As filed with the Securities and Exchange Commission on April 10, 2000
Registration No. 333-82215
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.2 TO
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 jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
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
=============================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to Be Registered Registered(1) Offering Price Aggregate Registration
Per Unit(2) Offering Price(2) Fee(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset-Backed Certificates and $1,000,000 100% $1,000,000 $278
Asset-Backed Notes.................
=============================================================================================================================
(1) This Registration Statement also relates to secondary market
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.
(3) Previously paid.
</TABLE>
This Registration Statement is also being used to register securities
that may be sold in secondary market 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 this securities until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus Supplement dated ___________,________
To Prospectus dated _____________
$___________ (approximate)
[ ] Home Equity Loan Trust 200_-_,
as Issuer
Home Equity Loan Asset-Backed Certificates, Series 200_-_
[ ] KeyBank National Association
as master servicer as seller
The trust:
The certificates
represent o will issue [5] classes of senior
obligations of the certificates
trust only and do
not represent an o will issue a single residual certificate
interest in or
obligation of o will make a REMIC election for federal
KeyBank National income tax purposes
Association; the
trustee or any of The certificates:
their affiliates.
o represent the entire beneficial interest in
This prospectus a trust, whose assets are a pool of
supplement may be closed-end fixed rate first and second lien
used to offer and mortgage loans
sell the
certificates only if o currently have no trading market
accompanied by the
prospectus. o are not guaranteed
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.
For complete information about the senior certificates, read both
this prospectus supplement and the prospectus.
[____________], the underwriter, will buy the senior certificates
from KeyBank National Association at a price equal to ________ of their face
value. The underwriter will sell the senior certificates from time to time in
negotiated transactions.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
[Underwriter]
___________, 200_
<PAGE>
Table of Contents
Page
----
Prospectus Supplement
Summary..................................................................S-4
Risk Factors............................................................S-10
The Certificate Insurer.................................................S-14
KeyBank National Association............................................S-14
The Master Servicer.....................................................S-14
Description of the Mortgage Loans.......................................S-17
Prepayment and Yield Considerations.....................................S-22
Description of the Certificates.........................................S-27
Use of Proceeds.........................................................S-53
Federal Income Tax Consequences.........................................S-53
State Taxes.............................................................S-56
ERISA Considerations....................................................S-56
Legal Investment Considerations.........................................S-58
Underwriting............................................................S-58
Experts.................................................................S-59
Legal Matters...........................................................S-59
Ratings.................................................................S-59
Annex I.................................................................S-59
Prospectus
Risk Factors...............................................................2
The Trusts.................................................................9
Description of the Securities..............................................5
Enhancement...............................................................20
Servicing of Loans........................................................23
The Agreements............................................................32
Legal Aspects of the Loans................................................43
The Seller................................................................56
Use of Proceeds...........................................................56
Federal Income Tax Consequences...........................................56
State Tax Considerations..................................................89
ERISA Considerations......................................................90
Legal Investment..........................................................95
Ratings...................................................................95
Plan of Distribution......................................................95
Legal Matters.............................................................96
Available Information.....................................................96
<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
offered certificates.
Home Equity Loan Asset-Backed Certificates, Series 200_-_
<TABLE>
<CAPTION>
- ------------------------- ------------------ ------------------------- ----------------------
Initial Class Last Scheduled
Offered Certificates Certificate Rate Principal Balance Distribution Date
- ------------------------- ------------------ ------------------------- ----------------------
<S> <C> <C> <C>
Class A-1 % $ -
- ------------------------- ------------------ ------------------------- ----------------------
Class A-2 % $ -
- ------------------------- ------------------ ------------------------- ----------------------
Class A-3 % $ -
- ------------------------- ------------------ ------------------------- ----------------------
Class A-4 % $ -
- ------------------------- ------------------ ------------------------- ----------------------
Class A-5 % $ -
- ------------------------- ------------------ ------------------------- ----------------------
Non-offered Certificates
- ------------------------- ------------------ ------------------------- ----------------------
Class R N/A $0 -
- ------------------------- ------------------ ------------------------- ----------------------
(1) All balances are subject to a variance of 5%.
</TABLE>
The Seller
o KeyBank National Association.
o KeyBank National Association maintains its principal office at
[Key Tower, 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 200_-_.
Trustee
o [____________________________]
Certificate Insurer
o [__________________].
We refer you to "The Certificate Insurer" in this prospectus
supplement for additional information.
Cut-Off Date
o ____________, 200_.
Closing Date
o ________________, 200_.
Distribution Date
o The 25th day of each month, or if that day is not a business
day, the next business day. The first distribution date is
___________ 200_.
Due Period
o The calendar month immediately preceding a determination date
or a distribution date, as applicable.
Registration of Offered Certificates
We will issue the offered 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;
o amounts on deposit in accounts described in this prospectus
supplement; and
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--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 senior 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 offered 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 senior 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 set levels. In that event,
amortization of the offered 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 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 REMIC
o The offered certificates will be regular interests in the REMIC
and will be treated as debt instruments of the REMIC
o The residual certificates will represent the beneficial
ownership of the sole class of residual interest in the REMIC.
We refer you to "Federal Income Tax Consequences" in this prospectus
supplement and in this prospectus for additional information.
ERISA Considerations
[We suggest that a fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or the IRS 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 this prospectus
supplement and the prospectus for additional information.
Legal Investment Considerations
The offered certificates are not mortgage related securities, for
purposes of the Secondary Mortgage Market Enhancement Act of 1984.
We refer you to "Legal Investment Considerations" in this
prospectus supplement and "Legal Investment" in the prospectus for
additional information.
Certificate Rating
The offered certificates will not be issued 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 Does Not Assure Payment" 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 the 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
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 the 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
then 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 the loan 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 "Legal Aspects of the 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.
[Master Servicer May Consent to Liens
For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent, with limitations, to a new first priority lien
regardless of the principal amount, which has the effect of making the first
mortgage a junior mortgage.]
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; which, 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 reduction in rating, 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 the 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 from their sale 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 the interest shortfalls attributed to
prepayments, they will be covered by the certificate insurance
policy.
o Some Interest Shortfalls Are Not Covered by the Master
Servicer or the Certificate Insurance Policy. The Soldiers' and
Sailors' Civil Relief Act of 1940 permits modifications to the
payment terms for mortgage loans, including a reduction in the
amount of interest paid by the borrower. Neither the master
servicer nor the certificate insurer will pay for any interest
shortfalls created by the Soldiers' and Sailors' Civil Relief
Act of 1940.
Geographic Concentration Increases Risk That Certificate Yields Can be Impaired
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 these states experience 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.
Prepayment Risk 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.
The Certificate Insurer
[TO BE PROVIDED BY CERTIFICATE INSURER]
KeyBank National Association
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:
o retail and private banking services to customers including
consumer lending and deposit services;
o commercial banking services to small businesses, middle-market
and large corporate customers;
o capital market services; and
o trust and asset management services.
o The principal executive offices of the seller are located at
Key Tower, 127 Public Square, Cleveland, Ohio 44114 (Telephone:
(216) 689-6300).
The Master Servicer
___________________, as master servicer will be responsible for
servicing the mortgage loans in accordance with the terms of the pooling and
servicing agreement. [Beginning on _______________, ____________________, as
subservicer, will service the mortgage loans for the master servicer in
accordance with a subservicing agreement. The terms and conditions of the
subservicing agreement are consistent with and do not violate the provisions
of the pooling and servicing agreement. The subservicing does not relieve the
master servicer from any of its obligations to service the mortgage loan in
accordance with the terms and conditions of the pooling and servicing
agreement.] See "--Servicing and Collection Procedures."
Credit and Underwriting Guidelines
The following is a description of the underwriting guidelines
customarily employed by the master servicer 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 the master servicer 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 servicing portfolio of home equity loans (which includes
home equity loans subserviced by others for __________) similar to the
mortgage loans for the periods indicated. [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 delinquency and loss experience
set forth below represents the experience with respect to only a portion of
the servicer's loan production for the periods indicated and has not been
adjusted to eliminate the effect of the significant growth in size of the
servicer's portfolio of mortgage loans during the periods shown. Accordingly,
loss and delinquency as a percentage of mortgage loans serviced for each
period could be higher than those shown if a group of mortgage loans were
artificially isolated at a point in time and the information showed the
activity only in that isolated group.] [Champion: The general trend from 1996
through 1999 of slowly increasing delinquencies can be attributed to the
seasoning of the loans. However, the temporary uncharacteristic increase in
delinquencies in 1997 was due specifically to two related factors. Due to the
dramatic increases in the portfolio during 1997, the size of the collection
department was increased, resulting in less seasoned collection personnel.
This took place during the period that Champion was in the process of being
acquired by KeyCorp. Accordingly, during this transition, the training of the
new staff and collection efforts were not as efficient as during other
periods.] [KeyBank: Although, the loss experience of KeyBank has been stable
for the periods shown, the delinquency experience has been inconsistent.
Delinquencies increased in 1998 because of a reorganization of the collections
department, and as indicated by the 1999 figures, the new collection
department has effected improvements in collecting delinquent loans.]
<PAGE>
<TABLE>
<CAPTION>
[Champion Mortgage Co., Inc.]
[Delinquency Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans............. 9,058 14,327 19,565 25,244
Dollar Amount of
Loans.................... $ 526,816 $ 866,673 $ 1,309,172 $ 1,827,491
Delinquency Period
30-59 days
% of number of
loans............ 1.30% 2.14% 1.43% 1.58%
% of dollar
amount of loans.. 1.17% 2.16% 1.24% 1.17%
60-89 days
% of number of
loans............ 0.15% 0.34% 0.27% 0.42%
% of dollar
amount of loans... 0.14% 0.35% 0.25% 0.38%
90 days and over*
% of number of
loans.............. 0.69% 1.20% 0.82% 1.22%
% of dollar
amount of loans... 0.81% 1.27% 0.72% 1.03%
Loans in Foreclosure
% of number of
loans.............. 0.62% 0.51% 0.60% 0.61%
% of dollar amount
of loans........... 0.76% 0.60% 0.56% 0.71%
Total*
% of number of
loans................ 2.14% 3.68% 3.32% 4.08%
% of dollar amount
of loans............. 2.12% 3.78% 2.97% 3.52%
______________
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Dollar
Amount of Loans
Outstanding During
Period....................... $ 367,584 $ 702,555 $ 1,103,510 $ 1,616,324
Net Losses...................... $ 39 $ 488 $ 1,142 $ 2,317
Net Losses as a
Percentage of
Average Amount
Outstanding.................. 0.01% 0.07% 0.11% 0.14%
______________
"Net Losses" means gross losses minus recoveries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[KeyBank National Association]
[Delinquency Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
------------------------ --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans................ 228,837 220,017 224,088 219,784
Dollar Amount of
Loans....................... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Delinquency Period
30-59 days
% of dollar
amount of loans...... 0.73% 0.81% 0.65% 0.65%
60-89 days
% of dollar
amount of loans....... 0.23% 0.30% 0.22% 0.18%
90+ days*
% of dollar
amount of loans....... 0.34% 0.36% 0.31% 0.30%
Total*
% of dollar amount
of loans............ 1.30% 1.47% 1.18% 1.13%
______________
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
----------------------- --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dollar
Amount of Loans
Outstanding At
End Of Period......... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Net Losses............... $ 6,623 $ 5,954 $ 6,060 $ 6,823
Percentage of
Dollar Amount of Loans.... 0.12% 0.11% 0.11% 0.12%
______________
"Net Losses" means gross losses minus recoveries.
</TABLE>
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 _______, 200_, 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
the 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
- ----------------------- -------------- ------------ ------------
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 pooling and servicing 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 "Credit
Underwriting and 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. Each date on which a subsequent
mortgage loan is transferred to the trust fund shall be referred to herein as
a subsequent transfer date.
Each conveyance of subsequent mortgage loans will be subject to,
among other things, the following conditions:
o the subsequent mortgage loans must
(a) comply with each representation and warranty as to the mortgage
loans set forth in the pooling and servicing agreement;
o the subsequent mortgage loan must not have been selected by the
seller in a manner that it believes is adverse to the interests of
the certificateholders,
o no subsequent mortgage loan may be ___ or more days contractually
delinquent as of the applicable cut-off date;
o no subsequent mortgage loan may have a remaining term to maturity
in excess of ___ years;
o no subsequent mortgage loan may have a mortgage rate less than
____%;
o following the purchase of subsequent mortgage loans by the trust
fund, the mortgage loans:
(b) will have a weighted average mortgage rate of at least ____%;
(c) will have a weighted average loan-to-value ratio of not
more than ____%;
(d) will not have a weighted average remaining term to stated
maturity of more than ____ months; and
(e) will, in each case, have a principal balance in excess of
$_______ as of the cut-off date;
o __________ [and the trustee shall not have been notified by either
rating agency that the conveyance of the subsequent mortgage loans
will result in a qualification, modification or withdrawal of its
then-current rating of any class of certificates] [shall have
notified each rating agency of the conveyance as required by the
pooling and servicing agreement]; and
o the trustee shall have received opinions of counsel as to,
among other things, the enforceability and validity of the transfer
agreements relating to the conveyance of the subsequent mortgage
loans.]
Prepayment and Yield Considerations
General
The rate of principal payments on the offered certificates, the
aggregate amount of distributions on the offered certificates and the yield to
maturity of the offered 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 offered certificates of principal amounts which
would otherwise be distributed over the remaining terms of the mortgage loans.
Since the rate of payment of principal of the mortgage loans will depend on
future events and a variety of factors, no assurance can be given as to the
rate or the rate of principal prepayments. The extent to which the yield to
maturity of an offered 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 is sensitive to
prepayments, liquidations and purchases of the mortgage loans.
The rate of prepayment on the mortgage loans cannot be predicted.
The prepayment experience of the trust fund with respect to the mortgage loans
may be affected by a wide variety of factors, including economic conditions,
prevailing interest rate levels, the availability of alternative financing and
homeowner mobility and changes affecting the deductibility for federal income
tax purposes of interest payments on loans. All of the mortgage loans contain
"due-on-sale" provisions, and, with respect to the mortgage loans, the master
servicer is required by the pooling and servicing agreement to enforce those
provisions, unless enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related mortgage loan. See "Legal Aspects of
Loans--Due-on-Sale Clauses in Mortgage Loans" in the prospectus.
As with fixed rate obligations generally, the rate of prepayment on
a pool of mortgage loans with fixed rates, like 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, 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 offered certificates, the use of excess spread to pay principal of
the offered certificates to the extent required by the pooling and servicing
agreement will result in the acceleration of the offered certificates,
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 principal balance of the offered certificates. 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."
Weighted Average Lives
Generally, greater than anticipated prepayments of principal will
increase the yield on the offered certificates purchased at a price less than
par and will decrease the yield on the offered 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
reduction or increase in the rate of principal payments. The weighted average
life of the offered 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 the certificate is repaid. The weighted
average life of a certificate of any class is determined by:
(1) multiplying the amount of each distribution in reduction of the
related principal balance by the number of years from the date of issuance of
the certificate to the related distribution date,
(2) adding the results, and
(3) dividing the sum by the highest related principal balance of the
certificate.
The weighted average life of any class of offered 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, 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 the mortgage loans. A 100% prepayment
assumption assumes a conditional prepayment rate ("CPR") of [ ]% per annum of
the outstanding principal balance of the 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 offered 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 of these discrepancies may have an effect
upon the percentages of the principal balances outstanding and weighted
average lives of the offered 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 offered certificates may be
made earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that:
o the mortgage loans consist of pools of loans with the level-pay
and balloon amortization characteristics set forth below,
o the closing date for the offered certificates is _____________,
o distributions on the offered 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,
o 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 _______________,
o all prepayments are prepayments in full received on the last day
of each month, commencing ______________ and include 30 days'
interest,
o no optional termination is exercised,
o the offered certificates of each class have the respective
certificate rates and initial offered principal balances as
set forth herein,
o the overcollateralization levels are set initially as specified
in the pooling and servicing agreement, and decrease in accordance
with the provisions of the pooling and servicing agreement,
o 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],
o six-month LIBOR for each interest period will be % and
o one-month LIBOR for each interest period will be %.]
Original Original Remaining
Amortization Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
- ------------ --------- --------- ------------ -------- ---------
Balloon........... $
Level $
Pay..........
Level $
Pay..........
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each class of offered
certificates, and sets forth the percentages of the initial principal balance
of each class of offered certificates that would be outstanding after each of
the dates shown at various percentages of prepayment assumption.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class A Principal Balance Outstanding
at the Following Percentages of the Prepayment Assumption
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).....
- ----------------------------------------------------------------------------------------------------------------------------------
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).....
- ----------------------------------------------------------------------------------------------------------------------------------
Class A-5
Distribution Date % % % %
- ----------------- - - - -
<S> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100
Weighted Average
Life (years)*....
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, and should be read in conjunction therewith.
<PAGE>
Description of the Certificates
The offered certificates will be issued under the pooling and
servicing agreement. The form of the pooling and servicing agreement has been
filed as an exhibit to the registration statement of which this prospectus
supplement and the prospectus is a part. The following summaries describe all
of the material provisions of the pooling and servicing agreement.
General
The offered certificates will be issued in denominations of $[1,000]
and in integral multiples of $[1] and will evidence specified undivided
interests in the trust fund. The property of the trust fund will consist of,
to the extent provided in the pooling and servicing agreement:
o the mortgage loans;
o 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;
o mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
o the collection account and the distribution account and funds
on deposit, excluding net earnings; and
o rights under applicable 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 for the
benefit of the holders of the offered certificates, under which the
certificate insurer will guarantee payments to the certificateholders.
Physical certificates will be transferable and exchangeable at the corporate
trust office of the trustee, which will initially act as certificate
registrar. See "--Book-Entry Certificates" below. No service charge will be
made for any registration of exchange or transfer of the certificates, but the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The principal balance of a class of offered certificates on any
distribution date is equal to the related principal balance on the closing
date minus the aggregate of amounts actually distributed as principal to the
holders of that class. On any date, the aggregate principal balance is the
aggregate of the principal balances of the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 certificates.
The person in whose name a certificate is registered in the
certificate register is referred to 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 the certificate by the principal balance for the related class
as of the cut-off date.
The certificates will not be listed on any securities exchange.
Book-Entry Certificates
The offered certificates will be book-entry certificates. Persons
acquiring beneficial ownership interests in the offered certificates, or
"certificate owners," will hold their offered certificates through the
Depository Trust Company, commonly referred to as DTC, in the United States,
or Clearstream Banking societe anonyme ("Clearstream") or the Euroclear System
("Euroclear") in Europe, if they are participants of these systems
(respectively, "DTC Participants", "Clearstream Participants" and "Euroclear
Participants" and each, a "Participant"), or indirectly through organizations
which are participants in these 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 & Co., the nominee of DTC. Clearstream and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in Clearstream's and Euroclear's names on the books of their
respective depositaries which in turn will hold positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
will act as depositary for Clearstream and the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator") will act
as depositary for Euroclear (in these capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may hold
the beneficial interests in the book-entry certificates in minimum
denominations representing certificate principal balances of $1,000 and in
integral multiples of $1. Except as described below, no beneficial owner
acquiring a book-entry certificate will be entitled to receive a physical
certificate representing their certificate. Unless and until physical
certificates are issued, it is anticipated that the only certificateholder of
the offered certificates will be Cede & Co., as nominee of DTC. Certificate
owners will not be certificateholders as that term is used in the pooling and
servicing agreement. Certificate owners are only permitted to exercise their
rights indirectly through the DTC participants and DTC.
The certificate owner's ownership of a book-entry certificate will
be recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary that maintains the beneficial owner's account for
this purpose. In turn, the financial intermediary's ownership of a 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 or on the records of Clearstream 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. Under the DTC system, DTC is required to make book-entry
transfers among its participants with respect to the book-entry certificates
and is required to receive and transmit distributions of principal of, and
interest on, the book-entry certificates. Participants and indirect
participants are similarly required to make book-entry transfers and receive
and transmit distributions on behalf of their clients. Accordingly, although
certificate owners will not possess physical certificates, the DTC system
provides a mechanism by which certificate owners will receive distributions
and will be able to transfer their interest.
Generally, certificate owners will not receive or be entitled to
receive physical certificates representing their interests in the offered
certificates. Unless and until physical certificates are issued, certificate
owners who are not DTC participants may transfer ownership of book-entry
certificates only through the DTC system. Under the DTC system and in
accordance with DTC's normal procedures, transfers of ownership of book-entry
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
Clearstream or Euroclear as a result of a transaction with a participant will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Credits or any transactions in
securities settled during processing will be reported to the relevant
Euroclear or Clearstream participants on that business day. Cash received in
Clearstream or Euroclear as a result of sales of securities by or through a
Clearstream participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream 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--U.S. Federal Income
Tax Documentation Requirements" in Annex I.
Transfers between participants will occur in accordance with the DTC
system. Transfers between Clearstream 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
Clearstream participants or Euroclear participants, on the other, will be
effected in DTC in accordance with the DTC system on behalf of the relevant
European international clearing system by the Relevant Depositary. These cross
market transactions, however, will require delivery of instructions to the
relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to the Relevant Depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Clearstream 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 or representatives, some of which 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.
Clearstream is incorporated under the laws of Luxembourg as a
professional depository. Clearstream holds securities for Clearstream
participants and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants, eliminating the need for
physical movement of certificates. Transactions may be settled in Clearstream
in any of 28 currencies, including United States dollars. Clearstream provides
to Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies,
checkering corporations and other organizations. Indirect access to
Clearstream is also available to others, including banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Clearstream participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its
participants and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates
and any risk from lack of simultaneous transfers of securities and cash.
Transactions may be settled in any of 32 currencies, including United States
dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers
with DTC described above. Euroclear is operated by the Euroclear Operator,
under contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Belgian 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
Belgian Cooperative. The Belgian 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. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
the amount of the payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing the payments to the beneficial owners of the
book-entry certificates that it represents and to each financial intermediary
for which it acts as agent. Each financial intermediary will be responsible
for disbursing funds to the beneficial owners of the book-entry certificates
that it represents.
Under a book-entry format, beneficial owners of the book-entry
certificates may experience some delay in their receipt of payments, since the
payments will be forwarded by the trustee to Cede & Co. ("Cede").
Distributions with respect to certificates held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream participants or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. The
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 DTC system, or otherwise take actions in respect of
the book-entry certificates, may be limited due to the lack of physical
certificates. In addition, issuance of the book-entry certificates in
book-entry form may reduce the liquidity of the certificates in the secondary
market since 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 the beneficial owners are
credited.
DTC has advised the trustee that, unless and until physical
certificates are issued, DTC will take any action permitted to be taken by the
holders of the book-entry certificates under the pooling and servicing
agreement only at the direction of one or more financial intermediaries to
whose DTC accounts the book-entry certificates are credited, to the extent
that actions are taken on behalf of financial intermediaries whose holdings
include book-entry certificates. Clearstream or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a
certificateholder under the pooling and servicing agreement on behalf of a
Clearstream participant or Euroclear participant only in accordance with its
relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect actions on its behalf through DTC. DTC may take actions,
at the direction of the related participants, with respect to some book-entry
certificates which conflict with actions taken with respect to other
book-entry certificates.
Physical certificates will be issued to beneficial owners of the
book-entry certificates, or their nominees, rather than to DTC, only if (a)
DTC or the seller advises the trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the book-entry certificates and the
seller or the trustee is unable to locate a qualified successor, (b) the
seller, 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 Default (as defined under "--Events of Default"), beneficial owners
having percentage interests aggregating not less than 51% of the aggregate
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 its successor is no
longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the trustee will be required to notify all
beneficial owners of the occurrence of that event and the availability through
DTC of physical 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 physical certificates, and the trustee
will recognize the holders of the physical certificates as certificateholders
under the pooling and servicing agreement.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of book-entry certificates among
participants of DTC, Clearstream and Euroclear, they are under no obligation
to perform or continue to perform the procedures and the procedures may be
discontinued at any time.
None of the seller, the master servicer or the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry certificates held
by Cede, as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
Assignment of Mortgage Loans
On the closing date, which is [___________], the seller 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 mortgage loan on or after the applicable
cut-off date, but not including interest payment due prior to the cut-off
date. The trustee, concurrently with the transfer, will deliver the
certificates to the seller. Each mortgage loan transferred to the trust fund
will be identified on a schedule delivered to the trustee. 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 pooling and servicing agreement, the seller
will maintain possession of the mortgage file, the documentation relating to
each mortgage loan for so long as an Assignment Event has not occurred.
[An Assignment Event will occur on the [ ]th day following either:
o the occurrence and continuance of an event of default,
o the reduction of the seller's long-term unsecured debt rating
below "Baa2" by Moody's or "BBB" by S&P or Fitch, or
o 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 seller will cause as
soon as practicable the mortgage files pertaining to each mortgage loan to be
delivered to the trustee. As specified in the pooling and servicing 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.]
Within [ ] days of an Assignment Event, the trustee will review the
mortgage loans and the Related Documents and if any mortgage loan or Related
Document is found to be defective in any material respect and the defect is
not cured within [ ] days following notification to the seller, the seller
will be obligated to either replace the defective mortgage loan with an
Eligible Substitute Mortgage Loan or to repurchase the defective mortgage
loan. A 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 the substitution will not disqualify the trust fund or result in a
prohibited transaction tax under the Internal Revenue Code of 1986, as
amended. The seller may purchase the defective mortgage loan at a price equal
to the outstanding principal balance of that 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 the obligation arises. The
Determination Date is the eighteenth day of each month. The obligation of the
seller to repurchase or substitute for a defective mortgage loan is the sole
remedy regarding any defects in the mortgage loans and related documents
available to the trustee or the certificateholders.
In connection with the substitution of an Eligible Substitute
Mortgage Loan, the seller will be required to deposit in the collection
account on or prior to the next succeeding Determination Date after the
obligation arises an amount (the "Substitution Adjustment") equal to the
excess of the principal balance of the related defective mortgage loan over
the principal balance of the Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a mortgage loan
substituted by the seller for a defective mortgage loan which must, on the
date of the substitution:
o 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), equal to or
less than [ ]% less than the principal balance of the defective
mortgage loan;
o 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 a defective mortgage loan;
o have a mortgage of the same or higher level of priority as the
defective mortgage loan at the time the mortgage was
transferred to the trust fund;
o 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;
o comply with each representation and warranty set forth in the
pooling and servicing agreement (deemed to be made as of the
date of substitution);
o have an original loan-to-value ratio not greater than that of
the defective mortgage loan; and
o be of the same type of mortgaged property as the
defective mortgage loan or a detached single family residence.
More than one Eligible Substitute Mortgage Loan may be
substituted for a defective mortgage loan if the Eligible
Substitute Mortgage Loans meet the foregoing attributes in the
aggregate and the substitution is approved in writing in
advance by the certificate insurer.
The seller will make representations and warranties as to the
accuracy in all material respects of information furnished to the trustee with
respect to each mortgage loan (e.g., cut-off date principal balance and the
loan rate). In addition, the seller will represent and warrant, on the closing
date, that, among other things:
o 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
o each mortgage loan complied, at the time of origination, in
all material respects with applicable state and federal laws.
Upon discovery of a breach of any representation and warranty which
materially and adversely affects the interests of the trust fund, the
certificateholders or the certificate insurer in the related mortgage loan and
Related Documents, the seller will have a period of [ ] 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 substitute for the
defective mortgage loan with an Eligible Substitute Mortgage Loan or purchase
the defective mortgage loan from the trust fund. The same procedure and
limitations that are set forth above for the substitution or purchase of
defective mortgage loans as a result of deficient documentation will apply to
the substitution or purchase of a defective mortgage loan as a result of a
breach of a representation or warranty in the pooling and servicing agreement
that materially and adversely affects the interests of the certificateholders
or the certificate insurer.
The master servicer will service and administer the mortgage loans
as set forth in the pooling and servicing agreement.
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 collection account for the benefit of the holders of the
certificates. The collection account will be an Eligible Account. Subject to
the investment provision described in the following paragraphs, upon receipt
by the master servicer of amounts in respect of the mortgage loans (excluding
amounts representing the master servicing fee), the master servicer will
deposit those amounts in the collection account. Amounts deposited may be
invested in Eligible Investments maturing no later than two business days
prior to the next succeeding date on which amounts on deposit in the
collection account are required to be deposited in the distribution account.
The trustee will establish an account into which amounts withdrawn
from the collection account for distribution to certificateholders on a
Distribution Date will be deposited. The distribution account will be an
Eligible Account. Amounts on deposit in the distribution account may be
invested in Eligible Investments maturing on or before the business day prior
to the related distribution date.
An "Eligible Account" is an account that is [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 or the Bank Insurance Fund of the FDIC 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 pooling and servicing
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:
o direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States
or any agency or instrumentality of the United States, provided
that the obligations are backed by the full faith and credit of
the United States;
o repurchase agreements on obligations specified in the
prior clause maturing not more than three months from the date
of acquisition, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase the obligations
are at the time rated by each rating agency in its highest
short-term rating category;
o certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a rating agency, shall each
have an original maturity of not more than 90 days and, in the
case of bankers' acceptances, shall in no event have an
original maturity of more than 365 days) of any U.S. depository
institution or trust company incorporated under the laws of the
United States or any state of the United States and subject to
supervision and examination by either federal or state banking
authorities, provided that the unsecured short-term debt
obligations of that depository institution or trust company at
the date of acquisition have been rated by each of the rating
agencies in its highest unsecured short-term debt rating
category;
o commercial paper (having original maturities of not
more than 90 days) of any corporation incorporated under the
laws of the United States or any state of the United States
which on the date of acquisition has been rated by the rating
agencies in their highest short-term rating categories;
o short term investment funds sponsored by any trust
company or bank incorporated under the laws of the United
States or any state of the United States which on the date of
acquisition has been rated by the rating agencies in their
respective highest rating category of long term unsecured debt;
o interests in any money market fund which at the date
of acquisition of the interests in the fund and throughout the
time as the interest is held in the fund has the rating
specified by each rating agency; and
o other obligations or securities that are acceptable to
each rating agency as an Eligible Investment and will not
result in a reduction in the then current rating of the
certificates, as evidenced by a letter to that effect from each
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
o only interest with respect to the obligations underlying the
instrument or
o both principal and interest payments derived from
obligations underlying the instrument and the interest and
principal payments with respect to the instrument provided a
yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations; and
o provided, further, that no instrument described in
this prospectus supplement may be purchased at a price greater
than par if the instrument may be prepaid or called at a price
less than its purchase price prior to its stated maturity.]
Advances
Not later than two business days prior to each distribution date,
the master servicer will remit to the trustee for deposit in the distribution
account the monthly advance. The amount of the monthly advance is 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. This
obligation of the master servicer continues with respect to each mortgage loan
until the 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:
o the preservation, restoration and protection of the mortgaged
properties,
o any enforcement or judicial proceedings, including
foreclosures, and
o the management and liquidation of mortgaged properties
acquired in satisfaction of the related mortgage.
o Each of these expenditures will constitute a servicing advance.
The master servicer's right to reimbursement for servicing advances
is limited to late collections on the related mortgage loan, including
liquidation proceeds, insurance proceeds and other amounts which may be
collected by the master servicer from the related mortgagor or otherwise
relating to the mortgage loan in respect of which the 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 the 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 an advance will not be ultimately recoverable from collections received
from the mortgagor in respect of the related mortgage loan or other recoveries
in respect of the mortgage loan. However, if any servicing advance or monthly
advance is determined by the master servicer to be nonrecoverable from these
sources, the amount of the 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 that day is not a business
day, then on the first business day thereafter, commencing in ___________,
each a "distribution date", the holders of the offered certificates will be
entitled to receive amounts to the extent of funds available in the
distribution account in accordance with the priorities and in the amounts
described below under "Priority of Distributions." Distributions will be made
in an aggregate amount equal to the sum of the class interest distribution for
each class of offered certificates and (b) the Class A Principal
Distributions.
The Class A Principal Distribution will be made by:
o wire transfer or otherwise to the account of the
certificateholder at a domestic bank or other entity having
appropriate facilities in immediately available funds to
holders of the offered certificates, the aggregate principal
balance of which is at least $1,000,000, or
o by check to the address of the person on the certificate
register maintained by 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 (the "Available Funds"). The amount of Available Funds
for any distribution date will be equal to the sum of:
o 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;
o 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;
o the purchase price for repurchased defective mortgage loans
with respect to the mortgage loans and any related substitution
adjustment amounts;
o payments from the master servicer in connection with
o monthly advances,
o prepayment interest shortfalls and
o the termination of the trust fund with respect to the mortgage
loans as provided in the pooling and servicing agreement; and
o any amounts paid under the certificate insurance policy.
Priority of Distributions
On each distribution date the trustee shall withdraw from the
distribution account the sum of Available Funds in the following order of
priority:
o to the trustee, the trustee fee for that distribution date;
o to holders of each class certificates, an amount equal to the
related class interest distribution for that distribution date;
o 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 principal balance of each class is reduced
to zero, the related Class A Principal Distribution other than
the portion constituting the Distributable Excess Spread for
that distribution date; provided, however, that after the
occurrence and continuance of an Insurer Default, the portion
of the principal distribution will be distributed pro rata to
the holders of the certificates based on the respective
principal balances;
o 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
o 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 principal balance of each class is reduced
to zero, the related Distributable Excess Spread for that
distribution date; provided, however, that after the occurrence
and continuance of an Insurer Default, the Distributable Excess
Spread for the [ ___________ ] will be distributed pro rata to
the holders based on the respective principal balances.
(i) to the master servicer, the amount of any accrued and
unpaid master servicing fee;
(ii) to the certificate insurer, amounts owing to the
certificate insurer for reimbursement for prior draws made on
the policy;
(iii) to the master servicer, the amount of nonrecoverable
advances not previously reimbursed;
(iv) to the certificate insurer, any other amounts owing
to the certificate insurer under the insurance agreement; and
(v) to the Class R certificateholders, the balance.]
"Interest period" means, with respect to each distribution date, the period
from the first day of the calendar month preceding the month of the
distribution date through the last day of the 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,
interest will be distributed with respect to each class of offered
certificates in an amount (each, a "Class Distribution") equal to the sum of
o one month's interest at the related certificate rate on the
related principal balance immediately prior to the distribution
date ("Class Monthly Interest Distributable Amount") and
o any Class Interest Carryover Shortfall for the class
for the distribution date. As to any distribution date and
class of offered certificates, the "Class Interest Carryover
Shortfall" is equal to the excess of the related Class Monthly
Interest Distributable Amount for the preceding distribution
date and any outstanding Class Interest Carryover Shortfall
with respect to the class on the preceding distribution date,
over the amount in respect of interest that is actually
distributed to that class on the preceding distribution date
plus
o one month's interest on the excess, to the extent
permitted by law, at the related certificate rate. [The
interest entitlement of one month's interest at the related
certificate rate on the related principal balance will be
reduced by that class' pro rata share of Civil Relief Act
Interest Shortfalls, if any, for that distribution date. Civil
Relief Act Interest Shortfalls will not be covered by payments
under the Policy.]
On each distribution date, the Class Interest Distribution for each
class of offered certificates will be distributed on an equal priority and any
shortfall in the amount required to be distributed as interest to each class
will be allocated between the classes pro rata based on the amount each class
would have been distributed in the absence of the shortfall.
Principal
On each distribution date, to the extent of funds available, in
accordance with the priorities described above under "--Priority of
Distributions," principal will be distributed to the holders of offered
certificates then entitled to distributions of principal in an amount equal to
the lesser of (a) the related aggregate principal balance and (b) the related
Class A Principal Distribution for the 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 that distribution
date and any outstanding Class A Principal Carryover Shortfall as of the close
of business on the preceding distribution date.
"Class A Monthly Principal Distributable amount" means, with respect
to any distribution date, to the extent of funds available the amount equal to
the sum of the following amounts (without duplication) with respect to the
immediately preceding Due Period (as defined below):
o [(i) each payment of principal on a mortgage loan received by
the master servicer during the Due Period, including all full
and partial principal prepayments,
o 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,
o the portion of the purchase price allocable to principal of
all repurchased defective mortgage loans with respect to the Due
Period,
o any Substitution Adjustment Amounts received on or prior to
the previous Determination Date and not yet distributed, and
o the portion not greater than 100% of Excess Spread, if
any, required to be distributed on that distribution date to
satisfy the required level of overcollateralization for that
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 the preceding
distribution date over the amount in respect of principal that is actually
distributed to the Class A certificateholders on the preceding distribution
date.
If the required level of overcollateralization is reduced below the
then existing amount of overcollateralization 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 the reduction or by the amount
necessary so 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 that 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 certificate insurance policy in
respect of principal will not be made until the principal balance exceeds the
aggregate principal balance of the mortgage loans. See "--The Policy."
Accordingly, there may be distribution dates on which offered
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, so that no
class of certificates having a higher numerical designation is entitled to
distributions of principal until the principal balance of each class of
certificates having a lower numerical designation has been reduced to zero. On
any distribution date if an insurer default has occurred and is continuing,
the Class A Principal Distribution will be applied to the distribution of
principal of each class outstanding on a pro rata basis in accordance with the
principal balance of each class.
On each distribution date following an insurer default, net losses
realized in respect of liquidated mortgage loans, to the extent the amount is
not covered by Available Funds or the crosscollateralization mechanics, 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 the Determination
Date or distribution date, as the case may be.
A liquidated mortgage loan, as to any distribution date, is a
mortgage loan with respect to which the master servicer has determined, in
accordance with the servicing procedures specified in the pooling and
servicing agreement, as of the end of the preceding Due Period, that all
liquidation proceeds which it expects to recover with respect to the 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 (a) Available Funds for the distribution date over
(b) the amount required to be distributed under the first four items as set
forth under the heading "Description of the Certificates--Priority of
Distributions" on the Distribution Date.
