accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case
of Securities (or in the case of a Pass-Through Security, as set forth below,
the Loans underlying such Security) not originally issued with OID, stated
interest payable in the relevant period to total stated interest remaining to
be paid at the beginning of the period or (b) in the case of Securities (or, in
the case of a Pass-Through Security, as described below, the Loans underlying
such Security) originally issued at a discount, OID in the relevant period to
total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a Security
(or, in the case of a Pass-Through Security, as described below, the underlying
Loans) with market discount over interest received on such Security is allowed
as a current deduction only to the extent such excess is greater than the
market discount that accrued during the taxable year in which such interest
expense was incurred. In general, the deferred portion of any interest expense
will be deductible when such market discount is included in income, including
upon the sale, disposition, or repayment of the Security (or in the case of a
Pass-Through Security, an underlying Loan). A holder may elect to include
market discount in income currently as it accrues, on all market discount
obligations acquired by such holder during the taxable year such election is
made and thereafter, in which case the interest deferral rule will not apply.
PREMIUM. A holder who purchases a Debt Security (other than an
Interest Weighted Security to the extent described above) at a cost greater
than its stated redemption price at maturity, generally will be considered to
have purchased the Security at a premium, which it may elect to amortize as an
offset to interest income on such Security (and not as a separate deduction
item) on a constant yield method. Although no regulations addressing the
computation of premium accrual on securities similar to the Securities have
been issued, the legislative history of the 1986 Act indicates that premium is
to be accrued in the same manner as market discount. Accordingly, it appears
that the accrual of premium on a Class of Pay-Through Securities will be
calculated using the prepayment assumption used in pricing such Class. If a
holder makes an election to amortize premium on a Debt Security, such election
will apply to all taxable debt instruments (including all REMIC regular
interests and all pass-through certificates representing ownership interests in
a trust holding debt obligations) held by the holder at the beginning of the
taxable year in which the election is made, and to all taxable debt instruments
acquired thereafter by such holder, and will be irrevocable without the consent
of the Internal Revenue Service. Purchasers who pay a premium for the
Securities should consult their tax advisers regarding the election to amortize
premium and the method to be employed.
On December 30, 1997 the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations specifically do not apply to
prepayable debt instruments subject to Code Section 1272(a)(6). Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the Securities
should consult their tax advisors regarding the possible application of the
Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium
in income as interest, based on a constant yield method. If such an election
were to be made with respect to a Debt Security with market discount, the
holder of the Debt Security would be deemed to have made an election to include
in income currently market discount with respect to all other debt instruments
having market discount that such holder of the Debt Security acquires during
the year of the election or thereafter. Similarly, a holder of a Debt Security
that makes this election for a Debt Security that is acquired at a premium will
be deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such holder owns or
acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
GENERAL. In the opinion of Brown & Wood LLP, special counsel to the
Seller, if a REMIC election is made with respect to a Series of Securities,
then the arrangement by which the Securities of that Series are issued will be
treated as a REMIC as long as all of the provisions of the applicable Agreement
are complied with and the statutory and regulatory requirements are satisfied.
Securities will be designated as "Regular Interests" or "Residual Interests" in
a REMIC, as specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement,
if a REMIC election is made with respect to a Series of Securities, (i)
Securities held by a domestic building and loan association will constitute "a
regular or a residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist of
cash, government securities, "loans secured by an interest in real property,"
and other types of assets described in Code Section 7701(a)(19)(C)); and (ii)
Securities held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(5)(B), and income with
respect to the Securities will be considered "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B) (assuming, for both purposes, that at
least 95% of the REMIC's assets are qualifying assets). If less than 95% of the
REMIC's assets consist of assets described in (i), or (ii) above, then a
Security will qualify for the tax treatment described in (i) or (ii) in the
proportion that such REMIC assets are qualifying assets.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of Certificates representing a Residual Interest (the
"Residual Interest Securities"). In the case of a `single class REMIC,"
however, the expenses will be allocated, under Treasury regulations, among the
holders of the Regular Interest Securities and the holders of the Residual
Interest Securities on a daily basis in proportion to the relative amounts of
income accruing to each Holder on that day. In the case of a holder of a
Regular Interest Security who is an individual or a "pass-through interest
holder" (including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the Holder,
exceed 2% of such Holder's adjusted gross income. In addition the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The reduction or disallowance of this
deduction may have a significant impact on the yield of the Regular Interest
Security to such a Holder. In general terms, a single class REMIC is one that
either (i) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership interests,
even if they would be classified as debt for federal income tax purposes) or
(ii) is similar to such a trust and which is structured with the principal
purpose of avoiding the single class REMIC rules. Unless otherwise stated in
the applicable Prospectus Supplement, the expenses of the REMIC will be
allocated to holders of the related Residual Interest Securities.
TAXATION OF THE REMIC
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
CALCULATION OF REMIC INCOME. The taxable income or net loss of a REMIC
is determined under an accrual method of accounting and in the same manner as
in the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue
discount or market discount on loans and other assets, and (ii) deductions,
including stated interest and original issue discount accrued on Regular
Interest Securities, amortization of any premium with respect to Loans, and
servicing fees and other expenses of the REMIC. A holder of a Residual Interest
Security that is an individual or a "pass-through interest holder" (including
certain pass-through entities, but not including real estate investment trusts)
will be unable to deduct servicing fees payable on the loans or other
administrative expenses of the REMIC for a given taxable year, to the extent
that such expenses, when aggregated with such holder's other miscellaneous
itemized deductions for that year, do not exceed two percent of such holder's
adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the aggregate
fair market value of the regular interests and the residual interests on the
Startup Day (generally, the day that the interests are issued). That aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals
originated on or after March 2, 1984, and the market discount provisions apply
to loans originated after July 18, 1984. Subject to possible application of the
de minimis rules, the method of accrual by the REMIC of OID income on such
loans will be equivalent to the method under which holders of Pay-Through
Securities accrue OID (i.e., under the constant yield method taking into
account the Prepayment Assumption). The REMIC will deduct OID on the Regular
Interest Securities in the same manner that the holders of the Regular Interest
Securities include such discount in income, but without regard to the de
minimis rules. See "Taxation of Debt Securities" above. However, a REMIC that
acquires loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before such date, it is possible
that such premium may be recovered in proportion to payments of loan principal.
PROHIBITED TRANSACTIONS AND CONTRIBUTIONS TAX. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without taking
into account any losses from prohibited transactions or any deductions
attributable to any prohibited transaction that resulted in a loss. In general,
prohibited transactions include: (i) subject to limited exceptions, the sale or
other disposition of any qualified mortgage transferred to the REMIC; (ii)
subject to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that a
REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the close of the three-month period beginning on the Startup Day.
The holders of Residual Interest Securities will generally be responsible for
the payment of any such taxes imposed on the REMIC. To the extent not paid by
such holders or otherwise, however, such taxes will be paid out of the Trust
and will be allocated pro rata to all outstanding Classes of Securities of such
REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of a Residual Interest Security will take into account the
"daily portion" of the taxable income or net loss of the REMIC for each day
during the taxable year on which such holder held the Residual Interest
Security. The daily portion is determined by allocating to each day in any
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC for such quarter, and by allocating that amount among the holders (on
such day) of the Residual Interest Securities in proportion to their respective
holdings on such day.
The holder of a Residual Interest Security must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or loss.
The reporting of taxable income without corresponding distributions could
occur, for example, in certain REMIC issues in which the loans held by the
REMIC were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount. (If this occurs, it is likely that cash distributions will exceed
taxable income in later years.) Taxable income may also be greater in earlier
years of certain REMIC issues as a result of the fact that interest expense
deductions, as a percentage of outstanding principal on REMIC Regular Interest
Securities, will typically increase over time as lower yielding Securities are
paid, whereas interest income with respect to loans will generally remain
constant over time as a percentage of loan principal.
In any event, because the holder of a Residual Interest is taxed on
the net income of the REMIC, the taxable income derived from a Residual
Interest Security in a given taxable year will not be equal to the taxable
income associated with investment in a corporate bond or stripped instrument
having similar cash flow characteristics and pretax yield. Therefore, the
after-tax yield on the Residual Interest Security may be less than that of such
a bond or instrument.
LIMITATION ON LOSSES. The amount of the REMIC's net loss that a holder
may take into account currently is limited to the holder's adjusted basis at
the end of the calendar quarter in which such loss arises. A holder's basis in
a Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be
used only to offset income of the REMIC generated by the same REMIC. The
ability of holders of Residual Interest Securities to deduct net losses may be
subject to additional limitations under the Code, as to which such holders
should consult their tax advisers.
DISTRIBUTIONS. Distributions on a Residual Interest Security (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest
SECURITY. If the amount of such payment exceeds a holder's adjusted
basis in the Residual Interest Security, however, the holder will recognize
gain (treated as gain from the sale of the Residual Interest Security) to the
extent of such excess.
SALE OR EXCHANGE. A holder of a Residual Interest Security will
recognize gain or loss on the sale or exchange of a Residual Interest Security
equal to the difference, if any, between the amount realized and such holder's
adjusted basis in the Residual Interest Security at the time of such sale or
exchange.
EXCESS INCLUSIONS. The portion of the REMIC taxable income of a holder
of a Residual Interest Security consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on
such holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion income will
be treated as unrelated business taxable income of such holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to certain additional limitations. See "Tax Treatment
of Foreign Investors."
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have `significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special
rule that taxable income cannot be less than excess inclusions. Second, a
residual holder's alternative minimum taxable income for a tax year cannot be
less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have such
rules apply only to tax years beginning after August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part of
the repeal of the bad debt reserve method for thrift savings associations,
repealed the application of Code section 593 (d) to any taxable year beginning
after December 31, 1995.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period allocable
to a Residual Interest Security, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Day
multiplied by (ii) the adjusted issue price of such Residual Interest Security
at the beginning of such quarterly period. The adjusted issue price of a
Residual Interest at the beginning of each calendar quarter will equal its
issue price (calculated in a manner analogous to the determination of the issue
price of a Regular Interest), increased by the aggregate of the daily accruals
for prior calendar quarters, and decreased (but not below zero) by the amount
of loss allocated to a holder and the amount of distributions made on the
Residual Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors" below.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST
SECURITIES. As a condition to qualification as a REMIC, reasonable arrangements
must be made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Pooling and Servicing
Agreement will prohibit Disqualified Organizations from owning a Residual
Interest Security. In addition, no transfer of a Residual Interest Security
will be permitted unless the proposed transferee shall have furnished to the
Trustee an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all Federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a "noneconomic
residual interest" unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the product of the present value of the anticipated excess inclusions
and the highest rate of tax for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which the taxes accrue on
the anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. If a transfer of a Residual Interest is disregarded, the
transferor would be liable for any Federal income tax imposed upon taxable
income derived by the transferee from the REMIC. The REMIC Regulations provide
no guidance as to how to determine if a significant purpose of a transfer is to
impede the assessment or collection of tax. A similar type of limitation exists
with respect to certain transfers of residual interests by foreign persons to
United States persons. See "--Tax Treatment of Foreign Investors."
MARK TO MARKET RULES. Prospective purchasers of a REMIC Residual
Interest Security should be aware that the IRS recently finalized regulations
which provide that a Residual Interest acquired after January 3, 1995 cannot be
marked-to-market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in
a unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
GENERAL. As specified in the related Prospectus Supplement if a REMIC
or partnership election is not made, in the opinion of Brown & Wood LLP,
special counsel to the Seller, the Trust relating to a Series of Securities
will be classified for federal income tax purposes as a grantor trust under
Subpart E, Part 1 of Subchapter J of the Code and not as an association taxable
as a corporation (the Securities of such Series, "Pass-Through Securities"). In
some Series there will be no separation of the principal and interest payments
on the Loans. In such circumstances, a Holder will be considered to have
purchased a pro rata undivided interest in each of the Loans. In other cases
("Stripped Securities"), sale of the Securities will produce a separation in
the ownership of all or a portion of the principal payments from all or a
portion of the interest payments on the Loans.