An insurer default will occur in the event the certificate insurer
fails to make a payment required under the certificate insurance policy or if
events of bankruptcy or insolvency occur with respect to the certificate
insurer.
The Policy
The following information has been supplied by the certificate
insurer for inclusion in this prospectus supplement. Accordingly, neither the
seller nor the master servicer makes any representation as to the accuracy and
completeness of this information.
[TO BE PROVIDED BY CERTIFICATE INSURER]
Overcollateralization
The credit enhancement provisions of the trust fund result in a
limited acceleration of the offered 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 offered certificates. This acceleration feature
creates overcollateralization (i.e., the excess of the aggregate outstanding
principal balance of the mortgage loans over the related aggregate 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 pooling and servicing agreement provides that, subject to
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 decrease will have the effect of reducing the
amortization of the offered certificates below what it otherwise would have
been.
[Pre-Funding Account
On the closing date, $___________ will be deposited in a funding
account. The prefunding 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 funding period beginning on the closing
date and terminating on _____________, 19__, the pre-funded amount will be
reduced by the amount used to purchase subsequent mortgage loans in accordance
with the pooling and servicing agreement. Any pre-funded amount remaining at
the end of the funding period will be distributed to holders of the classes of
certificates entitled to receive principal on the distribution date in
______________, 19__ in reduction of the related certificate principal
balances, this will result in a partial principal prepayment of the related
certificates on that date.
Amounts on deposit in the pre-funding account will be invested in
Eligible 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, a portion of the proceeds from the sale of
certificates will be deposited in the capitalized interest account. The
capitalized interest account shall be maintained with and in the name of the
trustee on behalf of the trust fund. 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 interest shortfalls on the
certificates during the funding period. 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 holder a statement, based solely on information
received from the master servicer, setting forth among other items with
respect to each distribution date:
(1) the aggregate amount of the distribution to each class of
certificateholders on the distribution date;
(2) the amount of distribution set forth in paragraph (1) above in
respect of interest and the amount in respect of any Class Interest
Carryover Shortfall, and the amount of any Class Interest Carryover
Shortfall remaining;
(3) the amount of distribution set forth in
paragraph (1) above in respect of principal and the amount in respect of
the Class A Principal Carryover Shortfall, and any remaining Class A
Principal Carryover Shortfall;
(4) the amount of Excess Spread and the amount applied as to a
distribution on the certificates;
(5) the Guaranteed Principal Amount, if any, for the distribution
date;
(6) the amount paid under the certificate insurance policy for the
distribution date in respect of the Class Interest Distribution to each
class of certificates;
(7) the master servicing fee;
(8) the pool principal balance, as of the close of business on the
last day of the preceding Due Period;
(9) the aggregate principal balance and the principal balance of
each class of offered certificates after giving effect to payments
allocated to principal above;
(10) the amount of overcollateralization as of the close of business
on the distribution date, after giving effect to distributions of
principal on the distribution date;
(11) the number and aggregate principal balances of the mortgage
loans as to which the minimum monthly payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively, as of the end of the
preceding Due Period;
(12) the book value of any real estate which is acquired by the
trust fund through foreclosure or grant of deed in lieu of foreclosure;
(13) the aggregate amount of prepayments received on the mortgage
loans during the previous Due Period; and
(14) 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 in clauses (2) and (3) above,
the amounts shall be expressed as a dollar amount per certificate with a
$1,000 denomination.
Within 60 days after the end of each calendar year, the trustee will
forward to each person, if requested in writing by the person, who was a
certificateholder during the prior calendar year a statement containing the
information set forth in clauses (2) and (3) above aggregated for the calendar
year.
Last Scheduled Distribution Date
The last scheduled distribution date for each class of offered
certificates is as follows:
o Class A-1 certificates, ;
o Class A-2 certificates, ;
o Class A-3 certificates, ;
o Class A-4 certificates, and
o Class A-5 certificates.
It is expected that the actual last distribution date for each class of
offered certificates will occur significantly earlier than the scheduled
distribution dates. See "Prepayment and Yield Considerations".
The last scheduled distribution dates are based on a 0% prepayment
assumption with no Distributable Excess Spread 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 pooling and servicing agreement amortizes
according to its terms, plus one year.
Collection and Other Servicing Procedures on Mortgage Loans
The master servicer will make reasonable efforts to collect all
payments called for under the mortgage loans and will, consistent with the
pooling and servicing agreement, follow the collection procedures as it
follows from time to time with respect to the loans in its servicing portfolio
comparable to the mortgage loans. Consistent with the above, the master
servicer may in its discretion waive any late payment charge or any assumption
or other fee or charge that may be collected in the ordinary course of
servicing the mortgage loans.
With respect to the mortgage loans, the master servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for a
period, provided that any arrangement is consistent with the master servicer's
policies with respect to the mortgage loans it owns or services.
Hazard Insurance
The master servicer will cause to be maintained fire and hazard
insurance with extended coverage customary in the area where the mortgaged
property is located, in an amount which is at least equal to the lesser of:
o [the maximum insurable value of the improvements securing the
mortgage loan from time to time and
o the combined principal balance owing on the mortgage loan and
any mortgage loan senior to the mortgage loan.]
o 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:
o the maximum insurable value from time to time of the
improvements which are a part of the property and
o the combined principal balance owing on the mortgage loan and
any senior to the 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 that flood insurance is available and the master
servicer has determined that insurance to be necessary in accordance with
accepted first and second mortgage loan servicing standards, as applicable.
o All flood insurance shall be in amounts equal to the lesser of
o [the amount in the combined principal balance owing on the
mortgage loan and any mortgage loan senior to the mortgage loan
and
o the maximum amount of insurance available under the National
Flood Insurance Act of 1968, as amended.] The master servicer
will also maintain on REO property, to the extent insurance is
available, fire and hazard insurance in the applicable amounts
described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act
of 1968, as amended, and the master servicer determines that
insurance is necessary in accordance with accepted mortgage
servicing practices of prudent lending institutions, flood
insurance in an amount equal to that required above. Any
amounts collected by the master servicer under any 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 the amounts
constitute servicing compensation or to withdrawal in
accordance with the pooling and servicing agreement.
In the event that the master servicer obtains and maintains a
blanket policy as provided in the pooling and servicing agreement insuring
against fire and hazards of extended coverage on all of the mortgage loans,
then, to the extent the 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 the mortgage loans as they
come into default when, in accordance with applicable servicing procedures
under the pooling and servicing agreement, no satisfactory arrangements can be
made for the collection of delinquent payments. In connection with the
foreclosure or other conversion, the master servicer will follow 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, the 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 the interest payments as a monthly servicing fee in the amount
equal to 0.__% per annum, or the servicing rate, on the principal balance of
each mortgage loan as of the first day of each Due Period. All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the master servicer as additional
servicing compensation.
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 other amounts as
may be collected by the master servicer from the related mortgagor or
otherwise relating to the mortgage loan in respect of which unreimbursed
amounts are owed. The master servicer's right to reimbursement for
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 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
these sources, the amount of the 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
certificate insurance policy, although Prepayment Interest Shortfalls, after
application of the master servicing fee, will be 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--Interest Payments on the Mortgage Loans May Be Reduced" in this
Prospectus Supplement.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery on or
before [the last day of the fifth month following the end of the master
servicer's fiscal year, beginning in 200_,] to the trustee, the seller, the
certificate insurer and the rating agencies of an annual statement signed by
an officer of the master servicer to the effect that the master servicer has
fulfilled its material obligations under the pooling and servicing agreement
throughout the preceding fiscal year, except as specified in the statement.
On or before [the last day of the fifth month] following the end of
the master servicer's fiscal year, beginning in 200_, 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, the seller, the certificate insurer and the rating
agencies to the effect that the firm has examined the documents and the
records relating to servicing of the mortgage loans under the Uniform Single
Attestation Program for Mortgage Bankers and the firm's conclusion with
respect thereto.
The master servicer's fiscal year is the calendar year.
Events of Default
Events of default will consist of:
(1) (a) any failure of the master servicer to make any required
monthly advance or (b) any other failure of the master servicer to deposit in
the collection account or distribution account any deposit required to be made
under the pooling and servicing agreement, which failure continues unremedied
for two business days after the giving of written notice of the failure to the
master servicer by the trustee, or to the master servicer and the trustee by
the certificate insurer or any certificateholder;
(2) any failure by the master servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the pooling
and servicing agreement which, in each case, materially and adversely affects
the interests of the certificateholders or the certificate insurer and
continues unremedied for [ ] days after the giving of written notice of the
failure to the master servicer by the trustee, or to the master servicer and
the trustee by the certificate insurer or any certificateholder;
(3) any failure by the master servicer to make any required
servicing advance, which failure continues unremedied for a period of [ ] days
after the giving of written notice of the failure to the master servicer by
the trustee, or to the master servicer and the trustee by the certificate
insurer or any certificateholder; or
(4) any insolvency event which includes events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings relating to the master servicer and actions by the master servicer
indicating insolvency, reorganization or inability to pay its obligations.
Upon the occurrence and continuation beyond the applicable grace
period of the event described in clause (1) (a) above, if any monthly advance
is not made by [ ] P.M., New York City time, on the second business day
following written notice to the master servicer of that event, the trustee
will make the monthly advance and either the trustee or a successor master
servicer will immediately assume the duties of the master servicer.
Upon removal or resignation of the master servicer, the trustee will
be the successor master servicer. The trustee, as successor master servicer,
will be obligated to make monthly advances and servicing advances and other
advances unless it determines reasonably and in good faith that the advances
would not be recoverable.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) above for a period of [ ]business days or
referred to under clause (2) above for a period of [ ] business days, shall
not constitute an event of default if the delay or failure could not be
prevented by the exercise of reasonable diligence by the master servicer and
the delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any of these events the master servicer shall not be
relieved from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of the pooling and servicing agreement and
the master servicer shall provide the trustee, the certificate insurer and the
certificateholders prompt notice of the failure or delay by it, together with
a description of its efforts to so perform its obligations.
Rights upon an Event of Default
So long as an event of default remains unremedied, either (1) 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 (2) the certificate insurer may terminate all of the rights and
obligations of the master servicer under the pooling and servicing agreement
and in and to the mortgage loans. In these circumstances, the trustee will
succeed to all the responsibilities, duties and liabilities of the master
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements. In the event that the trustee would be
obligated to succeed to all the responsibilities, duties and liabilities of
the master servicer but is unwilling or unable so to act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a housing
and home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations
under the pooling and servicing agreement. The appointed servicer must have a
net worth of at least [$50,000,000] and must be acceptable to the certificate
insurer to act as successor to the master servicer under the pooling and
servicing agreement. Pending the appointment, the trustee will be obligated to
act in that capacity unless prohibited by law. The successor will be entitled
to receive the same compensation that the master servicer would otherwise have
received, or lesser compensation as the trustee and the successor may agree. A
receiver or conservator for the master servicer may be empowered to prevent
the termination and replacement of the master servicer if the only event of
default that has occurred is an insolvency event specified in Clause (4) under
"-Events of Default."
Amendment
The pooling and servicing agreement may be amended from time to time
by the seller, the master servicer, and the trustee and with the consent of
the certificate insurer, but without the consent of the certificateholders, to
cure any ambiguity, to correct or supplement any provisions therein which may
be inconsistent with any other provisions of the pooling and servicing
agreement, to add to the duties of the seller or the master servicer to comply
with any requirements imposed by the Internal Revenue Code or any regulation
thereunder, or to add or amend any provisions of the pooling and servicing
agreement as required by the rating agencies in order to maintain or improve
any rating of the offered certificates; provided that the amendment will not,
as evidenced by an opinion of counsel, materially and adversely affect the
interests of any certificateholder or the certificate insurer; provided,
further, that any amendment will not be deemed to materially and adversely
affect the certificateholders and no opinion will be required to be delivered
if the person requesting the amendment obtains a letter from the rating
agencies stating that the amendment would not result in a downgrading of the
then current rating of the offered certificates.. After obtaining the ratings
in effect on the closing date, none of the seller, the trustee, the
certificate insurer or the master servicer is obligated to obtain, maintain,
or improve any rating or to add any other provisions with respect to matters
or questions arising under the pooling and servicing agreement which shall not
be inconsistent with the provisions of the pooling and servicing agreement The
pooling and servicing agreement may also be amended from time to time by the
seller, the master servicer, and the trustee, with the consent of
certificateholders evidencing at least 51% of the percentage interests of each
class affected and the certificate insurer for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the pooling and servicing agreement or of modifying in any manner the
rights of the certificateholders, provided that no amendment will
o reduce in any manner the amount of, or delay the timing of,
collections of payments on the certificates or distributions or
payments under the certificate invoice policy which are
required to be made on any certificate without the consent of
the certificateholder, or
o reduce the percentage interest required to consent to
an 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
o payment in full of all amounts owing to the certificate
insurer unless the certificate insurer shall otherwise consent
and
o the earliest of
(1) the distribution date on which the aggregate principal
balance of the offered certificates has been reduced to
zero,
(2) the final payment or other liquidation of the last
mortgage loan in the trust fund,
(3) the optional purchase by the master servicer of the
mortgage loans, as described below and
(4) the distribution date in [ ] on which date the certificate
invoice policy will be available to pay the outstanding
aggregate principal balance of the offered certificates.
Subject to provisions in the pooling and servicing agreement
concerning adopting a plan of complete liquidation, the master servicer may,
at its option, terminate the pooling and servicing agreement on any date on
which the pool principal balance is less than 5% of the sum of the cut-off
date pool principal balance by purchasing, on the next succeeding distribution
date, all of the outstanding mortgage loans at a price equal to the sum of the
outstanding pool principal balance (subject to reduction as provided in the
pooling and servicing agreement if the purchase price is based [in part on the
appraised value of any REO property included in the trust fund and the
appraised value is less than the principal balance of the related mortgage
loan) and accrued and unpaid interest thereon at the weighted average of the
loan rates through the end of the Due Period preceding the final distribution
date together with all amounts due and owing to the certificate insurer.]
Any purchase shall be accomplished by deposit into the distribution
account of the purchase price specified above.
Voting Rights
Under the pooling and servicing agreement, the voting rights will be
allocated to the offered certificates among the classes in proportion to their
respective principal balances. Voting rights allocated to a class of
certificates will be further allocated among the certificates of that class on
the basis of their respective percentage interests. [So long as no insurer
default is continuing, the certificate insurer will be entitled to exercise
the voting rights of the Class A certificates].
The Trustee
______________________________, has been named trustee in the
pooling and servicing agreement.
The trustee may have normal banking relationships with the seller
and the master servicer.
The trustee may resign at any time, in which event the seller will
be obligated to appoint a successor trustee, as approved by the certificate
insurer. The seller may also remove the trustee if the trustee ceases to be
eligible to continue as the trustee under the pooling and servicing agreement
or if the trustee becomes insolvent. Upon becoming aware of these
circumstances, the seller will be obligated to appoint a successor trustee, as
approved by the certificate insurer. Any resignation or removal of the trustee
and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
No holder of a certificate will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling
and servicing agreement unless the holder previously has given to the trustee
written notice of default and unless certificateholders holding certificates
evidencing at least 51% of the percentage interests in the trust fund have
made written requests upon the trustee to institute a proceeding in its own
name as trustee thereunder and have offered to the trustee reasonable
indemnity and the trustee for 60 days has neglected or refused to institute a
proceeding. The trustee will be under no obligation to exercise any of the
trusts or powers vested in it by the pooling and servicing agreement or to
make any investigation of matters arising thereunder or to institute, conduct
or defend any litigation thereunder or in relation thereto at the request,
order or direction of any of the certificateholders, unless the
certificateholders have offered to the trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred.
Use of Proceeds
The net proceeds to be received from the sale of the certificates
will be applied by the seller towards general corporate purposes.
Federal Income Tax Consequences
An election will be made to treat the trust fund as a REMIC for
federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"). In the opinion of tax counsel, the offered certificates
will be designated as "regular interests" in the REMIC and the Class R
certificates will be designated as the sole class of residual interests in the
REMIC. See "Federal Income Tax Consequences--Taxation of the REMIC and its
Holders" in the prospectus.
The offered certificates generally will be treated as debt
instruments issued by the REMIC for federal income tax purposes. Income on the
offered 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 the 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 the income. The OID regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6) which applies to
prepayable securities similar to the offered certificates. Until the Treasury
Department 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 the
methodology represents the correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the
offered certificates with OID will be the original yield to maturity of the
certificates, determined by assuming that the mortgage loans 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.
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
o assets described in section 7701(a)(19)(C) of the Code, and
o "real estate assets" within the meaning of section 856(c)(4)
(A) of the Code, in each case to the extent described in the
prospectus.
Interest on the offered certificates will be treated as interest on
obligations secured by mortgages on real property within the meaning of
section 856(c)(3)(B) of the Code to the same extent that the offered
certificates are treated as real estate assets. See "Federal Income Tax
Consequences" in the prospectus.
Backup Withholding
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 the
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 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.
Any interest paid or OID accrued will be deemed distributed to the
affected certificate owner for all purposes of the certificates, the pooling
and servicing agreement and the certificate invoice 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, 2000, subject to certain transition rules. We strongly
suggest that prospective certificate owners 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:
o a citizen or resident of the United States,
o a corporation, partnership or other entity organized
in or under the laws of the United States, any state of the
United States or the District of Columbia, (other than a
partnership that is not treated as a United States person under
any applicable Treasury Department regulations),
o an estate the income of which is includible in gross income
for United States federal income tax purposes, regardless of its
source,
o 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
o 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 Department regulations generally subject
interest paid to a Foreign Investor to a withholding tax at a rate of 30%
(unless the withholding tax 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-8BEN or
similar form signed under penalty of perjury by the certificate owner stating
that the certificate owner is a foreign investor and providing the certificate
owner's name and address. The statement must be received by the withholding
agent in the calendar year in which the interest payment is made, or in either
of the two preceding calendar years.
A certificate owner that is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on gain
realized on the sale, exchange, or redemption of the offered certificate,
provided that:
o the gain is not effectively connected with a trade or business
carried on by the certificate owner in the United States,
o in the case of a certificate owner that is an
individual, the certificate owner is not present in the United
States for 183 days or more during the taxable year in which
the sale, exchange or redemption occurs and
o in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are
satisfied.
In addition, we strongly suggest that prospective certificate owners
consult their own tax advisors with respect to the New Withholding
Regulations. See "Federal Income Tax Consequences - Backup Withholding".
State Taxes
The seller makes no representations regarding the tax consequences
of purchase, ownership or disposition of the offered certificates under the
tax laws of any state. We suggest that investors considering an investment in
the certificates consult their own tax advisors regarding these tax
consequences.
We suggest that all investors 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
We suggest that any Plan fiduciary which proposes to cause a Plan to
acquire any of the offered certificates 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 the 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 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 asset-backed pass-through
trusts, provided that the conditions set forth in the Exemption are satisfied.
The Exemption will apply to the acquisition, holding and resale of the offered
certificates by a Plan, provided that these conditions (some 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 offered certificates by a Plan is on
terms (including the price for the 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 offered
certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the trust fund;
(3) The offered certificates acquired by the Plan have received
a rating at the time of the acquisition that is in one of the three
highest generic rating categories from S&P, Moody's, DCR or Fitch.
(4) The sum of all payments made to and retained by the
underwriter in connection with the distribution of the offered
certificates represents not more than reasonable compensation for
underwriting the certificates; the sum of all payments made to and
retained by the seller in connection with the sale of the mortgage
loans to the trust fund represents not more than the fair market
value of these 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 pooling
and servicing 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 offered certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D
of the SEC under the Securities Act of 1933, as amended.
The underwriter believes that the Exemption as amended will apply to
the acquisition and holding of the offered certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met.
We suggest that any Plan fiduciary considering whether to purchase
any offered certificates on behalf of a Plan consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to the investment. Among other
things, before purchasing any offered 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 are legal investments for entities to the extent provided in
SMMEA.
We suggest that institutions whose investment activities are subject
to review by federal or state regulatory authorities consult with their
counsel or the applicable authorities to determine whether an investment in
the offered certificates complies with applicable guidelines, policy
statements or restrictions. See "Legal Investment" in the Prospectus.
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________________, between the seller and
______________________, the seller has agreed to sell to the underwriter and
the underwriter has agreed to purchase from the seller the offered
certificates.
Distributions of the offered certificates will be made from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the seller from the sale of the
offered certificates will be approximately $ , plus accrued interest,
before deducting expenses payable by the seller, estimated to be $ in the
aggregate. In connection with the purchase and sale of the offered certificates,
the underwriter may be deemed to have received compensation from the seller in
the form of underwriting discounts.
The seller 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 the seller will indemnify
the underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended.
Experts
[__________]
Legal Matters
Legal matters with respect to the offered certificates will be
passed upon for the seller by _____________________, and ___________________,
and for the underwriter by ____________________.
Ratings
It is a condition to the issuance of the offered certificates that
they receive ratings of "AAA" by _______ and "Aaa" by ______.
A securities rating addresses the likelihood of the receipt by
offered 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 offered certificates.
The ratings on the offered certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the mortgage loans or
the possibility that offered certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the offered 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 offered certificates may result in
a reduction of one or more of the ratings assigned to the offered
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.
Index of Defined Terms
Assignment Event.......................................................S-30
Available Funds........................................................S-35
Class A Monthly Principal Distributable Amount.........................S-38
Class A Principal Carryover Shortfall..................................S-38
Class Distribution.....................................................S-37
Class Interest Carryover Shortfall.....................................S-37
Class Interest Distribution............................................S-37
Class Monthly Interest Distributable Amount............................S-37
Closing Date............................................................S-5
Code...................................................................S-49
Cut-Off Date............................................................S-5
Distributable Excess Spread............................................S-36
Distribution Date.......................................................S-5
Due Period.............................................................S-39
Eligible Account.......................................................S-32
Eligible Investment....................................................S-32
Eligible Substitute Mortgage Loan......................................S-31
Excess Spread..........................................................S-39
Insurer Default........................................................S-36
Related Documents......................................................S-30
Substitution Adjustment................................................S-31
<PAGE>
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the globally offered [ ] Home
Equity Loan Asset-Backed Certificates, Series 200___ (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold these Global Securities through any of DTC, Clearstream 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 Clearstream 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 Clearstream or Euroclear and
DTC participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream and Euroclear (in those capacities) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless the 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,
Clearstream and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold the 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
Clearstream 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 Clearstream and/or Euroclear Participants.
Secondary market trading between Clearstream participants or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser.
When Global Securities are to be transferred from the account of a
DTC participant to the account of a Clearstream participant or a Euroclear
participant, the purchaser will send instructions to Clearstream or Euroclear
through a Clearstream participant or Euroclear participant at least one
business day prior to settlement. Clearstream or Euroclear will instruct the
respective depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding
the settlement date, on the basis of either the actual number of days in the
accrual period and a year assumed to consist of 360 days or a 360-day year of
12 30-day months as applicable to the related class of Global Securities. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will
then be made by the respective Depositary of the DTC participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream 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 Clearstream or Euroclear cash debt will be
valued instead as of the actual settlement date.
Clearstream 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 Clearstream or
Euroclear. Under this approach, they may take on credit exposure to
Clearstream or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line
of credit to them, Clearstream 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, Clearstream participants or
Euroclear participants purchasing Global Securities would incur overdraft
charges for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of the overdraft charges,
although this result will depend on each Clearstream 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
Clearstream 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 Clearstream or Euroclear Seller and DTC Purchaser.
Due to time zone differences in their favor, Clearstream
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 Clearstream or Euroclear
through a Clearstream participant or Euroclear participant at least one
business day prior to settlement. In these cases Clearstream 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 the accrual period and a year assumed to consist of
360 days or a 360-day year of 12 30-day months as applicable to the related
class of Global Securities. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Clearstream participant or Euroclear participant the following day, and
receipt of the cash proceeds in the Clearstream 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
Clearstream 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 Clearstream participant's or Euroclear participant's
account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that
purchase Global Securities from DTC participants for delivery to Clearstream
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 Clearstream or Euroclear for one day (until
the purchase side of the day trade is reflected in their Clearstream 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 Clearstream 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 Clearstream
participant or Euroclear participant.
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream 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 the beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) the beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8 or Form W-8BEN).
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) or Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). If the
information shown on Form W-8 changes, a new Form W-8 or W-8BEN must be filed
within 30 days of the change. After December 31, 2000, only Form W-8BEN will
be acceptable.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224 or Form W-8ECI).
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) or Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption from Withholding 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 or Form W-8BEN).
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) or Form W-8BEN (Certificate
of Foreign Status of Beneficial Owner for United States Tax Withholding). If
Form 1001 is provided and 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.
After December 31, 2000, only Form W-8BEN will be acceptable.
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, Form
1001 and Form 4224 are effective until December 31, 2000. Form W-8BEN and Form
W-8ECI are effective until the third succeeding calendar year from the date
the form is signed.
The term "U.S. Person" means
o (i) a citizen or resident of the United States,
o (ii) a corporation or partnership organized in or
under the laws of the United States, any state of the United
States or the District of Columbia, (other than a partnership
that is not treated as a United States person under any
applicable Treasury Department regulations),
o (iii) an estate the income of which is includible in gross
income for United States tax purposes, regardless of its
source,
o (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.
o 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.
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.
We suggest that investors consult their own tax advisors for specific tax
advice concerning their holding and disposing of the Global Securities.
<PAGE>
[ ] Home Equity
Loan Trust 200_-_,
as Issuer
$_____________
$ _________ 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 200_-_
KeyBank National Association,
as seller
[ ]
as master servicer
Until [date], all dealers selling the offered 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
offered 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 offered 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
________, 200_
<PAGE>
Underwriter
<PAGE>
[ALTERNATE PAGE]
The information in this prospectus supplement is not complete and
may be changed. We may not sell this securities until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus Supplement dated ___________,________
To Prospectus dated _____________
$___________ (approximate)
[ ] Home Equity Loan Trust 200_-_,
as Issuer
Home Equity Loan Asset-Backed Certificates, Series 200_-_
[ ] KeyBank National Association
as master servicer as seller
The trust:
The certificates
represent o will issue [5] classes of senior
obligations of the certificates
trust only and do
not represent an o will issue a single residual certificate
interest in or
obligation of o will make a REMIC election for federal
KeyBank National income tax purposes
Association; the
trustee or any of The certificates:
their affiliates.
o represent the entire beneficial interest in
This prospectus a trust, whose assets are a pool of
supplement may be closed-end fixed rate first and second lien
used to offer and mortgage loans
sell the
certificates only if o currently have no trading market
accompanied by the
prospectus. o are not guaranteed
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 senior certificates, read both
this prospectus supplement and the prospectus.
o [____________], the underwriter, will buy the senior certificates
from KeyBank National Association at a price equal to ________ of their face
value. The underwriter will sell the senior 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 SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
[Underwriter]
___________, 200_
<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 certificates in
which McDonald acts as principal. McDonald may also act as agent in these
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.
<PAGE>
The information in this prospectus supplement is not complete and
may be changed. We may not sell this securities until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus supplement dated ________ __, ____
To prospectus dated _________ __, ____
$___________
[ ] Home Equity Loan Trust ____-_,
as Issuer
Home Equity Loan Asset-Backed Certificates, Series ____-_
KeyBank National Association
[ ] as seller
as master servicer
The certificates:
The certificates
represent o represent the entire beneficial interest in
obligations of the a trust, whose assets are a pool of
trust only and do
not represent an o home equity revolving credit line
interest in or loans secured primarily by [second
obligation of liens] on residential properties that
KeyBank National are primarily one- to four-family
Association; the properties, and
trustee or any of
their affiliates. o home improvement installment sales
contracts and installment loan
This prospectus agreements.
supplement may be
used to offer and o currently have no trading market
sell the
certificates only if
accompanied by the Credit enhancement
prospectus.
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.
Neither the SEC 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]
____________, 200_
<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 offered 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.
Dealers will deliver a prospectus supplement and prospectus when
acting as underwriters of the offered certificates and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling offered
certificates 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-4
Risk Factors...........................................................S-11
The [Letter of Credit] [Surety Bond] Issuer............................S-13
The Home Equity Line of Credit Lending Program.........................S-13
The Master Servicer....................................................S-13
The HELOCS.............................................................S-19
Prepayment and Yield Considerations....................................S-21
Description of the Certificates........................................S-22
Use of Proceeds........................................................S-36
Legal Investment Considerations........................................S-36
Federal Income Tax Consequences........................................S-37
ERISA Considerations...................................................S-37
Underwriting...........................................................S-38
Legal Matters..........................................................S-39
Rating.................................................................S-39
Prospectus
Risk Factors.......................................................... 2
Description of the Securities......................................... 5
The Trusts............................................................ 9
Enhancements.......................................................... 20
Servicing of Loans.................................................... 23
The Agreements........................................................ 32
Legal Aspects of Loans................................................ 43
The Seller............................................................ 56
Use of Proceeds....................................................... 56
Federal Income Tax Consequences....................................... 56
State Tax Considerations.............................................. 89
ERISA Considerations.................................................. 90
Legal Investment...................................................... 95
Ratings............................................................... 95
Plan of Distribution.................................................. 95
Legal Matters......................................................... 96
Available Information................................................. 96
Incorporation of Documents by Reference............................... 96
<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 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.
Home Equity Loan Asset-Backed Certificates, Series 200_-_
Initial Class Last Scheduled
Offered Certificates Certificate Rate Principal Balance Distribution Date
- -------------------------------------------------------------------------------
Class A-1 % $ -
Class A-2 % $ -
Class A-3 % $ -
Class A-4 % $ -
Class A-5 % $ -
Non-offered
Certificates
Class R N/A $0 -
All balances are subject to a variance of 5%.
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 in integral multiples of [$1,000].
Registration of Certificates
We will issue the offered 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 "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 "Legal Aspects of Loans-Applicability of Usury
Laws" in the prospectus.
Servicer
The servicer of the mortgage loans will be [ ].
We refer you to "The Master 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 other amounts as servicing
compensation from the trust.
We refer you to "Description of the Certificates--Distributions on the
Certificates"; and "The Master Servicer--Servicing Compensation and Payment
of Expenses."
In 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-- Termination and Liability of 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. These collections
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 and possibly 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 that 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--Enhancement May Be Insufficient to Cover Losses" 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 $__________ 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 that 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--Enhancement
May Be Insufficient to Cover Losses" 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
[Tax Counsel] 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 "Federal Income Tax Considerations" in the prospectus for
additional information concerning the application of Federal income tax
laws.]
ERISA Considerations
[We suggest that a fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
the IRS 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, so 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 Does
Not Assure Payment" in the prospectus.
<PAGE>
Risk Factors
[Servicer's Ability to Change the Terms of the HELOCs May Affect Payments on
the HELOCs.
The servicer may, subject to limitations, with the trustee's consent,
permit an increase in the credit limit under a HELOC.
The servicer may agree to other changes in the terms of a loan
agreement, provided that the changes do not materially adversely affect the
interest of the certificateholders, and
o are consistent with prudent business practice,
o are also being applied to the comparable segment of home equity
credit lines being held for the servicer's own account, and
o 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 the
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 any 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 "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 the 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, Clearstream, Euroclear, participating organizations, indirect
participants and some banks, your ability to pledge your certificate to
persons or entities that do not participate in the DTC, Clearstream or
Euroclear system or otherwise to take actions in respect of the 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 the
distributions will be forwarded by the trustee to DTC and DTC will credit the
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--Registration of
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 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's portfolio owned approximately
$__________ million aggregate principal amount of outstanding loans originated
in the State of ____________ under home equity credit lines.
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. [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 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 the loans for each period may be higher than
those shown if a group of loans were artificially isolated at a point in time
and the information showed the activity only in that isolated group. There can
be no assurance that the delinquency and loss experience of the loans will be
similar to that set forth below.]
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
the servicer satisfies the 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 in accordance with
the pooling and servicing 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 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 delinquency and loss experience set forth below represents the experience
with respect to only a portion of the servicer's loan production for the
periods indicated and has not been adjusted to eliminate the effect of the
significant growth in size of the servicer's portfolio of mortgage loans
during the periods shown. Accordingly, loss and delinquency as a percentage of
mortgage loans serviced for each period could be higher than those shown if a
group of mortgage loans were artificially isolated at a point in time and the
information showed the activity only in that isolated group.] [Champion: The
general trend from 1996 through 1999 of slowly increasing delinquencies can be
attributed to the seasoning of the loans. However, the temporary
uncharacteristic increase in delinquencies in 1997 was due specifically to two
related factors. Due to the dramatic increases in the portfolio during 1997,
the size of the collection department was increased, resulting in less
seasoned collection personnel. This took place during the period that Champion
was in the process of being acquired by KeyCorp. Accordingly, during this
transition, the training of the new staff and collection efforts were not as
efficient as during other periods.] [KeyBank: Although, the loss experience of
KeyBank has been stable for the periods shown, the delinquency experience has
been inconsistent. Delinquencies increased in 1998 because of a reorganization
of the collections department, and as indicated by the 1999 figures, the new
collection department has effected improvements in collecting delinquent
loans.]
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.
<PAGE>
<TABLE>
<CAPTION>
[Champion Mortgage Co., Inc.]
[Delinquency Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans............. 9,058 14,327 19,565 25,244
Dollar Amount of
Loans.................... $ 526,816 $ 866,673 $ 1,309,172 $ 1,827,491
Delinquency Period
30-59 days
% of number of
loans............ 1.30% 2.14% 1.43% 1.58%
% of dollar
amount of loans.. 1.17% 2.16% 1.24% 1.17%
60-89 days
% of number of
loans............ 0.15% 0.34% 0.27% 0.42%
% of dollar
amount of loans... 0.14% 0.35% 0.25% 0.38%
90 days and over*
% of number of
loans.............. 0.69% 1.20% 0.82% 1.22%
% of dollar
amount of loans... 0.81% 1.27% 0.72% 1.03%
Loans in Foreclosure
% of number of
loans.............. 0.62% 0.51% 0.60% 0.61%
% of dollar amount
of loans........... 0.76% 0.60% 0.56% 0.71%
Total*
% of number of
loans................ 2.14% 3.68% 3.32% 4.08%
% of dollar amount
of loans............. 2.12% 3.78% 2.97% 3.52%
- -----------------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Dollar
Amount of Loans
Outstanding During
Period....................... $ 367,584 $ 702,555 $ 1,103,510 $ 1,616,324
Net Losses...................... $ 39 $ 488 $ 1,142 $ 2,317
Net Losses as a
Percentage of
Average Amount
Outstanding.................. 0.01% 0.07% 0.11% 0.14%
- -------------------------------------------------------------------------------------------------------------------
"Net Losses" means gross losses minus recoveries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[KeyBank National Association]
[Delinquency Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
------------------------ --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans................ 228,837 220,017 224,088 219,784
Dollar Amount of
Loans....................... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Delinquency Period
30-59 days
% of dollar
amount of loans...... 0.73% 0.81% 0.65% 0.65%
60-89 days
% of dollar
amount of loans....... 0.23% 0.30% 0.22% 0.18%
90+ days*
% of dollar
amount of loans....... 0.34% 0.36% 0.31% 0.30%
Total*
% of dollar amount
of loans............ 1.30% 1.47% 1.18% 1.13%
- ------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
----------------------- --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dollar
Amount of Loans
Outstanding At
End Of Period......... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Net Losses............... $ 6,623 $ 5,954 $ 6,060 $ 6,823
Percentage of
Dollar Amount of Loans 0.12% 0.11% 0.11% 0.12%
- ------------
"Net Losses" means gross losses minus recoveries.
</TABLE>
Servicing Compensation and Payment of Expenses
The servicing compensation to be paid to the servicer for its
servicing activities with respect to the mortgage loans are payable out of
interest payments on each mortgage loan or from amounts drawn on the [Letter
of Credit] [Surety Bond]. The servicing fee rate will be equal to ____% per
annum of the pool balance of the mortgage loans. The investor percentage of
the servicing fee will be paid as described under "Description of the
Certificates--Distribution on the Certificates--Distribution of Interest
Collections and Required Amounts" herein. The servicer is also entitled to
receive, as additional servicing compensation, all late payment charges and
other fees and charges, to the extent collected from borrowers.
[The servicer will pay some of the ongoing expenses associated with
the trust in connection with its responsibilities under the pooling and
servicing 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 expenses incurred by it in connection with
defaulted mortgage loans and in connection with the restoration of mortgaged
properties, the right of reimbursement being prior to the rights of
certificateholders to receive any related liquidation proceeds.
The HELOCS
The trust will be formed in accordance with the laws of the State of
[New York]. The transferor will transfer the mortgage loans to the trust,
without recourse, in exchange for the certificates and a transferor
certificate representing the transferor's interest in the trust. The property
of the trust will consist of
o the mortgage loans,
o all proceeds of the mortgage loans,
o all monies on deposit in the collection account and the
certificate account,
o the mortgages on the properties securing the mortgage loans,
including any properties acquired by foreclosure or deed in
lieu of foreclosure,
o the benefits of the [Letter of Credit] [Surety Bond], and
o the proceeds on any insurance policies covering the mortgage
loans or mortgaged properties or any obligors on the mortgages.
[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 may be allowed to transfer Eligible
Additional Mortgage Loans to the trust from time to time. See "Description of
the Certificates--Transfers of Eligible Additional Mortgage Loans to the
Trust" herein.] In addition, subject to the limitations and conditions
specified in the pooling and servicing agreement, the transferor may cause the
retransfer from the trust to it of mortgage loans. See "Description of the
Certificates--Optional Retransfers of Mortgage Loans to the Transferor"
herein.
The mortgage loans transferred to the trust are evidenced by credit
line loan agreements secured by [deeds of trust] [mortgages] (which are
primarily second [deeds of trust] [mortgages] on mortgaged properties.
Approximately ____% of the mortgaged property are located in _____________ and
approximately ____% of the mortgaged property 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 pooling
and servicing agreement and described below]. 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 the
HELOCs, some of the mortgage loans will be generated under recently solicited,
unseasoned HELOCs [and the pool of mortgage loans 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 the
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 mortgage loan pool was generated
under a HELOC that, as of the cut-off date, was an Eligible HELOC. An
"Eligible HELOC" is defined in the pooling and servicing 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
_____%.
On the closing date, no more than 5% of the loans (by aggregate
principal balance as of the cut-off date) will have characteristics that
deviate from the description of the loans in this prospectus supplement. Set
forth below is a description of additional characteristics of the HELOCs 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 so 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 mortgage loan pool. To the extent
that these 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 mortgage loan
pool and the mortgaged properties are based upon the mortgage loan 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
that date. Prior to the issuance of the certificates, mortgage loans may be
removed from the mortgage loan pool as a result of prepayments, delinquencies,
incomplete documentation, or otherwise if the transferor deems the removal
necessary or desirable. A limited number of other mortgage loans may be
included in the mortgage loan pool prior to the issuance of the certificates,
unless including those mortgage loans would materially alter the
characteristics of the mortgage loan pool as described in this prospectus
supplement. The transferor believes that the information set forth herein will
be representative of the characteristics of the mortgage loan pool as it will
be constituted at the time the certificates are issued, although the range of
loan rates and maturities and other characteristics of the mortgage loans in
the mortgage loan pool may vary.
Prepayment and Yield Considerations
The pooling and servicing 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 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 pooling and
servicing agreement permits the transferor, at its option, but subject to the
satisfaction of the conditions specified in the pooling and servicing
agreement, including the conditions described here, 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 the removal is not
less than the pool balance at the closing date. The transferor may also add
Eligible Additional Mortgage Loans to the trust. 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 like 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 those 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 in this
prospectus supplement, 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 those provisions, unless enforcement is not permitted by applicable
law. The enforcement of a "due-on-sale" provision will have the same effect as
a prepayment of the related mortgage loan. See "Legal Aspects of
Loans--Due-on-Sale Clauses In Mortgage Loans" in the prospectus. 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 the
investor at the time the 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 that 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 in accordance with the pooling and
servicing agreement. The form of this 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 some of the provisions
of the pooling and servicing agreement. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the pooling and servicing agreement.
General
The certificates will be issued in denominations of [$1,000] and in
integral multiples of [$1,000] and will evidence specified undivided interests
in the trust. [Physical 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 not represented by the
certificates. The transferor interest will represent an undivided interest in
the trust, including the right to receive (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 this purpose.
During the revolving period, the Certificate Principal Balance will
remain constant except in 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. The transferor will also transfer all principal
including net liquidation proceeds, interest received on or with respect to
each mortgage loan subsequent to the closing date but not including amounts
received in respect of taxes, insurance premiums, assessments and similar
items, as provided in the pooling and servicing agreement. 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 investor
percentage of the servicing fee. The trustee, concurrently with this 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 pooling and
servicing agreement.
The transferor will deliver the mortgage files containing, among
other things, the loan agreement, the mortgage note and the mortgage relating
to each mortgage loan to the trustee. The trustee (or a custodian on its
behalf) will review each mortgage file within ___ days of receipt. If any
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 pooling and
servicing agreement, the trustee (or custodian on its behalf) will notify the
transferor. The transferor shall have a period of ____ days after the notice
to correct or cure the defect. If the defect cannot be cured within the
specified period, the transferor will be obligated to accept the retransfer of
the mortgage loan from the trust. Upon this retransfer, the loan balance of
the 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 retransfer shall be
considered to have occurred unless the 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 representations and warranties as to the
accuracy in all material respects of the information furnished to the trustee
with respect to each mortgage loan on the schedule of mortgage loans appearing
as an exhibit to the pooling and servicing agreement. In addition, the
transferor will represent and warrant that, among other things:
o each mortgage loan has been generated under an eligible HELOC;
o 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
exceptions);
o 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
o 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 of the above representations and
warranties which materially and adversely affect 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 the specified period, the transferor will be 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
pooling and servicing 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 the defective
mortgage loan to the transferor if all defects in respect of the defective
mortgage loan have been cured and the defective mortgage loan satisfies the
applicable representations and warranties in the pooling and servicing
agreement at the time of 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 day 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 the fifth business day, the
transferor will be obligated to transfer to the trust, Eligible Additional
Mortgage Loans. The transferor is only obligated to transfer Eligible
Additional Mortgage Loans 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 the transfer, the transferor
interest will equal at least 10% of the pool balance on that date. An Eligible
Additional Mortgage Loan is a home equity loan that was originated under a
HELOC that, as of the notice date by the transferor to the trustee, the
servicer and the [Letter of Credit] [Surety Bond] issuer of its transfer to
the trust. The Eligible Additional Mortgage Loan is 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:
o the pool balance, after giving effect to the transfer, will not
exceed $___________;
o the mortgage files for the Eligible Additional Mortgage Loans
shall have been delivered to the trustee (or a custodian on its
behalf); and
o 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 the
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 pooling and servicing
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 the 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:
o no Early Amortization Event shall have occurred, and the
transferor shall reasonably believe that the retransfer will
not cause an Early Amortization Event to occur;
o as of the fifth business day prior to the proposed transfer,
not more than 10%, based on the pool balance, 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;
o 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;
o the transferor shall have received evidence satisfactory to it
that the reassignment will not, as of the date of reassignment,
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 the reassignment will, as of the
date of reassignment, prevent the transfer from being
recognized as a sale for regulatory purposes; and
o 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 the 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 the 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 collection
account in the name of the trustee for the benefit of the certificateholders
and the [Letter of Credit] [Surety Bond] issuer. 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 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 these investments will be paid to the servicer.
[Investor Percentage and Transferor Percentage.
In accordance with the pooling and servicing 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 and the liquidation loss amount of the
unrecovered loan balance of any defaulted mortgage loan at the end of the
Collection Period in which the defaulted mortgage loan became a loan. 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 that 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 that 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).
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 percentage of the 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 of:
o the investor percentage of interest collections during each
collection period in the revolving period and
o the investor percentage of all interest collections and
principal collections during each collection period in the
amortization period.
The servicer will pay to the transferor within two business days of
its receipt
o 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 that day is equal to or greater than zero, the
transferor percentage of all principal collections and the
investor percentage of all principal collections and
o 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 that day, is greater than zero, the transferor
percentage of all principal collections.]
The trustee will establish and maintain a separate 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 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 the 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 that day is not a
business day the next succeeding business day). Distributions will be made:
o in immediately available funds to holders of offered
certificates, the aggregate principal balance of which is at
least $______________, by wire transfer or to the account of
the certificate holder at a domestic bank or other entity
having appropriate facilities, if the certificateholder has
notified the trustee in accordance with the pooling and
servicing agreement, or
o by check mailed to the address of the person entitled as it
appears on the certificate register maintained by the trustee
as certificate registrar.
As described in this prospectus supplement, the distribution amount
is calculated 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 of the
certificates at the office or the agency of the trustee specified in the
notice to certificateholders of the final distribution.
Distributions of Interest Collections and Required Amounts.
On each distribution date, the trustee, will 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 insured amounts, if any, drawn on the
[Letter of Credit] [Surety Bond] for that distribution date.
(1) [to the certificateholders, interest at the certificate rate
for the interest period preceding the distribution date on the
certificate principal balance outstanding immediately prior to
the 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 percentage of the servicing fee
for the related interest period and all the accrued and unpaid
fees for previous interest periods;
(4) if the 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 that date and to the distribution
of the Liquidation Loss Amount is equal to or greater than
zero;
(5) if the 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 in clause (5) that were not previously distributed in
that clause (each, a "Certificate Loss Amount"); and
(7) to the certificateholder, accrued and unpaid interest on each
unreimbursed Certificate Loss Amount (the interest being
calculated at the certificate rate for each interest period
during which the 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 insured amounts
are not sufficient to cover that 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 insured amount for each distribution date will be the lesser of
o the [Letter of Credit] [Surety Bond] Amount and
o the amount, if any, by which (a) the full amount distributable
on the distribution date in clauses (1) through (7) above
exceeds (b) the investor percentage of the interest collections
for the related collection period. The insured amounts 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])
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 as set forth on page S-3. Thereafter, on each distribution date, the
certificate rate will be equal to LIBOR as of the second London Business Day
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 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 that 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 that 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 (1) the original
principal amount of the certificates less (2) all amounts previously
distributed to certificateholders under "--Distributions of Principal" above,
less (3) 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 prior to the previous
distribution date, which appear on the Reuters Screen LIBO Page as of
approximately 11:00 A.M., London Time, on the date of calculation. If at least
two 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 the offered rates. If fewer than two quotations appear, LIBOR
with respect to that distribution date will be determined at approximately
11:00 A.M., London time, on the 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 that market at that time. The trustee will request
the principal London office of each of those banks to provide a quotation of
its rate. If at least two quotations are provided, LIBOR will be the
arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth
of a percent) of the quotations. If fewer than two quotations are provided,
LIBOR with respect to that 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 the 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 that market at that 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 another 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]
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 the 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 the
preceding collection period, plus any amounts paid to the [letter of credit]
[surety bond] issuer on the distribution date occurring in the 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:
(1) to make any payment or deposit on the date required
under the pooling and servicing agreement within
five business days after the payment or deposit is
required to be made;
(2) to observe or perform in any material respect
certain covenants of the servicer or the
transferor; or
(3) to observe or perform in any material respect any
other covenants or agreements of the servicer or
the transferor set forth in the pooling and
servicing agreement, which failure, in each case,
materially and adversely affects the interests of
the certificateholders and which, in the case of
clause (3), continues unremedied for a period of 60
days after written notice and continues to
materially and adversely affect the interests of
the certificateholders for that period;
(b) any representation or warranty made by the servicer or the
transferor in the pooling and servicing 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 that period; provided,
however, that an Early Amortization Event shall not be deemed to occur if the
transferor has accepted retransfer of the related mortgage loan or all the
mortgage loans, if applicable, during this period (or a longer period (not to
exceed an additional 60 days) as the trustee may specify) in accordance with
the provisions of the pooling and servicing 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
(1) through (7) under "Distributions on the Certificates--Distributions of
Interest Collections and Required Amounts" above for the three distribution
dates relating to the 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 the 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 the 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 the event. On
the date on which an Early Amortization Event is deemed to have occurred, the
amortization period will commence and 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 pooling and
servicing 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 the options were not exercised, which will be applied as provided in the
pooling and servicing agreement.
[Registration of Certificates
The certificates will initially be registered in the name of Cede &
Co., 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 in accordance with 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 the 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 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 physical 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 physical certificates are issued, it is anticipated
that the only certificateholder of the certificates will be Cede & Co., as
nominee of DTC, certificate owners will not be certificateholders as that term
is used in the pooling and servicing agreement. Certificate owners are only
permitted to exercise 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, 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 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 physical certificates are issued, certificate owners
who are not participants may transfer ownership of certificates only through
participants by instructing them to transfer certificates, by book-entry
transfer, through DTC for the account of the purchasers of the certificates,
which account is maintained with their respective participants. Under the DTC
system 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 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 the
certificates, may be limited due to the lack of a physical certificate for the
certificates.
Physical certificates will be issued in registered form to
certificate owners, or their nominees, rather than to DTC, only if:
o 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,
o the servicer, at its sole option, advises the trustee in
writing that it elects to terminate the book-entry system
through DTC, or
o 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 physical certificates to certificate owners, the
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 physical 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
physical certificates are issued, DTC will take any action permitted to be
taken by a certificateholder under the pooling and servicing agreement only at
the direction of one or more participants to whose accounts with DTC the
certificates are credited. DTC has advised the servicer that DTC will take
action with respect to any percentage interests of the certificates only at
the direction of and on behalf of the participants with respect to the
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.]
Federal Income Tax Consequences
In the opinion of [ _____________________ ], 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 we suggest that prospective
investors consult their tax advisors regarding the federal income tax
consequences of any possible alternative characterization. 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 "Federal Income Tax Consequences" in the
prospectus.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and Section 4975 of the Internal Revenue Code (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
some transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the Plan. Some governmental plans, although not subject to ERISA or the Code,
are subject to federal, state or locals laws ("Similar Law") that impose
similar requirements (the 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 these persons.
ERISA also imposes duties on persons who are fiduciaries of Plans
subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that 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 the Plan.
Transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquires an "equity interest" in
the trust and none of the exceptions contained in the Plan Assets Regulation
is applicable. An equity interest is defined under the Plan Assets Regulation
as an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. 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
o 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 those accounts may be deemed "plan
assets" for purposes of ERISA), or
o 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.
We suggest that prospective Plan investors 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.]
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________, between the transferor and [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 are subject to 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 these transactions by selling the certificates to or
through dealers, and the 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
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
Amortization Period.......................................................S-17
Certificate Loss Amount...................................................S-25
Certificate Principal Balance.........................................S-18, 26
Code......................................................................S-32
Collection Period.........................................................S-17
Defective Mortgage Loan...............................................S-20, 22
Determination Date........................................................S-24
Distribution Date.........................................................S-24
Early Amortization Event..................................................S-28
Eligible Additional Mortgage Loans........................................S-00
Eligible HELOC............................................................S-16
Event of Servicing Termination............................................S-31
Index Maturity............................................................S-26
Interest Period...........................................................S-26
LIBOR.....................................................................S-26
Liquidation Loss Amounts...............................................S-23,25
London Business Day.......................................................S-27
Record Date...............................................................S-24
Retransfer Deposit Amount.................................................S-25
Transfer Interest.........................................................S-20
Unpaid Interest Shortfall.................................................S-25
<PAGE>
$_________
[ ] HOME EQUITY
LOAN TRUST ____-_,
as Issuer
$_________ [Fixed] [Floating] Rate
Asset-Backed Certificates
Series ____-_
KeyBank National Association
(Transferor)
-----------------
PROSPECTUS SUPPLEMENT
[ , ___]
---------------------
[Underwriter]
<PAGE>
[ALTERNATE PAGE]
The information in this prospectus supplement is not complete and
may be changed. We may not sell this securities until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus supplement dated ________ __, ____
To prospectus dated _________ __, ____
$___________
[ ] Home Equity Loan Trust ____-_,
as Issuer
Home Equity Loan Asset-Backed Certificates, Series ____-_
KeyBank National Association
[ ] as seller
as master servicer
The certificates:
The certificates
represent o represent the entire beneficial interest in
obligations of the a trust, whose assets are a pool of
trust only and do
not represent an o home equity revolving credit line
interest in or loans secured primarily by [second
obligation of liens] on residential properties that
KeyBank National are primarily one- to four-family
Association; the properties, and
trustee or any of
their affiliates. o home improvement installment sales
contracts and installment loan
This prospectus agreements.
supplement may be
used to offer and o currently have no trading market
sell the
certificates only if Credit enhancement
accompanied by the
prospectus. 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.
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 SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
[Underwriter]
___________, 200_
<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 certificates in which
McDonald acts as principal. McDonald may also act as agent in these
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.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration filed with
the securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus Supplement dated __________ __, ____
To Prospectus dated _____________ __, ____
$-------------
[ ] Home Equity Loan Trust ____-_,
as Issuer
$________ Home Equity Loan Asset-Backed Certificates, Series ____-_
$_______ Home Equity Loan Asset-Backed Notes, Series ____-_
[ ] KeyBank National Association,
as servicer as seller
<TABLE>
<CAPTION>
[Certificates] Principal [Certificate][Note] Price to Underwriting Proceeds to the
[Notes] Balance Rate Public(1) Discount(2) Seller(3)
- ---------------------- ----------------- ------------------------ ------------- ------------------- ------------------
$ % % % %
<S> <C> <C> <C> <C> <C>
Total $ $ $ $
</TABLE>
- ----------
(1) Plus accrued interest, if any, at the [certificate] [note] rate from
____________ ____, ______
(2) The seller has agreed to indemnify [the underwriter] against liabilities,
including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, payable by the seller, estimated to be
$___________.
The [Certificates][Notes]
o the certificates represent a beneficial interest in a trust, whose assets
are a pool of closed-end [adjustable][fixed] rate home equity revolving
credit line loans and property relating to such loans
o the notes are secured by assets of the trust
o currently have no trading market
o are obligations of the trust only and are not obligations of the seller
or the servicer or [its/their] affiliates
Credit Enhancement
o will be provided in the form of [overcollateralization] [an irrevocable
and unconditional certificate guaranty insurance policy issued by
[insurer]]
Review the information in Risk Factors on pages S-9 and S-10 of this
prospectus supplement and on pages 2-5 of the prospectus.
o For complete information about the [certificates][notes] read both this
prospectus supplement and the prospectus. This prospectus supplement must
be accompanied by the prospectus if it is being used to offer and sell
the [certificates][notes].
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]
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 any other information.
We are not offering the [certificates][notes] in any state where an
offering of the [certificates] [notes] 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 [certificates][notes] and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
[certificates][notes] 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-4
Risk Factors............................................................S-9
The Trust..............................................................S-10
The [Letter of Credit][Surety Bond] Issuer.............................S-11
The Home Equity Lending Program........................................S-11
Servicing of the Mortgage Loans........................................S-16
Description of the Mortgage Loans......................................S-18
[Tabular Information]..................................................S-18
Description of the Servicing Agreement.................................S-20
Description of the Securities..........................................S-23
The Seller.............................................................S-29
The Indenture..........................................................S-29
The Trust Agreement....................................................S-34
Administration Agreement...............................................S-36
The Indenture Trustee..................................................S-37
The Owner Trustee......................................................S-37
Use of Proceeds........................................................S-37
Federal Income Tax Consequences........................................S-37
State Tax Consequences.................................................S-37
ERISA Considerations...................................................S-37
Legal Investment Considerations........................................S-39
Underwriting...........................................................S-39
Legal Matters..........................................................S-40
Rating.................................................................S-40
Prospectus
Risk Factors........................................................... 2
Description of the Securities.......................................... 5
The Trusts............................................................. 9
Enhancement............................................................ 20
Servicing of Loans..................................................... 23
The Agreements......................................................... 32
Legal Aspects of the Loans............................................. 43
The Seller............................................................. 56
Use of Proceeds........................................................ 56
Federal Income Tax Consequences........................................ 56
State Tax Considerations............................................... 89
ERISA Considerations................................................... 89
Legal Investment....................................................... 94
Ratings................................................................ 95
Plan of Distribution................................................... 95
Legal Matters.......................................................... 95
Available Information.................................................. 95
Incorporation of Documents by Reference................................ 96
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][notes], read carefully this entire document and the
accompanying prospectus.
This summary provides an overview of calculations, cash flows and other
information to aid your understanding and is qualified by the full description
of these calculations, cash flows and other information in this prospectus
supplement and the accompanying prospectus.
[Certificate] Last Scheduled
[Note] Distribution
Class Interest Rate Principal Balance Date
[LIBOR+
__%][%]
_________________________________
We expect the actual last distribution date for each security will be
significantly earlier than its last scheduled distribution date.
The Trust
[ ] Home Equity Loan Trust ____-_, will be formed on ____________ ___, ____
by KeyBank National Association and [trustee]. KeyBank National Association
will sell the mortgage loans to the trust.
[[indenture trustee] will act as trustee for the benefit of the
noteholders.] [[owner trustee] will act as trustee for the benefit of
the certificateholders.]
Securities Offered
On the closing date, _________ ___, _____, [the notes will be issued
pursuant to the indenture] [the trust will issue the certificates].
The securities will be issued in minimum denominations of [$100,000] and
integral multiples of [$1,000].
Registration of Securities
We will issue the securities 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.
We refer you to "RISK FACTORS--Consequences of Owning Book-Entry Securities".
Trust Property
The property of the trust will include:
o a pool of [adjustable] [fixed] rate home equity loan revolving credit
line loans made or to be made in the future under home equity revolving
credit line loan agreements, the "credit line agreements" and secured
primarily by [second] [deeds of trust] [mortgages] on residential
properties that are primarily one- to four-family properties (the
"mortgage loans")
o payments on the mortgage loans received after [the cut-off date]
o any additions to the loan balances of 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 [seller].
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure
o the benefit of the [surety bond] [letter of credit]
o [rights of the seller under the purchase agreement pursuant to which the
seller sells the mortgage loans to the trust. Under some circumstances,
if the representations and warranties made by the seller about the
mortgage loans are breached, then the seller will be obligated to
repurchase those mortgage loans]
o rights of the seller under any hazard insurance policies covering the
mortgaged properties
The Mortgage Loans
On [the cut-off date], the trust will acquire a pool of mortgage loans. The
information below is based on the pool of mortgage loans as it existed on
[the cut-off date].
o aggregate principal balance: $__________
o maximum combined loan-to-value ratio (using the maximum credit limit):
_______
o weighted average combined loan-to-value ratio: ____%
o principal balance range: $[ ] to $____________
o credit limit range: $___________ to $______ (approximate)
o average credit limit: $___________
o originated in the period from __________ to ____________
o weighted average credit limit utilization rate: ___% (approximate)
We refer you to "The Home Equity Lending Program" and "Description of the
Mortgage Loans."
[Interest on the Mortgage Loans
Interest on each mortgage loan is payable monthly and is computed based on
the average daily outstanding principal balance of the mortgage loan for
the calendar month prior to the due date. The loan rate is equal at any
time, subject to minimum and maximum rates, and applicable usury
limitations, to the sum of:
(i) [the prime rate] and
(ii) a margin generally within the range of ____% to ____%.
The loan rate is subject to adjustment [ ].]
Servicer
[The servicer] will service the mortgage loans.
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 principal balance of the mortgage loans. The
servicer will also be entitled to other amounts as servicing compensation.
We refer you to "Servicing of Mortgage Loans--Servicing Compensation and
Payment of Expenses."
In 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--Termination and Liability of the
Servicer" and "The Agreements--Events of Default; Rights Upon Event of
Default" in the prospectus.
Collections
All collections on the mortgage loans will be allocated by the servicer
between amounts collected in respect of interest and amounts collected in
respect of principal. The servicer will generally deposit collections
distributable to the securityholders in a collection account.
We refer you to "Description of the Servicing Agreement" herein and
"Servicing of Loans--Deposits to and Withdrawals from the Collection
Account" in the prospectus.
Distribution to Securityholders
You will be entitled to receive payments of interest each month. The amount
of principal you will be entitled to receive will vary depending on a
number of factors, including the payments on the mortgage loans. Each month
the [servicer] [trustee] will calculate the amounts to be paid to the
securityholders. If you hold a [note][certificate] on the last day
preceding a distribution date, or if the securities are no longer
book-entry securities, the last day of the month preceding a distribution
date, you will be entitled to receive payments on the distribution date in
the next month. The distribution date will be the ____ day of each month
or, if the ___ day of a month is not a business day, the next succeeding
business day, starting on __________ __, _____.
On each distribution date, collections on the mortgage loans will be
applied in the following order of priority:
(1) to the servicer, the servicing fee;
(2) as payment for the accrued interest due and any overdue accrued interest
(with interest thereon);
(3) as principal on the securities, the excess of principal collections over
additional balances created during the preceding collection period. This
amount will be allocated between the notes and certificates, pro rata,
based on their respective principal balances;
(4) as principal of the securities, payment for any amounts unrecoverable as
losses on the mortgage loans;
(5) the premium on the [surety bond];
(6) reimbursement of prior draws made on the [surety bond]; and
(7) any remaining amounts to the seller.
Interest
Interest will accrue on the unpaid principal balance of the securities at
the applicable rate from the closing date to the first distribution date.
After the first distribution date, interest will accrue from and including
the preceding distribution date to but excluding the current distribution
date. [Interest will be calculated on the basis of the actual number of
days in each interest accrual period divided by 360.]
We refer you to "The [Letter of Credit] [Surety Bond] Issuer."
[Letter of Credit] [Surety Bond]
On the closing date, [issuer] will issue a [letter of credit] [surety bond]
in favor of the trustee on behalf of the trust. In the event that, on any
distribution date, available amounts on deposit in the collection account
with respect to the preceding collection period are insufficient to provide
for the payment of the amount required to be distributed to the holders and
the servicer on such distribution date, 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, in an amount equal to such
deficiency.
We refer you to "The [Letter of Credit] [Surety Bond] Issuer" herein and
"Enhancement" in the prospectus.
[[Letter of Credit] [Surety Bond] Amount
The amount available under the [letter of credit] [surety bond] for the
initial distribution date will be $ _____________. For each other
distribution date, the amount available will equal the lesser of (1) a
percentage of the pool balance and (2) an amount based on the original
amount available, minus amounts drawn and plus amounts paid to the [letter
of credit] [surety bond] issuer as reimbursement.]
[Final Payment of Principal; Termination
The trust will terminate on the distribution date following the earlier of
(i) ______________________ and (ii) the final payment or other liquidation
of the last mortgage loan or private security in the trust.
On any distribution date after the principal balance is reduced to an
amount less than or equal to $ ________ ([5]% of the initial principal
balance) the servicer will have the option of purchasing the mortgage loans
[and private securities.] The purchase price for the mortgage loans will be
equal to the sum of the outstanding principal balance and accrued and
unpaid interest thereon at the weighted average of the loan rates through
the day preceding the final distribution date.
We refer you to "Description of the Securities--Optional Termination"
herein and "Description of the Securities--Optional Redemption, Purchase of
Trust Assets or Securities, Termination of Trust" and "The
Agreements--Termination" in the prospectus.]
[Federal Income Tax Consequences
[Brown & Wood LLP has acted as counsel to the [seller] and is of the opinion
that:
o The trust will be treated as a real estate mortgage investment conduit,
or REMIC, for federal income tax purposes
o The [certificates] [notes] will be "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC for federal income tax
purposes with payment terms equivalent to the terms of such
[certificates] [notes].]
[In the opinion of Brown & Wood LLP, for federal income tax purposes, the
securities will be characterized as indebtedness, and the trust should be
characterized as an owner trust and will not be characterized as an
association, or publicly traded partnership, taxable as a corporation. Each
holder of a security, by the acceptance of a security, will agree to treat
the security as indebtedness and the trust as an owner trust for federal,
state and local income and franchise tax purposes.]
We refer you to "Federal Income Tax Consequences" and "State Tax
Consequences" in this prospectus supplement and "Federal Income Tax
Consequences" and "State Tax Considerations" in the prospectus concerning
the application of federal, state and local tax laws.]
ERISA
[Subject to the considerations described under "ERISA Considerations" in
this prospectus supplement and the prospectus, the notes may be transferred
to an employee benefit or other plan subject to the Employee Retirement
Income Security Act of 1974, as amended, or "ERISA", or to Section 4975 of
the Internal Revenue Code of 1986, as amended, or the "Code".][Subject to
the considerations described under "ERISA Considerations" in this
prospectus supplement and the prospectus, the certificates generally
[may][may not] be transferred to an employee benefit or other plan subject
to the Employee Retirement Income Security Act of 1974, as amended, or
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended, or
the "Code".]
We refer you to "ERISA Considerations" in this prospectus supplement and in
the prospectus.
Rating
Before the securities can be issued, [the trust] must obtain a rating on
the securities of:
[Rating] [rating agency]
The ratings obtained for the securities address credit risk. When
evaluating credit risk, the rating agencies evaluate 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 or on the loans underlying the private securities.
Prepayments affect the timing of payments to you, such that your actual
return could differ substantially from your anticipated return on your
investment.
We refer you to "Rating" for more detail.
Risk Factors
Consequences of Owning Book-Entry Securities
Limit on Liquidity of Securities. Issuance of the securities in
book-entry form may reduce the liquidity of the securities in the secondary
trading market since investors may be unwilling to purchase securities for
which they cannot obtain physical securities.
Limit on Ability to Transfer or Pledge. Since transactions in the
securities can be effected only through DTC, Clearstream, Euroclear,
participating organizations, indirect participants and banks, your ability to
pledge your security to persons or entities that do not participate in the
DTC, Clearstream or Euroclear system or otherwise to take actions in respect
of the securities, may be limited due to lack of a physical security
representing the securities.
Delays in Distributions. As a beneficial owner, you may experience some
delay in your receipt of distributions of interest on and principal of your
securities since distributions will be forwarded by the trustee to DTC and DTC
will credit distributions to the accounts of its participants which will
credit them to the accounts of the beneficial owners either directly or
indirectly through indirect participants.
We refer you to "Description of the Securities--Book-Entry Securities."
Cash Flow Limited in Early Years of Mortgage Loans
During the first [ ]-year draw down period under the related credit line
agreements borrowers are not required to make monthly payments of principal.
As a result, collections on mortgage loans may vary. With respect to some of
the mortgage loans, during the second [ ]-year draw down period, no monthly
payments of principal are required. Collections on the mortgage loans may also
vary due to seasonal purchasing and payment habits of borrowers. As a result
there may be limited collections available to make payments to you.
General credit risk may also be greater to you than to holders of
instruments representing interests in level payment first mortgage loans since
no payment of principal generally is required until after either a five- or
ten-year interest-only period under the related credit line agreements.
Minimum monthly payments will at least equal and may exceed accrued interest.
Limited Information Regarding Prepayment History
All of the mortgage loans may be prepaid in whole or in part at any time
without penalty. Home equity loans, including the mortgage loans, have been
originated in significant volume only during the past few years and neither
the seller nor the servicer is aware of any publicly available studies or
statistics on the rate of prepayment of home equity loans. Generally, home
equity loans are not viewed by borrowers as permanent financing. Accordingly,
the mortgage loans may experience a higher rate of prepayment than traditional
loans. The trust's prepayment experience may be affected by a wide variety of
factors, including general economic condition, interest rates, the
availability of alternative financing and homeowner mobility. In addition,
substantially all of the mortgage loans contain due-on-sale provisions and the
servicer intends to enforce due-on-sale provisions unless (1) enforcement is
not permitted by applicable law or (2) the servicer, in a manner consistent
with reasonable commercial practice, permits the purchaser of the related
mortgaged property to assume the mortgage loan. To the extent permitted by
applicable law, any assumption will not release the original borrower from its
obligation under any mortgage loan. Enforcement of a due-on-sale provision
would result in repayment in full of the mortgage loan which will be treated
as a prepayment.
[If the rate of prepayments is faster, or slower, than the rate you
anticipated, depending upon the price paid for the security and your
prepayment assumptions, you may experience a loss.]
Servicer's Ability to Change the Terms of the Mortgage Loans
The servicer may agree to changes in the terms of a mortgage loan,
provided that changes (i) do not adversely affect the interest of the holders,
and (ii) are consistent with prudent business practice. 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 mortgage loans.
The Trust
General
[ ] Home Equity Loan Trust ___________ is a business trust formed under
the laws of the State of Delaware pursuant to the trust agreement, dated as of
____, between KeyBank National Association, the seller, and [the owner
trustee] for the transactions described in this prospectus supplement. The
trust agreement constitutes the "governing instrument" under the laws of the
[State of Delaware] relating to business trusts. After its formation, the
trust will not engage in any activity other than (1) acquiring, holding and
managing the mortgage loans transferred to the trust by the seller and the
other assets of the trust and proceeds therefrom, (2) issuing the notes and
the certificates (respectively, the "notes" and the "certificates" and
together, the "securities"), (3) making payments on the notes and the
certificates and (4) engaging in other activities that are necessary, suitable
or convenient to accomplish the foregoing or are incidental to or connected
with the foregoing.
The property of the trust will consist of:
o each of the mortgage loans that are __________________;
o collections on the mortgage loans received after _______, the
cut-off date;
o mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
o the collection account and the distribution account, excluding,
in each case, net earnings thereon;
o the [letter of credit] [surety bond]; and
o an assignment of the seller's rights under the purchase
agreement, dated as of _____, between the seller and the trust,
including all rights of the seller to purchase any additions to
the loan balances of the mortgage loans.
The trust's principal offices are in _____________, in care of
________________________, as owner trustee, at [ ].
[Financials for Trust]
The [Letter of Credit][Surety Bond] Issuer
The following information with respect to _______________
("_______________") has been furnished by _____________________.
[Description of letter of credit/surety issuer]
The Home Equity Lending Program
The information set forth below concerning [________________] and its
underwriting policies has been provided by [_________________]. The seller
does not make any representation as to the accuracy or completeness of the
information set forth below concerning [____________] and its underwriting
policies.
General
All of the mortgage loans were originated by [__________________], the
originator under its home equity lending program. The [originator] first
offered adjustable rate home equity revolving credit line loans in _____. As
of [_____________], [___________________] owned and serviced approximately
$__________ aggregate principal amount of outstanding home equity loans
secured by properties located in _______________ under home equity credit
lines.
Underwriting Procedures Relating to the Mortgage Loans
Each home equity loan was originated after a review by the originator in
accordance with its established underwriting procedures, which were intended
to assess the applicant's ability to assume and repay the home equity loans
and the adequacy of the real property which serves as collateral for the home
equity loans. The maximum credit limit for a home equity loan originated by
the originator was $__________.
Each applicant for a home equity loan was required to complete an
application which listed the applicant's assets, liabilities, income, credit
and employment history and other demographic and personal information. If
information in the loan application demonstrated that there was sufficient
income and equity to justify making a home equity loan and the originator (a)
received a satisfactory independent credit bureau report on the credit history
of the borrower and (b) obtained, in the case of all home equity loans
originated prior to __________ a drive-by appraisal of the related mortgaged
property or for all home equity loans originated as of __________, a
satisfactory appraisal completed on forms approved by FNMA, and if the
information met the originator's underwriting standards, the originator issued
a commitment subject to satisfaction of other conditions. These conditions
included: (i) obtaining and reviewing pay stubs, income tax returns or a
verification of employment from the applicant's employer; (ii) obtaining and
reviewing a verification of deposit; and (iii) obtaining and reviewing a
verification of the loan in the first lien position when the home equity loan
was to be in a second lien position.
Appraisals of the mortgaged properties were performed by a qualified
appraiser or an independent third-party, fee-based appraiser who had been
previously approved by the originator.
It is the originator's policy to require a title insurance policy in
accordance with the intended lien position. Regardless of combined
loan-to-value ratios, it is the originator's policy not to accept a position
junior to any mortgage lien other than a first mortgage.
Generally, a home equity loan needed a combined loan-to-value ratio of
___% for loans which the originator obtained full documentary support and ___%
for loans for which limited documentary support was obtained.
After obtaining all applicable employment, credit and property
information, the originator determined whether sufficient unencumbered equity
in the property existed and whether the prospective borrower had sufficient
monthly income available to support the payments of interest at the current
prime rate plus the applicable margin based on the credit limit in addition to
any senior mortgage loan payments, including any escrows for property taxes
and hazard insurance premiums, and other monthly credit obligations based on
the prospective borrower's debt-to-gross income ratio. The "debt-to-gross
income ratio" is the ratio of (a) some of the borrower's debt obligations
which include: (i) the monthly first mortgage payment plus taxes; (ii) monthly
installment debt payments with a term of more than ten months; (iii) five
percent of the total revolving obligations; (iv) monthly alimony and child
support obligations; and (v) the payment on the home equity loan calculated at
the credit limit and current prime rate plus margin for the home equity loan
to (b) the borrower's gross verifiable monthly income. The debt-to-gross
income ratio generally did not exceed [_____%].
When the commitment conditions had been satisfied, the home equity loan
was completed by signing a Credit Line Agreement (as defined herein),
rescission statement, and mortgage which secured the repayment of principal of
and interest on the related home equity loan. The original mortgage was then
recorded in the appropriate county government office.
Mortgage Loan Terms
A borrower may access a home equity loan by writing a check. On all home
equity loans, there is [a ten-year] draw down period as long as the borrower
is not in default under the loan agreement. Home equity loans bear interest at
a variable rate which may change bi-weekly. Home equity loans may be subject
to a maximum per annum interest rate of % per annum and in all cases, are
subject to applicable usury limitations. We refer you to "Legal Aspects of
Loans--Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the home equity loans, the loan rate, is the sum of the Index Rate plus a
spread (the "margin") which generally ranges between ____% and ____%, divided
by 365 days or 366 days, as applicable.
The "Index Rate" is based on [the "prime rate" (the "Index") published in
The Wall Street Journal every second Monday rounded to the nearest one-eighth
of one percent or if not published on any second Monday, as next published in
The Wall Street Journal.] The annual percentage rate for any bi-weekly period
will be based on the prime rate in effect the Monday on which the rate may
change. [If a prime rate range is published in The Wall Street Journal, then
the midpoint (average) of that range will be used.] There are no limitations
on increases or decreases, except for those home equity loans which have
maximum rates. Only the home equity loans that have maximum rates of ____%
also have annual adjustment caps of ___% as to both increases and decreases in
their loan rates.
Billing statements are mailed monthly. The statement details all debits
and credits and specifies the minimum payment due and the available credit
line. Notice of changes in the applicable loan rate are provided by the
originator to the related borrower with billing statements. All payments are
due by the tenth day after the date the billing statement is issued.
The right to obtain additional credit may be suspended or terminated or
the borrower may be required to pay the entire balance due plus all other
accrued but unpaid charges immediately, if the borrower fails to make any
required payment by the due date, if the total outstanding principal balance
including all charges payable exceeds the credit limit, if the borrower made
any statement or signature on any document which is fraudulent or contained a
material misrepresentation, if the borrower dies or becomes incompetent, if
the borrower becomes bankrupt or insolvent, if the borrower becomes subject to
any judgment, lien, attachment or execution is issued against the mortgaged
property, the borrower fails to obtain and maintain required property
insurance or if the borrower sells or transfers the mortgaged property or does
not maintain the property. In addition, the right to obtain additional credit
may be suspended or a borrower's credit limit may be reduced, if the value of
the mortgaged property decreases for any reason to less than [80%] of the
original appraised value, if the borrower is in default under the home equity
loan, if government action impairs the originator 's lien priority or if a
regulatory agency has notified the originator that continued advances would
constitute an unsafe and unsound practice.