Each Holder must report on its federal income tax return its share of
the gross income derived from the Loans (not reduced by the amount payable as
fees to the Trustee and the Servicer and similar fees (collectively, the
"Servicing Fee")), at the same time and in the same manner as such items would
have been reported under the Holder's tax accounting method had it held its
interest in the Loans directly, received directly its share of the amounts
received with respect to the Loans, and paid directly its share of the
Servicing Fees. In the case of Pass-Through Securities other than Stripped
Securities, such income will consist of a pro rata share of all of the income
derived from all of the Loans and, in the case of Stripped Securities, such
income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the Holder owns an interest. The
holder of a Security will generally be entitled to deduct such Servicing Fees
under Section 162 or Section 212 of the Code to the extent that such Servicing
Fees represent "reasonable" compensation for the services rendered by the
Trustee and the Servicer (or third parties that are compensated for the
performance of services). In the case of a noncorporate holder, however,
Servicing Fees (to the extent not otherwise disallowed, e.g., because they
exceed reasonable compensation) will be deductible in computing such holder's
regular tax liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and may
not be deductible to any extent in computing such holder's alternative minimum
tax liability. In addition, for taxable years beginning after December 31,
1990, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the applicable
amount (which amount will be adjusted for inflation in taxable years beginning
after 1990) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year.
DISCOUNT OR PREMIUM ON PASS-THROUGH SECURITIES. The holder's purchase
price of a Pass-Through Security is to be allocated among the Loans in
proportion to their fair market values, determined as of the time of purchase
of the Securities. In the typical case, the Trustee (to the extent necessary to
fulfill its reporting obligations) will treat each Loan as having a fair market
value proportional to the share of the aggregate principal balances of all of
the Loans that it represents, since the Securities, unless otherwise specified
in the applicable Prospectus Supplement, will have a relatively uniform
interest rate and other common characteristics. To the extent that the portion
of the purchase price of a Pass-Through Security allocated to a Loan (other
than to a right to receive any accrued interest thereon and any undistributed
principal payments) is less than or greater than the portion of the principal
balance of the Loan allocable to the Security, the interest in the Loan
allocable to the Pass-Through Security will be deemed to have been acquired at
a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of
a prescribed de minimis amount or a Stripped Security, a holder of a Security
will be required to report as interest income in each taxable year its share of
the amount of OID that accrues during that year in the manner described above.
OID with respect to a Loan could arise, for example, by virtue of the financing
of points by the originator of the Loan, or by virtue of the charging of points
by the originator of the Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a
Loan will be includible in income, generally in the manner described above,
except that in the case of Pass-Through Securities, market discount is
calculated with respect to the Loans underlying the Certificate, rather than
with respect to the Security. A Holder that acquires an interest in a Loan
originated after July 18, 1984 with more than a de minimis amount of market
discount (generally, the excess of the principal amount of the Loan over the
purchaser's allocable purchase price) will be required to include accrued
market discount in income in the manner set forth above. See "--Taxation of
Debt Securities; Market Discount" and "--Premium" above.
In the case of market discount on a Pass-Through Security attributable
to Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. Such treatment would generally result in discount being included in
income at a slower rate than discount would be required to be included in
income using the method described in the preceding paragraph.
STRIPPED SECURITIES. A Stripped Security may represent a right to
receive only a portion of the interest payments on the Loans, a right to
receive only principal payments on the Loans, or a right to receive certain
payments of both interest and principal. Certain Stripped Securities ("Ratio
Strip Securities") may represent a right to receive differing percentages of
both the interest and principal on each Loan. Pursuant to Section 1286 of the
Code, the separation of ownership of the right to receive some or all of the
interest payments on an obligation from ownership of the right to receive some
or all of the principal payments results in the creation of `stripped bonds"
with respect to principal payments and `stripped coupons" with respect to
interest payments. Section 1286 of the Code applies the OID rules to stripped
bonds and stripped coupons. For purposes of computing OID, a stripped bond or a
stripped coupon is treated as a debt instrument issued on the date that such
stripped interest is purchased with an issue price equal to its purchase price
or, if more than one stripped interest is purchased, the ratable share of the
purchase price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e. 1% interest on the Loan
principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be treated
as market discount. The IRS appears to require that reasonable servicing fees
be calculated on a Loan by Loan basis, which could result in some Loans being
treated as having more than 100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and OID rules are to apply to Stripped
Securities and other Pass-Through Securities. Under the method described above
for Pay-Through Securities (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made which take into account
with respect to each accrual period the effect of prepayments during such
period. However, the 1986 Act does not, absent Treasury regulations, appear
specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments `secured by" those loans. Nevertheless, it is believed
that the Cash Flow Bond Method is a reasonable method of reporting income for
such Securities, and it is expected that OID will be reported on that basis
unless otherwise specified in the related Prospectus Supplement. In applying
the calculation to Pass-Through Securities, the Trustee will treat all payments
to be received by a holder with respect to the underlying Mortgage Loans as
payments on a single installment obligation. The IRS could, however, assert
that OID must be calculated separately for each Loan underlying a Security.
Under certain circumstances, if the Loans prepay at a rate faster than
the Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate
a Holder's recognition of income. If, however, the Mortgage Loans prepay at a
rate slower than the Prepayment Assumption, in some circumstances the use of
this method may decelerate a Holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted
Security, the Trustee intends, absent contrary authority, to report income to
Security holders as OID, in the manner described above for Interest Weighted
Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations
of the applicable Code provisions. Among other possibilities, the Internal
Revenue Service could contend that (i) in certain Series, each non-Interest
Weighted Security is composed of an unstripped undivided ownership interest in
Mortgage Loans and an installment obligation consisting of stripped principal
payments; (ii) the non-Interest Weighted Securities are subject to the
contingent payment provisions of the Proposed Regulations; or (iii) each
Interest Weighted Stripped Security is composed of an unstripped undivided
ownership interest in Loans and an installment obligation consisting of
stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the Securities for federal income
tax purposes.
CHARACTER AS QUALIFYING LOANS. In the case of Stripped Securities
there is no specific legal authority existing regarding whether the character
of the Securities, for federal income tax purposes, will be the same as the
Loans. The IRS could take the position that the Loans" character is not carried
over to the Securities in such circumstances. Pass-Through Securities will be,
and, although the matter is not free from doubt, Stripped Securities should be
considered to represent "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code, and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; and interest
income attributable to the Securities should be considered to represent
"interest on obligations secured by mortgages on real property or on interests
in real property" with the meaning of Section 856(c)(3)(B) of the Code.
Reserves or funds underlying the Securities may cause a proportionate reduction
in the above-described qualifying status categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trusts as to which a
partnership election is made, a Holder's tax basis in its Security is the price
such holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss
realized on the sale or exchange of a Regular Interest Security will be taxable
as ordinary income or loss. In addition, gain from the disposition of a Regular
Interest Security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such holder's holding period, over the amount of ordinary income
actually recognized by the holder with respect to such Regular Interest
Security. The maximum tax rate on ordinary income for individual taxpayers is
39.6% and the maximum tax rate on long-term capital gains for such taxpayers is
20%. The maximum tax rate on both ordinary income and long-term capital gains
of corporate taxpayers is 35%.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to
Trusts as to which a partnership election is made, a Holder, other than a
holder of a REMIC Residual Security, may, under certain circumstances, be
subject to "backup withholding" at a rate of 31% with respect to distributions
or the proceeds of a sale of certificates to or through brokers that represent
interest or original issue discount on the Securities. This withholding
generally applies if the holder of a Security (i) fails to furnish the Trustee
with its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such holder's securities broker
with a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that the holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). On October 6, 1997, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
backup withholding and information reporting rules described above. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Holders should consult their tax
advisers as to their current qualification for exemption from backup
withholding and the procedure for obtaining the exemption, as well as any
future changes as a result of the New Regulations.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trusts as to which a
partnership election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to
be "effectively connected" with a trade or business conducted in the United
States by a nonresident alien individual, foreign partnership or foreign
corporation ("Nonresidents"), such interest will normally qualify as portfolio
interest (except where (i) the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer,
or (ii) the recipient is a controlled foreign corporation to which the issuer
is a related person) and will be exempt from federal income tax. Upon receipt
of appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate were
reduced or eliminated by an applicable tax treaty) on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
Nonresidents. Holders of Pass-Through Securities and Stripped Securities,
including Ratio Strip Securities, however, may be subject to withholding to the
extent that the Loans were originated on or before July 18, 1984.
Interest and OID of Holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Holders should assume that such
income does not qualify for exemption from United States withholding tax as
"portfolio interest." It is clear that, to the extent that a payment represents
a portion of REMIC taxable income that constitutes excess inclusion income, a
holder of a Residual Interest Security will not be entitled to an exemption
from or reduction of the 30% (or lower treaty rate) withholding tax rule. If
the payments are subject to United States withholding tax, they generally will
be taken into account for withholding tax purposes only when paid or
distributed (or when the Residual Interest Security is disposed of). The
Treasury has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in order
to prevent the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of Residual Interest
Securities that do not have significant value. Under the REMIC Regulations, if
a Residual Interest Security has tax avoidance potential, a transfer of a
Residual Interest Security to a Nonresident will be disregarded for all Federal
tax purposes. A Residual Interest Security has tax avoidance potential unless,
at the time of the transfer the transferor reasonably expects that the REMIC
will distribute to the transferee residual interest holder amounts that will
equal at least 30% of each excess inclusion, and that such amounts will be
distributed at or after the time at which the excess inclusions accrue and not
later than the calendar year following the calendar year of accrual. If a
Nonresident transfers a Residual Interest Security to a United States person,
and if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions, then the transfer is disregarded and the transferor
continues to be treated as the owner of the Residual Interest Security for
purposes of the withholding tax provisions of the Code. See "--Excess
Inclusions."
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Brown & Wood LLP, special counsel to the Seller, will deliver its
opinion that a Trust for which a partnership election is made will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on counsel's conclusions that the nature of the income of the Trust will
exempt it from the rule that certain publicly traded partnerships are taxable
as corporations or the issuance of the Certificates has been structured as a
private placement under an IRS safe harbor, so that the Trust will not be
characterized as a publicly traded partnership taxable as a corporation.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Trust will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Special counsel to the Seller will, except as
otherwise provided in the related Prospectus Supplement, advise the Seller that
the Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified stated
interest" under the OID regulations, and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID regulations. If these conditions are not satisfied with respect to any
given series of Notes, additional tax considerations with respect to such Notes
will be disclosed in the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except
as discussed in the following paragraph, the Notes will not be considered
issued with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon
the taxable disposition of the Short-Term Note). However, a cash basis holder
of a Short-Term Note reporting interest income as it is paid may be required to
defer a portion of any interest expense otherwise deductible on indebtedness
incurred to purchase or carry the Short-Term Note until the taxable disposition
of the Short-Term Note. A cash basis taxpayer may elect under Section 1281 of
the Code to accrue interest income on all nongovernment debt obligations with a
term of one year or less, in which case the taxpayer would include interest on
the Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously
received by such Noteholder with respect to such Note. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income. Capital losses generally may be used only to
offset capital gains.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest",
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8
or substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty. The New Regulations which make
certain modifications to the withholding and information reporting rules
described above. The New Regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
The New Regulations described above also make certain modifications to
the backup withholding and information reporting rules. The New Regulations
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of special counsel to the Company, the IRS successfully asserted that
one or more of the Notes did not represent debt for federal income tax
purposes, the Notes might be treated as equity interests in the Trust. If so
treated, the Trust might be taxable as a corporation with the adverse
consequences described above (and the taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). Alternatively, and most likely in the view of
special counsel to the Seller, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Notes as equity
interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) would be "unrelated business taxable
income", income to foreign holders generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their share
of the Trust's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Trust and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificates, the Notes, the Trust and
the Servicer is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Any such characterization
would not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Loans. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and
interest on amounts previously due on the Certificates but not yet distributed;
(ii) any Trust income attributable to discount on the Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the
Trust of premium on Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Company. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through
Rate plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Trust income even if they have not received cash from the Trust to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Loans were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the Loans may be greater or less than the
remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust will make this calculation on an aggregate basis,
but might be required to recompute it on a Loan by Loan basis.)
If the Trust acquires the Loans at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Loans or to offset any such premium against interest
income on the Loans. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
SECTION 708 TERMINATION. Pursuant to final Treasury regulations issued
May 9, 1997 under Section 708 of the Code, a sale or exchange of 50 percent or
more of the capital and profits in the Trust within a 12-month period would
cause a deemed contribution of assets of the Trust (the "old partnership") to a
new partnership (the "new partnership") in exchange for interests in the new
partnership. Such interests would be deemed distributed to the partners of the
old partnership in liquidation thereof, which would not constitute a sale or
exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
CERTIFICATE. In addition, both the tax basis in the Certificates and
the amount realized on a sale of a Certificate would include the holder's share
of the
Notes and other liabilities of the Trust. A holder acquiring
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Certificates, and, upon sale or other disposition of
some of the Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would
be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust will not make such
election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal
year of the Trust will be the calendar year. The Trustee will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Trust and will report each Certificateholder's allocable share of
items of
Trust income and expense to holders and the IRS on Schedule K-1. The
Trust will provide the Schedule K-1 information to nominees that fail to
provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described
above may be subject to penalties.
The Company will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a Certificateholder's
returns and adjustments of items not related to the income and losses of the
Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear
whether the Trust would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Trust to
change its withholding procedures. In determining a holder's withholding
status, the Trust may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 or similar form in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
Trust taking the position that no taxes were due because the Trust was not
engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest." As a result, Certificateholders will be
subject to United States federal income tax and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable treaty. In such
case, a foreign holder would only be entitled to claim a refund for that
portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments. The New Regulations make certain
modifications to the withholding and information reporting rules described
above. The New Regulations will generally be effective for payments made after
December 31, 2000 subject to certain transition rules. Prospective investors
are urged to consult their own tax advisors regarding the New Regulations.
BACKUP WITHHOLDING. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code. The New Regulations
described above also make certain modifications to the backup withholding and
information reporting rules. The New Regulations will generally be effective
for payments made after December 3, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
FASIT SECURITIES
GENERAL
The FASIT provisions of the Code were enacted by the Small Business
Job Protection Act of 1996 and create a new elective statutory vehicle for the
issuance of mortgage-backed and asset-backed securities. Although the FASIT
provisions of the Code became effective on September 1, 1997, no Treasury
regulations or other administrative guidance has been issued with respect to
those provisions. Accordingly, definitive guidance cannot be provided with
respect to many aspects of the tax treatment of FASIT Securityholders. In the
opinion of Brown & Wood LLP, special counsel to the Seller, if a FASIT election
is made with respect to a Series of Securities, then the arrangement by which
the Securities of that Series are issued will be treated as a FASIT assuming
compliance with all of the provisions of the applicable Agreement (including
the making of a timely FASIT election) and certain representations made by the
Seller as to factual matters. In addition, the Trust's qualification as a FASIT
depends on its ability to satisfy the requirements of the FASIT provisions on
an ongoing basis, including, without limitation, requirements of proposed,
temporary or final Treasury regulations that may be promulgated in the near
future under the FASIT provisions and that may apply to the Trust or as a
result of any change in the applicable law. Investors also should note that the
FASIT discussion contained herein constitutes only a summary of the federal
income tax consequences to holders of FASIT Securities. With respect to each
Series of FASIT Securities, the related Prospectus Supplement will provide a
detailed discussion regarding the federal income tax consequences associated
with the particular transaction.
FASIT Securities will be classified as either FASIT Regular
Securities, which generally will be treated as debt for federal income tax
purposes, or FASIT Ownership Securities, which generally are not treated as
debt for such purposes, but rather as representing rights and responsibilities
with respect to the taxable income or loss of the related Series FASIT. The
Prospectus Supplement for each Series of Securities will indicate whether one
or more FASIT elections will be made for that Series and which Securities of
such Series will be designated as Regular Securities, and which, if any, will
be designated as Ownership Securities.
QUALIFICATION AS A FASIT
The Trust underlying a Series (or one or more designated pools of
assets held in the Trust) will qualify under the Code as a FASIT in which the
FASIT Regular Securities and the FASIT Ownership Securities will constitute the
"regular interests" and the "ownership interests," respectively, if (i) a FASIT
election is in effect, (ii) certain tests concerning (A) the composition of the
FASIT's assets and (B) the nature of the Securityholders" interests in the
FASIT are met on a continuing basis, and (iii) the Trust is not a regulated
investment company as defined in Section 851(a) of the Code.
ASSET COMPOSITION
In order for a Trust (or one or more designated pools of assets held
by a Trust) to be eligible for FASIT status, substantially all of the assets of
the Trust (or the designated pool) must consist of "permitted assets" as of the
close of the third month beginning after the closing date and at all times
thereafter (the "FASIT Qualification Test"). Permitted assets include (i) cash
or cash equivalents, (ii) debt instruments with fixed terms that would qualify
as REMIC regular interests if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("IO") type rate, (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to
such holder.
INTERESTS IN A FASIT
In addition to the foregoing asset qualification requirements, the
interests in a FASIT also must meet certain requirements. All of the interests
in a FASIT must belong to either of the following: (i) one or more classes of
regular interests or (ii) a single class of ownership interest that is held by
a fully taxable domestic C corporation. In the case of Series that include
FASIT Ownership Securities, the ownership interest will be represented by the
FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its stated
principal amount, (v) the yield to maturity of the interest is less than the
applicable Treasury rate published by the Service plus 5%, and (vi) if it pays
interest, such interest is payable at either (a) a fixed rate with respect to
the principal amount of the regular interest or (b) a permissible variable rate
with respect to such principal amount. Permissible variable rates for FASIT
regular interests are the same as those for REMIC regular interests (i.e.,
certain qualified floating rates and weighted average rates). See "Certain
Federal Income Tax Consequences--Taxation of Debt SecuritieS--Variable Rate
Debt Securities."
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v), but otherwise meets the above requirements,
it may still qualify as a type of regular interest known as a "High-Yield
Interest." In addition, if a FASIT Security fails to meet the requirement of
clause (vi), but the interest payable on the Security consists of a specified
portion of the interest payments on permitted assets and that portion does not
vary over the life of the Security, the Security also will qualify as a
High-Yield Interest. A High-Yield Interest may be held only by domestic C
corporations that are fully subject to corporate income tax ("Eligible
Corporations"), other FASITs, and dealers in securities who acquire such
interests as inventory, rather than for investment. In addition, holders of
High-Yield Interests are subject to limitations on offset of income derived
from such interest. See "Federal Income Tax Consequences--FASIT SecuritieS--Tax
Treatment of FASIT Regular Securities--Treatment of High-Yield Interests."
CONSEQUENCES OF DISQUALIFICATION
If a Series FASIT fails to comply with one or more of the Code's
ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and the interests
therein for federal income tax purposes is uncertain. The former FASIT might be
treated as a grantor trust, as a separate association taxation as a
corporation, or as a partnership. See "FEDERAL INCOME TAX CONSEQUENCES - Tax
Characterization of the Trust as a Partnership". The FASIT Regular Securities
could be treated as debt instruments for federal income tax purposes or as
equity interests. Although the Code authorizes the Treasury to issue
regulations that address situations where a failure to meet the requirements
for FASIT status occurs inadvertently and in good faith, such regulations have
not yet been issued. It is possible that disqualification relief might be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the FASIT's income for the period of time in which the requirements
for FASIT status are not satisfied.
TAX TREATMENT OF FASIT REGULAR SECURITIES
General. Payments received by holders of FASIT Regular Securities
generally should be accorded the same tax treatment under the Code as payments
received on other taxable corporate debt instruments and on REMIC Regular
Securities. As in the case of holders of REMIC Regular Securities, holders of
FASIT Regular Securities must report income from such Securities under an
accrual method of accounting, even if they otherwise would have used the cash
receipts and disbursements method. Except in the case of FASIT Regular
Securities issued with original issue discount or acquired with market discount
or premium, interest paid or accrued on a FASIT Regular Security generally will
be treated as ordinary income to the Securityholder and a principal payment on
such Security will be treated as a return of capital to the extent that the
Securityholder's basis is allocable to that payment. FASIT Regular Securities
issued with original issue discount or acquired with market discount or premium
generally will treat interest and principal payments on such Securities in the
same manner described for REMIC Regular Securities. See "Federal Income Tax
Consequences--Taxation of Debt Securities," "--Market Discount," and
"--Premium" above. High-Yield Securities may be held only by fully taxable
domestic C corporations, other FASITs, and certain securities dealers. Holders
of High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset any
income derived from those Securities.
If a FASIT Regular Security is sold or exchanged, the Securityholder
generally will recognize gain or loss upon the sale in the manner described
above for REMIC Regular Securities. See "Certain Federal Income Tax
Consequences--Sale or Exchange." In addition, if a FASIT Regular Security
becomes wholly or partially worthless as a result of Default and Delinquencies
on the underlying Assets, the holder of such Security should be allowed to
deduct the loss sustained (or alternatively be able to report a lesser amount
of income). However, the timing and character of such losses in income are
uncertain. See "Federal Income Tax Consequences--Taxation of Debt
Instruments--Effects of Default and Delinquencies."
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(4) of the Code, and interest on
such Securities will be considered Qualifying REIT Interest to the same extent
that REMIC Securities would be so considered. FASIT Regular Securities held by
a Thrift Institution taxed as a "domestic building and loan association" will
represent qualifying assets for purposes of the qualification requirements set
forth in Code Section 7701(a)(19) to the same extent that REMIC Securities
would be so considered. See "Certain Federal Income Tax Consequences--Taxation
of Debt SecuritieS--Status as Real Property Loans." In addition, FASIT Regular
Securities held by a financial institution to which Section 585 of the Code
applies will be treated as evidences of indebtedness for purposes of Section
582(c)(1) of the Code. FASIT Securities will not qualify as "Government
securities" for either REIT or RIC qualification purposes.
TREATMENT OF HIGH-YIELD INTERESTS
High-Yield Interests are subject to special rules regarding the
eligibility of holders of such interests, and the ability of such holders to
offset income derived from their FASIT Security with losses. High-Yield
Interests may be held only by Eligible Corporations, other FASITs, and dealers
in securities who acquire such interests as inventory. If a securities dealer
(other than an Eligible Corporation) initially acquires a High-Yield Interest
as inventory, but later begins to hold it for investment, the dealer will be
subject to an excise tax equal to the income from the High-Yield Interest
multiplied by the highest corporate income tax rate. In addition, transfers of
High-Yield Interests to disqualified holders will be disregarded for federal
income tax purposes, and the transferor still will be treated as the holder of
the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
TAX TREATMENT OF FASIT OWNERSHIP SECURITIES
A FASIT Ownership Security represents the residual equity interest in
a FASIT. As such, the holder of a FASIT Ownership Security determines its
taxable income by taking into account all assets, liabilities, and items of
income, gain, deduction, loss, and credit of a FASIT. In general, the character
of the income to the holder of a FASIT Ownership Interest will be the same as
the character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT Ownership Interest is
treated as ordinary income. In determining that taxable income, the holder of a
FASIT Ownership Security must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the FASIT's
assets and the FASIT Regular Securities issued by the FASIT according to a
constant yield methodology and under an accrual method of accounting. In
addition, holders of FASIT Ownership Securities are subject to the same
limitations on their ability to use losses to offset income from their FASIT
Security as are the holders of High-Yield Interests. See "Federal Income Tax
Consequences--FASIT SecuritieS--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses
on dispositions of a FASIT Ownership Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other FASIT Ownership Security or, in the case of a FASIT
holding mortgage assets, any interest in a Taxable Mortgage Pool, that is
economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code section
475 by such holder, then section 475 will continue to apply to such securities,
except that the amount realized under the mark-to-market rules will be the
greater of the securities" value under present law or the securities" value
after applying special valuation rules contained in the FASIT provisions. Those
special valuation rules generally require that the value of debt instruments
that are not traded on an established securities market be determined by
calculating the present value of the reasonably expected payments under the
instrument using a discount rate of 120% of the applicable Federal rate,
compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions of
permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
BACKUP WITHHOLDING, REPORTING AND TAX ADMINISTRATION
Holders of FASIT Securities will be subject to backup withholding to
the same extent holders of REMIC Securities would be subject. See "Certain
Federal Income Tax Consequences--Miscellaneous Tax AspectS--Backup
Withholding." For purposes of reporting and tax administration, holders of
record of FASIT Securities generally will be treated in the same manner as
holders of REMIC Securities.