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 home equity loans indicated on the table.
[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 delinquency
and loss experience set forth below represents the experience with respect to
only a portion of the servicer's loan production for the periods indicated and
has not been adjusted to eliminate the effect of the significant growth in
size of the servicer's portfolio of mortgage loans during the periods shown.
Accordingly, loss and delinquency as a percentage of mortgage loans serviced
for each period could be higher than those shown if a group of mortgage loans
were artificially isolated at a point in time and the information showed the
activity only in that isolated group.] [Champion: The general trend from 1996
through 1999 of slowly increasing delinquencies can be attributed to the
seasoning of the loans. However, the temporary uncharacteristic increase in
delinquencies in 1997 was due specifically to two related factors. Due to the
dramatic increases in the portfolio during 1997, the size of the collection
department was increased, resulting in less seasoned collection personnel.
This took place during the period that Champion was in the process of being
acquired by KeyCorp. Accordingly, during this transition, the training of the
new staff and collection efforts were not as efficient as during other
periods.] [KeyBank: Although, the loss experience of KeyBank has been stable
for the periods shown, the delinquency experience has been inconsistent.
Delinquencies increased in 1998 because of a reorganization of the collections
department, and as indicated by the 1999 figures, the new collection
department has effected improvements in collecting delinquent loans.] 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 mortgage
loans will be similar to that set forth below.
<TABLE>
<CAPTION>
[Champion Mortgage Co., Inc.]
[Delinquency Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans............. 9,058 14,327 19,565 25,244
Dollar Amount of
Loans.................... $ 526,816 $ 866,673 $ 1,309,172 $ 1,827,491
Delinquency Period
30-59 days
% of number of
loans............ 1.30% 2.14% 1.43% 1.58%
% of dollar
amount of loans.. 1.17% 2.16% 1.24% 1.17%
60-89 days
% of number of
loans............ 0.15% 0.34% 0.27% 0.42%
% of dollar
amount of loans... 0.14% 0.35% 0.25% 0.38%
90 days and over*
% of number of
loans.............. 0.69% 1.20% 0.82% 1.22%
% of dollar
amount of loans... 0.81% 1.27% 0.72% 1.03%
Loans in Foreclosure
% of number of
loans.............. 0.62% 0.51% 0.60% 0.61%
% of dollar amount
of loans........... 0.76% 0.60% 0.56% 0.71%
Total*
% of number of
loans................ 2.14% 3.68% 3.32% 4.08%
% of dollar amount
of loans............. 2.12% 3.78% 2.97% 3.52%
- -----------------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Dollar
Amount of Loans
Outstanding During
Period....................... $ 367,584 $ 702,555 $ 1,103,510 $ 1,616,324
Net Losses...................... $ 39 $ 488 $ 1,142 $ 2,317
Net Losses as a
Percentage of
Average Amount
Outstanding.................. 0.01% 0.07% 0.11% 0.14%
- -----------------------
"Net Losses" means gross losses minus recoveries.]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[KeyBank National Association]
[Delinquency Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
------------------------ --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans................ 228,837 220,017 224,088 219,784
Dollar Amount of
Loans....................... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Delinquency Period
30-59 days
% of dollar
amount of loans...... 0.73% 0.81% 0.65% 0.65%
60-89 days
% of dollar
amount of loans....... 0.23% 0.30% 0.22% 0.18%
90+ days*
% of dollar
amount of loans....... 0.34% 0.36% 0.31% 0.30%
Total*
% of dollar amount
of loans............ 1.30% 1.47% 1.18% 1.13%
- ------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
----------------------- --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dollar
Amount of Loans
Outstanding At
End Of Period......... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Net Losses............... $ 6,623 $ 5,954 $ 6,060 $ 6,823
Percentage of
Dollar Amount of Loans 0.12% 0.11% 0.11% 0.12%
- ------------
"Net Losses" means gross losses minus recoveries.]
</TABLE>
Servicing of the Mortgage Loans
The information set forth below concerning the servicer and its servicing
policies has been provided by the servicer. The seller does not make any
representation as to the accuracy or completeness of the information set forth
below concerning the servicer and its servicing policies.
Servicing
The servicer will be responsible for servicing the mortgage loans as
agent for the trust in accordance with the servicer's policies and procedures
for servicing home equity loans and in accordance with the terms of the
servicing agreement.
[With respect to real estate secured loans, the general policy of the
servicer is to initiate foreclosure on the underlying property (i) after the
loan is 90 days or more delinquent; (ii) if a notice of default on a senior
lien is received by the servicer; or (iii) if circumstances are discovered by
the servicer which would indicate that a potential for loss exists.
Foreclosure proceedings may be terminated if the delinquency is cured.
However, under some circumstances, the servicer may elect not to commence
foreclosure or stay the foreclosure proceeding if the borrower's default is
due to special circumstances which are temporary and are not expected to last
beyond a specified period. The loans to borrowers in bankruptcy proceedings
will be restructured in accordance with law and with a view to maximizing
recovery of the home equity loans, including any deficiencies. Additionally,
any time during foreclosure, a forbearance, short sale, deed-in-lieu or a
payment plan can be authorized.]
After foreclosure, if the home equity loan is secured by a first mortgage
lien, title to the related mortgaged property will pass to the servicer, or a
wholly-owned subsidiary of the servicer, who will liquidate the mortgaged
property and charge-off the balance of the home equity loan balance which was
not recovered by the liquidation proceeds. If the mortgaged property was
subject to a senior lien position, the servicer will either satisfy the senior
lien at the time of foreclosure sale or take other action as deemed necessary
to protect the servicer's interest in the mortgaged property. If in the
judgment of the servicer, the cost of maintaining or purchasing the senior
lien position exceeds the economic benefit of maintaining or purchasing the
senior lien position, the servicer will generally charge-off the entire home
equity loan.
Servicing and charge-off policies and collection practices may change
over time in accordance with the servicer's business judgment, changes in the
servicer's real estate secured revolving credit line loans and applicable laws
and regulations, and other considerations.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, other than the first Collection
Period, 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 interest collections in respect of the mortgage loans and will be equal
to ____% per annum, the servicing fee rate, of the sum of the outstanding
principal balance of each mortgage loan (each, a "principal balance" and
collectively, the "pool balance") as of the first day of each Collection
Period, other than the first collection period, the servicing fee. With
respect to the first Collection Period, the servicer will receive from
interest collections in respect of the mortgage loans ______ of the amount
calculated in the preceding sentence. 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.
With respect to each distribution date, the "Collection Period" is the
prior calendar month.
The servicer will pay ongoing expenses associated with the trust and
incurred by it in connection with its responsibilities under the servicing
agreement, including, without limitation, payment of the fees and
disbursements of the trustee, any custodian appointed by the trustee, the
registrar and any paying agent. In addition, the servicer will be entitled to
reimbursement for expenses incurred by it in connection with defaulted
mortgage loans and in connection with the restoration of mortgaged properties
related to defaulted mortgage loans, the servicer's right of reimbursement
being prior to the rights of holders of the securities to receive any proceeds
from the liquidation of the related mortgaged property.
Description of the Mortgage Loans
Mortgage Loans
The mortgage loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, most of which are second mortgages or second
deeds of trust, on mortgaged properties. The mortgaged properties securing the
mortgage loans consist primarily of residential properties that are one- to
four-family properties. All of the mortgaged properties are owner occupied. We
refer you to "--Mortgage Loan Pool Statistics" below.
The aggregate principal balance of the mortgage loans as of the cut-off
date, the cut-off date pool balance, is $___________. As of the cut-off date,
the mortgage loans had a loan rate of at least ____% per annum. The average
cut-off date principal balance was $_______, the minimum cut-off date
principal balance was zero, the maximum cut-off date principal balance was
$_________, the minimum loan rate and the maximum loan rate on the cut-off
date were ____% and ____% per annum, respectively, and the weighted average
loan rate on the cut-off date was ____% per annum. As of the cut-off date, the
weighted average credit limit utilization rate was ____%, the minimum credit
limit utilization rate was zero and the maximum credit limit utilization rate
was ____%. The credit limit utilization rate is determined by dividing the
cut-off date principal balance of a mortgage loan by the credit limit of the
related Credit Line Agreement. The weighted average combined loan-to-value
ratio of the mortgage loans was ____% as of the cut-off date.
Mortgage Loan Pool Statistics
The seller has compiled the following additional information as of the
cut-off date with respect to the mortgage loans to be included in the trust.
[Tabular Information]
Assignment of Mortgage Loans
At the time of issuance of the securities, the seller will transfer to
the trust all of its right, title and interest in and to each mortgage loan,
including its right to purchase any additional balances arising in the future,
related Credit Line Agreements, mortgages and other related documents,
including all collections received on or with respect to each mortgage loan on
or after the cut-off date pursuant to an assignment of the seller's rights and
obligations under the purchase agreement. The owner trustee, concurrently with
the transfer, will deliver the securities. Each mortgage loan transferred to
the owner trust will be identified on a mortgage loan schedule delivered to
the owner trustee pursuant to the purchase agreement. The mortgage loan
schedule will include information as to the cut-off date principal balance of
each mortgage loan, as well as information with respect to the loan rate.
The purchase agreement will require that, within the time period
specified therein, the seller deliver to the owner trustee, or a custodian, as
the owner trustee's agent, the mortgage loans endorsed in blank and the
related documents. In lieu of delivery of original mortgages, the seller may
deliver true and correct copies of original mortgages which have been
certified as to authenticity by the appropriate county recording office where
the mortgage is recorded.
Under the terms of the purchase agreement, the seller will have [___ days
after the closing date] to prepare and record assignments of the mortgages
related to each mortgage loan in favor of the owner trustee, unless opinions
of counsel satisfactory to the rating agencies [and the certificate insurer]
are delivered to the owner trustee [and the certificate insurer] to the effect
that recordation of the assignments is not required in the relevant
jurisdictions to protect the interests of the owner trustee in the mortgage
loans.
Within [ ] days of the closing date, the owner trustee will review the
mortgage loans and the related documents and if any mortgage loan or the
related document is found to be defective in any material respect and the
defect is not cured within [ ] days following notification of the defect to
the seller by the trustee, the seller will be obligated to repurchase the
mortgage loan and to deposit the repurchase price into the collection account.
Upon retransfer, the principal balance of the mortgage loan will be deducted
from the pool balance. In lieu of any repurchase, the seller may substitute an
eligible substitute mortgage loan. Any repurchase or substitution will be
considered a payment in full of the defective mortgage loan. The obligation of
the seller to accept a transfer of a defective mortgage loan is the sole
remedy regarding any defects in the mortgage loans and related documents
available to the owner trustee or the holders.
With respect to any mortgage loan, the repurchase price is equal to the
principal balance of the mortgage loan at the time of any transfer described
above plus accrued and unpaid interest thereon to the date of repurchase.
An eligible substitute mortgage loan is a mortgaged loan substituted by
the seller for a defective mortgage loan which must, on the date of the
substitution:
(i) have a 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 [ ]% more or less than the principal
balance relating to 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
the defective mortgage loan;
(iii) have a loan rate based on the same Index with adjustments to the
loan rate made on the same interest rate adjustment date as that
of the defective mortgage loan;
(iv) have a margin that is not less than the margin of the defective
mortgage loan and not more than [ ] basis points higher than the
margin for the defective mortgage loan;
(v) have a mortgage of the same or higher level of priority as the
mortgage relating to the defective mortgage loan;
(vi) have a remaining term to maturity not more than [ ] months earlier
and not later than the remaining term to maturity of the defective
mortgage loan;
(vii) comply with each representation and warranty as to the mortgage
loans set forth in the purchase agreement, deemed to be made as of
the date of substitution; and
(viii) satisfy other conditions specified in the purchase agreement.
To the extent the principal balance of an eligible substitute mortgage loan is
less than the principal balance of the related defective mortgage loan, the
seller will be required to make a deposit to the collection account equal to
the difference ("Substitution Adjustment Amounts").
The seller will make representations and warranties as to the accuracy in
all material respects of information furnished to the owner trustee with
respect to each mortgage loan, e.g., cut-off date, principal balance and the
loan rate. In addition, the seller will represent and warrant, on the closing
date, that, among other things: (1) at the time of transfer to the seller, 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, subject to
exceptions; and (2) each mortgage loan was generated under a Credit Line
Agreement that complied, at the time of origination, in all material respects
with applicable state and federal laws. Upon discovery of a breach of any
representation and warranty which materially and adversely affects the
interests of the holders 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 repurchase or substitute the defective
mortgage loan from the trust. The same procedure and limitations that are set
forth above for the repurchase or substitution of defective mortgage loans
will apply to the transfer of a mortgage loan that is required to be
repurchased or substituted because of a breach of a representation or warranty
in the purchase agreement that materially and adversely affects the interests
of the holders.
Mortgage loans required to be transferred to the seller as described in
the preceding paragraphs are referred to as defective mortgage loans.
Description of the Servicing Agreement
The servicer shall establish and maintain on behalf of the owner trustee
a collection account for the benefit of the holders. The collection account
will be an eligible account. Subject to the investment provision described in
the following paragraphs, upon receipt by the servicer of amounts in respect
of the mortgage loans, excluding amounts representing administrative charges,
annual fees, taxes, assessments, credit insurance charges, insurance proceeds
to be applied to the restoration or repair of a mortgaged property or similar
items, the servicer will deposit such amounts in the collection account.
Amounts so deposited may be invested in Eligible Investments (as described in
the servicing agreement) maturing no later than one business day prior to the
date on which the amount on deposit therein is required to be deposited in the
distribution account or on the distribution date if approved by the rating
agencies. Not later than the fifth business day prior to each distribution
date, the servicer will notify the owner trustee and the indenture trustee of
the amount of the deposit to be included in funds available for the related
distribution date.
The owner trustee and the indenture trustee will establish one or more
distribution accounts into which will be deposited amounts withdrawn from the
collection account for distribution to holders on a distribution date. The
distribution account will be an eligible account. Amounts on deposit therein
will 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:
o 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;
o one or more accounts with a depository institution which accounts are
fully insured by either the Savings Association Insurance Fund or the
Bank Insurance Fund of the Federal Deposit Insurance Corporation
established by such fund with a minimum long-term unsecured debt
rating of Baa3;
o a segregated trust account maintained with the owner trustee or an
affiliate of the owner trustee in its fiduciary capacity; or
o otherwise acceptable to each rating agency as evidenced by a letter
from each rating agency to the owner trustee, without reduction or
withdrawal of their then current ratings of the securities.
Eligible Investments are specified in the servicing 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
securities.
Allocations and Collections
All collections on the mortgage loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to any
distribution date, interest collections will be equal to the aggregate of the
amounts collected during the related Collection Period, including net
liquidation proceeds, allocated to interest pursuant to the terms of the
Credit Line Agreements.
As to any distribution date, principal collections will be equal to the
sum of (i) the amounts collected during the related Collection Period,
including net liquidation proceeds, and allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any Substitution Adjustment
Amounts. Net liquidation proceeds with respect to a mortgage loan are equal to
the aggregate of all amounts received upon liquidation of the mortgage loan,
including, without limitation, insurance proceeds, reduced by related
expenses, but not including the portion, if any, of the amount that exceeds
the principal balance of the mortgage loan at the end of the Collection Period
immediately preceding the Collection Period in which the mortgage loan became
a liquidated mortgage loan plus accrued and unpaid interest thereon through
the date of liquidation.
As to any distribution date, a liquidated mortgage loan is a mortgage
loan with respect to which the servicer has determined that all liquidation
proceeds which it expects to recover with respect to the mortgage loan have
been received.
With respect to any date, the pool balance will be equal to the aggregate
of the principal balances of all mortgage loans as of such date. The principal
balance of a mortgage loan, other than a liquidated mortgage loan, on any day
is equal to the cut-off date principal balance of the mortgage loan, plus (i)
any additional balances in respect of the mortgage loan minus (ii) all
collections credited against the principal balance of the mortgage loan in
accordance with the related Credit Line Agreement prior to such day. The
principal balance of a liquidated mortgage loan after final recovery of
related liquidation proceeds shall be zero.
Hazard Insurance
The servicing agreement provides that the servicer will maintain hazard
insurance on the mortgaged properties relating to the mortgage loans. While
the terms of the related Credit Line Agreements generally require borrowers to
maintain hazard insurance, the servicer will not monitor the maintenance of
hazard insurance.
The servicing agreement requires the servicer to maintain for any
mortgaged property relating to a mortgage loan acquired upon foreclosure of a
mortgage loan, or by deed in lieu of foreclosure, hazard insurance with
extended coverage in an amount equal to the lesser of (1) the maximum
insurable value of the mortgaged property and (2) the outstanding balance of
the mortgage loan plus the outstanding balance on any mortgage loan senior to
the mortgage loan at the time of foreclosure or deed in lieu of foreclosure,
plus accrued interest and the servicer's good faith estimate of the related
liquidation expenses to be incurred in connection therewith. The servicing
agreement provides that the servicer may satisfy its obligation to cause
hazard policies to be maintained by maintaining a blanket policy insuring
against losses on the mortgaged properties. If the blanket policy contains a
deductible clause, the servicer will be obligated to deposit to the collection
account the sums which would have been deposited therein but for the
deductible clause. The servicer will initially satisfy these requirements by
maintaining a blanket policy. As set forth above, all amounts collected by the
servicer, net of any reimbursements to the servicer, under any hazard policy,
except for amounts to be applied to the restoration or repair of the mortgaged
property, will ultimately be deposited in the collection account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the mortgage loans will be
underwritten by different insurers and therefore will not contain identical
terms and conditions, the basic terms of the policies are dictated by state
laws and most of the policies typically do not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods
and other water-related causes, earth movement, including earthquakes,
landslides and mudflows, nuclear reactions, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in some cases vandalism. The foregoing
list is merely indicative of kinds of uninsured risks and is not intended to
be all-inclusive or an exact description of the insurance policies relating to
the mortgaged properties.
Realization Upon Defaulted Mortgage Loans
The servicer will foreclose upon or otherwise comparably convert to
ownership mortgaged properties securing the mortgage loans that come into
default when in accordance with applicable servicing procedures under the
servicing agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with foreclosure or other
conversion, the servicer will follow practices as it deems necessary or
advisable and as are in keeping with its general [subordinate mortgage]
servicing activities, provided the 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, foreclosure, correction or restoration will
increase net liquidation proceeds. The 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 holders or the
transferor. Net liquidation proceeds with respect to a mortgage loan is the
amount received upon liquidation of the mortgage loan reduced by related
expenses, which may include the amount advanced in respect of a senior
mortgage, up to the unpaid principal balance of the mortgage loan plus accrued
and unpaid interest thereon.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, other than the first Collection
Period, the servicer will receive from interest collections in respect of the
mortgage loan a portion of the interest collections as a monthly servicing fee
in the amount equal to ___% per annum, the servicing fee rate, on the pool
balance as of the first day of each Collection Period, other than the first
collection period. All assumption fees, late payment charges and other fees
and charges, to the extent collected from borrowers, will be retained by the
servicer as additional servicing compensation.
The servicer will pay ongoing expenses associated with the trust and
incurred by it in connection with its responsibilities under the servicing
agreement, including, without limitation, payment of the fees and
disbursements of the trustee, any custodian appointed by the trustee, the
Registrar and any paying agent. In addition, the servicer will be entitled to
reimbursement for expenses incurred by it in connection with defaulted
mortgage loans and in connection with the restoration of mortgaged properties,
the servicer's right of reimbursement being prior to the rights of holders to
receive any related net liquidation proceeds.
Description of the Securities
General
The notes will be issued pursuant to the indenture dated as of
___________, ____, between the trust and _______________, as indenture
trustee. The certificates will be issued pursuant to the trust agreement dated
as of ______________, ____, among the seller, __________, and ______________,
as owner trustee. The following summaries describe provisions of the
securities, indenture and trust agreement. The summaries do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the applicable agreement. As used herein, agreement shall
mean either the trust agreement or the indenture, as the context requires.
The securities will be issued in fully registered, certificated form
only. The securities will be freely transferrable and exchangeable at the
corporate trust office of the owner trustee, with respect to the certificates
or the indenture trustee with respect to the notes.
Book-Entry Securities
The securities will be book-entry securities.
Persons acquiring beneficial ownership interests in the securities,
security owners, may elect to hold their securities through The Depository
Trust Company ("DTC") in the United States, or Clearstream Banking, societe
anonyme ("Clearstream") or the Euroclear system ("Euroclear"), in Europe, if
they are participants of the DTC, Clearstream or Euroclear systems, or
indirectly through organizations which are participants in the DTC,
Clearstream or Euroclear systems. The book-entry securities will be issued in
one or more certificates which equal the aggregate principal balance of the
securities and will initially be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. Clearstream and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in Clearstream's and Euroclear's names on the books of their
respective depositaries which in turn will hold positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
will act as depositary for Clearstream and the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator") will act
as depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may hold
beneficial interests in the book-entry securities in minimum denominations
representing principal balances of $[100,000] and in integral multiples of
[$1,000]. Except as described below, no person acquiring a book-entry security
(each, a "beneficial owner") will be entitled to receive a physical
certificate representing the security, a definitive security. Unless and until
definitive securities are issued, it is anticipated that the only Holder of
the securities will be Cede, as nominee of DTC. Security owners will not be
holders as that term is used in the Agreement. Security owners are only
permitted to exercise their rights indirectly through participants and DTC.
The beneficial owner's ownership of a book-entry security will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary that maintains the beneficial owner's account. In
turn, the financial intermediary's ownership of the book-entry security will
be recorded on the records of DTC, or of a participant 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 or on the records of Clearstream or Euroclear, as appropriate.
Security owners will receive all distributions of principal of, and
interest on, the securities from the trustee through DTC and DTC participants.
While the securities are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal of, and interest
on, the securities. Participants and indirect participants with whom security
owners have accounts with respect to securities are similarly required to make
book-entry transfers and receive and transmit distributions on behalf of their
respective security owners. Accordingly, although security owners will not
possess certificates, the DTC rules provide a mechanism by which security
owners will receive distributions and will be able to transfer their interest.
Security owners will not receive or be entitled to receive securities
representing their respective interests in the securities, except under the
limited circumstances described below. Unless and until definitive securities
are issued, security owners who are not participants may transfer ownership of
securities only through participants and indirect participants by instructing
participants and indirect participants to transfer securities, by book-entry
transfer, through DTC for the account of the purchasers of the securities,
which account is maintained with their respective participants. Under the DTC
rules and in accordance with DTC's normal procedures, transfers of ownership
of securities will be executed through DTC and the accounts of the respective
participants at DTC will be debited and credited. Similarly, the participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing security owners.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a participant will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in securities settled during securities settlement processing
will be reported to the relevant Euroclear or Clearstream participants on the
business day following the DTC settlement date. Cash received in Clearstream
or Euroclear as a result of sales of securities by or through a Clearstream
participant or Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between Clearstream 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 through Clearstream or Euroclear, on the
other, will be effected by DTC in accordance with DTC rules on behalf of the
relevant European international clearing system by the Relevant Depositary;
however, cross market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in the
relevant European international clearing 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.
Clearstream 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, 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 securities, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of book-entry securities will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect
from time to time.
Clearstream is incorporated under the laws of Luxembourg as a
professional depository. Clearstream holds securities for Clearstream
participants and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants, eliminating the need for
physical movement of certificates. Transactions may be settled in Clearstream
in any of 28 currencies, including United States dollars. Clearstream provides
to Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies,
checkering corporations and other organizations. Indirect access to
Clearstream is also available to others, including banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Clearstream participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for Euroclear
participants and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, eliminating the need for physical movement of certificates and any
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 27 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 Euroclear Operator, under contract with
Euroclear Clearance Systems S.C., a Belgian co-operative 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. The
Euroclear Operator 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 securities will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
the amount of payments to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing payments to the beneficial owners of the book-entry
securities that it represents and to each financial intermediary for which it
acts as agent. Each financial intermediary will be responsible for disbursing
funds to the beneficial owners of the book-entry securities that it
represents.
Under a book-entry format, beneficial owners of the book-entry securities
may experience some delay in their receipt of payments, since payments will be
forwarded by the trustee to Cede. Distributions with respect to securities
held through Clearstream or Euroclear will be credited to the cash accounts of
Clearstream participants or Euroclear participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Distributions will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. Because DTC can only act on
behalf of financial intermediaries, the ability of a beneficial owner to
pledge book-entry securities to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of book entry
securities, may be limited due to the lack of physical certificates for
book-entry securities. In addition, issuance of the book-entry securities in
book-entry form may reduce the liquidity of the certificates in the secondary
market since potential investors may be unwilling to purchase securities for
which they cannot obtain physical certificates.
Monthly and annual reports on the trust provided by the servicer to Cede,
as nominee of DTC, may be made available to beneficial owners upon request, in
accordance with the rules, regulations and procedures creating and affecting
the depository, and to the financial intermediaries to whose DTC accounts the
book-entry securities of the beneficial owners are credited.
DTC has advised the transferor and the trustee that, unless and until
definitive securities are issued, DTC will take any action permitted to be
taken by the holders of the book-entry securities under the indenture or trust
agreement only at the direction of one or more financial intermediaries to
whose DTC accounts the book-entry securities are credited, to the extent that
the actions are taken on behalf of financial intermediaries whose holdings
include the book-entry securities. Clearstream or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
security holder under the indenture or trust agreement on behalf of a
Clearstream participant or Euroclear participant only in accordance with its
relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect the actions on its behalf through DTC. DTC may take
actions, at the direction of the related participants, with respect to some
securities which conflict with actions taken with respect to other securities.
Definitive securities will be issued to beneficial owners of the
book-entry securities, or their nominees, rather than to DTC, only if (a) DTC
or the transferor 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 securities and the
transferor or the trustee is unable to locate a qualified successor, (b) the
transferor, at its sole option, elects to terminate a book-entry system
through DTC or (c) after the occurrence of an Event of Servicing Termination,
as deemed herein, beneficial owners having percentage interests aggregating
not less than 51% of the principal balance of the book-entry securities 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 to DTC, is no longer in the best interests of beneficial
owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of the event and the availability through DTC of
definitive securities. Upon surrender by DTC of the global certificate or
certificates representing the book-entry securities and instructions for
re-registration, the trustee will issue definitive securities, and the trustee
will recognize the holders of the definitive securities as holders.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants
of DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform the procedures and the procedures may be discontinued at
any time.
Distributions
On each distribution date, collections on the mortgage loans will be
applied in the following order of priority:
(1) to the servicer, the servicing fee;
(2) as payment for the accrued interest due and any overdue accrued
interest, with interest thereon, on the respective principal balances of
the notes and the certificates;
(3) as principal on the securities, the excess of principal
collections over additional balances created during the preceding
Collection Period, the amount to be allocated between the notes and
certificates pro rata, based on their respective principal balances;
(4) as principal on the securities, as payment for any liquidation
loss amounts on the mortgage loans;
(5) as payment for the premium for the Policy;
(6) to reimburse prior draws made on the Policy; and
(7) any remaining amounts to the seller.
"Liquidation Loss Amount" means with respect to any liquidated mortgage
loan, the unrecovered principal balance of the liquidated mortgage loan at the
end of the Collection Period in which the mortgage loan became a liquidated
mortgage loan after giving effect to the net liquidation proceeds in
connection with the liquidated mortgage loan.
Interest
Note Rate. Interest will accrue on the unpaid principal balance of the
notes at ___% per annum (the "Note Rate") from the closing date to the first
distribution date and after the first distribution date interest will accrue
on the notes from and including the preceding distribution date to but
excluding such current distribution date (each, an "interest accrual period")
at [a floating rate equal to LIBOR (as defined herein) plus ___%] [___%].
[Interest will be calculated on the basis of the actual number of days in each
interest accrual period and a 360-day year.] A failure to pay interest on any
notes on a distribution date and that continues for five days constitutes an
event of default under the indenture.
Pass-Through Rate. Interest will accrue on the unpaid principal balance
of the certificates at ___% per annum (the "Pass-Through Rate") from the
closing date to the first distribution date and after the first distribution
date interest will accrue on the certificates for each interest accrual period
at [a floating rate equal to LIBOR (as defined herein) plus ___%] [___%].
[Interest will be calculated on the basis of the actual number of days in each
interest accrual period and a 360-day year.] A failure to pay interest on any
certificates on a distribution date and that continues for five days
constitutes an event of default under the trust agreement.
Optional Termination
The trust will terminate on the distribution date following the earlier
of (i) _________________________ and (ii) the final payment or other
liquidation of the last mortgage loan in the trust. The mortgage loans will be
subject to optional repurchase by the servicer on any distribution date after
the principal balance is reduced to an amount less than or equal to $ ([5]% of
the initial principal balance). The repurchase price will be equal to the sum
of the outstanding principal balance and accrued and unpaid interest thereon
at the weighted average of the loan rates through the day preceding the final
distribution date.
The Seller
The seller, a wholly owned subsidiary of KeyCorp, 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 seller, the [servicer] or any affiliate of the
foregoing, has guaranteed or is otherwise obligated with respect to the
securities. We refer you to "The Seller" in the prospectus.
The Indenture
The following summary describes terms of the indenture. The summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the indenture. Whenever particular sections or
defined terms of the indenture are referred to, the sections or defined terms
are incorporated herein by reference.
Reports to Noteholders
The indenture trustee will mail to each noteholder, at the noteholder's
request, at its address listed on the note Register maintained with the
indenture trustee a report setting forth amounts relating to the notes.
Events of Default; Rights Upon Event of Default
With respect to the notes, events of default under the indenture will
consist of:
o a default for five days or more in the payment of any interest on any
note;
o a default in the payment of the principal of or any installment of the
principal of any note when the same becomes due and payable;
o a default in the observance or performance of any covenant or
agreement of the trust made in the indenture and the continuation of
the default for a period of 30 days after notice of the default is
given to the trust by the indenture trustee or to the trust and the
indenture trustee by the holders of at least 25% in principal amount
of the notes then outstanding;
o any representation or warranty made by the trust in the indenture or
in any certificate delivered pursuant to or in connection with the
indenture having been incorrect in a material respect as of the time
made, and the breach not having been cured within 30 days after notice
of the breach is given to the trust by the indenture trustee or to the
trust and the indenture trustee by the holders of at least 25% in
principal amount of notes then outstanding; or
o events of bankruptcy, insolvency, receivership or liquidation of the
trust.
[The amount of principal required to be paid to noteholders under the
indenture will generally be limited to amounts available to be deposited in
the collection account. Therefore, the failure to pay principal on the notes
generally will not result in the occurrence of an event of default until the
final scheduled distribution date for the notes.] If there is an event of
default with respect to a note due to late payment or nonpayment of interest
due on a note, additional interest will accrue on the unpaid interest at the
interest rate on the note, to the extent lawful until the interest is paid.
The additional interest on unpaid interest shall be due at the time the
interest is paid. If there is an event of default due to late payment or
nonpayment of principal on a note, interest will continue to accrue on the
principal at the interest rate on the note until the principal is paid. If an
event of default should occur and be continuing with respect to the notes, the
indenture trustee or holders of a majority in principal amount of notes then
outstanding may declare the principal of the notes to be immediately due and
payable. The declaration may, under some circumstances, be rescinded by the
holders of a majority in principal amount of the notes then outstanding. If
the notes are due and payable following an event of default with respect to
the event of default, the indenture trustee may institute proceedings to
collect amounts due or foreclose on trust property or exercise remedies as a
secured party. If an event of default occurs and is continuing with respect to
the notes, the indenture trustee will 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 the notes, if the indenture trustee reasonably believes it
will not be adequately indemnified against the costs, expenses and liabilities
which might be incurred by it in complying with the request. Subject to the
provisions for indemnification and limitations contained in the indenture, the
holders of a majority in principal amount of the outstanding notes will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the indenture trustee, and the holders of a majority
in principal amount of the notes then outstanding may, in some cases, waive
any default with respect to the default, 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.
No holder of a note will have the right to institute any proceeding with
respect to the indenture, unless:
o the holder previously has given the indenture trustee written notice
of a continuing event of default;
o the holders of not less than 51% in principal amount of the
outstanding notes have made written request to the indenture trustee
to institute the proceeding in its own name as indenture trustee;
o the holder or holders have offered the indenture trustee reasonable
indemnity;
o the indenture trustee has for 60 days failed to institute the
proceeding; and
o no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority in principal amount of the notes. In addition, the indenture
trustee and the noteholders, by accepting the notes, will covenant
that they will not at any time institute against the trust any
bankruptcy, reorganization or other proceeding under any federal or
state bankruptcy or similar law.
With respect to the trust, neither the indenture trustee nor the owner
trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in the trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the notes or for the agreements of the trust contained in the indenture.
Covenants
The indenture will provide that the trust may not consolidate with or
merge into any other entity, unless:
o the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia;
o the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
any agreement and covenant of the trust under the indenture;
o no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
o the trust has been advised that the ratings of the securities then in
effect would not be reduced or withdrawn by any rating agency as a
result of the merger or consolidation; and
o the trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any noteholder or certificateholder.
The trust will not, among other things:
o except as expressly permitted by the indenture, sell, transfer,
exchange or otherwise dispose of any of the assets of the trust;
o claim any credit on or make any deduction from the principal and
interest payable in respect of the notes, other than amounts withheld
under the Code or applicable state law, or assert any claim against
any present or former holder of notes because of the payment of taxes
levied or assessed upon the trust;
o dissolve or liquidate in whole or in part;
o permit the validity or effectiveness of the indenture to be impaired
or permit any person to be released from any covenants or obligations
with respect to the notes under the indenture except as may be
expressly permitted by the indenture; or
o permit any lien, charge excise, claim, security interest, mortgage or
other encumbrance to be created on or extent to or otherwise arise
upon or burden the assets of the trust or any part of the assets of
the trust, or any interest in the assets of the trust or the proceeds
of the assets of the trust. The trust may not engage in any activity
other than as specified under "The Trust" herein. The trust will not
incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the notes and the indenture.
Annual Compliance Statement
The trust will be required to file annually with the indenture trustee a
written statement as to the fulfillment of its obligations under the
indenture.
Indenture Trustee's Annual Report
The indenture trustee will be required to mail each year to all
noteholders a report relating to any change in its eligibility and
qualification to continue as indenture trustee under the indenture, any
amounts advanced by it under the indenture, the amount, interest rate and
maturity date of any indebtedness owing by the trust to the indenture trustee
in its individual capacity, any change in the property and funds physically
held by the indenture trustee in its capacity as indenture trustee and any
action taken by it that materially affects the notes and that has not been
previously reported, but if no such changes have occurred, then no report
shall be required.
Satisfaction and Discharge of indenture
The indenture will be discharged with respect to the collateral securing
the notes upon the delivery to the indenture trustee for cancellation of all
the notes or, with limitations, upon deposit with the indenture trustee of
funds sufficient for the payment in full of all the notes.
Modification of Indenture
With the consent of the holders of a majority of the outstanding notes,
the trust and the indenture trustee may execute a supplemental indenture to
add provisions to, change in any manner or eliminate any provisions of, the
indenture, or modify, except as provided below, in any manner the rights of
the noteholders. Without the consent of the holder of each outstanding note
affected, however, no supplemental indenture will:
o change the due date of any installment of principal of or interest on
any note or reduce the principal amount of any note, the interest rate
specified on any note or the redemption price with respect to any note
or change any place of payment where or the coin or currency in which
any note or any interest on any note is payable;
o impair the right to institute suit for the enforcement of provisions
of the indenture regarding payment;
o reduce the percentage of the aggregate amount of the outstanding
notes, the consent of the holders of which is required for any
supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with provisions of the indenture
or of defaults under the indenture and their consequences as provided
for in the indenture;
o modify or alter the provisions of the indenture regarding the voting
of notes held by the trust, the seller or an affiliate of any of them;
o decrease the percentage of the aggregate principal amount of notes
required to amend the sections of the indenture which specify the
applicable percentage of aggregate principal amount of the notes
necessary to amend the indenture or other related agreements; or
o permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture with respect to any of the collateral for
the notes or, except as otherwise permitted or contemplated in the
indenture, terminate the lien of the indenture on any collateral for
the notes or deprive the holder of any note of the security afforded
by the lien of the indenture. The trust and the indenture trustee may
also enter into supplemental indentures, without obtaining the consent
of the noteholders, for the purpose of, among other things, adding any
provisions to or changing in any manner or eliminating any of the
provisions of the indenture or of modifying in any manner the rights
of the noteholders; provided that the action will not materially and
adversely affect the interest of any noteholder.
Voting Rights
At all times, the voting rights of noteholders under the indenture will
be allocated among the notes pro rata in accordance with their outstanding
principal balances.
Matters Regarding the Indenture Trustee and the Seller
Neither the seller, the indenture trustee nor any director, officer or
employee of the seller or the indenture trustee will be under any liability to
the trust or the related noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the indenture or for
errors in judgment; provided, however, that none of the indenture trustee, the
seller or any director, officer or employee of the indenture trustee or seller
will be protected against any liability which would otherwise be imposed by
reason of willful malfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under the
indenture. Subject to limitations set forth in the indenture, the indenture
trustee and any director, officer, employee or agent of the indenture trustee
shall be indemnified by the trust and held harmless against any loss,
liability or expense incurred in connection with investigating, preparing to
defend or defending any legal action, commenced or threatened, relating to the
indenture other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or gross negligence in the performance of its
duties under the indenture or by reason of reckless disregard of its
obligations and duties under the indenture. Any indemnification by the trust
will reduce the amount distributable to the noteholders. All persons into
which the indenture trustee may be merged or with which it may be consolidated
or any person resulting from the merger or consolidation shall be the
successor of the indenture trustee under each indenture.