FOREIGN HOLDERS
Foreign holders of FASIT Securities will be subject to withholding to
the same extent foreign holders of Notes would be subject. See "FEDERAL INCOME
TAX CONSEQUENCES - Tax Consequences to Holders of the Notes Foreign Holders."
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Considerations," potential investors should
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the Securities. State and local income tax law
may differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws of
any state or locality. Therefore, potential investors should consult their own
tax advisors with respect to the various state and local tax consequences of an
investment in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code impose certain restrictions on employee benefit plans
subject to ERISA and on plans and other arrangements subject to Section 4975 of
the Code ("Plans"), and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under Section 410(d) of the Code), are not subject to the
restrictions of ERISA, and assets of such plans may be invested in the
Securities without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions ("prohibited transactions")
involving a Plan and its assets unless a statutory, regulatory or
administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes (or, in some cases, a civil penalty may be
assessed pursuant to Section 502(i) of ERISA) on parties in interest which
engage in non-exempt prohibited transactions.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the
Securities--for example, Prohibited Transaction Class Exemption ("PTE") 96-23,
which exempts certain transactions effected on behalf of a Plan by an "in-house
asset manager"; PTE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest; PTE 91-38, which exempts
certain transactions between bank collective investment funds and parties in
interest; PTE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager". There can be no assurance that any of these
exemptions will apply with respect to any Plan's investment in the Securities,
or that such an exemption, if it did apply, would apply to all prohibited
transactions that may occur in connection with such investment. Furthermore,
these exemptions would not apply to transactions involved in operation of the
Trust if, as described below, the assets of the Trust were considered to
include Plan assets.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3-101) (the "Plan Assets Regulation")
containing rules for determining what constitutes the assets of a Plan. The
Plan Assets Regulation provides that, as a general rule, the underlying assets
and properties of corporations, partnerships, trusts and certain other entities
in which a Plan makes an investment in an "equity interest" will be deemed for
purposes of ERISA to be assets of the Plan unless certain exceptions apply.
Under the terms of the Plan Assets Regulation, the Trust may be deemed
to hold plan assets by reason of a Plan's investment in a Security; such plan
assets would include an undivided interest in the Primary Assets and any other
assets held by the Trust. In such an event, persons providing services with
respect to the assets of the Trust may be parties in interest, subject to the
fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory, regulatory or administrative
exemption.
The "look-through" rule of the Plan Assets Regulation does not apply
if the interest acquired by the Plan is treated as indebtedness under
applicable local law and has no substantial equity features. Generally, a
profits interest in a partnership, an undivided ownership interest in property
and a beneficial ownership interest in a trust are deemed to be "equity
interests" under the final regulation. If Notes of a particular Series were
deemed to be indebtedness under applicable local law without any substantial
equity features, an investing Plan's assets would include such Notes, but not,
by reason of such purchase, the underlying assets of the Trust. The Prospectus
Supplement related to a Series will indicate the expected treatment of the
Securities in that Series under the Plan Assets Regulation.
If the interest is an "equity interest," the Plan Assets Regulation
creates an exception if the class of equity interests in question is: (i)
"widely held" (held by 100 or more investors who are independent of the Seller
and each other); (ii) freely transferable; and (iii) sold as part of an
offering pursuant to (A) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under the Securities
Exchange Act of 1934 or (B) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered
Securities"). In addition, the regulation provides that if at all times more
than 75% of the value of all classes of equity interests in the Seller or the
Trust are held by investors other than benefit plan investors (which is defined
as including Plans; employee benefit plans as defined under ERISA, whether or
not they are subject to ERISA; and any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity), the investing
Plan's assets will not include any of the underlying assets of the Seller or
the Trust.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions
and requirements of the Underwriter Exemptions. These securities may include
the Certificates. The obligations covered by the Underwriter Exemptions include
obligations such as the Primary Assets (other than Private Securities and
Agency Securities which are not insured or guaranteed by the United States or
an agency or instrumentality thereof, or Home Improvement Contracts that are
unsecured). The Underwriter Exemptions will apply to the acquisition, holding
and resale of the Securities by a Plan, provided that certain conditions
(certain of which are described below) are met.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
(i) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party;
(ii) The rights and interests evidenced by the Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(iii) The Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three
highest generic rating categories from either Standard & Poor's
Ratings Group ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Inc. ("DCR") or Fitch IBCA Inc. ("Fitch")
(each, a "Rating Agency");
(iv) The sum of all payments made to the underwriter in
connection with the distribution of the Certificates represents not
more than reasonable compensation for underwriting the Certificates.
The sum of all payments made to and retained by the seller pursuant to
the sale of the obligations to the trust represents not more than the
fair market value of such obligations. The sum of all payments made to
and retained by any servicer represents not more than reasonable
compensation for such servicer's services under the related servicing
agreement and reimbursement of the servicer's reasonable expenses in
connection therewith;
(v) The Trustee must not be an affiliate of any other member of
the Restricted Group (as defined below); and
(vi) The Plan investing in the Certificates is 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:
(i) the corpus of the trust must consist solely of assets of the
type which have been included in other investment pools;
(ii) securities in such other investment pools must have been
rated in one of the three highest rating categories of a Rating Agency
for at least one year prior to the Plan's acquisition of securities;
and
(iii) securities evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Securities.
On July 21, 1997, the DOL published in the Federal Register
an amendment to the Underwriter Exemptions, which extends exemptive
relief to certain mortgage-backed and asset-backed securities
transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage
loans or other secured receivables (the "Obligations") supporting
payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the
certificates being offered by the trust, to be transferred to the
trust within a 90-day or three-month period following the closing date
(the "Pre-Funding Period"), instead of requiring that all such
Obligations be either identified or transferred on or before the
Closing Date. The relief is available when the following conditions
are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the Certificates being
offered (the "Pre-Funding Limit") must not exceed twenty-five
percent (25%).
(2) All Obligations transferred after the Closing Date (the
"Additional Obligations") must meet the same terms and conditions
for eligibility as the original Obligations used to create the
trust, which terms and conditions have been approved by a Rating
Agency.
(3) The transfer of such Additional Obligations to the
trust during the Pre-Funding Period must not result in the
Certificates to be covered by the Exemption receiving a lower
credit rating from a Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time
of the initial issuance of the Certificates by the Trust.
(4) Solely as a result of the use of pre-funding, the
weighted average annual percentage interest rate for all of the
Obligations in the Trust at the end of the Pre-Funding Period
must not be more than 100 basis points lower than the average
interest rate for the Obligations transferred to the Trust on the
Closing Date.
(5) In order to insure that the characteristics of the
Additional Obligations are substantially similar to those of the
original Obligations which were transferred to the Trust:
(i) the characteristics of the Additional Obligations
must be monitored by an insurer or other credit support
provider that is independent of the seller; or
(ii) an independent accountant retained by the seller
must provide the seller with a letter (with copies provided
to each Rating Agency rating the Certificates, the related
underwriter and the related trustee) stating whether or not
the characteristics of the Additional Obligations conform to
the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing
agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were
applicable to the Obligations transferred to the trust as of
the Closing Date.
(6) The Pre-Funding Period must end no later than three
months or 90 days after the Closing Date or earlier in certain
circumstances if the pre-funding account falls below the minimum
level specified in the pooling and servicing agreement or an
Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the
pre-funding may be invested only in certain permitted investments
("Permitted Investments").
(8) The related prospectus or prospectus supplement must
describe:
(i) any pre-funding account and/or capitalized
interest account used in connection with a pre-funding
account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the
Pre-Funding Limit for the trust; and
(iv) that the amounts remaining in the pre-funding
account at the end of the Pre-Funding Period will be
remitted to certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must
describe the Permitted Investments for the pre-funding account
and/or capitalized interest account and, if not disclosed in the
related prospectus or prospectus supplement, the terms and
conditions for eligibility of Additional Obligations.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire securities in a trust holding
receivables as to which the fiduciary (or its affiliates) is an obligor
provided that, among other requirements: (i) in the case of an acquisition in
connection with the initial issuance of Securities, at least fifty (50) percent
of each Class of Securities in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty (50) percent of the
aggregate interest in the trust is acquired by persons independent of the
Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with
respect to five (5) percent or less of the fair market value of the obligations
contained in the trust; (iii) a Plan's investment in Securities does not exceed
twenty-five (25) percent of all of the Securities outstanding after the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five (25) percent of the assets of any Plan for which such person is a
fiduciary are invested in securities representing an interest in one or more
trusts containing assets sold or serviced by the same entity. The Underwriter
Exemptions do not apply to Plans sponsored by the Seller, the underwriters of
the Securities, any Trustee, any servicer, any insurer, any obligor with
respect to obligations included in a Trust constituting more than five (5)
percent of the aggregate unamortized principal balance of the assets in a
Trust, or any affiliate of such parties (the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the potential application of the
Underwriter Exemptions to the purchase and holding of the Securities and the
potential consequences to their specific circumstances, prior to making an
investment in the Securities. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment procedure and
diversification an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage-related securities" under the
Secondary Mortgage Market Enhancement Act of 1984. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent the Securities
constitute legal investments for them.
RATINGS
It will be a requirement for issuance of any Series that the
Securities offered by this Prospectus and the related Prospectus Supplement be
rated by at least one Rating Agency in one of its four highest applicable
rating categories. The rating or ratings applicable to Securities of each
Series offered hereby and by the related Prospectus Supplement will be as set
forth in the related Prospectus Supplement. A securities rating should be
evaluated independently of similar ratings on different types of securities. A
securities rating does not address the effect that the rate of prepayments on
Loans or Underlying Loans, as applicable, for a Series may have on the yield to
investors in the Securities of such Series.
PLAN OF DISTRIBUTION
The Seller may offer each Series of Securities through one or more
underwriters that may be designated at the time of each offering of such
Securities. The Prospectus Supplement relating to each Series of Securities
will set forth the specific terms of the offering of such Series of Securities
and of each Class within such Series, the names of the underwriters, the
purchase price of the Securities, the proceeds to the Seller from such sale,
any securities exchange on which the Securities may be listed, and, if
applicable, the initial public offering prices, the discounts and commissions
to the underwriters and any discounts and concessions allowed or reallowed to
certain dealers. The place and time of delivery of each Series of Securities
will also be set forth in the Prospectus Supplement relating to such Series.
This Prospectus may be used by McDonald Investments Inc. ("McDonald
Investments"), a wholly-owned subsidiary of KeyCorp and an affiliate of the
Seller, or its successors, in connection with offers and sales related to
market-making transactions in the Securities in which McDonald Investments acts
a principal. McDonald Investments may also act as agent in such transactions.
McDonald Investments is a member of the New York Stock Exchange, Inc. McDonald
Investments is not a bank or thrift, is an entity separate from the Seller, and
is solely responsible for its own contractual obligations and commitments.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Securities will be passed upon for
the Seller by Brown & Wood LLP, New York, New York.
AVAILABLE INFORMATION
The Seller is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as
follows: Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Securities and Exchange Commission (the "Commission") maintains a
Web site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Seller,
that file electronically with the Commission.
Copies of the Registration Statement of which this Prospectus forms a
part and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission in Washington, D.C. Copies may be obtained at rates
prescribed by the Commission upon request to the Commission, and may be
inspected, without charge, at the offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of any offering of the Securities
issued by such Trust shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for all purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Seller on behalf of any Trust will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to Corporate
Secretary, Key Tower, 127 Public Square, Cleveland, Ohio 44114.
GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in a `supplemental Glossary"
in the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for
a Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
compete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Loan, and for any other purposes
specified in the related Agreement.
"Agency Security" means a security issued by FNMA, GNMA or FHLMC.
"Agreement" means, with respect to a Series of Certificates, the
Pooling and Servicing Agreement or Trust Agreement, and, with respect to a
Series of Notes, the Indenture and the Servicing Agreement, as the context
requires.
"Appraised Value" means, with respect to property securing a Loan, the
lesser of the appraised value determined in an appraisal obtained at
origination of the Loan or sales price of such mortgaged property at such time.
"Asset Group" means, with respect to the Primary Assets and other
assets comprising the Trust of a Series, a group of such Primary Assets and
other assets having the characteristics described in the related Prospectus
Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other
fund or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the
city or cities in which the corporate trust office of the Trustee are located,
is neither a legal holiday nor a day on which banking institutions are
authorized or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset-Backed Certificates.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such
Series are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Primary Assets.
"Combined Loan-to-Value Ratio" means, with respect to a Loan, the
ratio determined as set forth in the related Prospectus Supplement taking into
account the amounts of any related senior mortgage loans on the related
Mortgaged Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Security on each Distribution Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on
the Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each
owner is entitled to the exclusive ownership and possession of his or her
individual Condominium Unit and also owns a proportionate undivided interest in
all parts of the Condominium Building (other than the individual Condominium
Units) and all areas or facilities, if any, for the common use of the
Condominium Units.
"Condominium Association" means the person(s) appointed or elected by
the Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a
group of buildings whether or not attached to each other, located on property
subject to Condominium ownership.
"Condominium Loan" means a Loan secured by a Mortgage on a Condominium
Unit (together with its appurtenant interest in the common elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who,
through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section 216
of the Code.
"Cooperative Dwelling" means an individual housing unit in a building
owned by a Cooperative.
"Cooperative Loan" means a housing loan made with respect to a
Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
"Custodian" means the party having custody of the Loans and the
related documentation pursuant to an Agreement.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Loan during a specified period over the
amount of interest required to be paid by an obligor on such Loan on the
related Due Date.
"Deleted Primary Asset" means a defective Primary Asset which the
Seller is required to substitute for or repurchase.
"Deposit Agreement" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Enhancement" means the enhancement for a Series, if any, specified
in the related Prospectus Supplement.
"Enhancer" means the provider of the Enhancement for a Series
specified in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
"Event of Default" means an event of default specified in the
Agreement.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"Fixed Interest Security" means a Security on which interest accrues
at a fixed rate, as set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"Holder" means the person or entity in whose name a Security is
registered.
"Home Improvements" means the home improvements financed by a Home
Improvement Contract.
"Home Improvement Contract" means any home improvement installment
sales contracts and installment loan agreements which may be unsecured or
secured by purchase money security interests in the Home Improvements financed
thereby.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Trust and the Trustee.
"Index" means the index applicable to any adjustments in the Loan
Rates of any adjustable rate Loans.
"Insurance Policies" means certain mortgage insurance, hazard
insurance and other insurance policies required to be maintained with respect
to Loans.
"Insurance Proceeds" means amounts paid by the insurer under any of
the Insurance Policies covering any Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in
the related Prospectus Supplement.
"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit, if any, on the Loan Rate
during the life of each adjustable rate Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Loan, net of liquidation expenses.
"Loan Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rate borne by a Loan.
"Loans" means Mortgage Loans and/or Home Improvement Contracts,
collectively. A Loan refers to a specific Mortgage Loan or Home Improvement
Contract, as the context requires.
"Loan Schedule" means the schedule of Loans attached to an Agreement.
"Loan-to-Value Ratio" means, with respect to a Loan, the ratio
determined as set forth in the related Prospectus Supplement.
"Minimum Rate" means the lifetime minimum Loan Rate during the life of
each adjustable rate Loan.
"Minimum Principal Payment Agreement" means a minimum principal
payment agreement with an entity meeting the criteria of the Rating Agencies.
"Modification" means a change in any term of a Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgage Loan" means a closed-end and/or revolving home equity loan
or balance thereof and/or loans of which the proceeds have been applied to the
purchase of the related Mortgaged Property, in each case secured by a Mortgaged
Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Loan.
"Mortgaged Property" means the property which secures repayment of a
Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on
certain assumptions stated therein.
"Participating Securities" means Securities entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
"Pass-Through Security" means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayments on the
underlying Primary Assets.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, or government or any agency or political
subdivision thereof.
"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Seller, the Servicer
(if such Series relates to Loans) and the Trustee.
"Primary Assets" means the Private Securities, the Agency Securities
and/or Loans, as the case may be, which are included in the Trust for such
Series. A Primary Asset refers to a specific Private Security, Agency Security
or Loan, as the case may be.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount
of any Deferred Interest added to such principal amount, reduced by all
payments, both scheduled or otherwise, received on such Primary Asset prior to
such Due Date and applied to principal in accordance with the terms of the
Primary Asset.
"Principal Only Securities" means a Class of Securities entitled
solely or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Private Security" means a participation or pass-through certificate
representing a fractional, undivided interest in Underlying Loans or
collateralized obligations secured by Underlying Loans.
"Property" means either a Home Improvement or a Mortgaged Property
securing a Loan, as the context requires.
"PS Agreement" means the pooling and servicing agreement, indenture,
trust agreement or similar agreement pursuant to which a Private Security is
issued.
"PS Servicer" means the servicer of the Underlying Loans.
"PS Sponsor" means, with respect to Private Securities, the sponsor or
seller under a PS Agreement.
"PS Trustee" means the trustee designated under a PS Agreement.
"Qualified Insurer" means a mortgage guarantee or insurance company
duly qualified as such under the laws of the states in which the Mortgaged
Properties are located duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided.
"Qualifying Substitute Primary Asset" means a Primary Asset which
substitutes for a Deleted Primary Asset.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Seller to
rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be
in effect from time to time.
"REO Property" means real property which secured a defaulted Loan,
beneficial ownership of which has been acquired upon foreclosure, deed in lieu
of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the related Agreement.
"Residual Interest" means a residual interest in a REMIC.
"Retained Interest" means, with respect to a Primary Asset, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Primary Asset.
"Securities" means the Notes or the Certificates.
"Seller" means KeyBank National Association.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the
holders' rights to receive distributions of principal and interest are senior
to the rights of holders of Subordinate Securities, to the extent specified in
the related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series relating to Loans, the
Person if any, designated in the related Prospectus Supplement to service Loans
for that Series, or the successors or assigns of such Person.
"Single Family Property" means property securing a Loan consisting of
one- to four-family attached or detached residential housing, including
Cooperative Dwellings.
"Stripped Securities" means Pass-Through Securities representing
interests in Primary Assets with respect to which all or a portion of the
principal payments have been separated from all or a portion of the interest
payments.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinate Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be
allocated losses and shortfalls prior to the allocation thereof to other
Classes of Securities, to the extent and under the circumstances specified in
the related Prospectus Supplement.
"Title V" means Title V of the Depository Institutions Deregulation
and Monetary Control Act of 1980, as amended.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"Trust" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement, or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including,
without limitation, the Primary Assets (except any Retained Interests), all
amounts in the Distribution Account, Collection Account or Reserve Funds,
distributions on the Primary Assets (net of servicing fees), and reinvestment
earnings on such net distributions and any Enhancement and all other property
and interests held by or pledged to the Trustee pursuant to the related
Agreement for such Series.
"UCC" means the Uniform Commercial Code.
"Underlying Loans" means home equity loans of the type eligible to be
Loans underlying or securing Private Securities and the Agency Securities.
"Variable Interest Security" means a Security on which interest
accrues at a rate that is adjusted, based upon a predetermined index, at fixed
periodic intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments
of principal only.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates being registered under
this Registration Statement, other than underwriting discounts and commissions:
SEC Registration Fee......................................... $ 278.00
Printing and Engraving....................................... $ 35,000.00
Legal Fees and Expenses...................................... $ 65,000.00
Trustee Fees and Expenses.................................... $ 15,000.00
Accounting Fees & Expenses................................... $ 25,000.00
Blue Sky Fees & Expenses..................................... $ 5,000.00
Rating Agency Fees........................................... $ 125,000.00
Miscellaneous ............................................... $ 5,000.00
Total ............................................... $ 275,278.00
===============
- --------------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Tenth of the Registrant's Articles of Association provides for
indemnification of directors and officers of the Registrant as follows:
Article Tenth. (a) This Association shall indemnify, to the full
extent permitted or authorized by the Ohio General Corporation Law as it may
from time to time be amended, any person made or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that
he is or was a director, officer, or employee of this Association, or is or was
serving at the request of this Association as a director, trustee, officer, or
employee of another association, corporation, partnership, joint venture,
trust, or other enterprise; in the case of a person serving at the request of
this Association, such request shall be evidenced by a resolution of the Board
of Directors or a duly-authorized committee thereof or by a writing executed by
an officer of this Association pursuant to a resolution of the Board of
Directors or a duly-authorized committee thereof. In the case of a merger into
this Association of a constituent association which, if its separate existence
had continued, would have been required to indemnify directors, officers, or
employees in specified situations prior to the merger, any person who served as
a director, officer, or employee of the constituent association, or served at
the request of the constituent association as a director, trustee, officer, or
employee of another association, corporation, partnership, joint venture,
trust, or other enterprise, shall be entitled to indemnification by this
Association (as the surviving association) for acts, omissions, or other events
or occurrences prior to the merger to the same extent he would have been
entitled to indemnification by the constituent association if its separate
existence had continued. The indemnification provided by this Article Tenth
shall not be deemed exclusive of any other rights to which any person seeking
indemnification may be entitled by law or under these Articles or the Bylaws,
or any agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, trustee, officer, or employee and shall inure
to the benefit of the heirs, executors, and administrators of such a person.
(b) Notwithstanding division (a) of this Article Tenth, no director,
officer, or employee of this Association shall be indemnified against
expenses, including attorneys' fees, penalties or other payments incurred
in an administrative proceeding or action instituted by the Comptroller of
the Currency or other appropriate bank regulatory agency when such
proceeding or action results in a final order assessing civil money
penalties against, or requiring affirmative action of, such director,
officer, or employee in the form of payments to this Association.
(c) This Association may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of
credit, or self-insurance on behalf of or for any person who is or was a
director, officer, employee, or agent of this Association, or is or was
serving at the request of this Association as a director, trustee,
officer, employee, or agent of another association, corporation,
partnership, joint venture, trust, or other enterprise, against any
liability asserted against him and incurred by him in any capacity, or
arising out of his status as such, whether or not this Association would
have the power to indemnify him against liability under the provisions of
this Article Tenth or of the Ohio General Corporation Law; provided,
however, such insurance shall explicitly exclude insurance coverage for a
formal order assessing civil money penalties against a director, officer,
or employee of this Association as a result of an administrative
proceeding or action instituted by the Comptroller of the Currency or
other appropriate bank regulatory agency. Insurance may be purchased from
or maintained with a person in which this Association has a financial
interest.
(d) Expenses (including attorney's fees) incurred by a director in
defending any action, suit, or proceeding referred to in division (a) of
this Article Tenth commenced or threatened against the director for any
action or failure to act as a director shall be paid by this Association,
as they are incurred, in advance of final disposition of the action, suit,
or proceeding upon receipt of an undertaking by or on behalf of the
director in which he agrees both (i) to repay the amount if it is proved
by clear and convincing evidence in a court of competent jurisdiction that
his action or failure to act involved an act or omission undertaken with
deliberate intent to cause injury to this Association or undertaken with
reckless disregard for the best interests of this Association and (ii) to
reasonably cooperate with this Association concerning the action, suit, or
proceeding. The provisions of this paragraph shall not apply if the only
liability asserted against the director in such action, suit, or
proceeding is for (i) the payment of a dividend or distribution, or the
making of a distribution of assets to shareholders, or the purchase or
redemption of this Association's own shares, contrary in any such case of
law or these Articles of Association, or (ii) a distribution of assets to
shareholders during the winding up of the affairs of the Association, on
dissolution or otherwise, without the payment of all known obligations of
the Association, or without making adequate provision therefor.