The Trust Agreement
The following summary describes terms of the trust agreement. The summary
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the trust agreement. Whenever
particular sections or defined terms of the trust agreement are referred to,
the sections or defined terms are incorporated herein by reference. We refer
you to "Description of the Securities" for a summary of additional terms of
the trust agreement.
Reports to Holders
Concurrently with each distribution to the holders of the certificates,
the servicer will forward to the owner trustee for mailing to the holders a
statement setting forth, among other items:
o the amount of interest included in the distribution and the related
certificate rate;
o the amount, if any, of overdue accrued interest included in the
distribution, and the amount of interest thereon;
o the amount, if any, of the remaining overdue accrued interest after
giving effect to the distribution;
o the amount, if any, of principal included in the distribution;
o the amount, if any, of the reimbursement of previous liquidation loss
amounts included in the distribution;
o the amount, if any, of the aggregate unreimbursed liquidation loss
amounts after giving effect to the distribution;
o the servicing fee for the distribution date;
o the pool balance as of the end of the preceding Collection Period;
o 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 Collection Period; and
o the book value of any real estate which is acquired by the trust
through foreclosure or grant of deed in lieu of foreclosure.
In the case of information furnished pursuant to the clauses following
the third, fourth and fifth bullet points above, the amounts shall be
expressed as a dollar amount per security with a $1,000 denomination.
Within [ ] days after the end of each calendar year, the servicer will be
required to forward to the trustee a statement containing the information set
forth in the clauses following the third and eighth bullet points above
aggregated for the calendar year.
Amendment
The trust agreement may be amended by the seller and the owner trustee,
without consent of the holders, to cure any ambiguity, to correct or
supplement any provision or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the trust
agreement or of modifying in any manner the rights of the holders; provided,
however, that the action will not, as evidenced by an opinion of counsel
satisfactory to the owner trustee, adversely affect in any material respect
the interests of any holders. The trust agreement may also be amended by the
seller and the owner trustee with the consent of the holders of notes
evidencing at least a majority in principal amount of then outstanding notes
and holders owning voting interests aggregating not less than a majority of
the aggregate voting interests for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the trust
agreement or modifying in any manner the rights of the holders.
Insolvency Event
"Insolvency Event" means, with respect to any person, any of the
following events or actions; events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
the Person and actions by the Person indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations. Upon
termination of the trust, the owner trustee shall direct the indenture trustee
promptly to sell the assets of the trust, other than the collection account,
in a commercially reasonable manner and on commercially reasonable terms. The
proceeds from any sale, disposition or liquidation of the mortgage loans will
be treated as collections on the mortgage loans and deposited in the
collection account. The trust agreement will provide that the owner trustee
does not have the power to commence a voluntary proceeding in bankruptcy with
respect to the trust without the unanimous prior approval of all holders,
including the seller, of the trust and the delivery to the owner trustee by
each securityholder, including the seller, of a certificate certifying that
the securityholder reasonably believes that the trust is insolvent.
Liability of the Seller
Under the trust agreement, the seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities, other than those incurred by a noteholder or a holder in the
capacity of an investor with respect to the trust, arising out of or based on
the arrangement created by the trust agreement.
Voting Interests
As of any date, the aggregate principal balance of all certificates
outstanding will constitute the voting interest of the trust, except that, for
purposes of determining voting interests, certificates owned by the trust or
its affiliates, other than the seller, will be disregarded and deemed not to
be outstanding, and except that, in determining whether the owner trustee is
protected in relying upon any request, demand, authorization, direction,
notice, consent or waiver, only certificates that the owner trustee knows to
be so owned will be so disregarded. Certificates so owned that have been
pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the owner trustee the pledgor's right so to
act with respect to the certificates and that the pledgee is not the trust or
its affiliates.
Matters Regarding the Owner Trustee and the Seller
Neither the seller, the owner trustee nor any director, officer or
employee of the seller or the owner trustee will be under any liability to the
trust or the related holders for any action taken or for refraining from the
taking of any action in good faith pursuant to the trust agreement or for
errors in judgment; provided, however, that none of the owner trustee, the
seller and any director, officer or employee of the owner trustee or the
seller will be protected against any liability which would otherwise be
imposed by reason of willful malfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under the trust agreement. Subject to limitations set forth in the
trust agreement, the owner trustee and any director, officer, employee or
agent of the owner trustee shall be indemnified by the trust and held harmless
against any loss, liability or expense incurred in connection with
investigating, preparing to defend or defending any legal action, commenced or
threatened, relating to the trust agreement other than any loss, liability or
expense incurred by reason of willful malfeasance, bad faith or gross
negligence in the performance of its duties under the trust agreement or by
reason of reckless disregard of its obligations and duties under the trust
agreement. Any indemnification by the trust will reduce the amount
distributable to the holders. All persons into which the owner trustee may be
merged or with which it may be consolidated or any person resulting from the
merger or consolidation shall be the successor of the owner trustee under each
trust agreement.
Administration Agreement
The ________________________, in its capacity as administrator, will
enter into the administration agreement with the trust and the owner trustee
pursuant to which the administrator will agree, to the extent provided in the
administration agreement, to provide notices and perform other administrative
obligations required by the indenture and the trust agreement.
The Indenture Trustee
[ ] is the indenture trustee under the indenture. The mailing address of
the indenture trustee is [ ], Attention: Corporate Trust Department.
The Owner Trustee
[ ] is the owner trustee under the trust agreement. The mailing address
of the owner trustee is [ ], Attention: Corporate Trust Administration.
Use of Proceeds
The net proceeds from the sale of the securities, which are expected to
be $______________, will be applied by the seller on the closing date towards
the purchase price of the mortgage loans, the payment of expenses related to
the sale and the purchase of the mortgage loans and other corporate purposes.
Federal Income Tax Consequences
The Internal Revenue Service issued final regulations on January 27,
1994, and amended them on June 11, 1996, relating to original issue discount
("OID"). The discussion under "Federal Income Tax Consequences-Taxation of
Debt Securities" in the Prospectus applies with respect to the final OID
regulations.
Prospective purchasers should see "Federal Income Tax Consequences" in
the prospectus for a discussion of the application of federal income tax laws
to the trust and the securities.
State Tax Consequences
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
securities offered hereunder. State income tax law may differ substantially
from the corresponding federal tax law, and this discussion does not purport
to describe any aspect of the income tax laws of any state. Therefore, we
suggest that potential investors consult their own tax advisors with respect
to the various tax consequences of investments in the securities offered
hereunder.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Internal Revenue Code of 1986, as
amended (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 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 local 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 duties on persons who are fiduciaries of Plans subject
to ERISA, including the requirements of investment prudence and
diversification, and the requirement that the Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control with respect to the management or
disposition of the assets of a Plan is considered to be a fiduciary of the
Plan.
[Subject to the considerations discussed in "ERISA Considerations" in the
Prospectus, the notes may be purchased by a Plan. A fiduciary of a Plan must
determine that the purchase of a note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code. Each Plan that
purchases a note will be [deemed/required] to represent that its purchase and
holding of the note [are eligible for the exemption provided under Prohibited
Transaction Class Exemption ("PTCE") 84-14. PTCE 90-1, PTCE 91-38, PTCE 95-60,
PTCE 96-23 or a similar prohibited transaction exemption do not give rise to a
nonexempt prohibited transaction].
In addition, the fiduciary of any Plan for which the underwriter, the
seller, any trustee, any provider of services to the trust or any of their
affiliates (a) has investment or administrative discretion with respect to
Plan assets; (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to Plan assets for a fee and pursuant to an
agreement or understanding that the advice (i) will serve as a primary basis
for investment decisions with respect to the Plan assets and (ii) will be
based on the particular investment needs for the Plan; or (c) is an employer
maintaining or contributing to the Plan should consult with its counsel
concerning whether an investment in the notes may constitute or give rise to a
prohibited transaction before investing in a note.]
[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, 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 the 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 seller 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 seller 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.]
Legal Investment Considerations
The appropriate characterization of the securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase securities, may be subject to significant
interpretive uncertainties. All investors whose investment authority is
subject to legal restrictions should consult their own legal advisors to
determine whether, and to what extent, the securities will constitute legal
investments for them. The seller makes no representation as to the proper
characterization of the securities for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase securities under applicable legal investment restrictions. The
uncertainties described above, and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the securities, may adversely affect the liquidity of the
securities.
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to sell to [ ], the underwriter, and the
underwriter has agreed to purchase from the seller, the securities. The
underwriter is obligated to purchase all the securities offered hereby if any
are purchased. The seller has been advised by the underwriter that it
presently intends to make a market in the securities offered hereby; 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
securities will develop. Distribution of the securities will be made by the
underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the seller
are expected to be $____________ from the sale of the notes and $___________
from the sale of the certificates, before deducting expenses payable by the
seller of $___________. In connection with the purchase and sale of the
securities, the underwriter may be deemed to have received compensation from
the seller in the form of underwriting discounts, concessions or commissions.
The underwriting agreement provides that the seller will indemnify the
underwriter against liabilities, including liabilities under the Securities
Act of 1933, or contribute payments the underwriter may be required to make in
respect of liabilities, including liabilities under the Securities Act of
1933. [The underwriter is an affiliate of the seller.]
Legal Matters
Legal matters with respect to the securities will be passed upon for the
seller by Brown & Wood LLP, New York, New York and for the underwriter by [
_____________ ].
Rating
It is a condition to issuance that each Class of the notes be rated be
rated not lower than _________ by [ ] and _______ by [
___________________________ ]. It is a condition to issuance that the
certificates be rated at least "____" by [ ___________________________ ] and
"____" by [ ]. A securities rating addresses the likelihood of the receipt by
certificateholders and noteholders of distributions on the mortgage loans. The
rating takes into consideration the structural, legal and tax aspects
associated with the certificates and notes. The ratings on the securities do
not, however, constitute statements regarding the possibility that
certificateholders or noteholders 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
beneficial owner...................................24
Cede...............................................24
Clearstream........................................24
Code...............................................37
Cooperative........................................26
credit line agreements..............................4
DTC................................................24
eligible account...................................21
eligible substitute mortgage loan..................19
ERISA..............................................37
Euroclear..........................................24
Euroclear Operator.................................24
European Depositaries..............................24
events of default..................................30
Index Rate.........................................12
Insolvency Event...................................35
interest accrual period............................28
margin.............................................12
mortgage loans......................................5
note Rate..........................................28
OID................................................37
Pass-Through Rate..................................29
pool balance.......................................17
Principal Balance..................................17
Relevant Depositary................................24
repurchase price...................................19
Similar Law........................................38
Substitution Adjustment Amounts....................20
Terms and Conditions...............................26
underwriter........................................39
<PAGE>
$--,---,---,---
[ ] HOME EQUITY
LOAN TRUST ____-_
Issuer
$_________ [Fixed] [Floating] Rate
Asset-Backed Notes
Series ____-_,
$_________ [Fixed] [Floating] Rate
Asset-Backed Certificates
Series ____-_
KeyBank National Association
(Seller)
__________________
PROSPECTUS SUPPLEMENT
[ , --- ]
_____________________
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration filed with
the securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
Prospectus Supplement dated __________ __, ____
To Prospectus dated _____________ __, ____
$-------------
[ ] Home Equity Loan Trust ____-_,
as Issuer
$________ Home Equity Loan Asset-Backed Certificates, Series ____-_
$_______ Home Equity Loan Asset-Backed Notes, Series ____-_
[ ] KeyBank National Association,
as servicer as seller
<TABLE>
<CAPTION>
[Certificates] Principal [Certificate][Note] Price to Underwriting Proceeds to the
[Notes] Balance Rate Public(1) Discount(2) Seller(3)
- ---------------------- ----------------- ------------------------ ------------- ------------------- ------------------
$ % % % %
<S> <C> <C> <C> <C> <C>
Total $ $ $ $
</TABLE>
- ----------
(1) Plus accrued interest, if any, at the [certificate] [note] rate from
____________ ____, ______
(2) The seller has agreed to indemnify [the underwriter] against liabilities,
including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, payable by the seller, estimated to be
$___________.
The [Certificates][Notes]
o the certificates represent a beneficial interest in a trust, whose assets
are a pool of closed-end [adjustable][fixed] rate home equity revolving
credit line loans and property relating to such loans
o the notes are secured by assets of the trust
o currently have no trading market
o are obligations of the trust only and are not obligations of the seller
or the servicer or [its/their] affiliates
Credit Enhancement
o will be provided in the form of [overcollateralization] [an irrevocable
and unconditional certificate guaranty insurance policy issued by
[insurer]]
Review the information in Risk Factors on pages S-9 and S-10 of this
prospectus supplement and on pages 2-5 of the prospectus.
o For complete information about the [certificates][notes] read
both this prospectus supplement and the prospectus. This prospectus
supplement must be accompanied by the prospectus if it is being used to
offer and sell the [certificates][notes].
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]
<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 certificates in which
McDonald acts as principal. McDonald may also act as agent in these
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.
<PAGE>
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 April 10, 2000.
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 the 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 prospectus supplement will set forth the specific assets of the trust and
the seller or sellers from whom such assets are acquired. The assets may
include:
(a) one or more pools of:
o closed-end and revolving home equity loans or certain balances
thereof and 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
income-producing non-residential units;
o 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;
o private securities; and
o agency securities;
(b) all monies due under the above assets, which may be net of certain
amounts payable to the servicer; and
(c) funds or accounts established for the trust or one or more forms of
enhancement.
The prospectus supplement will state if the trust 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 SEC 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 market will continue for the life of the securities.
One or more underwriters, as specified in the prospectus supplement, may
expect to make a secondary market in the securities, but they 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.
Payments on Securities Are Limited to the Assets of Trust
The securities will be payable solely from the assets of the trust,
including if applicable, any amounts available pursuant to any enhancement.
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. If
payments from the assets of the trust become insufficient to make payments on
the securities, no other assets would be available for payment of the
deficiency and you could experience a loss.
In addition, as specified in the prospectus supplement, at certain
times, trust assets and any funds remaining in the collection account or
distribution account immediately after making all payments due on the
securities and other required payments, may be released or remitted to the
seller, the servicer, the provider of any enhancement or any other entitled
person and will not be available for making payments to securityholders.
We refer you to "The Agreements - Assignment of Trust Assets."
Enhancement May Be Insufficient to Cover Losses
Although enhancement is intended to reduce the risk of delinquent
payments or losses to holders of securities, the amount of the enhancement, if
any, will be limited, as set forth in the prospectus supplement. The available
enhancement may decline or be depleted before the securities are paid in full,
and as a result, you may suffer losses. For example, enhancement may be
insufficient in cases of greater than anticipated losses or where the
enhancement provider is unable to meet its obligations.
We refer you to "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. An investor
who purchases a security at a discount may realize a lower yield if
prepayments are less than anticipated, alternatively, an investor who
purchases a security at a premium may realize a lower yield if prepayments are
greater than anticipated. The timing of principal payments of the securities
of a series will be affected by a number of factors, including the following:
o 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,
o the manner of allocating principal payments among the classes
of securities as specified in the prospectus supplement and
o the exercise by the entitled party 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 on a distribution date will
include all interest accrued during the period specified in the 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, the proceeds from any
liquidation, insurance or condemnation proceedings will be available to
satisfy the outstanding balance of the junior mortgage only to the extent that
the claims of senior mortgagees have been satisfied in full, including any
related foreclosure costs. 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.
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. The trust 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. If a decline occurs, the rates of
delinquencies, foreclosure and losses on the junior loans may increase,
resulting in losses in the securities.
Costs for Cleaning Environmentally Contaminated Property May Result in Losses
Under certain state and federal laws, an environmentally contaminated
property may give rise to a lien on the property to assure the costs of
cleanup. In addition these laws may impute liability for cleanup costs to the
lender if the lender was involved in the operations of the borrower, even if
the environmental damage was caused by a prior owner. Any lien or costs
attached to a contaminated property could result in a loss to securityholders.
We refer you to "Legal Aspects of the Loans-Environmental Risks" in
this prospectus for more detail.
State and Federal Laws May Limit Ability to Collect on Loans
Applicable federal and state laws regulate interest rates and other
charges and require certain disclosures. In addition, other 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 mortgage loans.
Depending on the provisions of the applicable law and the specific facts
involved, violations may limit the ability to collect all or part of the
principal of or interest on the mortgage loans. In some cases, the borrower
may be entitled to a refund of amounts previously paid and could subject the
trust to damages and administrative enforcement.
The home improvement contracts are also subject to federal and state
laws which protect a homeowner from defective craftmanship or incomplete work
by a contractor. These laws permit the borrower to withhold payment if the
work does not meet the quality and durability standards agreed to by the
homeowner and the contractor. These laws may have the effect of subjecting the
trust to all claims and defenses which the borrower had against the seller.
We refer you to "Legal Aspects of the Loans" in this prospectus for
more detail.
Rating of the Securities Does Not Assure Payment
It will be a condition to the issuance of the securities offered
hereby that they be rated in one of the four highest rating categories by each
rating agency identified in the prospectus supplement. The ratings of the
securities will be based on, among other things, the adequacy of the value of
the trust assets and any enhancement. The rating should not be deemed a
recommendation to purchase, hold or sell the securities, particularly since
the ratings do not address market price or suitability for an investor. There
is no assurance that the ratings will remain in effect over the life of the
securities, and may be lowered or withdrawn.
We refer you to "Ratings" in this prospectus for more detail.
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 at
any time will equal the principal amount of the securities. In addition, under
any situation in which the trust assets are required to be sold, the proceeds
will be paid to cover administrative costs before being paid to you. The net
proceeds may be insufficient to pay the principal and interest on the
securities.
Description of the Securities
General
The securities will be issued in series. The notes will be issued
pursuant to an indenture between the trust and the trustee identified in the
prospectus supplement. A form of indenture has been filed as an exhibit to the
registration statement of which this prospectus forms a part. The certificates
will be issued in pursuant to either a pooling and servicing agreement or a
trust agreement among KeyBank National Association as the seller, the servicer
specified in the prospectus supplement 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. The term "Agreement" is
used in this prospectus to refer to, 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.
The following summaries describe all of the material provisions in
the Agreements common to each series of securities. Where particular
provisions or terms used in the Agreements are referred to, the actual
provisions are incorporated herein by reference as part of such summaries.
Each series of securities will consist of one or more classes of
securities, one or more of which may be:
o compound interest securities,
o fixed interest securities,
o variable interest securities,
o planned amortization class securities,
o zero coupon securities,
o principal only securities,
o interest only securities, or
o participating securities.
A series may also include one or more classes of 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 prospectus supplement. Upon satisfaction of the conditions, if any,
applicable to a class of a series, as described in the 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 prospectus
supplement, one or more classes of a series may be available in book-entry
form only.
As specified in the prospectus supplement, payments of principal of
and interest on a series of securities will be made on the distribution dates
specified in the prospectus supplement by check mailed to registered
securityholders at their registered addresses. Payments may be made by wire
transfer -at the expense of the requesting securityholder- as described in the
prospectus supplement. The 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 prospectus supplement. Typically, all payments with respect to the trust
assets for a series, together with reinvestment income thereon, amounts
withdrawn from any reserve fund, and amounts available pursuant to any other
enhancement specified in the prospectus supplement will be deposited directly
into a separate collection account established by the trustee or the servicer.
The amount deposited to the collection account, if and as provided in the
prospectus supplement, will be net of certain amounts payable to the servicer
and any other person specified in the prospectus supplement. Amounts on
deposit in the collection account will be deposited into the distribution
account and will be available to make payments on securities of a series on
the next distribution date. See "The Trusts--Collection and Distribution
Accounts."
Valuation of the Trust Assets
If specified in the prospectus supplement for a series of notes, each
trust asset included in the trust for a series will be assigned an initial
asset value. The asset value of the trust assets will be equal to the product
of the asset value percentage as set forth in the indenture and the lesser of:
o the stream of remaining regularly scheduled payments on the
trust assets, net, unless otherwise provided in the 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
o the then principal balance of the trust assets.
Typically, the initial asset value of the trust assets will be at least equal
to the principal amount of the notes of the related series at the date of
issuance.
The "Assumed Reinvestment Rate", if any, for a series will be the
highest rate permitted by each rating agency specified in the prospectus
supplement or a rate insured by means of a surety bond, guaranteed investment
contract, deposit agreement or other arrangement satisfactory to those rating
agencies. If the Assumed Reinvestment Rate is so insured, the 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 from the date and at the rate per annum specified,
or calculated in the method described, in the prospectus supplement. Interest
on a class of securities of a series will be payable on the distribution date
and in the priority specified in the prospectus supplement. The rate of
interest on the 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 or as prepayments occur with
respect to such loans or underlying loans, as applicable. Principal only
securities will be entitled to little or no interest distributions. Any
interest on zero coupon securities that is not paid on a distribution date
will accrue and be added to the principal balance.
Interest payable on the securities on a distribution date will
include all interest accrued during the period specified in the prospectus
supplement. In the event interest accrues during the calendar month preceding
a distribution date, the effective yield to securityholders 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, principal payments will be made to those
securityholders entitled to principal, to the extent set forth in the
prospectus supplement. The principal payments will be made in an aggregate
amount determined as specified in the prospectus supplement and will be
allocated among the respective classes of a series in the manner, at the times
and in the priority set forth in the prospectus supplement.
Interest only securities are not entitled to principal. Interest only
securities may be assigned a notional amount, but such value will be used
primarily for the calculation of interest payments and will 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 on which the principal of the class of notes will be fully
paid. With respect to each class of certificates, the final scheduled
distribution date will be the date on which the entire aggregate principal
balance of the class of certificates is expected to be reduced to zero. These
calculations will be based on the assumptions described in the prospectus
supplement. The final scheduled distribution date for each class of securities
will be specified in the prospectus supplement.
The actual final distribution date of the securities of a series will
depend primarily upon the rate of principal payment of the loans and the
underlying loans relating to the private securities and the agency securities,
as applicable, in the trust. Since payments on the trust 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 the certificates, as a result of delinquencies,
defaults and liquidations of the trust 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 trust assets. See "Weighted Average Life of the
Securities".
Special Redemption
If specified in the prospectus supplement, under certain
circumstances, one or more classes of securities may be subject to special
redemption, in whole or in part, if a determination is made that the amount of
interest that will accrue on the trust assets will be less than the amount of
interest that will accrue on the securities. In such event, the trustee will
redeem a principal amount of securities as this will cause the available
interest amount to equal the amount of interest that will accrue on the
securities outstanding after such redemption.
Optional Redemption, Purchase of Trust Assets or Securities, Termination of
Trust
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. Alternatively, if specified in
the prospectus supplement, the seller, the servicer, or another entity
designated in the prospectus supplement may, at its option, cause an early
termination of a trust by repurchasing all of the trust assets from the trust.
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 prospectus supplement. If specified
in the 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 securityholders could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the trust 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. In general, the weighted average
life of a security will be influenced by the rate at which the amount financed
under the loans or underlying loans, as applicable, included in the trust 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 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 and the
percentage of the original principal amount of each class of securities that
would be outstanding on specified distribution dates based on the assumptions
stated in the prospectus supplement.
There is, however, no assurance that prepayment of the loans or
underlying loans, as applicable, included in the trust will conform to any
level of any prepayment standard or model specified in the 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 will be secured by the pledge of the assets of the trust,
and the certificates will represent interests in the trust assets, or in a
group of assets specified in the prospectus supplement. The trust of each
series will include assets composed of:
o the loans;
o amounts available from the reinvestment of payments on the
trust assets at the Assumed Reinvestment Rate, if any,
specified in the prospectus supplement;
o enhancements, as described under "Enhancement";
o properties that secured a loan but which are acquired by
foreclosure or deed in lieu of foreclosure or repossession; and
o the amount, if any, initially deposited in the collection
account or distribution account for a series as specified in
the prospectus supplement.
The securities will be non-recourse obligations of the trust.
Typically, the assets of the trust will serve as collateral for only one
series of securities. Noteholders may only proceed against such collateral in
the case of a default and may not proceed against any assets of the seller,
any of its affiliates or the assets of the trust not pledged to secure such
notes.
The trust assets for a series will be sold by the seller to the
trust. Private securities will be purchased by the seller in secondary market
transactions, not from the issuer of the securities or an affiliate of the
issuer. 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 trust assets will be transferred by the seller to the trust. Loans
relating to a series will be serviced by the servicer specified in the
prospectus supplement, which may be the seller, pursuant to a pooling and
servicing agreement or a servicing agreement.
A trust relating to a series of securities may be a business trust
formed pursuant to a trust agreement between the seller and the trustee, as
described in the prospectus supplement. The trust assets may consist of any
combination of loans, private securities and agency securities, as specified
in the 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 trust assets and other assets contemplated herein and in the
prospectus supplement and the related proceeds, 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.
The Loans
The term "loans" as used in this prospectus includes mortgage loans,
which may be closed-end or revolving credit line home equity loans, and home
improvement contracts.
Mortgage Loans.
The property which secures repayment of the loans is referred to as
the "mortgaged properties". The trust assets for a series may consist, in
whole or in part, of closed-end and revolving home equity loans or certain
balances thereof and loans of which the proceeds have been applied to the
purchase of the related mortgaged property 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 in this section and in the prospectus supplement.
As more fully described in the 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 prospectus supplement or repaid from time to time.
If specified in the prospectus supplement, new draws by borrowers under the
revolving credit line loans will automatically become part of the trust. 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 prospectus supplement.
Typically, the full principal amount of a closed-end loan is advanced
at origination of the loan and 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 prospectus supplement, interest on
each mortgage loan is calculated on the basis of the outstanding principal
balance of such loan multiplied by the interest rate thereon and further
multiplied by a fraction described in the prospectus supplement. The original
terms to stated maturity of the loans usually 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. The mortgaged properties may consist of:
o detached individual dwellings,
o individual condominiums,
o townhouses,
o duplexes,
o row houses, and
o individual units in planned unit developments.
As specified in the prospectus supplement, 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 of at least ten years 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 a small portion (no more
than 5.00%) of mixed-use properties that are partly income producing
non-residential properties. At least 50% of the square footage of each of
these properties are residential. Also included in this category are
properties containing five or more residential units and no non-residential
space. These mixed-use properties may be owner occupied or investor properties
and the loan purpose may be a refinancing or a purchase.
Typically, 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 prospectus
supplement. The basis for a representation that a given percentage of the
loans are secured by single family property that is owner-occupied usually is
either:
o 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
o 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 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 prospectus supplement and may take into account the
amounts of any related senior mortgage loans.
Home Improvement Contracts.
The trust assets for a series may consist, in whole or part, of home
improvement installment sales contracts and installment loan agreements
originated by a home improvement contractor in the ordinary course of
business. As specified in the prospectus supplement, the home improvement
contracts will either be unsecured or secured by the mortgages primarily on
single family properties which are usually subordinate to other mortgages on
the same mortgaged property or by purchase money security interests in home
improvements. As specified in the 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 in this section and in the prospectus supplement.
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 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 prospectus supplement.
Some loans may be delinquent or non-performing as specified in the
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 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
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 prospectus supplement. As further described in
the prospectus supplement, the loans for a series may include loans that do
not have a specified stated maturity.
The prospectus supplement for each series will provide information
with respect to the loans that are trust 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 interest rate on the loans,
and, in the case of adjustable rate loans, the range and weighted
average of the current interest 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 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 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 in the
previous paragraph 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.
Trust assets for a series may consist, in whole or in part, of
private securities which include pass-through certificates representing
beneficial interests in loans and collateralized obligations secured by loans.
The private securities will have previously been:
o offered and distributed to the public pursuant to an effective
registration statement, or
o 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 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.
Although individual loans underlying the private securities, may be
insured or guaranteed by the United States or an agency or instrumentality of
the United States, they need not be, and private securities themselves will
not be so insured or guaranteed. 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. The underlying loans will be
secured by mortgages on mortgaged properties.
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 of the issuer. 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 under 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. As specified in the prospectus supplement, the obligations of the PS
Sponsor will be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Typically, 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 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.
As specified in the prospectus supplement, 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 prospectus supplement.
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 trust assets
includes private securities will specify the material terms of the private
securities, which may include:
(a) the aggregate approximate principal amount and type of the
private securities to be included in the trust for such series;
(b) certain characteristics of the underlying loans including:
o the payment features of the underlying loans, i.e., whether
they are fixed rate or adjustable rate and whether they
provide for fixed level payments or other payment features,
o the approximate aggregate principal balance, if known, of
the underlying loans insured or guaranteed by a governmental
entity,
o the servicing fee or range of servicing fees with respect to
the underlying loans,
o the minimum and maximum stated maturities of the underlying
loans at origination,
o the lien priority and credit utilization rates, if any, of
the underlying loans, and
o the delinquency status and year of origination of the
underlying loans;
(c) the maximum original term-to-stated maturity of the private
securities;
(d) the weighted average term-to-stated maturity of the private
securities;
(e) the pass-through or certificate rate or ranges for the private
securities;
(f) the PS Sponsor, the PS Servicer (if other than the PS Sponsor)
and the PS Trustee for such private securities;
(g) 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;
(h) 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
(i) the terms on which underlying loans may be substituted for
those originally underlying the private securities.
Agency Securities
Trust assets for a series may consist, in whole or in part, of agency
securities which include securities issued by Ginnie Mae, Freddie Mac and
Fannie Mae [or another government sponsored enterprise that has a comparable
market capitalization and that makes information publicly available comparable
to that of Exchange Act reporting companies].
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 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 Ginnie Mae, Freddie Mac and Fannie Mae
certificates in this prospectus supplement are descriptions of certificates
representing proportionate interests in a pool of mortgage loans and in the
payments of principal and interest thereon. Ginnie Mae, Freddie Mac or Fannie
Mae 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 interest prior or subsequent to distributions on other
certificates representing interests in the same pool of mortgage loans. The
terms of the agency certificates to be included in a trust and of the
underlying mortgage loans will be described in the prospectus supplement.
Ginnie Mae.
Ginnie Mae is a wholly owned corporate instrumentality of the United
States within HUD. Section 306(g) of Title III of the National Housing Act of
1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pools of loans guaranteed or insured by the FHA or the VA
and 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, Ginnie Mae is authorized to borrow from the
United States Treasury with no limitations as to amount.
Freddie Mac.
Freddie Mac is a corporate instrumentality of the United States
created pursuant to Title III of the Emergency Home Finance Act of 1970, as
amended. Freddie Mac'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. Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of urgently needed housing.
It seeks to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary markets for
conventional mortgages. The principal activity of Freddie Mac currently
consists of the purchase of first lien conventional 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. Freddie Mac is
confined to purchasing, so far as practicable, conventional mortgage loans and
participation interests in conventional mortgage loans which it deems to be of
such quality, type and class as to meet the purchase standards imposed by
private institutional mortgage investors.
Freddie Mac certificates are not guaranteed by the United States or
by any Federal Home Loan Bank and do not constitute debts or obligations of
the United States or any Federal Home Loan Bank. The obligations of Freddie
Mac under its guaranty are obligations solely of Freddie Mac and are not
backed by, or entitled to, the full faith and credit of the United States. If
Freddie Mac were unable to satisfy its obligations, distributions to holders
of Freddie Mac certificates would consist solely of payments and other
recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of Freddie Mac certificates would be affected by
delinquent payments and defaults on such mortgage loans.
Freddie Mac certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of
the first day of the month. The first remittance to a registered holder of a
Freddie Mac certificate will be distributed so as to be received normally by
the 15th day of the second month following the month in which the purchaser
became a registered holder of such Freddie Mac 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 Freddie Mac
certificates sold by Freddie Mac on or after January 2, 1985, and makes
payments of principal and interest each month to the registered holders in
accordance with such holders' instructions.
Fannie Mae.
Fannie Mae is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. Fannie Mae was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately-managed
corporation by legislation enacted in 1968.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, allowing lenders to make more loans.
Fannie Mae acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, expanding the total
amount of funds available for housing. Operating nationwide, Fannie Mae helps
to redistribute mortgage funds from capital-surplus to capital-short areas.
Fannie Mae guarantees to each registered holder of a Fannie Mae
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 Fannie
Mae were unable to perform such obligations, distributions on Fannie Mae
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 Fannie Mae certificates. The
obligations of Fannie Mae under its guarantees are obligations solely of
Fannie Mae and are not backed by, nor entitled to, the full faith and credit
of the United States.
Fannie Mae certificates evidencing interests in pools of mortgage
loans formed on or after May 1, 1985, other than Fannie Mae 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 Fannie Mae certificate will be
made by Fannie Mae on the 25th day of each month to the persons in whose name
the Fannie Mae certificate is entered in the books of the Federal Reserve
Banks, or registered on the Fannie Mae certificate register in the case of
fully registered Fannie Mae certificates, as of the close of business on the
last day of the preceding month. With respect to Fannie Mae certificates
issued in book-entry form, distributions thereon will be made by wire, and
with respect to fully registered Fannie Mae certificates, distributions
thereon will be made by check.
Stripped Securities.
Agency securities may consist of one or more stripped securities,
each as described in this prospectus and in the prospectus supplement, issued
by Ginnie Mae, Freddie Mac, Fannie Mae [or another government sponsored
enterprise that has a comparable market capitalization and that makes
information publicly available comparable to that of Exchange Act reporting
companies]. Each such agency security will represent an undivided interest in
all or part of either only the principal distributions or only the interest
distributions, or in some specified portion of the principal and interest
distributions on certain agency certificates. The underlying securities will
be held under a trust agreement by a trustee named in the prospectus
supplement. The prospectus supplement will specify whether the relevant agency
will guarantee the stripped agency security to the same extent as such entity
guarantees the underlying securities backing such stripped agency security.
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 prospectus supplement
to be initially deposited by the seller, all amounts received on or with
respect to the trust assets and, usually, the income earned thereon. As
specified in the 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 distribution account to be established by the
trustee for such series, each in the manner and at the times established in
the prospectus supplement. Certain amounts available pursuant to any
enhancement, as provided in the prospectus supplement, will also be deposited
in the distribution account. All amounts deposited in the distribution account
will be available, as specified in the prospectus supplement, for:
o application to the payment of principal of and interest on such
series of securities on the next distribution date,
o the making of adequate provision for future payments on certain
classes of securities, and
o any other purpose specified in the 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
or any other entitled person in the manner and at the times established in the
prospectus supplement. The trustee will invest the funds in the collection and
distribution accounts in Eligible Investments maturing, with certain
exceptions, no later than the day preceding, in the case of the collection
account, the date on which funds are due to be deposited in the distribution
account, and in the case of the distribution account, the next distribution
date. [In no case will Eligible Investments mature later than one year after
their purchase.] In the case of funds in the collection account, the trustee
will invest the funds no later than the day preceding the date the funds are
due to be deposited in the distribution account or otherwise distributed and,
in the case of funds in the distribution account, the trustee will invest the
funds no later than the day preceding the next distribution date for the
related series of securities. "Eligible Investments" include, as is acceptable
to the rating agency, among other investments:
o obligations of the United States and certain government
agencies,
o federal funds,
o certificates of deposit,
o commercial paper,
o demand and time deposits and banker's acceptances,
o certain repurchase agreements of United States government
securities, and
o certain guaranteed investment contracts.
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 prospectus supplement.
Enhancement
If stated in the prospectus supplement relating to a series of
securities, simultaneously with the seller's assignment of the trust assets to
the trustee, the seller will obtain enhancement in favor of the trustee on
behalf of some or all securityholders.
Enhancement will support the payment of principal and interest on the
securities, and may be applied for other purposes to the extent and under the
conditions set forth in the prospectus supplement. If so specified in the
prospectus supplement, any of the enhancements may be structured so as to
protect against losses relating to more than one trust.
Enhancement may take the form of:
Subordinate Securities
If specified in the prospectus supplement, enhancement for a series
may consist of one or more classes of subordinate securities. The rights of
holders of 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, but only to the extent described in the
prospectus supplement.
Insurance
If stated in the prospectus supplement, enhancement for a series may
consist of special hazard insurance policies, bankruptcy bonds and other types
of insurance relating to the trust assets, as described in this section and in
the prospectus supplement.
Pool Insurance Policy.
If specified in the prospectus supplement, the seller will obtain a
pool insurance policy for the loans in the trust. The pool insurance policy
will cover most losses caused by 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 prospectus supplement.
Special Hazard Insurance Policy.
Although the terms of special hazard insurance policies vary to some
degree, they typically provide that, where there has been damage to property
securing a defaulted or foreclosed loan and 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:
(a) the cost of repair or replacement of such property, or
(b) 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, 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 clause
(a) 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 clause (b) 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
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 "Legal Aspects of the
Loans." If provided in the prospectus supplement, the seller or other entity
specified in the prospectus supplement will obtain a bankruptcy bond or
similar insurance contract 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 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 prospectus supplement for all loans in the trust for such
series. Typically, the aggregate amount of coverage will be reduced by
payments made under the bankruptcy bond and will not be restored.
Reserve Funds
If so specified in the prospectus supplement relating to a series of
securities, the seller will establish one or more reserve funds with the
trustee as part of the trust for such series or for the benefit of any
enhancer. The seller will deposit in the reserve funds cash, a letter or
letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of each rating agency rating the securities
in the amount specified in the prospectus supplement. In the alternative or in
addition to such deposit, a reserve fund may be funded over time through
application of all or a portion of the excess cash flow from the trust assets,
as described in the 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 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 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
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 the
entity will provide certain payments on the securities of such series in the
event that aggregate scheduled principal payments and prepayments on the trust
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 the prospectus supplement, the seller and the trustee
will enter into a guaranteed investment contract or an investment agreement,
or a "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 the deposit agreement.