Expenses (including attorney's fees) incurred by a director (to the
extent the expenses are not required to be advanced pursuant to the preceding
paragraph), officer, or employee in defending any action, suit, or proceeding
referred to in division (a) of this Article Tenth may be paid by this
Association, as they are incurred, in advance of final disposition of the
action, suit, or proceeding, as authorized by the Board of Directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
officer, or employee to repay the amount if it is ultimately determined that he
is not entitled to be indemnified by this Association.
(e) Notwithstanding division (d) of this Article Tenth, expenses,
including attorneys' fees, incurred by a present or former director,
officer, or employee of this Association in defending an administrative
proceeding or action instituted by the Comptroller of the Currency or
other appropriate bank regulatory agency that seeks a final order
assessing civil money penalties or requiring affirmative action by an
individual or individuals in the form of payments to this Association, may
be paid by this Association as they are incurred in advance of the final
disposition of the action, suit, or proceeding, only in the event that:
(i) the Board of Directors of this Association, in good faith,
determines in writing that all of the following conditions are
met:
(A) the director, officer, or employee has a substantial
likelihood of prevailing on the merits;
(B) in the event the director, officer, or employee does not
prevail, he will have the financial capability to reimburse
this Association;
(C) all applicable laws and regulations affecting loans to the
director, officer, or employee will be complied with in the
event reimbursement is required;
(D) payment of expenses by this Association will not adversely
affect this Association's safety and soundness; and
(ii) the director, officer, or employee enters into an agreement with
this Association to repay such amount if:
(A) such administrative proceeding or action instituted by the
Comptroller of the Currency or other appropriate bank
regulatory agency results in a final order assessing civil
money penalties against, or requiring affirmative action of,
such director, officer, or employee in the form of payments
to this Association; or
(B) the Board of Directors of this Association finds that the
director, officer, or employee willfully misrepresented
factors relevant to the Board of Directors' determination of
conditions (A) or (B) set forth in (i), above.
If at any time the Board of Directors of this Association believes that any of
the conditions set forth in (i) above are no longer met, such expenses will no
longer be paid by this Association.
(f) Notwithstanding divisions (a) through (e) of this Article Tenth,
all of the provisions of this Article Tenth are subject to the authority
of the Office of the Comptroller of the Currency to direct a modification
of a specific indemnification by a national bank through appropriate
administrative action.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement.*
3.1 Articles of Association of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Sale and Servicing Agreement.*
4.3 Form of Trust Agreement.*
4.4 Form of Indenture.*
5.1 Opinion of Brown & Wood LLP as to legality of the Securities.
(including consent of such firm).*
8.1 Opinion of Brown & Wood LLP as to certain tax matters.
(including consent of such firm).*
10.1 Form of Mortgage Loan Purchase Agreement.*
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1 and
8.1 hereof).*
24.1 Powers of Attorney.
- -------------
* To be filed by amendment.
To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change of such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) The undersigned registrant hereby undertakes to provide to
the underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on the 1st day of
July, 1999.
KEYBANK NATIONAL ASSOCIATION
By: /s/ Daniel R. Stolzer
Name: Daniel R. Stolzer
Title: Senior Vice President and Associate General
Counsel
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* President, Chief Executive Officer July 1, 1999
Gary R. Allen (principal executive officer) and Director
* Chief Financial Officer (principal financial and July 1, 1999
- ------------------------------------
Kevin P. Riley accounting officer) and Director
* Director July 1, 1999
- ------------------------------------
Patrick V. Auletta
* Director July 1, 1999
- ------------------------------------
James S. Bingay
* Director July 1, 1999
- ------------------------------------
Michael A. Butler
* Director July 1, 1999
- ------------------------------------
Linda A. Grandstaff
* Director July 1, 1999
- ------------------------------------
Allen J. Gula, Jr.
* Director July 1, 1999
- ------------------------------------
Carl C. Heintel, Jr.
* Director July 1, 1999
- ------------------------------------
Robert G. Jones
* Director July 1, 1999
- ------------------------------------
Daniel E. Klimas
* Director July 1, 1999
- ------------------------------------
Jack L. Kopnisky
* Director July 1, 1999
- ------------------------------------
John H. Mancuso
* Director July 1, 1999
- ------------------------------------
Bruce D. Murphy
* Director July 1, 1999
- ------------------------------------
K. Brent Somers
* Director July 1, 1999
- ------------------------------------
Kenton A. Thompson
* By:/s/ Daniel R. Stolzer Attorney-in-Fact July 1, 1999
------------------------ under Power of Attorney
Daniel R. Stolzer
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
=============
Exhibit
No. Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement.*
3.1 Articles of Association of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Sale and Servicing Agreement.*
4.3 Form of Trust Agreement.*
4.4 Form of Indenture.*
5.1 Opinion of Brown & Wood LLP as to legality of the Securities
(including consent of such firm).*
8.1 Opinion of Brown & Wood LLP as to certain tax matters (including
consent of such firm).*
10.1 Form of Mortgage Loan Purchase Agreement.*
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1 and 8.1
hereof).*
24.1 Powers of Attorney.
- -------------
* To be filed by amendment.
EXHIBIT 3.1
KEYBANK NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
First. The title of this Association shall be KeyBank National
-----
Association.
Second. The main office of this Association shall be in Cleveland,
------
Cuyahoga County, Ohio. The general business of this Association shall be
conducted at its main office and its branches.
Third. The Board of Directors of this Association shall consist of not
-----
less than five nor more than twenty-five members, the exact number of
Directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full Board of Directors
or by resolution of the shareholders at any annual or special meeting thereof.
In accordance with 12 U.S.C. Section 72, each director, during the full term
of his or her directorship, shall own in his or her own right either shares of
capital stock of the Association the aggregate par value of which is not less
than $1,000 or an equivalent interest, as determined by the Comptroller of the
Currency, in any company which has control over the Association within the
meaning of 12 U.S.C. Section 1841. Unless otherwise provided by the laws of
the United States, any vacancy in the Board of Directors for any reason,
including an increase in the number thereof, may be filled by action of the
Board of Directors.
Fourth. The annual meeting of the shareholders for the election of
------
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
Bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law, and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors.
Fifth. The amount of authorized capital stock of this Association shall
-----
be $341,915,000 divided into 3,419,150 shares of common stock, par value $100
each per share, but such capital stock may be increased or decreased from time
to time, in accordance with the provisions of the laws of the United States.
No holder of shares of capital stock of any class of this Association
shall have any pre-emptive or preferential right of subscription to any shares
of any class of stock of this Association, whether now or hereafter
authorized, or to any obligations convertible into stock of this Association,
issued or sold, nor any right of subscription to any thereof other than such,
if any, as the Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may from time to time
fix.
This Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of
shareholders.
Sixth. The Board of Directors shall appoint one of its members President
-----
of this Association, who shall be Chairman of the Board, unless the Board
appoints another Director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents and such other officers
and employees as may be required to transact the business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of this
Association shall be made; to manage and administer the business and affairs
of this Association; to make all Bylaws that it may be lawful for them to
make; and generally to do and perform all acts that it may be legal for a
Board of Directors to do and perform.
Seventh. The Board of Directors shall have the power to change the
-------
location of the main office of this Association to any authorized branch
location within the limits of Cleveland without the approval of the
shareholders but with written notice to the Comptroller of the Currency, or,
with a vote of shareholders owning at least two-thirds of the stock of this
Association for a relocation outside such limits and upon receipt of approval
from the Comptroller of the Currency, to any other location within or outside
the limits of Cleveland, but not more than thirty miles beyond such limits.
The Board of Directors shall have the power to establish or change the
location of any branch or branches of this Association to any other location
permitted under applicable law, without approval of the shareholders, subject
to the approval by the Comptroller of the Currency.
Eighth. The corporate existence of this Association shall continue until
------
terminated in accordance with the laws of the United States.
Ninth. The Board of Directors of this Association, or any shareholders
-----
owning, in the aggregate, not less than 10 percent (10%) of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of time, place,
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association, except as to any shareholder who has
specifically waived notice of such meeting.
Tenth. (a) This Association shall indemnify, to the full extent permitted
-----
or authorized by the Ohio General Corporation Law as it may from time to time
be amended, any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he is
or was a director, officer, or employee of this Association, or is or was
serving at the request of this Association as a director, trustee, officer, or
employee of another association, corporation, partnership, joint venture,
trust, or other enterprise; in the case of a person serving at the request of
this Association, such request shall be evidenced by a resolution of the Board
of Directors or a duly-authorized committee thereof or by a writing executed
by an officer of this Association pursuant to a resolution of the Board of
Directors or a duly-authorized committee thereof. In the case of a merger into
this Association of a constituent association which, if its separate existence
had continued, would have been required to indemnify directors, officers, or
employees in specified situations prior to the merger, any person who served
as a director, officer, or employee of the constituent association, or served
at the request of the constituent association as a director, trustee, officer,
or employee of another association, corporation, partnership, joint venture,
trust, or other enterprise, shall be entitled to indemnification by this
Association (as the surviving association) for acts, omissions, or other
events or occurrences prior to the merger to the same extent he would have
been entitled to indemnification by the constituent association if its
separate existence had continued. The indemnification provided by this Article
Tenth shall not be deemed exclusive of any other rights to which any person
seeking indemnification may be entitled by law or under these Articles or the
Bylaws, or any agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, trustee, officer, or employee and shall inure
to the benefit of the heirs, executors, and administrators of such a person.
(b) Notwithstanding division (a) of this Article Tenth, no director,
officer, or employee of this Association shall be indemnified against
expenses, including attorneys' fees, penalties or other payments incurred in
an administrative proceeding or action instituted by the Comptroller of the
Currency or other appropriate bank regulatory agency when such proceeding or
action results in a final order assessing civil money penalties against, or
requiring affirmative action of, such director, officer, or employee in the
form of payments to this Association.
(c) This Association may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of
credit, or self-insurance on behalf of or for any person who is or was a
director, officer, employee, or agent of this Association, or is or was
serving at the request of this Association as a director, trustee, officer,
employee, or agent of another association, corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against
him and incurred by him in any capacity, or arising out of his status as such,
whether or not this Association would have the power to indemnify him against
liability under the provisions of this Article Tenth or of the Ohio General
Corporation Law; provided, however, such insurance shall explicitly exclude
insurance coverage for a formal order assessing civil money penalties against
a director, officer, or employee of this Association as a result of an
administrative proceeding or action instituted by the Comptroller of the
Currency or other appropriate bank regulatory agency. Insurance may be
purchased from or maintained with a person in which this Association has a
financial interest.
(d) Expenses (including attorney's fees) incurred by a director in
defending any action, suit, or proceeding referred to in division (a) of this
Article Tenth commenced or threatened against the director for any action or
failure to act as a director shall be paid by this Association, as they are
incurred, in advance of final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees both (i) to repay the amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to this Association or undertaken with reckless disregard for the best
interests of this Association and (ii) to reasonably cooperate with this
Association concerning the action, suit, or proceeding. The provisions of this
paragraph shall not apply if the only liability asserted against the director
in such action, suit, or proceeding is for (i) the payment of a dividend or
distribution, or the making of a distribution of assets to shareholders, or
the purchase or redemption of this Association's own shares, contrary in any
such case of law or these Articles of Association, or (ii) a distribution of
assets to shareholders during the winding up of the affairs of the
Association, on dissolution or otherwise, without the payment of all known
obligations of the Association, or without making adequate provision therefor.
Expenses (including attorney's fees) incurred by a director (to the
extent the expenses are not required to be advanced pursuant to the preceding
paragraph), officer, or employee in defending any action, suit, or proceeding
referred to in division (a) of this Article Tenth may be paid by this
Association, as they are incurred, in advance of final disposition of the
action, suit, or proceeding, as authorized by the Board of Directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
officer, or employee to repay the amount if it is ultimately determined that
he is not entitled to be indemnified by this Association.
(e) Notwithstanding division (d) of this Article Tenth, expenses,
including attorneys' fees, incurred by a present or former director, officer,
or employee of this Association in defending an administrative proceeding or
action instituted by the Comptroller of the Currency or other appropriate bank
regulatory agency that seeks a final order assessing civil money penalties or
requiring affirmative action by an individual or individuals in the form of
payments to this Association, may be paid by this Association as they are
incurred in advance of the final disposition of the action, suit, or
proceeding, only in the event that:
(i) the Board of Directors of this Association, in good faith,
determines in writing that all of the following conditions are
met:
(A) the director, officer, or employee has a substantial
likelihood of prevailing on the merits;
(B) in the event the director, officer, or employee does not
prevail, he will have the financial capability to
reimburse this Association;
(C) all applicable laws and regulations affecting loans to the
director, officer, or employee will be complied with in
the event reimbursement is required;
(D) payment of expenses by this Association will not adversely
affect this Association's safety and soundness; and
(ii) the director, officer, or employee enters into an agreement
with this Association to repay such amount if:
(A) such administrative proceeding or action instituted by the
Comptroller of the Currency or other appropriate bank
regulatory agency results in a final order assessing civil
money penalties against, or requiring affirmative action
of, such director, officer, or employee in the form of
payments to this Association; or
(B) the Board of Directors of this Association finds that the
director, officer, or employee willfully misrepresented
factors relevant to the Board of Directors' determination
of conditions (A) or (B) set forth in (i), above.
If at any time the Board of Directors of this Association believes that any of
the conditions set forth in (i) above are no longer met, such expenses will no
longer be paid by this Association.
(f) Notwithstanding divisions (a) through (e) of this Article Tenth, all
of the provisions of this Article Tenth are subject to the authority of the
Office of the Comptroller of the Currency to direct a modification of a
specific indemnification by a national bank through appropriate administrative
action.
Eleventh. These Articles of Association may be amended at any regular or
--------
special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of the holders of
a greater amount of stock is required by law, and in that case by the vote of
the holders of such greater amount.
EXHIBIT 3.2
The following Bylaws were adopted on September 16, 1997 by the Board of
Directors of KeyBank National Association.
BYLAWS OF
KEYBANK NATIONAL ASSOCIATION
ARTICLE I
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Annual Meeting. The annual meeting of shareholders for the election
- --------- --------------
of Directors, and the transaction of whatever other business may properly come
before the meeting, shall be held at the main office of the Bank, or such
other place authorized by the Board of Directors or the Chairperson of the
Board, on the third Wednesday in March of each year, or such other date
authorized by the Board of Directors or the Chairperson of the Board. If, for
any cause, the election of directors is not held on that day, the Board of
Directors shall order the election to be held on some subsequent day, as soon
as thereafter as practicable, according to the provisions of law, and notice
thereof shall be given in the manner herein provided for the annual meeting.
Section 2. Special Meetings. Except as otherwise specifically provided by
- --------- ----------------
statute, special meetings of the shareholders may be called for any purpose at
any time by the Chairperson of the Board, the President, the Board of
Directors, or by any shareholder or shareholders owning, in the aggregate, not
less than ten per centum (10%) of the stock of the Bank.
Section 3. Notice of Meetings. Unless otherwise provided by law, these Bylaws,
- --------- ------------------
or the Articles of Association, a notice of the time, place, and purpose of
every annual meeting and every special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed not less than ten days nor
more than sixty days prior to the date of such meeting, to each shareholder of
record at such shareholder's address as shown upon the books of the Bank. A
sole shareholder may waive notice of a shareholder meeting at any time prior
to or after the meeting.
Section 4. Proxies. Shareholders may vote at any meeting of the shareholders
- --------- -------
by proxies duly authorized in writing, but no officer or employee of this Bank
may act as a proxy. Proxies shall be valid only for one meeting, to be
specified therein, and any adjournments of such meeting. Proxies shall be
dated and shall be filed in the Bank's records. The person appointed as proxy
need not be a shareholder. Unless the writing appointing a proxy otherwise
provides, the presence at a meeting of the person who appointed a proxy shall
not operate to revoke the appointment. Notice to the Bank, in writing or in
open meeting, of the revocation of the appointment of a proxy shall not affect
any vote or act previously taken or authorized by such proxy.
Section 5. Quorum; Adjournment. Except as may otherwise be provided by law, at
- --------- -------------------
any meeting of the shareholders, the holders of shares entitling them to
exercise a majority of the voting power of the Bank present in person or by
proxy shall constitute a quorum for such meeting; provided, however, that no
action required by law to be authorized or taken by a designated proportion of
the shares may be authorized or taken by a lesser proportion; provided,
further, that, if a quorum is not present, the holders of a majority of the
voting shares represented thereat may adjourn such meeting or any adjournment
thereof. If any meeting is adjourned, notice of such adjournment need not be
given if the time and place to which such meeting is adjourned are fixed and
announced at such meeting.
Section 6. Voting Power; Cumulative Voting. In voting on issues at meetings of
- --------- -------------------------------
shareholder, except on the election of Directors, each shareholder shall be
entitled to one vote for each share of stock held. A majority of votes cast
shall decide each issue submitted to the shareholders at any meeting, except
in cases where by law or by the Articles of Association a larger vote is
required. In all elections of Directors, each shareholder shall have the right
to vote the number of shares owned by such shareholder for as many persons as
there are Directors to be elected, or to cumulate such shares and give one
candidate as many votes as the number of Directors multiplied by the number of
such shareholder's shares shall equal, or to distribute them on the same
principle among as many candidates as such shareholder chooses.
Section 7. Record of Shareholders and Votes. At any meeting of the
- --------- --------------------------------
shareholders, a record showing the names of shareholders present and the
number of shares of stock held by each, the names of shareholders represented
by proxy and the number of shares held by each, and the names of the proxies
shall be made. This record also shall show the number of shares voted on each
action taken, including the number of shares voted for each candidate for the
Board of Directors. This record shall be included in the minute book of the
Bank.
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 1. Authority. The Board of Directors shall have power to manage and
- --------- ---------
administer the business and affairs of the Bank. Except as expressly limited
by law, all corporate powers of the Bank shall be vested in and exercised by
or under the authority of the Board of Directors.
Section 2. Number. The Board of Directors shall consist of not less than five
- --------- ------
nor more than twenty-five members; the exact number within such minimum and
maximum limits shall be fixed and determined from time to time by resolution
of a majority of the full Board of Directors or by resolution of the
shareholders at any meeting thereof; provided, however, that a majority of the
full Board of Directors may not increase the number of Directors to a number
which exceeds by more than: (i) two the number of Directors last fixed and
determined by the shareholders where such number was fifteen or less, or (ii)
four the number of Directors last fixed and determined by the shareholders
where such number was sixteen or more.
Section 3. Election of Directors; Vacancies. The Directors shall be elected at
- --------- --------------------------------
each annual meeting of shareholders or at a special meeting called for the
purpose of electing Directors. Any vacancy or vacancies occurring in the Board
of Directors, including vacancies created by an increase in the numbers of
Directors, shall be filled by appointment by the remaining Directors at any
regular or special meeting of the Board or by the shareholders at any meeting
thereof, and any Director or Directors so appointed shall hold office until
the next election. Each person elected or appointed a Director must take the
oath of such office in the form prescribed by the Comptroller of the Currency.
No person elected or appointed a Director shall exercise the functions of such
office until he or she has taken such oath. The Bank shall transmit evidence
of such oath or oaths to the Comptroller of the Currency.
Section 4. Term of Office; Resignations. Directors shall hold office until the
- --------- ----------------------------
next annual meeting of shareholders or until their successors are elected and
have qualified, or until their earlier resignation, removal from office, or
death. Any Director may resign at any time by oral statement to that effect
made at a meeting of the Board of Directors, or in a writing to that effect
delivered to the Secretary or an Assistant Secretary of the Bank; such
resignation shall take effect immediately or at such other time as the
Director may specify at such meeting or in such writing. At a meeting of
shareholders called expressly for that purpose, any director or the entire
Board of Directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
directors. If permitted by law, the majority of the Board of Directors may
remove a director for cause.
Section 5. Organization Meeting. Following the annual meeting of shareholders,
- --------- --------------------
the Directors-elect shall hold an organization meeting of the purpose of
appointing officers and transacting such other business as properly may come
before the meeting. Such organization meeting shall be held on the day of the
election or as soon thereafter as practicable and, in any event, within thirty
days thereof. Notice of such meeting need to be given if held on the day of
the election.
Section 6. Regular Meetings. Regular meetings of the Board of Directors shall
- --------- ----------------
be held, without notice, on the third Wednesday of each March, June,
September, and December, at the main office of the Bank or at such other times
and places authorized by the Board of Directors, the Chairperson of the Board,
the President, or the Secretary. When any regular meeting of the Board falls
upon a holiday, the meeting shall be held on the next banking business day
unless the Board shall designate some other day.
Section 7. Special Meetings. Special meetings of the Board of Directors may be
- --------- ----------------
called by the Chairperson of the Board, by the President, by the Secretary, or
at the request of two or more Directors. Notice of special meetings, stating
the time and place thereof, shall be given in person or by mailing,
telephoning, or telegraphing such notice at least 24 hours prior to the
meeting; provided, however, that attendance of any director at such meeting
without protesting, prior to or at the commencement of the meeting, the lack
of proper notice, shall be deemed a waiver by such Director of notice of such
meeting. Notice of a meeting may be waived in writing or by telegram either
before or after such meeting. Unless otherwise indicated in the notice of
meeting, any business may be transacted at such meeting.
Section 8. Quorum; Adjournment. A quorum of the Board of Directors shall
- --------- -------------------
consist of a majority of the Directors then in office; provided that a
majority of the Directors then present at a meeting duly held, whether or not
a quorum is present, may adjourn such meeting from time to time. If any
meeting is adjourned, notice of such adjournment need not be given if the time
and place to which such meeting is adjourned are fixed and announced at such
meeting. At each meeting of the Board of Directors at which a quorum is
present, all issues shall be determined by a majority vote of those present
except as otherwise expressly provided in these Bylaws or by law. A Director
cannot vote or otherwise act by proxy at a meeting of the Board of Directors.
ARTICLE III
OFFICERS
--------
Section 1. Election and Designation of Officers. The Board of Directors shall
- --------- ------------------------------------
elect or appoint a Chairperson of the Board, a President, one or more Vice
presidents, a Secretary, and such other officers as the Board may deem
necessary all with such titles, authorities, and duties as the Board of
Directors may from time to time determine. The Chairperson of the Board and
the President shall be members of the Board of Directors. The Board of
Directors may delegate the authority to appoint and dismiss officers to
officers of the Bank or to a committee composed of such officers. Any two or
more offices may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity if the
instrument is required to be executed, acknowledged, or verified by two or
more officers.
Section 2. Term of Office; Vacancies. The officers of the Bank shall hold
- --------- -------------------------
office until their successors are elected or appointed and qualified, except
in the case of resignation, dismissal or removal from office, or death. The
Board of Directors may dismiss or remove any officer at any time, with or
without cause, by a majority vote of the Directors then in office, without
prejudice to the contract rights of such officer; an election or appointment
of an officer shall not of itself create any contract rights. Any vacancy in
any office may be filled in the manner provided herein for the election or
appointment of office. The Board of Directors is not required to annually
elect or appoint officers.
Section 3. Chairperson. The Chairperson of the Board shall preside at all
- --------- -----------
meetings of shareholders and the Board of Directors. In the absence of, or at
the direction of, the Chairperson of the Board, the President, or such other
Director designated by the Chairperson of the Board, shall preside at a
meeting of the shareholders or the Board of Directors, as the case may be.
Section 4. President. The President shall have general executive powers over
- --------- ---------
the management and business of the Bank, subject to the direction of the Board
of Directors and Chairperson of the Board.
Section 5. Vice Presidents. Each Vice president shall have such powers and
- --------- ---------------
duties as may be assigned to him or her by the Board of Directors or as
otherwise provided for herein; the Board of Directors may authorize one of the
Vice Presidents to perform the duties of the President in the President's
absence or if the President is unable to act.