Derivative Products
If specified in the prospectus supplement, 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:
o maintaining timely payments to securityholders or providing
additional protection against losses on the assets included in
such trust,
o paying administrative expenses, or
o establishing a minimum reinvestment rate on the payments made
in respect of such assets or principal payment rate on such
assets.
These 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 prospectus supplement.
Servicing of Loans
General
The servicer will provide customary servicing functions with respect
to loans comprising the trust assets in the trust pursuant to the related
servicing agreement or pooling and servicing agreement, as the case may be. 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, if specified in the prospectus
supplement, the servicer 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. The servicer may, in its discretion:
o waive any assumption fee, late payment charge, or other charge
in connection with a loan, and
o to the extent provided in the related Agreement,
arrange with an obligor a schedule for curing delinquencies by
modifying the due dates for scheduled payments on such loan.
As specified in the prospectus supplement, the servicer, to the
extent permitted by law, may establish and maintain escrow or impound 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. If loans do not require such payments under the loan documents, 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:
o taxes,
o assessments,
o mortgage and hazard insurance, o to refund to obligors amounts
determined to be overages,
o to pay interest to obligors on balances in the escrow account
to the extent required by law,
o to repair or otherwise protect the property securing the
related loan, and
o to clear and terminate such escrow account.
The servicer will be responsible for the administration of the escrow accounts
and may make advances to such account when a deficiency exists.
Deposits to and Withdrawals From the Collection Account
As specified in the prospectus supplement, the trustee or the
servicer will establish the collection account in the name of the trustee.
Typically, the collection account will be an account maintained:
o at a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated by
each rating agency rating the securities of such series at
levels satisfactory to each rating agency or
o 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.
As specified in the 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 prospectus supplement, the
servicer will be entitled to receive as additional compensation any interest
or other income earned on funds in the collection account.
As specified in the prospectus supplement, the servicer, the trustee
or the seller, as appropriate, will deposit into the collection account 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 the time period specified in
the prospectus supplement after the date of receipt, the following payments
and collections received or made by it, other than in respect of principal of
and interest on the trust assets due on or before such cut-off date:
o all payments on account of principal, including prepayments, on
the trust assets;
o all payments on account of interest on the trust assets after
deducting, 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;
o all amounts received by the servicer in connection with the
liquidation of trust assets or property acquired in respect of
liquidation, whether through foreclosure sale, repossession or
otherwise, including payments in connection with such trust
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,
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;
o all proceeds under any title insurance, hazard insurance or
other insurance policy covering any trust 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;
o all amounts required to be deposited from any applicable
reserve fund pursuant to the related Agreement;
o all advances of delinquent payments of principal and interest
on a loan or of other payments specified in the Agreement made
by the servicer as required pursuant to the related Agreement;
and
o all repurchase prices of any trust assets repurchased by the
servicer or the seller pursuant to the related Agreement.
Typically, the servicer is permitted, from time to time, to make
withdrawals from the collection account for each series for the following
purposes:
o 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;
o 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;
o 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;
o 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;
o to reimburse itself for expenses incurred by and recoverable by
or reimbursable to it pursuant to the related Agreement;
o to pay to the applicable person with respect to each trust
asset or REO property 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;
o to make payments to the trustee of such series for deposit into
the distribution account, if any, or for remittance to the
securityholders of such series in the amounts and in the manner
provided for in the related Agreement; and
o 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, it may, at any time, withdraw
such amount from such collection account.
Advances and Limitations
The prospectus supplement will describe the circumstances, if any,
under which the servicer will make advances with respect to delinquent
payments on loans. The servicer may be obligated to make advances of, among
other things, delinquent payments of interest and principal, 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 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, distribution
account, or from a specified reserve fund, to the extent specified in the
prospectus supplement.
Maintenance of Insurance Policies and Other Servicing Procedures
Standard Hazard Insurance; Flood Insurance.
Except as specified in the prospectus supplement, the servicer will
be required to maintain or either (a) cause the obligor on each loan to
maintain or (b) 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 (b), 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 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, as
limited by 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, the policies will not contain
identical terms and conditions. The basic terms are usually determined by
state law but will be similar in many respects. Most hazard insurance policies
typically do not cover any physical damage resulting from:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement, including earthquakes, landslides, and
mudflows,
o nuclear reaction,
o wet or dry rot,
o vermin,
o rodents,
o insects or domestic animals,
o theft, and
o 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 securityholders. 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:
o the actual cash value, i.e., the replacement cost less physical
depreciation, of the property, including the improvements, if
any, damaged or destroyed or
o 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.
Typically, coverage will be in an amount at least equal to the
greater of the amount necessary to avoid the enforcement of any co-insurance
clause contained in the policy and the outstanding principal balance of the
related loan. The servicer typically 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 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 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 the loans come into and continue in default and
as to which no satisfactory arrangements can be made for the collection of
delinquent payments.
In connection with 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:
o such restoration or foreclosure will increase the liquidation
proceeds in respect of the related loan available to the
securityholders after reimbursement to itself for such expenses
and
o 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 to the extent provided in the 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 prospectus
supplement.
Enforcement of Due-On-Sale Clauses
Typically, 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 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
The servicer will be entitled to a periodic fee as servicing
compensation in an amount to be determined as specified in the prospectus
supplement. The servicing fee may be fixed or variable. In addition, the
servicer may 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 usually be required to pay
interest on the amount prepaid only to the date of prepayment. If and to the
extent provided in the prospectus supplement, in order that one or more
classes of the securityholders 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 securityholders may occur.
As specified in the 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 securityholders 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 has been exhausted, the related securityholders 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 securityholders.
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
securityholders to receive any related proceeds of insurance policies,
liquidation proceeds or amounts derived from other enhancement. Typically, the
servicer is also entitled to reimbursement from the collection account for
advances.
In general, 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 securityholders of such series.
Evidence as to Compliance
If specified in the 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 the
firm has examined certain documents and records relating to the servicing of
the loans by the servicer and that, on the basis of the examination, the firm
is of the opinion that the servicing has been conducted in compliance with
such Agreement, except for exceptions as the firm believes to be immaterial
and any other exceptions that are set forth in the statement.
If specified in the prospectus supplement, the applicable Agreement
for each series will also provide for delivery to the trustee 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.
Termination and Liability of the Servicer
The servicer will be identified in the prospectus supplement. The
servicer may be the seller or 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. In general, 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."
The servicer usually does not have the right to assign its rights and
delegate its duties and obligations under the related Agreement unless the
successor servicer accepting the assignment or delegation:
o services similar loans in the ordinary course of its business,
o is reasonably satisfactory to the trustee for the related
series,
o has a net worth of not less than the amount specified in the
related Agreement,
o 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
o executes and delivers to the trustee an agreement, in form and
substance reasonably satisfactory to the trustee, which
contains an assumption by the successor 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 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 in this paragraph; 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. However, the servicer may have the right to enter into
subservicing arrangements which will be referred to in the related Agreement.
Any such arrangement will not relieve the servicer from its obligations under
the servicing agreement.
Typically, 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 trust, the seller or the securityholders 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:
o any breach of warranty or representations made under such
Agreement,
o the failure to perform its obligations in compliance with any
standard of care set forth in such Agreement, or
o 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.
Each Agreement will further provide that the servicer and any director,
officer, employee or agent of the servicer is entitled to indemnification from
the 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 or
by reason of reckless disregard of obligations and duties. 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 action which it may deem necessary or desirable with respect to
the related Agreement and the rights and duties of the parties and the
interests of the securityholders. In such event, the legal expenses and costs
of such action and any resulting liability may be expenses, costs, and
liabilities of the trust and the servicer may be entitled to be reimbursed out
of the collection account.
The Agreements
The following summaries describe the material 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 Trust 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 trust assets and other property to be transferred to the
trust for a series. Such assignment will usually include all principal and
interest due on or with respect to the trust assets after the cut-off date
specified in the prospectus supplement. The trustee will, concurrently with
such assignment, execute and deliver the securities.
Assignment of Loans.
Typically, the seller will, as to each loan, deliver or cause to be
delivered to the trustee, or, as specified in the prospectus supplement, a
custodian on behalf of the trustee, the mortgage note endorsed without
recourse to the order of the trustee or in blank, the original mortgage with
evidence of recording indicated thereon and an assignment of the mortgage in
recordable form. In the case of any mortgage not returned from the public
recording office, a copy of the mortgage will be delivered, together with a
certificate that the original of the mortgage was delivered to the recording
office. The trustee or a custodian will hold the documents in trust for the
benefit of the securityholders.
In general, 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
execute a UCC-1 financing statement identifying the trustee as the secured
party and identifying all home improvement contracts as collateral. Usually,
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 "Legal Aspects of the Loans--The Home Improvement
Contracts."
With respect to loans secured by mortgages, if so specified in the
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 prospectus supplement, the
seller will cause such assignments to be recorded within the time after
issuance of the securities as is specified in the prospectus supplement, in
which event, the Agreement may 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 under "-Repurchase and Substitution of Defective
Trust Assets" with respect to repurchases by reason of defective
documentation. The enforcement of the repurchase obligation would constitute
the sole remedy available to the securityholders 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 will specify with respect to each
loan:
o the original principal amount and unpaid principal balance as
of the cut-off date;
o the current interest rate;
o the current scheduled payment of principal and interest;
o the maturity date, if any, of the related mortgage note; and,
o if the loan is an adjustable rate loan,
o the lifetime rate cap, if any, and
o 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. As specified in the prospectus supplement, the trustee will not be
in possession of or be an 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, 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:
o that the information contained in the certificate schedule is
true and correct in all material respects;
o that, immediately prior to the conveyance of the private
securities, the seller had good title, and was the sole owner;
o that there has been no other sale by it of such private
securities; and
o that there is no existing lien, charge, security interest or
other encumbrance on such private securities.
Repurchase and Substitution of Defective Trust Assets.
As specified in the prospectus supplement, if any document in the
file relating to the trust 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, the
seller will, not later than 90 days after the trustee's notice to the seller,
as the case may be, of the defect, repurchase the trust asset or any related
property from the trustee at a price equal to:
(a) the lesser of:
o the outstanding principal balance of such trust asset and
o the trust's federal income tax basis in the trust asset and
(b) accrued and unpaid interest to the date of the next scheduled
payment on such trust asset at the rate set forth in the related Agreement
less any unreimbursed advances respecting such trust asset.
However, the purchase price shall not be limited in clause (a) above to the
trust's federal income tax basis if the repurchase at a price equal to the
outstanding principal balance of such trust asset will not result in any
prohibited transaction tax under Section 860F(a) of the Code.
If provided in the prospectus supplement, the seller, as the case may
be, may, rather than repurchase the trust asset as described in the previous
paragraph, remove such trust asset from the trust and substitute in its place
one or more other trust assets provided, however, that:
o 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
o 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.
As specified in the prospectus supplement, any substitute trust asset
will have, on the date of substitution:
o 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 removed
trust asset, with the amount of any shortfall to be deposited
to the collection account in the month of substitution for
distribution to securityholders,
o an interest rate not less than and not more than 2% greater
than the interest rate of the removed trust asset, and
o a remaining term-to-stated maturity not greater than and not
more than two years less than that of the removed trust 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 the trust assets. 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 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 the trust asset, the seller
or such entity is obligated to repurchase the affected trust asset or, if
provided in the prospectus supplement, provide a substitute trust asset under
the same conditions and limitations provided for purchases and substitutions.
As specified in the prospectus supplement, the cure, repurchase or
substitution obligations constitute the sole remedies available to the
securityholders or the trustee for a material defect in a document for a trust
asset.
No securityholder, solely by virtue of their status as a
securityholder, will have any right under the applicable Agreement to
institute any proceeding with respect to such Agreement, unless the
securityholder previously has given to the trustee written notice of default
and unless the securityholders evidencing not less than 51% of the aggregate
voting rights of the securities have made written request upon the trustee to
institute such proceeding in its own name as trustee and have offered to the
trustee reasonable indemnity, and the trustee for 60 days has neglected or
refused to institute any such proceeding.
Pre-Funding Account
If so provided in the prospectus supplement, the seller will, on
behalf of the securityholders, deposit cash into a pre-funding account on the
closing date. The pre-funding account will be maintained with the trustee. The
deposit will not exceed 50% of the initial aggregate principal amount of the
securities. The money will be used by the trustee to purchase additional loans
from the seller from time to time during the funding period. Monies on deposit
in the pre-funding account will not be available to cover losses on or in
respect of the loans. The funding period for a trust will begin on the closing
date and will end on the date specified in the prospectus supplement, which
will not be later than one year after the closing date. Monies on deposit in
the pre-funding account may be invested in Eligible Investments as specified
in the related Agreement. Earnings on investment of funds in the pre-funding
account will be applied as specified in the prospectus supplement and losses
will be charged against the funds on deposit in the pre-funding account. Any
amounts remaining in the pre-funding account at the end of the funding period
will be distributed to securityholders as a prepayment of principal, in the
manner and priority specified in the prospectus supplement.
In addition, if so provided in the prospectus supplement, on the
closing date the seller will make a deposit to a capitalized interest account,
which will be maintained with the trustee. The funds on deposit in the
capitalized interest account will be used solely to cover shortfalls in
interest that may arise as a result of utilization of the pre-funding account.
Monies on deposit in the capitalized interest account will not be available to
cover losses on or in respect of the loans. To the extent that the entire
amount on deposit in the capitalized interest account has not been used to
cover shortfalls in interest by the end of the funding period, any remaining
amounts will be paid to the seller.
Reports to Securityholders
The trustee or other entity specified in the prospectus supplement
will prepare and forward to each securityholder 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:
(a) the amount of principal distributed to holders of the
securities and the outstanding principal balance of the
securities following the distribution;
(b) the amount of interest distributed to holders of the securi-
ties and the current interest rate on the securities;
(c) the amounts of (1) any overdue accrued interest included in
the distribution, (2) any remaining overdue accrued interest with
respect to the securities or (3) any current shortfall in
amounts to be distributed as accrued interest to holders of the
securities;
(d) the amounts of (1) any overdue payments of scheduled principal
included in the distribution, (2) any remaining overdue
principal amounts with respect to the securities, (3) any
current shortfall in receipt of scheduled principal payments on
the trust assets or (4) any realized losses or liquidation
proceeds to be allocated as reductions in the outstanding
principal balances of the securities;
(e) the amount received under any enhancement, and the remaining
amount available under the enhancement;
(f) the amount of any delinquencies with respect to payments on
the trust assets;
(g) the book value of any REO property acquired by the trust; and
(h) such other information as specified in the related Agreement.
The report to securityholders for any series of securities may include
additional or other information of a similar nature.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer or the trustee will mail to each securityholder of
record at any time during the calendar year a report containing customary
information as may be deemed necessary or desirable for securityholders to
prepare their tax returns. The report will not be examined or reported upon by
independent public accountants.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Sale and Servicing Agreement;
Servicing Agreement.
As specified in the prospectus supplement, events of default under
the applicable Agreement for a series relating to the servicing of loans
include:
o any failure by the servicer to deposit amounts in the
collection account and distribution account to enable the
trustee to distribute to securityholders of such series any
required payment, which failure continues unremedied for the
number of days specified in the 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 securityholders of such series evidencing not less than 25%
of the aggregate voting rights of the securityholders for such
series;
o 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 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
securityholders of such series evidencing not less than 25% of
the aggregate voting rights of the securityholders; and
o 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 relating to the servicing of loans
remains unremedied under the applicable Agreement, as specified in the
prospectus supplement, the trustee for the series or securityholders of
securities of the series evidencing not less than 51% of the aggregate voting
rights of the securities for the series may terminate all of the rights and
obligations of the servicer under the applicable Agreement, other than its
right to recovery of other expenses and amounts advanced pursuant to the terms
of the 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 the Agreement. In that case, the
trustee 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
the 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 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 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 securityholders of such series, and, as
specified in the prospectus supplement, securityholders of securities
evidencing not less than 51% of the aggregate voting rights of the securities
for the 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 remedy or to exercise any of the trusts or powers
unless the securityholders have offered the trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred by
the trustee. 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 securityholders.
Indenture.
As specified in the prospectus supplement, events of default under
the indenture for each series of notes include:
o a default for five (5) days or more in the payment of any
interest on any note of that series or the default in the
payment of principal of any note at the note's maturity;
o failure to perform in any material respect any other covenant
of the seller or the trust in the indenture which continues for
a period of sixty (60) days after notice is given in accordance
with the procedures described in the prospectus supplement;
o any representation or warranty made by the seller or the trust
in the indenture or in any certificate or other writing
delivered pursuant or in connection with the 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 is
given in accordance with the procedures described in the
prospectus supplement;
o certain events of bankruptcy, insolvency, receivership or
liquidation of the seller or the trust; or
o 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 the
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, of all the notes of the 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 the 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 the acceleration, elect to
maintain possession of the collateral securing the notes of the series and to
continue to apply distributions on the collateral as if there had been no
declaration of acceleration if the collateral continues to provide sufficient
funds for the payment of principal and interest on the notes of that 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 the series
for thirty (30) days or more, unless:
o the holders of 100% of the then aggregate outstanding amount of
the notes of the series consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay
in full the principal and accrued interest, due and unpaid, on
the outstanding notes of the series at the date of the sale, or
o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
notes as the payments would have become due if the notes had
not been declared due and payable,
o and the trustee obtains the consent of the holders of 66 2/3%
of the then aggregate outstanding amount of the notes of the
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 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, in the event of a
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 securityholders of the notes after the occurrence of such an event of
default.
As specified in the prospectus supplement, in the event the principal
of the notes of a series is declared due and payable, the holders of any notes
issued at a discount from par may be entitled to receive no more than an
amount equal to the unpaid principal amount 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 occurs and continues 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 noteholders, unless the noteholders 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 the 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 a 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 the 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, 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.
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 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. The
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 trust asset or related
documents. If no event of default 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 securityholders 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 securityholders 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:
o if the trustee ceases to be eligible to continue as such under
the Agreement,
o if the trustee becomes insolvent, or
o by the securityholders 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
As specified in the prospectus supplement, the Agreement for each
series of securities may be amended by the parties to the Agreement, without
notice to or consent of the securityholders:
(a) to cure any ambiguity,
(b) to correct any defective provisions or to correct or supplement
any provision,
(c) to add to the duties of the seller, the trust or servicer,
(d) to add any other provisions with respect to matters or
questions arising under such Agreement or related enhancement,
(e) 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
(f) to comply with any requirements imposed by the Code;
provided that any amendment except pursuant to clause (f) above, will not
adversely affect in any material respect the interests of any securityholders
of the series, as evidenced by an opinion of counsel. Any amendment, except
pursuant to clause (f) of the preceding sentence, shall be deemed not to
adversely affect in any material respect the interests of any securityholder
if the trustee receives written confirmation from each rating agency rating
the securities that the amendment will not cause the rating agency to reduce
the then current rating.
As specified in the prospectus supplement, the Agreement may also be
amended by the parties to the Agreement with the consent of the
securityholders possessing not less than 51% of the aggregate outstanding
principal amount of the securities. If only certain classes are affected by
the amendment, 51% of the aggregate outstanding principal amount of each class
affected, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or modifying in
any manner the rights of securityholders; provided, however, that no such
amendment may without the consent of securityholders of 100% of the affected
securities:
(a) reduce the amount or delay the timing of payments on any
security without the consent of the securityholder of such
security or
(b) reduce the percentage required to consent to any such
amendment.
Voting Rights
The prospectus supplement will set forth the method of determining
allocation of voting rights with respect to a series.
List of Securityholders
Upon written request of three or more securityholders of record, for
purposes of communicating with other securityholders with respect to their
rights under the Agreement, the trustee will afford such securityholders
access during business hours to the most recent list of securityholders of
that series held by the trustee. The request should be accompanied by a copy
of the proposed communication.
No Agreement will provide for the holding of any annual or other
meeting of securityholders.
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; Sale and Servicing Agreement; Trust
Agreement.
The obligations created by the Agreement for a series will terminate
upon the distribution to securityholders of all amounts distributable to them
pursuant to the Agreement after the earlier of:
o the later of (a) the final payment or other liquidation of the
last trust asset remaining in the trust and (b) the disposition
of all property acquired upon foreclosure or deed in lieu of
foreclosure or repossession in respect of any trust asset or
o the repurchase by the servicer or other entity specified in the
prospectus supplement from the trustee of all trust assets and
other property at that time subject to the Agreement.
As specified in the prospectus supplement, the Agreement for each series
permits, but does not require, the servicer or other entity specified in the
prospectus supplement to purchase from the trust all remaining trust assets at
a price equal to:
o 100% of the aggregate principal balance of such trust assets,
o plus, with respect to any property acquired in respect of a
trust asset, if any, the outstanding principal balance of the
related trust asset at the time of foreclosure,
o minus related unreimbursed advances, or in the case of the
trust assets, only to the extent not already reflected in the
computation of the aggregate principal balance of such trust
assets,
o minus unreimbursed expenses that are reimbursable pursuant to
the terms of the pooling and servicing agreement,
o plus accrued interest at the weighted average rate on the trust
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:
o 100% of the aggregate principal balance of the trust assets,
plus accrued interest thereon at the applicable net rates on
the trust assets through the last day of the month of the
repurchase and
o the aggregate fair market value of the trust assets plus the
fair market value of any property acquired in respect of a
trust asset and remaining in the trust.
The exercise of such right will effect early retirement of the
securities, but the right to purchase the trust assets only vests when the
principal balance of the trust assets has been reduced to an amount set forth
in the prospectus supplement. 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 in the Agreement. For each series,
the servicer or the trustee, as applicable, will give written notice of
termination of the Agreement to each securityholder, 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
provided in the prospectus supplement, the seller or another entity may effect
an optional termination of the trust under the circumstances described in the
prospectus supplement. See "Description of the Securities--Optional
Redemption, Purchase of Trust Assets or Securities, Termination of Trust."
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 or, with
certain limitations, upon deposit with the trustee of funds sufficient for the
payment in full of all of the notes.
In addition to such discharge with certain limitations, the indenture
may provide that the trust will be discharged from any and all obligations in
respect of the notes, except for certain administrative duties, upon the
deposit with the trustee of money or direct obligations of or obligations
guaranteed by the United States of America which through the payment of
interest and principal 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 on the last scheduled distribution date and any installment of
interest on such notes in accordance with the terms of the indenture and the
notes. In the event of any defeasance and discharge of notes, noteholders
would be able to look only to such money or direct obligations for payment of
principal and interest, if any, on their notes until maturity.
Legal Aspects of the Loans
The following discussion contains summaries of the material legal
aspects of mortgage loans, home improvement installment sales contracts and
home improvement installment loan agreements which are general in nature.
Because certain of these legal aspects are governed by applicable state law
and each state's laws differ, 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, depending upon the prevailing practice in the state in
which the property subject to a mortgage loan is located. Such mortgage loans
and home improvement contracts are referred to in this section as "mortgage
loans". 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 the 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 the instruments depends on their terms, the knowledge of the parties to the
mortgage and 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, 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, typically 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 deed of trust transactions, the directions of
the beneficiary.
Foreclosure on Mortgages
Foreclosure of a mortgage is usually accomplished by judicial action.
Typically, 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 usually 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. Typically, 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 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 the property. In
addition, under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the EPA may impose a lien on property
where the 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
mortgaged 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 (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 forecloses and takes title to a contaminated facility
or property, the lender may incur CERCLA liability in various circumstances,
including, but not limited to, when it holds the facility or property as an
investment, including leasing the facility or property to a third party, or
fails to market the property in a timely fashion.
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 and may result in a loss to
securityholders.
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
underground storage tanks under Subtitle I of RCRA. Under this 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 holders of security
interests in underground tanks. It should be noted, however, that liability
for cleanup of petroleum contamination may be governed by state law, which may
not provide for any specific protection for secured creditors.
Whether actions taken by a lender would constitute participation in
the management of a mortgaged property, or the business of a borrower, so as
to render the secured creditor exemption unavailable to a lender 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 exemption 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 exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property.
As specified in the prospectus supplement, at the time the loans were
originated, no environmental assessments or 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 trust 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, 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, 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, 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 the Bankruptcy Code
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage and afford relief to debtors, which may interfere with or affect the
ability of the secured lender to realize upon the collateral or enforce 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 the
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 bring 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.
The federal bankruptcy laws may also interfere with or affect the
ability of the secured lender to realize upon collateral 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 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") generally
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. As a result, due-on-sale clauses have
become enforceable except in those states whose legislatures exercised their
authority to regulate the enforceability of such clauses with respect to
mortgage loans that were:
o 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
o originated by lenders other than national banks, federal
savings institutions and federal credit unions.
Freddie Mac has taken the position in its published mortgage servicing
standards that, out of a total of eleven "window period states," five states,
i.e., 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
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 generally
are "chattel paper" or constitute "purchase money security interests" each as
defined in the UCC. Such home improvement contracts are hereinafter referred
to in this section as "contracts". 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. As specified in the 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
grant to the originator of the contracts a purchase money security interest in
the 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 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 judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
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. The effect of this rule is to
subject the assignee of 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 the 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 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 typically 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
typically 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.
In most cases, 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:
o 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,
o 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
o 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 noted 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 consequent loss may reduce the amounts available to be
paid to the holders of the certificates of such series. As specified in the
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 the series that is entitled to receive interest in respect of
the loans or underlying loans in proportion to the interest that each class of
securities would have otherwise been entitled to receive in respect of the
loans or underlying loans had the 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, Real
Estate Settlement Procedures Act and Regulation B, 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 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 these 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: retail and private
banking services to consumers; commercial banking services to small
businesses, middle-market and large corporate customers; capital market
services; and trust and asset management services.
The seller's retail banking services include consumer lending, including
residential mortgage, home equity and direct installment loans, deposit
services, and private banking services. The principal executive offices of the
seller are located at Key Tower, 127 Public Square, Cleveland, Ohio 44114. The
telephone number of the seller is: (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:
o to purchase the related trust assets,
o to establish any reserve funds described in the prospectus
supplement,
o to pay costs of structuring and issuing such securities,
including the costs of obtaining enhancement, if any, and
o for general corporate purposes.
If specified in the prospectus supplement, the purchase of the trust assets
for a series may be effected by an exchange of securities with the seller of
the trust assets.
Federal Income Tax Consequences
General
The following is a summary of the material federal income tax
consequences of the purchase, ownership, and disposition of the securities and
is based on advice of tax counsel. The summary is based upon the provisions
and regulations of the Code, 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 those changes
could apply retroactively.
The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, including investors that may be subject to special
treatment under federal income tax laws, such as:
o financial institutions,
o banks,
o insurance companies,
o tax-exempt entities,
o regulated investment companies,
o dealers in securities or currencies,
o persons holding the securities as a hedge against currency
risks or as a position in a "straddle" for tax purposes,
o or persons whose functional currency is not the U.S. dollar.
This summary focuses primarily upon investors who will hold securities as
capital assets within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. We suggest that
prospective investors consult their own tax advisers concerning the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the securities.
The federal income tax consequences to holders will vary depending on
whether
o the securities are classified as indebtedness;
o an election is made to treat the trust as a REMIC or a FASIT
under the Internal Revenue Code of 1986, as amended (the
"Code");
o the securities represent an ownership interest in some or all
of the trust assets; or
o an election is made to treat the trust as a partnership.
The prospectus supplement will specify how the securities will be
treated for federal income tax purposes and will discuss whether a REMIC or
FASIT election will be made.
Taxation of Debt Securities
Status as Real Property Loans.
Typically, tax counsel will have advised the seller that:
o 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
o securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code
Section 856(c)(5)(A) and interest on these 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).
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
Interest and Acquisition Discount.
Securities representing regular interests in a REMIC are generally
taxable to holders in the same manner as evidences of indebtedness issued by
the REMIC. Stated interest on the regular interest securities will be taxable
as ordinary income and taken into account using the accrual method of
accounting, regardless of the holder's normal accounting method. Interest,
other than 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 in accordance with their
usual methods of accounting. Securities characterized as debt for federal
income tax purposes and regular interest securities will be referred to
collectively as debt securities. If a FASIT election is made, the material
federal tax income consequences for investors associated with the purchase,
ownership and disposition of those securities will be set forth under the
heading "Federal Income Tax Consequences" in the prospectus supplement.
Debt securities that are compound interest securities will, and other
debt securities may, be issued with original issue discount, which we refer to
as "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 on February 2, 1994, which we refer to as "OID
Regulations". A holder should be aware, however, that the OID Regulations do
not adequately address some issues relevant to prepayable securities, such as
the debt securities.
In general, OID, will equal the difference between the stated
redemption price at maturity of a debt security and its issue price. A holder
of a debt security must include OID in gross income as ordinary interest
income as it accrues under an accrual method of accounting. 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 the class will be treated
as the fair market value of the 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 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 and those
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the debt security. The OID Regulations state that
interest payments are unconditionally payable only if a late payment or
nonpayment is expected to be penalized or reasonable remedies exist to compel
payment. Some debt securities may provide for default remedies in the event of
late payment or nonpayment of interest. The interest on those debt securities
will be unconditionally payable and constitute qualified stated interest, not
OID. However, absent clarification of the OID Regulations, where debt
securities do not provide for default remedies, the interest payments will be
included in the debt security's stated redemption price at maturity and taxed
as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on debt securities on which deferred interest will
accrue will not constitute qualified stated interest payments and will be part
of the stated redemption price at maturity of those debt securities. Where the
interval between the issue date and the first distribution date on a debt
security is either longer or shorter than the interval between subsequent
distribution dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the
shorter interval, will be included in the stated redemption price at maturity
and tested under the de minimis rule described in the next paragraph. 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 usually have OID. We suggest that
holders of debt securities consult their own tax advisors to determine the
issue price and stated redemption price at maturity of a debt security.
Under the de minimis rule, OID on a debt security will be considered
to be zero if the OID is less than 0.25% of the stated redemption price at
maturity of the debt security multiplied by the weighted average maturity of
the debt security. For this purpose, the weighted average maturity of the debt
security is computed as the sum of the amounts determined by multiplying the
number of full years 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 usually 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:
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments and
o 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 the debt security.
In the case of compound interest securities, some interest weighted
securities, and other debt securities, none of the payments under the
instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price.
The IRS recently issued final regulations governing the calculation
of OID on instruments having contingent interest payments. The regulations
specifically do not apply for purposes of calculating OID on debt instruments
subject to Code Section 1272(a)(6), such as the debt security. Additionally,
the OID Regulations do not contain provisions specifically interpreting Code
Section 1272(a)(6). Until the Treasury issues guidance to the contrary, the
trustee intends to base its computation on Code Section 1272(a)(6) and the OID
Regulations as described in this Prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that this methodology represents the correct manner of calculating
OID.
The holder of a debt security issued with OID must include in gross
income, for all days during its taxable year on which it holds the debt
security, the sum of the "daily portions" of the 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, which typically is 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 or OID, reduced by the total payments made with respect to the 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, that is subject to acceleration due to prepayments on other debt
obligations securing such instruments, is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument. The
amount of OID that will accrue during an accrual period on a this type of
security is the excess, if any, of the sum of
o the present value of all payments remaining to be made on the
security as of the close of the accrual period and
o the payments during the accrual period of amounts included in
the stated redemption price of the security, over the adjusted
issue price of the 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:
o the original yield to maturity of the pay-through security,
which is determined on the basis of compounding at the end of
each accrual period and properly adjusted for the length of the
accrual period,
o events which have occurred before the end of the accrual
period, and
o 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 this type of 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 these
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 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 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.
Some classes of regular interest securities may represent more than
one class of REMIC regular interests. As specified in the prospectus
supplement, the trustee intends, based on the OID Regulations, to calculate
OID on these 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 a holder who purchases that debt security for
an amount that exceeds its adjusted issue price will be entitled, as will an
initial holder who pays more than a debt security's issue price, to offset
such OID by comparable economic accruals of portions of the excess.
Effects of Defaults and Delinquencies.
Holders will be required to report income with respect to the
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 those
amounts are uncollectible. As a result, the amount of income, including OID,
reported by a holder of that security in any period could significantly exceed
the amount of cash distributed to the holder in that period. The holder will
eventually be allowed a loss, or will be allowed to report a lesser amount of
income, to the extent that the aggregate amount of distributions on the
securities is deducted as a result of a loan default. However, the timing and
character of the losses or reductions in income are uncertain and,
accordingly, we suggest that holders of securities 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, which we define under "-Tax Status
as a Grantor Trust; General", 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
which we refer to 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 the holder for the 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. Alternatively, the IRS could assert that an interest
weighted security should be taxable under the rules governing bonds issued
with contingent payments. That treatment may be more likely in the case of
interest weighted securities that are stripped securities. See "-Tax Status as
a Grantor Trust-Discount or Premium on Pass-Through Securities."
Variable Rate Debt Securities.
In the case of debt securities bearing interest at a rate that varies
directly, according to a fixed formula, with an objective index, it appears
that
o the yield to maturity of those debt securities and
o in the case of pay-through securities, the present value of all
payments remaining to be made on those debt securities, should
be calculated as if the interest index remained at its value as
of the issue date of those securities.
Because the proper method of adjusting accruals of OID on a variable rate debt
security is uncertain, we suggest that holders of variable rate debt
securities consult their own tax advisers regarding the appropriate treatment
of such securities for federal income tax purposes.
Market Discount.
A purchaser of a security may be subject to the market discount rules
of Sections 1276-1278 of the Code. A holder that acquires a debt security with
more than a prescribed de minimis amount of market discount, which generally
is 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. Market discount
would accrue in a manner to be provided in Treasury regulations but, until
regulations are issued, market discount would in general accrue either:
o on the basis of a constant yield, in the case of a security
subject to prepayment, taking into account a prepayment
assumption, or
o in the ratio of (a) in the case of securities or the loans
underlying pass-through security that have not been 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 the loans
underlying pass-through 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 the loans for a pass-through security, the excess
of interest paid or accrued to purchase or carry a security or the underlying
loans for a pass-through security with market discount over interest received
on the security is allowed as a current deduction only to the extent excess is
greater than the market discount that accrued during the taxable year in which
interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when market discount is included in
income, including upon the sale, disposition, or repayment of the security or
an underlying loan for a pass-through security. A holder may elect to include
market discount in income currently as it accrues, on all market discount
obligations acquired by holder during the taxable year the election is made
and after, in which case the interest deferral rule will not apply.
Premium.
A holder who purchases a debt security, other than an interest
weighted security as described under "--Taxation of Debt Securities; Interest
Weighted Securities", 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. If a holder makes an election to amortize premium
on a debt security, the election will apply to all taxable debt instruments,
including all REMIC regular interests and all pass-through securities
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 after by the holder, and will be
irrevocable without the consent of the IRS. We suggest that purchasers who pay
a premium for the securities consult their tax advisers regarding the election
to amortize premium and the method to be employed. Recently, the IRS issued
final regulations dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
Section 1272(a)(6) such as the securities. Absent further guidance from the
IRS, the trustee intends to account for amortizable bond premium in the manner
described above. We suggest that prospective purchasers of the securities
consult their tax advisors regarding the possible application of these
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 OID, and premium
income as interest, based on a constant yield method for debt securities
acquired on or after April 4, 1994. If 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 for 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 for a debt security is irrevocable.
Taxation of the REMIC and its Holders
In the opinion of tax counsel, 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 prospectus supplement.
Generally, if a REMIC election is made with respect to a series of
securities,
o 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
o 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 the qualifying assets
described above, then a security will be a qualifying asset in the proportion
that 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 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
real estate investment trusts, expenses will be deductible only to the extent
that expenses, plus other "miscellaneous itemized deductions" of the holder,
exceed 2% of the holder's adjusted gross income. 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 for taxable years beginning after 1990, will be reduced by the
lesser of:
o 3% of the excess of adjusted gross income over the applicable
amount, or
o 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:
o 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
o is similar to a trust and which is structured with the
principal purpose of avoiding the single class REMIC rules.
As specified in the 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 in "--Taxation of Debt Securities; Interest
and Acquisition Discount", 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
o the gross income produced by the REMIC's assets, including
stated interest and any OID or market discount on loans and
other assets, and
o deductions, including stated interest and OID 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 day that the interests are issued, which we refer to as the
"start up day". The 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 the
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". 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 that date, it is
possible that the premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax.
The REMIC will be subject to a 100% tax on any net income derived
from a "prohibited transaction." For this purpose, net income will be
calculated without taking into account any losses from prohibited transactions
or any deductions attributable to any prohibited transaction that resulted in
a loss. In general, prohibited transactions include:
o the sale or other disposition of any qualified mortgage
transferred to the REMIC;
o the sale or other disposition of a cash flow investment;
o the receipt of any income from assets not permitted to be held
by the REMIC; or
o 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, a
tax is generally 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, 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 security representing 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 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 that 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 the 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 security is
taxed on the net income of the REMIC, the taxable income derived from a
residual interest security in a given taxable year will not be equal to the
taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pretax yield.
Therefore, the after-tax yield on the residual interest security may be less
than that of a 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 the 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, accordingly, we suggest that
they 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 the excess.
Sale or Exchange.
A holder of a residual interest security will recognize gain or loss
on the sale or exchange of a residual interest security equal to the
difference, if any, between the amount realized and the holder's adjusted
basis in the residual interest security at the time of the sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a residual interest security will be disallowed
if the selling holder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after the disposition.
Excess Inclusions.
The portion of the REMIC taxable income of a holder of a residual
interest security consisting of "excess inclusion" income may not be offset by
other deductions or losses, including net operating losses, on the 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, the holder's excess inclusion income will be
treated as unrelated business taxable income of the holder. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust, a
regulated investment company, a common trust, 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, i.e., 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.
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
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 the
quarterly period of:
o 120% of the long term applicable federal rate on the startup
day multiplied by
o the adjusted issue price of the residual interest
security at the beginning of the 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 residual interest security by any
disqualified organization. Disqualified organizations include the United
States, any State or political subdivision 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. Accordingly, the applicable Agreement will
prohibit disqualified organizations from owning a residual interest security.