Section 6. Secretary. The Board of Directors shall appoint a Secretary or
- --------- ---------
other designated officer who shall be Secretary of the Board and of the Bank.
The secretary shall give or provide for giving of all notices required by law
or these Bylaws to be given, shall be custodian of the corporate seal,
records, documents, and papers of the Bank, shall keep accurate minutes of all
meetings covered by these Bylaws, and shall perform such other duties as may
be assigned from time to time by the Board of Directors.
Section 7. Duties of Officers. The officers of the Corporation shall have such
- --------- ------------------
authority and perform such duties as are customarily incident to their
respective offices, or as may be determined by the Board of Directors,
regardless of whether such authority and duties are customarily incident to
such offices.
ARTICLE IV
COMMITTEES
----------
Section 1. Executive Committee. The Board of Directors may appoint an
- --------- -------------------
Executive Committee which shall consist of the Chairperson of the Board and
not less than two other Directors. Each member of the Board of Directors who
is not a member of the Committee shall be an alternate and, at the request of
the officer who is to preside at the meeting, may serve in the place of any
regular member who is unable to attend a committee meeting for any reason. The
Chairperson of the Board shall preside at all meetings of the Committee; if
such officer is absent, another Committee member shall preside.
Section 2. Powers of Executive Committee. The Executive Committee shall have
- --------- -----------------------------
and may exercise, as far as permitted by law, all the powers and authority of
the Board of Directors and other committees of the Board of Directors between
meetings of such Board or such committees.
Section 3. Other Committees. The Board of Directors may, by resolutions
- --------- ----------------
adopted by a majority of the full Board, establish one or more other
committees; each committee shall consist of three or more members of the Board
of Directors which, to the extent provided in such resolution or resolutions
or in these Bylaws, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Bank and may
have the power to authorize the seal of the Bank to be affixed to all papers
which may require it. Such committee or committees shall have such name or
names as may be stated in these Bylaws or as may be determined from time to
time by resolution adopted by the Board of Directors. The Board of Directors
may designate one or more directors as alternate members of any committee, who
may serve in the place of any regular member who is unable to attend a
committee meeting for any reason. Each committee shall keep regular minutes of
its meetings and present such minutes for review to the Board of Directors.
Section 4. Notice of Meetings. Meetings of the Board committees shall be held
- --------- ------------------
at the principal office of the Bank in the City of Cleveland, or at such other
place as may be designated in the notice of the meeting at any time upon call
by the Chairperson of the Board, the President, the Secretary or the
Chairperson of the Committee. Notice of each such meeting shall be given to
each member of the Committee in person or by mailing, telephoning, or
telegraphing such notice at least 24 hours prior to the meeting; provided,
however, that attendance by any Director at such meeting, without protesting
prior to or at the commencement of such meeting, the lack of proper notice
shall be deemed a waiver by such Director of the notice of such meeting.
Notice of the meeting may be waived in writing or by telegram by any member
either before or after such meeting. Unless otherwise indicated in the notice
of the meeting, any business may be transacted at such meeting.
ARTICLE V
RECORD DATES
------------
The Board of Directors may fix, or authorize the Chairperson of the Board or
the President to fix, a record date for any lawful purpose. The record date
for the purpose of the determination of the shareholders who are entitled to
receive notice of or to vote at a meeting of shareholders shall continue to be
the record date for all adjournments of such meeting. The Board of Directors
may close the share transfer books against transfer of shares during the whole
or any part of the period provided for in this Article, including the date of
the meeting of shareholders and the period ending with the date, if any, to
which the meeting is adjourned.
ARTICLE VI
CERTIFICATES FOR SHARES
-----------------------
Section 1. Form of Certificates and Signatures. Each holder of shares shall be
- --------- -----------------------------------
entitled to one or more certificates signed by the Chairperson of the Board,
the President or a Vice President, and by the Secretary or an Assistant
Secretary. The signature of any of such officers of the Bank may be a
facsimile, engraved, stamped, or printed. In case any such officer whose legal
or facsimile signature has been placed upon such certificate ceases to be such
officer before the certificate is delivered, such certificate nevertheless
shall be effective in all respects when delivered.
Section 2. Transfer of Shares. Shares of the Bank shall be transferable upon
- --------- ------------------
the books of the Bank by the holders thereof, in person, or by a duly
authorized attorney, upon surrender and cancellation of certificates for a
like number of shares of the same class, with duly executed assignment and
power of transfer endorsed thereon or attached thereto, and with such proof of
the authenticity of such signatures to such certificates and power of transfer
as the Bank or its agents may reasonably require.
Section 3. Corporate Seal. The following is an impression of the seal adopted
- --------- --------------
by the Board of Directors of the Bank.
(to be inserted)
Any officer shall have authority to affix the corporate seal to any document
requiring such seal and to attest the same. Failure to affix the seal to any
instrument executed on behalf of the Bank shall not affect the validity of
such instrument unless such action is required by law.
ARTICLE VII
BANKING HOURS
-------------
The main office and branch offices of the Bank shall be open for business upon
such days of the year and for such hours as the Board of Directors or the
officers of the Bank may from time to time determine.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 1. Fiscal Year. The fiscal year of the Bank shall be the calendar
- --------- -----------
year. ------------------ -----------
Section 2. Definitions. The word "person" wherever used in these Bylaws shall
- --------- -----------
be taken to mean and include individuals, partnerships, associations, and
corporations when the text so requires. "Vice President", as used in these
Bylaws, shall include Vice Chairperson and such titles as Senior Executive
Vice President, Executive Vice President, and Senior Vice President. Words of
the singular number shall be taken to include the plural and those of the
plural number shall be taken to include the singular whenever appropriate.
Section 3. Execution of Instruments. The Chief Executive Officer may from time
- --------- ------------------------
to time prescribe in writing the authority of the officers, employees, and
agents of the Bank with respect to the making, execution, and delivery in the
name and on behalf of the Bank of documents and instruments in writing
necessary to the transaction of its business, whether in a fiduciary capacity
or otherwise, and with respect to the approval orally, or by conduct other
than signing of agreements, of transactions in the name and on behalf of the
Bank necessary to the carrying out of the business of the Bank; provided,
however, that if the Chief Executive Officer fails to take such action, the
Board of Directors shall, by resolution, establish such authorities in
writing. Where any such resolution or any such writing has been certified by
the Secretary or an Assistant Secretary as to its full force and effect, any
instrument executed or transaction effected in conformity with such resolution
or such writing may be relied upon by any person. Authority granted to
officers, employees, and agents of the Bank, pursuant to this Section 3 shall
apply to all documents, instruments, and conduct relating to any entity for
which the Bank is a successor in interest, whether by merger or otherwise.
Section 4. Use of Communications Equipment at Meetings. Members of the Board
- --------- -------------------------------------------
of Directors may participate in regular or special meetings of the Board of
Directors, and members of committees appointed by the Board of Directors may
participate in regular or special meetings of those committees, through use of
conference telephone or similar communications equipment, as long as all
members participating in such meeting can hear one another.
Section 5. Action Without a Meeting. Any action which may be taken at a
- --------- ------------------------
meeting of the Bank's shareholders, Board of Directors, or committee of the
Board of Directors, may be taken without a meeting by the unanimous vote of
approval of, and in a writing or writings signed by, all of the Bank's
shareholders, Directors, or committee members, respectively, entitled to
notice of such meeting; such writing or writings shall be included in the
minute book of the Bank.
Section 6. Waivers of Notice. Any Director may waive the giving of any notice
- --------- -----------------
required to be given to him or her under these Bylaws before or after the time
when such notice may be required to be given.
Section 7. Telegram. Any action required or permitted to be taken hereunder by
- --------- --------
telegram may be taken by telex, fax, or similar communication equipment.
Section 8. Records. The Articles of Association, these Bylaws, and the
- --------- -------
proceedings of all meetings of the shareholders, the Board of Directors, and
committees of the Board, shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
Secretary, an Assistant Secretary, or other officer appointed to act as
secretary of the meeting.
Section 9. Ohio Law. To the extent not inconsistent with applicable Federal
- --------- --------
banking statutes and regulations, the Bank shall follow the corporate
governance procedures set forth in the Ohio General Corporation Law as it may
be amended from time to time.
Section 10. Interest Rates and Assessments and Loans. The Bank may assess and
- ---------- ----------------------------------------
collect from borrowers interest at any rate agreed upon by the Bank and the
borrower as specified in the loan agreement. In addition to such interest, the
Bank may assess and collect any dues, fines, premiums, or other assessments on
loans made in such amount as may be agreed upon in the loan agreement,
including, but not limited to, the following: origination fees; guarantee fees
or charges for any insurance protecting a creditor against a borrower's
default or other credit loss; late, default, or delinquency charges; deferment
charges; annual or other periodic membership fees; charges for returned checks
and other forms of payment; overlimit charges; cash advance fees; stop payment
fees; ATM, electronic, or similar interchange access fees; transaction fees;
currency conversion charges; fees for replacement of credit cards, access
checks, or other access devices; minimum charges; research charges; charges
for providing documentation or other evidence; credit, property, or other
types of insurance premiums, including premiums for insurance in lieu of
perfecting a security interest; collection costs; court costs; attorney's
fees; application fees; credit report fees; investigation fees; commitment
fees; finder's fees; broker fees; assumption fees; processing fees; credit
report fees; investigation fees; points; survey and appraisal fees; title
examination and report fees; title insurance premiums; abstract of title fees;
escrow fees; trustee fees; official fees and taxes; filing and recording fees;
fees for taking or releasing a security interest; document preparation and
notarization fees; prepayment fees.
ARTICLE IX
AMENDMENTS
----------
These Bylaws may be amended, altered, or repealed, at any regular or special
meeting of the Board of Directors, by a vote of a majority of the whole number
of the Directors or by the shareholders by the affirmative vote of the holders
of shares entitling them to exercise a majority of the voting power of the
Bank.
Exhibit 24.1
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 26th day of May, 1999.
/s/ Gary R. Allen
-------------------------
Name: Gary R. Allen
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 7th day of June, 1999.
/s/ Patrick V. Auletta
-------------------------
Name: Patrick V. Auletta
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 27th day of May, 1999.
/s/ James S. Bingay
-------------------------
Name: James S. Bingay
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Michael A. Butler
-------------------------
Name: Michael A. Butler
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Linda A. Grandstaff
-------------------------
Name: Linda A. Grandstaff
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 3rd day of June, 1999.
/s/ Allen J. Gula, Jr.
-------------------------
Name: Allen J. Gula, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Carl C. Heintel, Jr.
-------------------------
Name: Carl C. Heintel, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Robert G. Jones
-------------------------
Name: Robert G. Jones
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Daniel E. Klimas
-------------------------
Name: Daniel E. Klimas
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 26th day of May, 1999.
/s/ Jack L. Kopnisky
-------------------------
Name: Jack L. Kopnisky
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 26th day of May, 1999.
/s/ John H. Mancuso
-------------------------
Name: John H. Mancuso
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Bruce D. Murphy
-------------------------
Name: Bruce D. Murphy
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Kevin P. Riley
-------------------------
Name: Kevin P. Riley
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ K. Brent Somers
-------------------------
Name: K. Brent Somers
<PAGE>
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of KeyBank
National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Act of 1933, as amended, a
Registration Statement with respect to the issuance of up to $1,750,000,000 in
securities by one or more Trusts, to be established by the Bank in connection
with the securitization of certain mortgage loans originated or acquired from
time to time by the Bank, hereby constitutes and appoints Craig T. Platt,
Michael W. Dvorak, Forrest F. Stanley and Daniel R. Stolzer, and each of them,
as his attorney, with full power of substitution and resubstitution, for and
in his or her name, place, and stead, to sign and file the proposed
Registration Statement and any and all amendments, post-effective amendments,
supplements, prospectuses and exhibits thereto, and any and all applications
and other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary to be done in the premises, hereby ratifying and approving the
acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 24th day of May, 1999.
/s/ Kenton A. Thompson
-------------------------
Name: Kenton A. Thompson