In addition, no transfer of a residual interest security will be permitted
unless the proposed transferee shall have furnished to the trustee an
affidavit representing and warranting that it is neither a disqualified
organization nor an agent or nominee acting on behalf of a disqualified
organization.
If a residual interest security is transferred to a disqualified
organization in violation of the restrictions set forth above, a substantial
tax will be imposed on the transferor of the residual interest security at the
time of the transfer. In addition, if a disqualified organization holds an
interest in a pass-through entity, 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, a transfer of the 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:
o 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
o 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.
The transferor of a REMIC residual interest is presumed not to have a
wrongful purpose if it:
o conducts a reasonable investigation of the transferee's
financial condition and concludes that the transferee has
historically paid its debts as they come due and finds no
significant evidence indicating that the transferee will not
continue to pay its debts as they come due in the future, and
o receives a representation from the transferee that the
transferee understands the tax obligations associated with
holding a residual interest and intends to pay those taxes as
they come due.
The IRS has issued proposed Treasury regulations that would add to the
conditions necessary to ensure that a transfer of a noneconomic residual
interest would be respected. The proposed additional condition provides that
the transfer of a noneconomic residual interest will not qualify under this
safe harbor unless the present value of the anticipated tax liabilities
associated with holding the residual interest does not exceed the present
value of the sum of
o any consideration given to the transferee to acquire the
interest (the inducement payment),
o future distributions on the interest, and
o any anticipated tax savings associated with holding the
interest as the REMIC generates losses.
For purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing. The proposed effective date for the changes is
February 4, 2000.
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 interest securities by foreign
persons to United States persons. See "-Tax Treatment of Foreign Investors."
Mark to Market Rules.
Prospective purchasers of a residual interest security should be
aware that the IRS regulations which provide that a residual interest security
acquired after January 3, 1995 cannot be marked-to-market.
Administrative Matters
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in
a unified administrative proceeding.
Tax Status as a Grantor Trust
General.
As specified in the prospectus supplement if a REMIC election is not
made, in the opinion of tax counsel, the trust relating to a series of
securities will be classified for federal income tax purposes as a grantor
trust under Subpart E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation. 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, i.e. 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
trustee fees and the servicing fees, at the same time and in the same manner
as those items would have been reported under the holder's tax accounting
method had it held its interest in the loans directly, received directly its
share of the amounts received with respect to the loans, and paid directly its
share of the servicing fees. In the case of pass-through securities other than
stripped securities, the income will consist of a pro rata share of all of the
income derived from all of the loans and, in the case of stripped securities,
the income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the holder owns an interest. The
holder of a security will generally be entitled to deduct servicing fees under
Section 162 or Section 212 of the Code to the extent that the servicing fees
represent reasonable compensation for the services rendered by the trustee and
the master 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 the holder's regular tax
liability only to the extent that the fees, when added to other miscellaneous
itemized deductions, exceed 2% of adjusted gross income and may not be
deductible to any extent in computing the holder's alternative minimum tax
liability. In addition, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount, which will be adjusted for inflation, will be reduced by
the lesser of:
o 3% of the excess of adjusted gross income over the applicable
amount or
o 80% of the amount of itemized deductions otherwise allowable
for the 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 generally 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 deductible under the Code. Any market discount or premium on a loan will
be includible in income, generally in the manner described in "--Taxation of
Debt Securities; Premium and Market Discount", except that in the case of
pass-through securities, market discount is calculated on the loans underlying
the Certificate, rather than on 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 the 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. That treatment would generally result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described in the preceding
paragraph.
Stripped Securities.
A stripped security may represent a right to receive only a portion
of the interest payments on the loans, a right to receive only principal
payments on the loans, or a right to receive certain payments of both interest
and principal. Certain stripped securities such as ratio strip securities may
represent a right to receive differing percentages of both the interest and
principal on each loan. Under 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
the stripped interest.
Servicing fees in excess of reasonable servicing fees will be treated
under the stripped bond rules. If the excess servicing fees are less than 100
basis points or 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 in
"--Taxation of Debt Securities; Interest and Acquisition Discount" for
prepayment securities or 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 the 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 the
securities, and it is expected that OID will be reported on that basis, as
specified in the prospectus supplement. In applying the calculation to
pass-through securities, the trustee will treat all payments to be received by
a holder with respect to the underlying loans as payments on a single
installment obligation. The IRS could, however, assert that 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 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
securityholders as OID, in the manner described above for interest weighted
securities.
Possible Alternative Characterizations.
The characterizations of the stripped securities described in the
preceding section are not the only possible interpretations of the applicable
Code provisions. Among other possibilities, the IRS could contend that:
o in some series, each non-interest weighted security is composed
of an unstripped undivided ownership interest in loans and an
installment obligation consisting of stripped principal
payments;
o the non-interest weighted securities are subject to the
contingent payment provisions of the Contingent Regulations; or
o 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, we strongly suggest that potential purchasers 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.
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. In addition, interest income attributable to
the securities should be considered to represent "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code. Reserves or funds underlying
the securities may cause a proportionate reduction in the above-described
qualifying status categories of securities.
Sale or Exchange
Subject to the discussion below with respect to 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 the amount
that would have been includible in the holder's income if the yield on the
regular interest security had equaled 110% of the applicable federal rate as
of the beginning of the holder's holding period, over the amount of ordinary
income actually recognized by the holder on the regular interest security.
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 residual
interest 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 OID on
the securities. This withholding generally applies if the holder of a security
o fails to furnish the trustee with its taxpayer identification
number;
o furnishes the trustee an incorrect taxpayer identification
number;
o fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or
o under some circumstances, fails to provide the trustee
or such holder's securities broker with a certified statement,
signed under penalty of perjury, that the taxpayer
identification number provided is its correct number and that
the holder is not subject to backup withholding.
Backup withholding will not apply, however, to some payments made to holders,
including payments to certain exempt recipients, such as exempt organizations,
and to certain nonresidents. We suggest that holders consult their tax
advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The trustee will report to the holders and to the master servicer for
each calendar year the amount of any reportable payments during the 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, which we define as "nonresident", those interest will normally
qualify as portfolio interest, except where the recipient is a holder,
directly or by attribution, of 10% or more of the capital or profits interest
in the issuer, or 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 the interest payments. These
provisions supersede the generally applicable provisions of United States law
that would otherwise require the issuer to withhold at a 30% rate, unless that
rate were reduced or eliminated by an applicable tax treaty, on, among other
things, interest and other fixed or determinable, annual or periodic income
paid to 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 the
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
that these 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 amounts that will equal at least 30%
of each excess inclusion, and that these 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."
On October 6, 1997, the Treasury Department issued new regulations
which make certain modifications to the withholding and information reporting
rules described in the preceding paragraph. The new regulations attempt to
unify certification requirements and modify reliance standards. The new
regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. We suggest that prospective
investors consult their own tax advisors regarding the new regulations.
Tax Characterization of the Trust as a Partnership
Tax counsel will deliver its opinion that a trust will not be treated
as a 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 related 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 securities 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 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.
Generally, tax counsel will 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., 0.25% of their principal amount multiplied by the number of full
years included in their term, all within the meaning of the OID Regulations.
If these conditions are not satisfied with respect to any given series of
notes, additional tax considerations with respect to such notes will be
disclosed in the 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 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 note which we refer to as 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 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 noteholder with
respect to the 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
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:
o 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
o provides the 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 by an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a note by a foreign person will be exempt from
United States federal income and withholding tax, if:
o the gain is not effectively connected with the conduct of a
trade or business in the United States by the foreign person
and
o 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.
Possible Alternative Treatments of the Notes.
If, contrary to the opinion of tax counsel, 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 treated as a publicly traded
partnership taxable as a corporation with the adverse consequences described
in "--Tax Characterization of the Trust as a Partnership" 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 tax counsel, 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 some 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 may be
limited in 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 master 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 master 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. 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
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 related Agreement and
related documents. The Agreement will provide, in general, that the
certificateholders will be allocated taxable income of the trust for each
month equal to the sum of:
o the interest that accrues on the certificates in accordance with their
terms for the month, including interest accruing at the pass-through rate
for the month and interest on amounts previously due on the certificates
but not yet distributed;
o 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;
o prepayment premium payable to the certificateholders for the month; and
o any other amounts of income payable to the certificateholders for the
month.
The 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 seller. 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 in the preceding paragraph 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 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 the holder under the Code.
An individual taxpayer's share of expenses of the trust including
servicing fees but not interest expense would be miscellaneous itemized
deductions. The deductions might be disallowed to the individual in whole or
in part and might result in the holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the 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 discount in income currently as it accrues
over the life of the loans or to offset any premium against interest income on
the loans. As indicated above, a portion of market discount income or premium
deduction may be allocated to certificateholders.
Section 708 Termination.
Pursuant to final regulations issued on May 9, 1997 under Code
Section 708, a sale or exchange of 50% or more of the capital and profits in a
partnership would cause a deemed contribution of assets of the partnership
(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. Accordingly under these new
regulations, if the trust fund were characterized as a partnership and a sale
of certificates terminated the partnership under Code Section 708, the
purchaser's basis in its ownership interest would not change.
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 loans 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 in "--Tax Consequences to Holders of Certificates; Partnership
Taxation" over the life of the certificates that exceeds the aggregate cash
distributions, the 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 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 or 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 an 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 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 on 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-l
information to nominees that fail to provide the trust with the information
statement described in the following paragraph and nominees will be required
to forward 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 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. The information includes:
o the name, address and taxpayer identification number of the nominee and
o as to each beneficial owner
o the name, address and identification number of the person,
o whether the 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
o some information on certificates that were held, bought or sold on behalf
of the 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 seller will be designated as the tax matters partner in the
Agreement and 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. In some 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
describing the trust. 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 under 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.
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, any state of the United States or the
District of Columbia, other than a partnership that is not treated as a United
States person under any applicable Treasury regulation , or an estate whose
income is subject to U.S. 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.
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 Form W-8BEN 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 by an applicable treaty. In that case, a
foreign holder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
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. The FASIT provisions
of the Code became effective on September 1, 1997. On February 4, 2000, the
IRS and Treasury issued proposed Treasury regulations on FASITs. The
regulations generally would not be effective until final regulations are filed
with the federal register. However, it appears that certain anti-abuse rules
would apply as of February 4, 2000. Accordingly, definitive guidance cannot be
provided with respect to many aspects of the tax treatment of FASIT
securityholders. In the opinion tax counsel, 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 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 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 federal income tax 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 that series will be designated as regular interests, and
which, if any, will be designated as ownership interests.
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
o a FASIT election is in effect,
o certain tests concerning the composition of the FASIT's assets and the
nature of the securityholders" interests in the FASIT are met on a
continuing basis, and
o 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:
o cash or cash equivalents,
o debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC, i.e., instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only type rate,
o foreclosure property,
o certain hedging instruments, generally, interest and currency rate swaps
and enhancement contracts, that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on
FASIT interests,
o contract rights to acquire qualifying debt instruments or qualifying
hedging instruments,
o FASIT regular interests, and
o 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 the
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:
o one or more classes of regular interests or
o 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:
o it is designated as a regular interest,
o it has a stated maturity no greater than thirty years,
o it entitles its holder to a specified principal amount,
o the issue price of the interest does not exceed 125% of its stated
principal amount,
o the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and
o 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 "--Taxation of Debt Securities--Variable
Rate Debt Securities."
If a FASIT security fails to pay a specified principal amount, has an
issue price that exceeds 125% of its stated principal amount, or has yield to
maturity in excess of the AFR, 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 pay a fixed rate or a
permissible variable rate, 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
high yield interests as inventory, rather than for investment. In addition,
holders of high-yield interests may be limited in offsetting income derived
from such interest. See "--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Anti-Abuse Rule. Under proposed Treasury regulations, the
Commissioner of Internal Revenue may make appropriate adjustments with regard
to the FASIT and any arrangement or transaction involving the FASIT if a
principal purpose of forming or using the FASIT is to achieve results
inconsistent with the intent of the FASIT provisions and the FASIT
regulations. This determination would be based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction.
Consequences of the Failure of the FASIT Trust to Qualify as a FASIT.
If a FASIT Trust fails to comply with one or more of the Code's ongoing
requirements for FASIT status during any taxable year, proposed Treasury
regulations provide that its FASIT status would be lost for that year and the
FASIT Trust will be unable to elect FASIT status without the Commissioner's
approval. If FASIT status is lost, under proposed Treasury regulations the
entity classification of the former FASIT (the "New Arrangement") is
determined under general federal income tax principles. The holder of the
FASIT Ownership Security is treated as exchanging the New Arrangement's assets
for an amount equal to their value and gain recognized is treated as gain from
a prohibited transaction that is subject to the 100 percent tax, without
exception. Loss, if any, is disallowed. In addition, the holder of the FASIT
Ownership Security must recognize cancellation of indebtedness income, on a
regular interest by regular interest basis, in an amount equal to the adjusted
issue price of each FASIT Regular Security outstanding immediately before the
cessation over its fair market value. If the holder of the FASIT Ownership
Security has a continuing economic interest in the New Arrangement, the
characterization of this interest is determined under general federal income
tax principles. Holder of FASIT Regular Securities are treated as exchanging
their Notes for interests in the New Arrangement, the classification of which
is determined under general federal income tax principles. Gain is recognized
to the extent the new interest either does not qualify as debt or differs
either in kind or extent. The basis of the interest in the New Arrangement
equals the basis in the FASIT Regular Security increased by any gain
recognized on the exchange.
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 interests. As
in the case of holders of REMIC Regular interests, holders of FASIT regular
interests must report income from such interests 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 interests issued
with original issue discount or acquired with market discount or premium,
interest paid or accrued on a FASIT regular interest 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 interests
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 interests. See
"--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. securityholders of
high-yield securities may be limited in 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 interest is sold or exchanged, the securityholder
generally will recognize gain or loss upon the sale in the manner described in
"--Taxation of Debt Securities; Sale or Exchange". In addition, if a FASIT
regular interest 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 "--Taxation of Debt Securities--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 "--Taxation of Debt Securities." 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 interest that is held by a pass-through
entity, other than another FASIT, that issues debt or equity securities backed
by the FASIT regular interest 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 "--Tax Treatment of FASIT Regular Securities--Treatment of High-Yield
Interests."
Rules similar to the wash sale rules applicable to REMIC residual
securities also will apply to FASIT ownership securities. Accordingly, losses
on dispositions of a FASIT ownership security generally will be disallowed
where, within six months before or after the disposition, the seller of the
security acquires any other FASIT ownership security 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:
o the receipt of income derived from assets that are not
permitted assets,
o certain dispositions of permitted assets,
o the receipt of any income derived from any loan originated by a
FASIT, and
o 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
Securityholders of FASIT securities will be subject to backup
withholding to the same extent holders of REMIC securities would be subject.
See "--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 Securityholders
Foreign holders of FASIT securities will be subject to withholding to
the same extent foreign holders of notes would be subject. See "- Tax
Consequences to Holders of the Notes - Foreign Holders."
Under proposed Treasury regulations, if a non-U.S. Person holds
(either directly or through a vehicle which itself is not subject to U.S.
federal income tax such as a partnership or a trust) a FASIT Regular Security
and a "conduit debtor" pays or accrues interest on a debt instrument held by
such FASIT, any interest received or accrued by the non-U.S. Person FASIT
Regular Security holder is treated as received or accrued from the conduit
debtor. The proposed Treasury regulations state that a debtor is a conduit
debtor if the debtor is a U.S. Person or the United States branch of a
non-U.S. Person and the non-U.S. Person regular interest holder is (1) a "10
percent shareholder" of the debtor, (2) a "controlled foreign corporation" and
the debtor is a related person with respect to the controlled foreign
corporation or (3) related to the debtor. As set forth above, the proposed
Treasury regulations would not be effective until final regulations are filed
with the federal register.
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, we suggest that potential investors 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
"Federal Income Tax Consequences," potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or
locality. Therefore, we suggest that potential investors 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 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 in this section, 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 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 under 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:
o Prohibited Transaction Class Exemption ("PTE") 96-23, exempts
certain transactions effected on behalf of a Plan by an
in-house asset manager;
o PTE 95-60, exempts certain transactions between insurance
company general accounts and parties in interest;
o PTE 91-38, exempts certain transactions between bank collective
investment funds and parties in interest;
o PTE 90-1, exempts certain transactions between insurance
company pooled separate accounts and parties in interest; and
o PTE 84-14, 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 the assets of the trust
were considered to include Plan assets.
The 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 trust 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:
o widely held, i.e., held by 100 or more investors who are
independent of the seller and each other;
o freely transferable; and
o sold as part of an offering pursuant to
o an effective registration statement under the Securities Act,
and then subsequently registered under the Exchange Act or
o an effective registration statement under Section 12(b) or
12(g) of the Exchange Act.
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 includes 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 trust assets other than private securities and
agency securities which are not insured or guaranteed by the United States or
an agency or instrumentality of the United States, or home improvement
contracts that are unsecured. The Underwriter Exemptions may apply to the
acquisition, holding and resale of the securities by a Plan provided that
certain conditions are met, including those listed in the next paragraph.
While each Underwriter Exemption is an individual exemption
separately granted to a specific underwriter, the terms and conditions are
generally similar and include:
o the acquisition of the certificates by a Plan is on terms,
including the price, that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an
unrelated party;
o the rights and interests evidenced by the certificates acquired
by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
o 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 S&P, Moody's, DCR
or Fitch;
o 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;
o The trustee must not be an affiliate of any other member of the
Restricted Group; and
o The Plan investing in the certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act.
The trust also must meet the following requirements:
o the corpus of the trust must consist solely of assets of the
type which have been included in other investment pools;
o 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
o 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 pre-funding period following the
closing date, 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 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 Underwriter 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:
o the characteristics of the Additional
Obligations must be monitored by an insurer or
other credit support provider that is
independent of the seller; or
o 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, prospectus supplement, 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 capitalized interest account used in connection with the
pre-funding may be invested only in certain permitted
investments.
(8) The related prospectus or prospectus supplement
must describe:
o any pre-funding account and capitalized interest
account used in connection with a pre-funding
account;
o the duration of the pre-funding period;
o the percentage or dollar value of the amount
allocated to the pre-funding account for the
trust; and
o 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 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:
o 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;
o such fiduciary or affiliate is an obligor with respect to five
(5) percent or less of the fair market value of the obligations
contained in the trust;
o a Plan's investment in securities does not exceed twenty-five
(25) percent of all of the securities outstanding after the
acquisition; and
o 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").
We suggest that prospective Plan investors 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
As specified in the prospectus supplement, the securities will not
constitute mortgage-related securities under the Secondary Mortgage Market
Enhancement Act of 1984. Accordingly, we suggest that investors whose
investment authority is subject to legal restrictions 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 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 prospectus supplement will be as set forth in the
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 will set forth the specific terms of the
offering of the series of securities and of each class within the 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 the series.
This prospectus may be used by McDonald Investments Inc., a
wholly-owned subsidiary of KeyCorp and an affiliate of the seller, or its
successors, in connection with offers and sales related to secondary market
transactions in the securities in which McDonald Investments Inc. acts a
principal. McDonald Investments Inc. may also act as agent in such
transactions. McDonald Investments Inc. is a member of the New York Stock
Exchange, Inc. McDonald Investments Inc. is not a bank or a thrift, is an
entity separate from the seller, and is solely responsible for its own
contractual obligations and commitments.
Legal Matters
As specified in the 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
Exchange Act and accordingly files reports and other information with the SEC.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows:
o Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and
o 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 SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the SEC 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 SEC.
Copies of the registration statement of which this prospectus forms a
part and the exhibits are on file at the offices of the SEC in Washington,
D.C. Copies may be obtained at rates prescribed by the SEC upon request to the
SEC, and may be inspected, without charge, at the offices of the SEC, 450
Fifth Street, N.W., Washington, D.C.
Incorporation of Documents by Reference
All documents subsequently filed by or on behalf of the trust
referred to in the accompanying prospectus supplement with the SEC 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 the 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
the 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 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 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 in the previous
paragraph that have been or may be incorporated by reference in this
prospectus but not including exhibits to the information that is incorporated
by reference unless the 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.
<PAGE>
Glossary of Defined Terms
Act: means the Home Ownership and Equity Protection Act of 1994.
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.
Assumed Reinvestment Rate: means the highest rate permitted by each rating
agency specified in the prospectus supplement or a rate insured by means of a
surety bond, guaranteed investment contract, deposit agreement or other
arrangement satisfactory to those rating agencies.
CERCLA: means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980.
Code: means the Internal Revenue Code of 1986, as amended.
Eligible Investments: means, as is acceptable to the rating agency, among
other investments:
o obligations of the United States and certain government
agencies,
o federal funds,
o certificates of deposit,
o commercial paper,
o demand and time deposits and banker's acceptances,
o certain repurchase agreements of United States government
securities, and
o certain guaranteed investment contracts.
Garn-St. Germain Act: means the Garn-St. Germain Depository Institutions Act
of 1982.
Housing Act: means the National Housing Act of 1934, as amended.
Loans: means mortgage loans, which may be closed-end or revolving credit line
home equity loans, and home improvement contracts.
Mortgaged Properties: means property which secures repayment of the loans.
RCRA: means the Resource Conservation and Recovery Act.
Secured Creditor Exclusion: means, with respect to CERCLA, the exclusion from
the definition of "owner or operator" of a secured creditor who holds indicia
of ownership primarily to protect its security interest.
Title V: means Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, as amended.
<PAGE>
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.*+
- -------------
*Filed previously with the Commission on July 2, 1999 as an exhibit
to the Form S-3 Registration Statement (No.333-82215).
**Filed previously with the Commission on December 23, 2000 as an
exhibit to Amendment No. 1 to Form S-3 Registration Statement on Form S-3
(No.333-82215).
+Additional Powers of Attorney are filed as Exhibit 24.1 to this
Amendment No. 2 to Form S-3 Registration Statement on Form S-3 (No.333-82215).
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.
(f) 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.
(h) 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.
(j) 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
Amendment No. 2 to Form S-3 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cleveland, State
of Ohio, on the 10th day of April, 2000.
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 Amendment No.
2 to Form S-3 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>
* Chairman, President, Chief Executive April 10, 2000
- ------------------------------------ Officer (principal executive officer)
Henry L. Meyer III and Director
* Chief Financial Officer (principal financial April 10, 2000
- ------------------------------------ and accounting officer)
Kevin P. Riley
* Director April 10, 2000
- ------------------------------------
Patrick V. Auletta
* Director April 10, 2000
- ------------------------------------
James E. Bennett
* Director April 10, 2000
- ------------------------------------
James S. Bingay
* Director April 10, 2000
- ------------------------------------
Kevin M. Blakely
* Director April 10, 2000
- ------------------------------------
James A. Fishell
* Director April 10, 2000
- ------------------------------------
Linda A. Grandstaff
* Director April 10, 2000
- ------------------------------------
Robert G. Jones
* Director April 10, 2000
- ------------------------------------
Jack L. Kopnisky
* Director April 10, 2000
- ------------------------------------
John H. Mancuso
* Director April 10, 2000
- ------------------------------------
K. Brent Somers
* Director April 10, 2000
- ------------------------------------
David J. Schutter
* By: /s/ Daniel R. Stolzer Attorney-in-Fact April 10, 2000
------------------------------- 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.*+
- -------------
*Filed previously with the Commission on July 2, 1999 as an exhibit
to the Form S-3 Registration Statement (No.333-82215).
**Filed previously with the Commission on December 23, 1999 as an
exhibit to Amendment No. 1 to Form S-3 Registration Statement on Form S-3
(No.333-82215).
+Additional Powers of Attorney are filed as Exhibit 24.1 to this
Amendment No. 2 to Form S-3 Registration Statement on Form S-3 (No.333-82215).
<PAGE>
EXHIBIT 1.1
$[ ]
KEYBANK NATIONAL ASSOCIATION
[ ] Home Equity Loan Trust [ ]
[ ] Equity Loan Asset-Backed Notes, [ ], Class A
UNDERWRITING AGREEMENT
[Date]
[Underwriters]
Ladies and Gentlemen:
KeyBank National Association (the "Seller"), a wholly-owned, subsidiary
of KeyCorp, has entered into a Trust Agreement dated as of (the "Trust
Agreement") with [Owner Trustee] (the "Owner Trustee") and [ ], as seller
creating [ ] Home Equity Loan Trust [ ] (the "Trust"), a statutory business
trust established under the laws of the State of Delaware. The Seller proposes
to direct the Owner Trustee pursuant to the Trust Agreement to cause the Trust
to issue [ ] Home Equity Loan Trust Series [ ], Class A Notes (the "Class A
Notes") and a single class of ownership interests (the "Ownership Interests"
and, together with the Class A Notes, the "Securities").
Only the Class A Notes are being purchased by [Underwriter] (each, an
"Underwriter" and collectively, the "Underwriters"), severally and not
jointly, in the amount set forth opposite their names on Schedule A attached
hereto, except that the amount purchased by each Underwriter may change in
accordance with Section X of this Agreement.
The Class A Notes will be secured by the assets of the Trust consisting
of a pool of closed-end, fixed-rate home equity mortgage loans secured by
first or second deeds of trust and mortgages primarily on one-to four-family
residential properties (the "Mortgage Loans") conveyed to the Trust by the
Seller pursuant to a sale and servicing agreement dated as of [ ] (the "Sale
and Servicing Agreement") among the Seller, the Trust, [Indenture Trustee], as
indenture trustee (the "Indenture Trustee") and servicer (the "Servicer"). The
Seller will acquire the Mortgage Loans, simultaneously with the execution of
the Sale and Servicing Agreement, pursuant to a mortgage loan purchase
agreement dated as of [ ](the "Purchase Agreement") between the trust, as
purchaser and [Seller], as seller, pursuant to which the Seller will transfer
to the Seller all of its right, title and interest in and to the Mortgage
Loans after the Cut-Off Date and the collateral securing each Mortgage Loan.
The Class A Notes will be issued pursuant to an indenture to be dated as
of [ ] (the "Indenture") between the Trust, as issuer and the Indenture
Trustee. The Ownership Interests will evidence fractional undivided interests
in the property held in the Trust and evidence the right to receive amounts in
respect of the Senior Interest Participation and the Transferor Interest (as
defined in the Trust Agreement). The aggregate principal balance of the Class
A Notes initially will be equal to $[ ], which represents approximately 100%
of the outstanding principal balances of the Mortgage Loans as of the close of
business on [ ] (the "Cut-Off Date").
The Class A Notes and the Senior Interest Participation will have the
benefit of a financial guaranty insurance policy (the "Policy") issued by
[Insurer], a stock insurance corporation organized under the laws of the State
of New York (the "Insurer") pursuant to an Insurance and Reimbursement
Agreement (the "Insurance Agreement") to be dated as of [ ] among the Seller,
the Seller and the Servicer, the Indenture Trustee, [ ] and the Insurer. Forms
of the Indenture, the Sale and Servicing Agreement, the Trust Agreement and
the Policy have been filed as an exhibit to the Registration Statement
(hereinafter defined).
The Class A Notes are more fully described in a Registration Statement
which the Seller has furnished to the Underwriters. Capitalized terms used but
not defined herein shall have the meanings given to them in the Sale and
Servicing Agreement.
This Underwriting Agreement, the Sale and Servicing Agreement, the
Insurance Agreement and the Purchase Agreement are referred to collectively
herein as the "Agreements."
Section I. Representations and Warranties of the Seller. The Seller
represents and warrants to, and agrees with the Underwriters that:
A. A Registration Statement on Form S-3 (No. 333-[ ]) has (i) been
prepared by the Seller in conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act") and the rules and regulations
(the "Rules and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the Securities Act.
Copies of such Registration Statement have been delivered by the Seller to the
Underwriters. As used in this Agreement, "Effective Time" means the date and
the time as of which such Registration Statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Registration Statement" means such registration statement, at the Effective
Time, including any documents incorporated by reference therein at such time;
and "Prospectus" means such final prospectus, as first supplemented by a
prospectus supplement (the "Prospectus Supplement") relating to the Class A
Notes, as first filed with the Commission pursuant to paragraph (1), (4) or
(5) of Rule 424(b) of the Rules and Regulations. Reference made herein to the
Prospectus shall be deemed to refer to and include any documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the Securities Act,
as of the date of the Prospectus, and any reference to any amendment or
supplement to the Prospectus shall be deemed to refer to and include any
document filed under the Securities Exchange Act of 1934 (the "Exchange Act")
after the date of the Prospectus and incorporated by reference in the
Prospectus; and any reference to any amendment to the Registration Statement
shall be deemed to include any report filed with the Commission with respect
to the Trust pursuant to Section 13(a) or 15(d) of the Exchange Act after the
date of the Prospectus that is incorporated by reference in the Registration
Statement. There are no contracts or documents of the Seller which are
required to be filed as exhibits to the Registration Statement pursuant to the
Securities Act or the Rules and Regulations which have not been so filed or
incorporated by reference therein on or prior to the Effective Date of the
Registration Statement. The conditions for use of Form S-3, as set forth in
the General Instructions thereto, have been satisfied.
To the extent that any Underwriter (i) has provided to the Seller
Collateral term sheets (as hereinafter defined) that such Underwriter has
provided to a prospective investor, the Seller has filed such Collateral term
sheets as an exhibit to a report on Form 8-K within two business days of its
receipt thereof, or (ii) has provided to the Seller Structural term sheets or
Computational Materials (each as defined below) that such Underwriter has
provided to a prospective investor, the Seller will file or cause to be filed
with the Commission a report on Form 8-K containing such Structural term sheet
and Computational Materials, as soon as reasonably practicable after the date
of this Agreement, but in any event, not later than the date on which the
Prospectus is filed with the Commission pursuant to Rule 424 of the Rules and
Regulations.
B. The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission,
as the case may be, conform in all respects to the requirements of the
Securities Act and the Rules and Regulations. The Registration Statement, as
of the Effective Date thereof and of any amendment thereto, did not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus as of its date and as amended or supplemented as of
the Closing Date does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that no representation or warranty is made as
to information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Seller in writing by the Underwriters expressly for use
therein.
C. The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and any further documents so filed and incorporated by reference in the
Prospectus, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
D. Since the respective dates as of which information is given in the
Prospectus, there has not been any material adverse change in the general
affairs, management, financial condition, or results of operations of the
Seller, otherwise than as set forth or contemplated in the Prospectus as
supplemented or amended as of the Closing Date.
E. The Seller has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and has
all power and authority necessary to own or hold its properties, to conduct
the business in which it is engaged and to enter into and perform its
obligations under the Agreements and to cause the Securities to be issued.
F. There are no actions, proceedings or investigations pending before or
threatened by any court, administrative agency or other tribunal to which the
Seller is a party or of which any of its properties is the subject (a) which
if determined adversely to the Seller would have a material adverse effect on
the business or financial condition of the Seller, (b) asserting the
invalidity of the Agreements or the Securities, (c) seeking to prevent the
issuance of the Securities or the consummation by the Seller of any of the
transactions contemplated by any of the Agreements or (d) which might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, any of the Agreements
or the Securities.
G. This Agreement has been, and the Sale and Servicing Agreement, the
Purchase Agreement and the Insurance Agreement when executed and delivered as
contemplated hereby and thereby will have been, duly authorized, executed and
delivered by the Seller, and this Agreement constitutes, and the Sale and
Servicing Agreement, the Purchase Agreement and the Insurance Agreement, when
executed and delivered as contemplated herein, will constitute, legal, valid
and binding instruments enforceable against the Seller in accordance with
their respective terms, subject as to enforceability to (x) applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting creditors' rights generally, (y) general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), and (z) with respect to rights of indemnity under this Agreement, the
Purchase Agreement and the Insurance Agreement, limitations of public policy
under applicable securities laws.
H. The execution, delivery and performance of the Agreements by the
Seller and the consummation of the transactions contemplated hereby and
thereby, and the issuance and delivery of the Securities do not and will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Seller is
a party, by which the Seller is bound or to which any of the property or
assets of the Seller or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the articles of
incorporation or by-laws of the Seller or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Seller or any of its properties or assets.
I. [ ] are independent public accountants with respect to the Seller as
required by the Securities Act and the Rules and Regulations.
J. The Class A Notes are duly and validly authorized and, when executed,
authenticated and delivered in accordance with the Indenture and the Sale and
Servicing Agreement, and issued and delivered to and paid for by the
Underwriters, as contemplated hereby, will be entitled to the benefits
provided by the Indenture and the Sale and Servicing Agreement.
K. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the
United States is required for the issuance of the Class A Notes and the sale
of the Class A Notes to the Underwriters, or the consummation by the Seller of
the other transactions contemplated by the Agreements, except such consents,
approvals, authorizations, registrations or qualifications as may be required
under State securities or Blue Sky laws in connection with the purchase and
distribution of the Class A Notes by the Underwriters, or as have been
obtained.
L. At the time of execution and delivery of the Sale and Servicing
Agreement and the Trust Agreement, the Seller will: (i) have equitable title
to the interest in the Mortgage Loans conveyed by the Seller, free and clear
of any lien, mortgage, pledge, charge, encumbrance, adverse claim or other
security interest (collectively, "Liens"); (ii) not have assigned to any
Person (other than the Owner Trustee) any of its right, title or interest in
the Mortgage Loans, in the Purchase Agreement or in the Sale and Servicing
Agreement; and (iii) have the power and authority to transfer its interest in
the Mortgage Loans to the Trust and to sell the Class A Notes to the
Underwriters. Upon execution and delivery of the Sale and Servicing Agreement
and the Trust Agreement by the parties thereto, the Trust will have acquired
beneficial ownership of all of the Seller's right, title and interest in and
to the Mortgage Loans. Upon delivery to the Underwriters of the Class A Notes,
the Underwriters will have good title to the Class A Notes free of any Liens.
M. Neither the Seller nor the Trust created by the Trust Agreement is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations of the Commission thereunder.
N. At the Closing Date, the Class A Notes, the Sale and Servicing
Agreement and the Purchase Agreement will conform in all material respects to
the descriptions thereof contained in the Prospectus.
O. At the Closing Date, the Class A Notes shall have been rated in the
highest rating category by at least two nationally recognized rating agencies
P. Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of the Agreements and the Securities
have been paid or will be paid at or prior to the Closing Date.
Any certificate signed by an officer of the Seller and delivered to the
Underwriters or counsel for the Underwriters in connection with an offering of
the Class A Notes shall be deemed, and shall state that it is, a
representation and warranty as to the matters covered thereby to each person
to whom the representations and warranties in this Section I are made.
Section II. Purchase and Sale. The commitment of the Underwriters to
purchase the Class A Notes pursuant to this Agreement shall be deemed to have
been made on the basis of the representations and warranties herein contained
and shall be subject to the satisfaction of the terms and conditions set forth
herein. The Seller agrees to sell to the Underwriters, and the Underwriters
severally agree (except as provided in Sections X and XI hereof) to purchase
from the Seller, the Class A Notes in the principal amounts set forth opposite
their names and at the purchase price set forth in Schedule A hereto.
Section III. Delivery and Payment. Delivery of and payment for the Class
A Notes to be purchased by the Underwriters shall be made at the offices of
[Brown & Wood LLP, One World Trade Center, New York, New York 10048], or at
such other place as shall be agreed upon by the Underwriters and the Seller at
10:00 a.m. New York City time on [ ] or at such other time or date as shall be
agreed upon in writing by the Underwriters and the Seller (such date being
referred to as the "Closing Date"). Payment shall be made to the Seller by
wire transfer of same day funds payable to the account of the Seller. Delivery
of the Class A Notes shall be made to the Underwriters for the account of the
Underwriters against payment of the purchase price thereof. The Class A Notes
shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two business days prior to the
Closing Date. The Class A Notes will be made available for examination by the
Underwriters no later than 2:00 p.m. New York City time on the first business
day prior to the Closing Date.
Section IV. Offering by the Underwriters. It is understood that, subject
to the terms and conditions hereof, the Underwriters propose to offer the
Class A Notes for sale to the public as set forth in the Prospectus.
Section V. Covenants of the Seller. The Seller agrees as follows:
A. To prepare the Prospectus in a form approved by the Underwriters and
to file such Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement; to make no further
amendment or any supplement to the Registration Statement or to the Prospectus
prior to the Closing Date except as permitted herein; to advise the
Underwriters, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective or
any supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Underwriters with copies thereof; to file promptly all reports
and any definitive proxy or information statements required to be filed by the
Seller with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of the Prospectus and, for so long as
the delivery of a prospectus is required in connection with the offering or
sale of the Class A Notes, to promptly advise the Underwriters of its receipt
of notice of the issuance by the Commission of any stop order or of: (i) any
order preventing or suspending the use of the Prospectus; (ii) the suspension
of the qualification of the Class A Notes for offering or sale in any
jurisdiction; (iii) the initiation of or threat of any proceeding for any such
purpose; (iv) any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional information.
In the event of the issuance of any stop order or of any order preventing or
suspending the use of the Prospectus or suspending any such qualification, the
Seller promptly shall use its best efforts to obtain the withdrawal of such
order by the Commission.
B. To furnish promptly to the Underwriters and to counsel for the
Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, including all consents and exhibits filed therewith.
C. To deliver promptly to the Underwriters such number of the following
documents as the Underwriters shall reasonably request: (i) conformed copies
of the Registration Statement as originally filed with the Commission and each
amendment thereto (in each case including exhibits); (ii) the Prospectus and
any amended or supplemented Prospectus; and (iii) any document incorporated by
reference in the Prospectus (including exhibits thereto). If the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the Effective Time in connection with the offering or sale of the Class
A Notes, and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, the Seller shall notify the Underwriters
and, upon the Underwriters' request, shall file such document and prepare and
furnish without charge to the Underwriters and to any dealer in securities as
many copies as the Underwriters may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which corrects such
statement or omission or effects such compliance, and in case the Underwriters
are required to deliver a Prospectus in connection with sales of any of the
Class A Notes at any time nine months or more after the Effective Time, upon
the request of the Underwriters but at such requesting party's expense, the
Seller shall prepare and deliver to the Underwriters as many copies as the
Underwriters may reasonably request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Securities Act.
D. To file promptly with the Commission any amendment to the Registration
Statement or the Prospectus or any supplement to the Prospectus that may, in
the judgment of the Seller or the Underwriters, be required by the Securities
Act or requested by the Commission.
E. Prior to filing with the Commission any (i) supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or (ii)
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a
copy thereof to the Underwriters and counsel for the Underwriters and obtain
the consent of the Underwriters to the filing.
F. To make generally available to holders of the Class A Notes as soon as
practicable, but in any event not later than 90 days after the close of the
period covered thereby, an earning statement of the Trust (which need not be
audited) complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Seller, Rule 158) and covering a
period of at least twelve consecutive months beginning not later than the
first day of the first fiscal quarter following the Closing Date.
G. To use its best efforts, in cooperation with the Underwriters, to
qualify the Class A Notes for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States as
the Underwriters may designate, and maintain or cause to be maintained such
qualifications in effect for as long as may be required for the distribution
of the Class A Notes. The Seller will file or cause the filing of such
statements and reports as may be required by the laws of each jurisdiction in
which the Class A Notes have been so qualified.
H. So long as the Class A Notes shall be outstanding, to deliver to the
Underwriters as soon as such statements are furnished to the Indenture
Trustee: (i) the annual statement as to compliance delivered to the Indenture
Trustee pursuant to Section 3.10 of the Sale and Servicing Agreement; (ii) the
annual statement of a firm of independent public accountants furnished to the
Indenture Trustee pursuant to Section 3.11 of the Sale and Servicing
Agreement; and (iii) the Monthly Statement furnished to the Noteholders
pursuant to Section 5.03 of the Sale and Servicing Agreement.
I. To apply the net proceeds from the sale of the Class A Notes in the
manner set forth in the Prospectus.
Section VI. Conditions to the Underwriters' Obligations. The obligation
of the Underwriters to purchase the Class A Notes pursuant to this Agreement
is subject to: (i) the accuracy on and as of the Closing Date of the
representations and warranties on the part of the Seller herein contained;
(ii) the performance by the Seller of all of its obligations hereunder; and
(iii) the following conditions as of the Closing Date:
A. The Underwriters shall have received confirmation of the effectiveness
of the Registration Statement. No stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission. Any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus shall have been
complied with.
B. No Underwriter shall have discovered and disclosed to the Seller on or
prior to the Closing Date that the Registration Statement or the Prospectus or
any amendment or supplement thereto contains an untrue statement of a fact or
omits to state a fact which, in the opinion of Brown & Wood LLP, counsel for
the Underwriters, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
C. All corporate proceedings and other legal matters relating to the
authorization, form and validity of the Agreements, the Class A Notes, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all respects to counsel for the Underwriters, and the Seller
shall have furnished to such counsel all documents and information that they
may reasonably request to enable them to pass upon such matters.
D. Brown & Wood LLP shall have furnished to the Underwriters their
written opinion, as counsel to the Seller, addressed to the Underwriters and
dated the Closing Date, in form and substance satisfactory to the
Underwriters, to the effect that:
1. The conditions to the use by the Seller of a registration
statement on Form S-3 under the Securities Act, as set forth in the
General Instructions to Form S-3, have been satisfied with respect
to the Registration Statement.
2. The Registration Statement and any amendments thereto have become
effective under the Securities Act; to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and not withdrawn and no
proceedings for that purpose have been instituted or threatened and
not terminated; and the Registration Statement, the Prospectus and
each amendment or supplement thereto, as of their respective
effective or issue dates (in each case, other than the documents
incorporated therein by reference, including without limitation, the
Derived Information (as defined below) filed by the Seller with the
Commission on Form 8-K) and the financial and statistical
information contained therein, as to which such counsel need express
no opinion), complied as to form in all material respects with the
applicable requirements of the Securities Act and the rules and
regulations thereunder.
3. To such counsel's knowledge, there are no material contracts,
indentures or other documents of a character required to be
described or referred to in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto.
4. The statements in the base Prospectus under the headings
["Summary of Terms--Federal Income Tax Considerations," and "--ERISA
Considerations" and, "Certain Legal Aspects of Loans," "ERISA
Considerations" and "Certain Federal Income Tax Considerations," and
the statements in the Prospectus Supplement under the headings
"Summary--Certain Federal Tax Considerations," and "--ERISA
Considerations," "Certain Federal Income Tax Consequences," and
"ERISA Considerations,"] to the extent that they constitute matters
of federal law or legal conclusions with respect thereto, have been
reviewed by such counsel and are correct in all material respects
with respect to those consequences or aspects that are discussed.
5. The Sale and Servicing Agreement and the Trust Agreement conform
in all material respects to the descriptions thereof contained in
the Prospectus Supplement and are not required to be qualified under
the Trust Indenture Act of 1939, as amended. The Indenture has been
duly qualified under the Trust Indenture Act of 1939, as amended.
6. Neither the Seller nor the Trust is an "investment company" or
under the control of an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended and the
Trust is not required to be registered under the Investment Company
Act of 1940, as amended.
7. The Class A Notes will, when issued, conform to the description
thereof contained in the Prospectus.
Such counsel shall also have furnished to the Underwriters a written
statement, addressed to the Underwriters and dated the Closing Date, in form
and substance satisfactory to the Underwriters to the effect that no facts
have come to the attention of such counsel which lead them to believe that:
(a) the Registration Statement (other than the documents incorporated therein
by reference (including, without limitation, the Derived Information (as
defined below)) and the financial and statistical information contained
therein, as to which no opinion shall be given) at the time it became
effective, or at the date of such opinion, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (b) the Purchaser Information (as defined in the Purchase
Agreement) in the Prospectus (other than the information incorporated therein
by reference, including, without limitation, the Derived Information) and the
financial, statistical and numerical information contained therein, as to
which no opinion shall be expressed, contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
E. The Underwriters shall have received the favorable opinion, dated the
Closing Date, of Brown & Wood LLP, counsel for the Seller, addressed to the
Seller and satisfactory to the Insurer, [and the Rating Agencies] (the "Rating
Agencies") and the Underwriters, with respect to certain matters relating to
the transfer of the Mortgage Loans to the Trust, and such counsel shall have
consented to reliance on such opinion by the Rating Agencies as though such
opinion had been addressed to them.
F. The Underwriters shall have received the favorable opinion, dated the
Closing Date, of [ ], special counsel to [the Seller], addressed to the
Seller, the Insurer and the Underwriters and satisfactory to the Rating
Agencies and the Insurer, with respect to certain matters relating to the
transfer of the Mortgage Loans to the Seller, and such counsel shall have
consented to reliance on such opinion by the Rating Agencies as though such
opinion had been addressed to them.
G. [ ], counsel to [the Seller] shall have furnished to the Underwriters
their opinion addressed to the Underwriters, the Seller and the Insurer, dated
the Closing Date, in form and substance satisfactory to the Underwriters
relating to general corporate matters with respect to [the Seller].
Such counsel shall also have furnished to the Underwriters a written
statement, addressed to the Underwriters and dated the Closing Date, in form
and substance satisfactory to the Underwriters to the effect that no facts
have come to the attention of such counsel which lead them to believe that the
information in the Prospectus Supplement (other than the Purchaser Information
and other than the financial, statistical and numerical information contained
therein, as to which no opinion shall be expressed), contained or contains an
untrue statement or a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
H. Brown & Wood LLP, counsel for the Seller, shall have furnished to the
Underwriters its written opinion, addressed to the Underwriters and dated the
Closing Date, in form and substance satisfactory to the Underwriters, to the
effect that:
1. The Seller has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware, and has
all power and authority necessary to own or hold its properties and
to conduct the business in which it is engaged and to enter into and
perform its obligations under the Agreements and to cause the
issuance of the Notes.
2. Each of the Agreements has been duly authorized, executed and
delivered by the Seller and, assuming the due authorization,
execution and delivery of the Agreements by the other parties
thereto, each of the Agreements constitutes a valid and binding
obligation of the Seller, enforceable against the Seller in
accordance with their respective terms.
3. The execution, delivery and performance of the Agreements by the
Seller, and the consummation of the transactions contemplated
thereby, do not and will not result in a material breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Seller is a
party or by which the Seller is bound or to which any of the
property or assets of the Seller is subject, nor will such actions
result in any violation of the provisions of the articles of
incorporation or by-laws of the Seller or, to such counsel's
knowledge without independent investigation, any statute or any
order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Seller or any of its properties or
assets (except for such conflicts, breaches, violations and defaults
as would not have a material adverse effect on the ability of the
Seller to perform its obligations under the Agreements).
4. To such counsel's knowledge, without any independent
investigation, no consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body of the United States or any other jurisdiction is
required for the issuance of the Securities and the sale of the
Class A Notes to the Underwriters, or the consummation by the Seller
of the other transactions contemplated by the Agreements, except
such consents, approvals, authorizations, registrations or
qualifications as (a) may be required under State securities or Blue
Sky laws, (b) have been previously obtained or (c) the failure of
which to obtain would not have a material adverse effect on the
performance by the Seller of its obligations under, or the validity
or enforceability of, the Agreements.
5. There are no actions, proceedings or investigations pending
before or threatened by any court, administrative agency or other
tribunal to which the Seller is a party or of which any of its
properties is the subject: (a) which if determined adversely to the
Seller would have a material adverse effect on the business, results
of operations or financial condition of the Seller; (b) asserting
the invalidity of the Agreements or the Securities; (c) seeking to
prevent the issuance of the Securities or the consummation by the
Seller of any of the transactions contemplated by the Agreements, as
the case may be; (d) which might materially and adversely affect the
performance by the Seller of its obligations under, or the validity
or enforceability of, the Agreements.
I. (a)[ ], special counsel for [the Seller], shall have furnished to the
Underwriters his written opinion, as counsel for [the Seller], addressed to
the Underwriters and the Seller, dated the Closing Date, in form and substance
satisfactory to the Underwriters, to the effect that:
1. [the Seller] has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of [ ] and
has all requisite corporate power and authority to own its
properties and carry on its business and to execute, deliver and
perform its duties under the Sale and Servicing Agreement and the
Purchase Agreement.
2. Each of the Sale and Servicing Agreement and the Purchase
Agreement have been duly authorized, executed and delivered by [the
Seller], and constitutes the legal, valid and binding agreements of
[the Seller], enforceable against [the Seller] in accordance with
its terms, subject to the effect of (x) bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to
creditors' rights generally and court decisions with respect thereto
and (y) public policy considerations regarding the enforcement of
the indemnity provisions in the Purchase Agreement (other than the
application of equitable principles in any proceeding, whether at
law or in equity, as to which no opinion need be expressed).
3. No consent, approval, authorization or order of, registration or
filing with, or notice to, any court or governmental agency or body
is required under any state or federal statute or regulation
applicable to [the Seller] for the execution, delivery or
performance by [the Seller] of, or compliance by [the Seller] with,
the Sale and Servicing Agreement and the Purchase Agreement, except
such as may be required under the blue sky laws of any jurisdiction.
4. The transfer and assignment of each Mortgage Loan by [the Seller]
to the Indenture Trustee, as assignee of the Seller, as contemplated
by the Sale and Servicing Agreement and the Purchase Agreement is
sufficient to constitute the Indenture Trustee the noteholder of the
related Mortgage Note and the beneficiary under the related mortgage
or deed of trust.
5. The information in the Prospectus Supplement contained under the
headings : [ ] (other than the financial and statistical data
contained in such section, as to which such counsel need express no
opinion) does not contain an untrue statement of a material fact and
does not omit to state a material fact necessary to make the
statements therein in light of the circumstances under which they
were made not misleading.
(b) [ ], counsel to [the Seller], shall have furnished to the
Underwriters his written opinion, as counsel to [the Seller], addressed to the
Underwriters and the Seller, dated the Closing Date, in form and substance
satisfactory to the Underwriters, to the effect that:
1. Neither the transfer of the Mortgage Loans as provided by the
Sale and Servicing Agreement nor the consummation of the
transactions contemplated by or the fulfillment of the terms of the
Sale and Servicing Agreement (i) will result in a breach of any term
or provision of the certificate of incorporation or bylaws of [the
Seller], (ii) will result in a breach, violation or acceleration of,
or constitute a default under the terms of, any indenture or other
material agreement or instrument to which [the Seller] is a party or
by which it is bound or subject, or (iii) will result in a material
breach of any statute or regulation presently applicable to [the
Seller] or any order, writ, injunction or decree of any court,
governmental agency or regulatory body to which [the Seller] is
subject or by which its or its properties are bound.
2. There is no action, suit, proceeding or investigation pending or,
to such counsel's knowledge, threatened against [the Seller] which,
in such counsel's judgement, either in any one instance or in the
aggregate would draw into question the validity or enforceability of
the Sale and Servicing Agreement or the Purchase Agreement or the
Notes or of any action taken or to be taken in connection with the
transaction contemplated thereby, or which would be likely to impair
materially the ability of [the Seller] to perform its obligations
under the terms of the Sale and Servicing Agreement.
J. The Underwriters shall have received the favorable opinion of counsel
to the Indenture Trustee, dated the Closing Date, addressed to the
Underwriters and the Seller and in form and scope satisfactory to counsel to
the Underwriters, to the effect that:
1. The Indenture Trustee is a national banking association with
trust powers, duly organized and validly existing in good standing
under the laws of the United States, and has all requisite power and
authority to enter into the Sale and Servicing Agreement, the
Indenture, the Administration Agreement and the Insurance Agreement
and perform its obligations thereunder.
2. The Sale and Servicing Agreement, the Indenture, the
Administration Agreement and the Insurance Agreement have been duly
authorized, executed and delivered by the Indenture Trustee and,
assuming the due authorization, execution and delivery thereof by
the other parties thereto, constitute the legal, valid and binding
obligations of the Indenture Trustee, enforceable against the
Indenture Trustee in accordance with their respective terms, subject
to bankruptcy laws and other similar laws of general application
affecting creditors' rights and subject to the application of the
rules of equity, including those respecting the availability of
specific performance.
3. No consent, approval, authorization or other action by, or filing
with, any court or governmental agency or authority having
jurisdiction over the banking or trust powers of the Indenture
Trustee is required in connection with its execution and delivery of
the Sale and Servicing Agreement, the Indenture, the Administration
Agreement and the Insurance Agreement, according to their respective
terms.
4. The execution, delivery and performance of the Sale and Servicing
Agreement, the Indenture, the Administration Agreement and the
Insurance Agreement do not result in a violation of (a) any law or
regulation of the United States governing the banking or trust
powers of the Indenture Trustee or any order, writ, judgement or
decree of any court, arbitrator or governmental authority applicable
to the Indenture Trustee or any of its assets or (b) the articles of
association or by-laws of the Indenture Trustee.
5. The Class A Notes have been authenticated and delivered by the
Indenture Trustee in accordance with the Indenture.
6. There are no actions, proceedings or investigations pending or
threatened against or affecting the Indenture Trustee before or by
any court, arbitrator, administrative agency or other governmental
authority which, if decided adversely to the Indenture Trustee,
would materially and adversely affect the ability of the Indenture
Trustee to carry out the transactions contemplated in the Sale and
Servicing Agreement, the Indenture, the Administration Agreement or
the Insurance Agreement.
K. The Underwriters shall have received the favorable opinion or
opinions, dated the date of the Closing Date, of counsel for the Underwriters,
with respect to the issue and sale of the Class A Notes, the Registration
Statement, this Agreement, the Prospectus and such other related matters as
the Underwriters may reasonably require.
L. The Underwriters shall have received the favorable opinion, dated the
Closing Date of [ ], counsel to the Owner Trustee, with respect to the issue
and sale of the Class A Notes and the Ownership Interests, the status of the
Trust, the Trust Agreement, perfections of applicable security interests and
such other matters as the Underwriters may reasonably require.
M. The Underwriters shall have received the favorable opinion, dated the
Closing Date, of [ ] counsel to the Insurer ("Insurer Counsel") in form and
scope satisfactory to counsel for the Underwriters, to the effect that:
1. The Insurer is a stock insurance corporation, duly incorporated
and validly existing under the laws of the State of [ ] and is
licensed and has the power and authority to issue the Policy under
the laws of the State of [ ].
2. The Policy has been duly authorized, executed and delivered and
is the valid and binding obligation of the Insurer enforceable in
accordance with its terms, except that the enforcement of the Policy
may be limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar laws
affecting creditors' rights generally and by general principles of
equity (regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law).
3. The Insurer has the power and authority to perform its
obligations under the Insurance Agreement and the Indemnification
Agreement and the Insurance Agreement and the Indemnification
Agreement have been duly executed and are the valid and binding
obligations of the Insurer, each enforceable in accordance with its
terms, except that the enforcement of the Insurance Agreement and
the Indemnification Agreement may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by
general principles of equity and, in the case of the Indemnification
Agreement, subject to principles of public policy limiting the right
to enforce the indemnification provisions contained therein insofar
as such provisions relate to indemnification for liabilities arising
under the securities laws.
4. No consent, approval, authorization, filing or order of any state
or federal court or governmental agency or body is required on the
part of the Insurer the lack of which would adversely affect the
validity and enforceability of the Policy.
5. The execution, delivery and performance by the Insurer of its
obligations under the Policy do not contravene any provision of the
charter or by-laws of the Insurer. The execution, delivery and
performance by the Insurer of its obligations under the Policy do
not, to the extent that either of the following would affect the
validity or enforceability of the Policy, (a) contravene any law or
government regulation or order presently binding on the Insurer or
(b) contravene any provision of or constitute a default under any
indenture, contract or other instrument to which the Insurer is a
party or by which it is bound.
6. To the extent that the Policy constitutes a security within the
meaning of Section 2(l) of the Securities Act, it is a security
exempt from the registration requirements of the Securities Act.
7. The description of the Policy in the Prospectus Supplement under
the headings ["The Insurer" and "Description of the Notes--The
Policy"] is, to the extent that such description constitutes
statements of matters of law or legal conclusions with respect
thereto, accurate in all material respects; provided, however, that
no opinion need be expressed as to the accuracy of any financial
statements or other financial or statistical data contained in or
omitted from the Prospectus Supplement, including such statements or
other information included under such caption or in any appendix to
the Prospectus Supplement.
N. The Seller shall have furnished to the Underwriters a certificate,
dated the Closing Date, of its Chairman of the Board, its President, a
Managing Director, a Senior Vice President or a Vice President stating that:
1. The representations and warranties of the Seller in Section I of
this Agreement are true and correct as of the Closing Date; and the
Seller has complied with all its agreements contained herein.
2. Such person has carefully examined the Registration Statement and
the Prospectus and, in his opinion (x) as of the Effective Date, the
Registration Statement and Prospectus did not include an untrue
statement of a material fact and did not omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and (y) since the Effective Date
no event has occurred which should have been set forth in a
supplement or amendment to the Registration Statement or the
Prospectus.
O. The Indenture Trustee shall have furnished to the Underwriters and the
Transferor a certificate of the Indenture Trustee, signed by one or more duly
authorized officers of the Indenture Trustee, dated the Closing Date, as to
the due authorization, execution and delivery of the Sale and Servicing
Agreement, the Indenture and the Insurance Agreement by the Indenture Trustee
and the acceptance by the Indenture Trustee of the trusts created thereby and
the due authentication and delivery of the Class Notes by the Indenture
Trustee under the Indenture and such other matters as the Underwriters shall
reasonably request.
P. The Policy shall have been issued by the Insurer and shall have been
duly authenticated by an authorized agent of the Insurer, if so required under
applicable state law or regulations.
Q. The Class A Notes shall have been rated at least "AAA" by [the Rating
Agencies].
R. The Underwriters shall have received at or before the Closing Date,
from [Accountant], letters, dated as of the date of this Agreement,
satisfactory in form and content (the "Initial Letters") and bring-down
letters dated as of the Closing Date, (i) confirming that they are independent
public accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the qualification of
accountants under Rule 201 of Regulation S-X of the Commission, (ii) stating
the conclusions and findings of such firm with respect to the financial
information and other matters covered by its letter, and (iii) in the case of
the bring-down letters, confirming in all material respects the conclusions
and findings set forth in the Initial Letters.
S. Prior to the Closing Date, counsel for the Underwriters shall have
been furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Class A Notes as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions herein contained, and
all proceedings taken by the Seller in connection with the issuance and sale
of the Class A Notes as herein contemplated shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
T. Subsequent to the execution and delivery of this Agreement, none of
the following shall have occurred: (i) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or minimum prices shall have been established
on either of such exchanges or such market by the Commission, by such exchange
or market, or by any other regulatory body or governmental authority having
jurisdiction; (ii) a banking moratorium shall have been declared by Federal or
state authorities; (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation of hostilities involving the
United States or there shall have been a declaration of a national emergency
or war by the United States; or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets of the United
States shall be such) as to make it, in the judgment of the Underwriters,
impractical or inadvisable to proceed with the public offering or delivery of
the Class A Notes on the terms and in the manner contemplated in the
Prospectus.
If any condition specified in this Section VI shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by notice to the Seller at any time at or prior
to the Closing Date, and such termination shall be without liability of any
party to any other party except as provided in Section VII herein.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
Section VII. Payment of Expenses. As between the Seller and the
Underwriters, the Seller agrees to pay: (a) the costs incident to the
authorization, issuance, sale and delivery of the Class A Notes and any taxes
payable in connection therewith; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of reproducing and distributing this Agreement; (e) the fees and
expenses of qualifying the Class A Notes under the securities laws of the
several jurisdictions as provided in Section V(G) hereof and of preparing,
printing and distributing a Blue Sky Memorandum and a Legal Investment Survey
(including related fees and expenses of counsel to the Underwriters); (f) any
fees charged by securities rating services for rating the Class A Notes; and
(g) all other costs and expenses incident to the performance of the
obligations of the Seller (including costs and expenses of Underwriters'
counsel); provided that, except as provided in this Section VII, the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Class A Notes which they
may sell and the expenses of advertising any offering of the Class A Notes
made by the Underwriters.
If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section VI, Section X or Section XI herein, the Seller shall
reimburse the Underwriters for all reasonable out-of-pocket expenses,
including fees and disbursements of Brown & Wood LLP.
Section VIII. Indemnification and Contribution. A. The Seller agrees to
indemnify and hold harmless the Underwriters and each person, if any, who
controls the Underwriters within the meaning of Section 15 of the Securities
Act from and against any and all loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
the Class A Notes), to which the Underwriters or any such controlling person
may become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus or (iv) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and shall
reimburse the Underwriters and each such controlling person promptly upon
demand for any legal or other expenses reasonably incurred by the Underwriters
or such controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that the Seller shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in the
Prospectus or the Registration Statement in reliance upon and in conformity
with written information furnished to the Seller by or on behalf of the
Underwriters specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Seller may otherwise have
to the Underwriters or any controlling person of the Underwriters.
B. Each Underwriter, severally, and not jointly, agrees to indemnify and
hold harmless the Seller, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Seller within the meaning of Section 15 of the Securities Act against any and
all loss, claim, damage or liability, or any action in respect thereof, to
which the Seller or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus or (iv) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was (x) made in reliance upon and in conformity
with written information furnished to the Seller by or on behalf of the
Underwriters specifically for inclusion therein and (y) in the Derived
Materials other than a misstatement or omission arising from a misstatement or
omission in the Seller-Provided Information, and shall reimburse the Seller
and any such director, officer or controlling person for any legal or other
expenses reasonably incurred by the Seller or any director, officer or
controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which the Underwriters may otherwise have to the Seller or any such
director, officer or controlling person.
C. Promptly after receipt by any indemnified party under this Section
VIII of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section VIII, notify the indemnifying party
in writing of the claim or the commencement of that action; provided, however,
that the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section VIII except to the extent it
has been materially prejudiced by such failure and, provided, further, that
the failure to notify any indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section VIII.
If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section VIII for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
Any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if
such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate firm of attorneys
(in addition to local counsel) at any time for all such indemnified parties,
which firm shall be designated in writing by the Underwriters, if the
indemnified parties under this Section VIII consist of the Underwriters or any
of their respective controlling persons, or by the Seller, if the indemnified
parties under this Section VIII consist of the Seller or any of the Seller's
directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section VIII(A) and (B) above, shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be
a final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against
any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement.
D. Each Underwriter agrees to provide the Seller no later than two
Business Days prior to which the Prospectus Supplement is required to be filed
pursuant to Rule 424 with a copy of its Derived Information for filing with
the Commission on Form 8-K.
E. Each Underwriter agrees, severally and not jointly, assuming all
Seller-Provided Information (as defined below) is accurate and complete in all
material respects, to indemnify and hold harmless the Seller, each of the
Seller's officers and directors and each person who controls the Seller within
the meaning of Section 15 of the Securities Act against any and all losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement of a material fact contained in the Derived
Information provided by any Underwriter, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by him, her or it in connection with investigating or
defending or preparing to defend any such loss, claim, damage, liability or
action as such expenses are incurred. The obligations of the Underwriters
under this Section VIII(E) shall be in addition to any liability which the
Underwriters may otherwise have.
The procedures set forth in Section VIII(C) shall be equally applicable
to this Section VIII(E).
F. If the indemnification provided for in this Section VIII shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section VIII(A), (B) or (E) above in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Seller on the one hand and the Underwriters on the other from
the offering of the Class A Notes or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law or if the indemnified party
failed to give the notice required under Section VIII(C) above, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Seller on
the one hand and the Underwriters on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations.
The relative benefits of the Underwriters and the Seller shall be deemed
to be in such proportions that each Underwriter is responsible for its pro
rata portion of such losses, liabilities, claims, damages and expenses
determined in accordance with the ratio that the excess of the aggregate
resale price received by such Underwriter for the Class A Notes over the
purchase price paid to the Seller by such Underwriter (before deducting
expenses) bears to the aggregate resale price received by such Underwriter for
the Class A Notes, and the Seller shall be responsible for the balance.
The relative fault of the Underwriters and the Seller shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Seller or by the Underwriters, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission and other equitable
considerations.
The Seller and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section VIII(F) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section VIII(F) shall be deemed to include, for purposes of this Section
VIII(F), any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
In no case shall the Underwriters be responsible for any amount in excess
of the difference between the purchase price paid to the Seller by the
Underwriters and the aggregate resale price received by the Underwriters. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
G. For purposes of this Section VIII, the term "Derived Information"
means such portion, if any, of the information delivered to the Seller
pursuant to Section VIII(D) for filing with the Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into account
information incorporated therein by reference;
(ii) does not constitute Seller-Provided Information; and
(iii) is of the type of information defined as Collateral term sheets,
Structural term sheets or Computational Materials (as such terms are
interpreted in the No-Action Letters (as defined below)).
"Seller-Provided Information" means the information contained on any computer
tape furnished to the Underwriters by [seller] concerning the assets
comprising the Trust.
The terms "Collateral term sheet" and "Structural term sheet" shall have
the respective meanings assigned to them in the February 13, 1995 letter (the
"PSA Letter") of Cleary, Gottlieb, Steen & Hamilton on behalf of the Public
Securities Association (which letter, and the SEC staff's response thereto,
were publicly available February 17, 1995). The term "Collateral term sheet"
as used herein includes any subsequent Collateral term sheet that reflects a
substantive change in the information presented. The term "Computational
Materials" has the meaning assigned to it in the May 17, 1994 letter (the
"Kidder letter" and together with the PSA Letter, the "No-Action Letters") of
Brown & Wood on behalf of Kidder, Peabody & Co., Inc. (which letter, and the
SEC staff's response thereto, were publicly available May 20, 1994).
H. The Underwriters confirm that the information set forth (i) in the
third, fourth, fifth, sixth, seventh and last paragraphs under the caption
"Underwriting" in the Prospectus Supplement and (ii) the Derived Information
is correct and constitutes the only information furnished in writing to the
Seller by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
Section IX. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Seller submitted
pursuant hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters or
controlling persons thereof, or by or on behalf of the Seller and shall
survive delivery of any Class A Notes to the Underwriters.
Section X. Default by One of the Underwriters. If one of the Underwriters
participating in the public offering of the Class A Notes shall fail at the
Closing Date to purchase the Class A Notes which it is obligated to purchase
hereunder (the "Defaulted Notes"), then the non-defaulting Underwriter shall
have the right, within 24 hours thereafter, to purchase all, but not less than
all, of the Defaulted Notes in such amounts as may be agreed upon and upon the
terms herein set forth. If, however, the non-defaulting Underwriters have not
completed such arrangements within such 24-hour period, then:
(i) if the aggregate principal amount of Defaulted Notes does not
exceed 10% of the aggregate principal amount of the Class Notes to be
purchased pursuant to this Agreement, the non-defaulting Underwriters
shall be obligated to purchase the full amount thereof, or
(ii) if the aggregate principal amount of Defaulted Notes exceeds 10%
of the aggregate principal amount of the Notes to be purchased pursuant
to this Agreement, this Agreement shall terminate, without any liability
on the part of the non-defaulting Underwriters.
No action taken pursuant to this Section X shall relieve a defaulting
Underwriter from liability with respect to any default of such Underwriter
under this Agreement.
In the event of a default by any Underwriter as set forth in this Section
X, each of the non-defaulting Underwriters and the Seller shall have the right
to postpone the Closing Date for a period not exceeding five Business Days in
order that any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements may be effected.
Section XI. Termination of Agreement. The Underwriters may terminate this
Agreement immediately upon notice to the Seller, at any time at or prior to
the Closing Date, if any of the events or conditions described in Section
VI(S) of this Agreement shall occur and be continuing. In the event of any
such termination, the covenant set forth in Section V(D), the provisions of
Section VII, the indemnity agreement set forth in Section VIII, and the
provisions of Sections IX and XIII herein shall remain in effect.
Section XII. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
A. if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to [ ].
B. if to the Seller, shall be delivered or sent by mail, telex or
facsimile transmission to KeyBank National Association, Key Tower, 127 Public
Square, Cleveland, Ohio 44114.
Section XIII. Persons Entitled to the Benefit of this Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters
and the Seller, and their respective successors. This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except
that the representations, warranties, indemnities and agreements contained in
this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control the Underwriters within the meaning of Section 15
of the Securities Act, and for the benefit of directors of the Seller,
officers of the Seller who have signed the Registration Statement and any
person controlling the Seller within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section XIII, any
legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
Section XIV. Survival. The respective indemnities, representations,
warranties and agreements of the Seller and the Underwriters contained in this
Agreement, or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Class A Notes and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
Section XV. Definition of the Term "Business Day". For purposes of this
Agreement, "Business Day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
Section XVI. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section XVII. Counterparts. This Agreement may be executed in
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
Section XVIII. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
<PAGE>
If the foregoing correctly sets forth the agreement between the Seller
and the Underwriters, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
KEYBANK NATIONAL ASSOCIATION
By: ____________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
[Underwriter]
By: ___________________________
Name:
Title:
<PAGE>
SCHEDULE A
Initial Principal Amount of Notes
Purchased by Underwriters
Underwriter Class A
------------------ ------------------
Purchase Price for Class A Notes - [ ]% plus accrued interest from [ ] to but
- -----------------------------------------------------------------------------
not including the Closing Date.
- -------------------------------
<PAGE>
Exhibit 5.1
BROWN & WOOD LLP
One World Trade Center
New York, N.Y. 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
April 10, 2000
KeyBank National Association
Key Tower
127 Public Square
Cleveland, Ohio 44114
Re: KeyBank National Association
Registration Statement on Form S-3
(File No. 333-82215)
Ladies and Gentlemen:
We have acted as counsel for KeyBank National Assocation, a national
banking association (the "Bank"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the Securities (defined below) and with the authorization and issuance from
time to time in one or more series of asset-backed securities (the
"Securities"). As set forth in the Registration Statement, each series of
Securities will be issued under and pursuant to the conditions of a separate
pooling and servicing agreement, trust agreement or indenture (each, an
"Agreement") among the Bank, a trustee (the "Trustee") and where appropriate,
a servicer (the "Servicer"), each to be identified in the prospectus
supplement for such Series of Securities.
We have examined copies of the Bank's Articles of Association, the
Bank's By-laws and forms of each Agreement, as filed or incorporated by
reference as exhibits to the Registration Statement, and the forms of
Securities included in any Agreement so filed or incorporated by reference in
the Registration Statement and such other records, documents and statutes as
we have deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When any Agreement relating to a Series of Securities has
been duly and validly authorized by all necessary action on the part of the
Bank and has been duly executed and delivered by the Bank, the Servicer, if
any, the Trustee and any other party thereto, such Agreement will constitute a
legal, valid and binding agreement of the Bank, enforceable against the Bank
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors'
rights generally or by general equity principles.
2. When a series of Securities has been duly authorized by
all necessary action on the part of the Bank (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly executed
and authenticated by the Trustee for such series in accordance with the terms
of the related Agreement and issued and delivered against payment therefor as
described in the Registration Statement, such series of Securities will be
legally and validly issued, fully paid and nonassessable, and the holders
thereof will be entitled to the benefits of the related Agreement.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York
(excluding choice of law principles therein) and the federal laws of the
United States of America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in each Prospectus forming a part of the Registration
Statement, without admitting that we are "experts" within the meaning of the
1933 Act or the Rules and Regulations of the Commission issued thereunder,
with respect to any part of the Registration Statement, including this
exhibit.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE>
Exhibit 8.1
BROWN & WOOD LLP
One World Trade Center
New York, N.Y. 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
April 10, 2000
KeyBank National Association
Key Tower
127 Public Square
Cleveland, Ohio 44114
Re: KeyBank National Association
Registration Statement on Form S-3
(File No. 333-82215)
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for KeyBank National
Association, a national banking association (the "Bank"), in connection with
the preparation of the registration statement on Form S-3 (the "Registration
Statement") relating to the Securities (defined below) and with the
authorization and issuance from time to time in one or more series (each, a
"Series") of asset-backed securities (the "Securities"). The Registration
Statement is being filed with the Securities and Exchange Commission under the
1933 Act. As set forth in the Registration Statement, each Series of
Securities will be issued under and pursuant to the conditions of a separate
pooling and servicing agreement, pooling agreement, trust agreement or
indenture (each an "Agreement") among the Bank, a trustee (the "Trustee") and,
where appropriate, a servicer (the "Servicer"), each to be identified in the
prospectus supplement for such Series of Securities.
We have examined the prospectuses contained in the Registration
Statement (each, a "Prospectus") and such other documents, records and
instruments as we have deemed necessary for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the
part of the Bank, the Trustee, the Servicer (where applicable) and any other
party thereto for such Series of Securities and will be duly executed and
delivered by the Bank, the Trustee, the Servicer and any other party thereto
substantially in the applicable form filed or incorporated by reference as an
exhibit to the Registration Statement, that each Series of Securities will be
duly executed and delivered in substantially the forms set forth in the
related Agreement filed or incorporated by reference as an exhibit to the
Registration Statement, and that Securities will be sold as described in the
Registration Statement.
As special tax counsel to the Bank, we have advised the Bank with
respect to the material federal income tax aspects of the proposed issuance of
each Series of Securities pursuant to the related Agreement. Such advice has
formed the basis for the description of selected federal income tax
consequences for holders of such Securities that appear under the heading
"Federal Income Tax Considerations" in each Prospectus forming a part of the
Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
Securities, but with respect to those federal income tax consequences which
are discussed, in our opinion, the description is accurate in all material
respects. We hereby confirm and adopt each of our opinions stated under the
heading "Federal Income Tax Considerations" in each Prospectus forming a part
of the Registration Statement.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion
as to the matters set forth herein could change with respect to a particular
Series of Securities as a result of changes in fact or circumstances, changes
in the terms of the documents reviewed by us, or changes in the law subsequent
to the date hereof. Because the Prospectuses contemplate Series of Securities
with numerous different characteristics, you should be aware that the
particular characteristics of each Series of Securities must be considered in
determining the applicability of this opinion to a particular Series of
Securities.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Federal Income Tax Considerations" in each Prospectus forming a part of the
Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE>
Exhbiti 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 10th day of April, 2000.
/s/ Kevin P. Riley
--------------------------------
Name: Kevin P. Riley
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 10th day of April, 2000.
/s/ Patrick V. Auletta
----------------------------
Name: Patrick V. Auletta
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 10th day of April, 2000.
/s/ James S. Bingay
--------------------------
Name: James S. Bingay
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 10th day of April, 2000.
/s/ Linda A. Grandstaff
--------------------------------
Name: Linda A. Grandstaff
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 10th day of April, 2000.
/s/ Robert G. Jones
---------------------------------
Name: Robert G. Jones
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 10th day of April, 2000.
/s/ Jack L. Kopnisky
----------------------------------
Name: Jack L. Kopnisky
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 10th day of April, 2000.
/s/ John H. Mancuso
---------------------------------
Name: John H. Mancuso
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 10th day of April, 2000.
/s/ K. Brent Somers
-------------------------------
Name: K. Brent Somers
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 6th day of April, 2000.
/s/ Henry L. Meyer III
----------------------
Name: Henry L. Meyer III
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 6th day of April, 2000.
/s/ James E. Bennett
---------------------------------
Name: James E. Bennett
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 8th day of April, 2000.
/s/ Kevin M. Blakely
----------------------------------
Name: Kevin M. Blakely
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 10th day of April, 2000.
/s/ James A. Fishell
------------------------------------
Name: James A. Fishell
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 10th day of April, 2000.
/s/ David J. Schutter
-----------------------------------
Name: David J. Schutter
