<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1999
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INDYMAC MBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
APPLIED FOR
DELAWARE (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) NUMBER)
</TABLE>
155 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(800) 669-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
S. BLAIR ABERNATHY
INDYMAC MBS, INC.
155 NORTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(800) 669-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
EDWARD J. FINE, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time 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, please check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If delivery of this Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates........ $1,000,000 100% $1,000,000 $278
==============================================================================================================
</TABLE>
(1) This Registration Statement relates to the offering from time to time of
$1,000,000 aggregate principal amount of Mortgage Pass-Through Certificates
and to any resales of them in market making transactions by Countrywide
Securities Corporation, an affiliate of the Registrant, to the extent
required.
(2) Estimated for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1999)
$
(APPROXIMATE)
INDYMAC MBS, INC.
DEPOSITOR
[[LOGO]
SELLER AND MASTER SERVICER]
RESIDENTIAL ASSET SECURITIZATION TRUST 1999-
ISSUER
DISTRIBUTIONS PAYABLE MONTHLY, BEGINNING , 1999
------------------------
The following classes of certificates are being offered pursuant to this
prospectus supplement and the accompanying prospectus:
<TABLE>
<CAPTION>
INITIAL CLASS INITIAL CLASS
CERTIFICATE PASS-THROUGH CERTIFICATE PASS-THROUGH
BALANCE RATE BALANCE RATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 $ % Class A-R $ %
Class A-2 $ % Class M $ %
Class A-3 $ % Class B-1 $ %
Class PO $ Class B-2 $ %
Class X
</TABLE>
CONSIDER CAREFULLY THE
RISK FACTORS BEGINNING ON
PAGE S-6 IN THIS
PROSPECTUS SUPPLEMENT AND
ON PAGE 4 IN THE
PROSPECTUS.
The Class PO Certificates are principal only
certificates, and the Class X Certificates are interest
only notional amount certificates. The pass-through rate
for the Class X Certificates is calculated as described
under 'Description of the Certificates -- Interest.'
The assets of the trust will consist primarily of a pool
of 30-year conventional fixed-rate mortgage loans secured
by first liens on one- to four-family residential
properties.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Class PO and Class X Certificates will not be purchased by the
Underwriters. They will be transferred to the seller on or about ,
1999 as partial consideration for the sale of the mortgage loans to the
depositor. See 'Method of Distribution.'
[NAME OF UNDERWRITER] [NAME OF UNDERWRITER]
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
--------------------- ----
<S> <C>
Summary.......................... S-3
Risk Factors..................... S-6
The Mortgage Pool................ S-11
Servicing of Mortgage Loans...... S-21
Description of the
Certificates................... S-27
Yield, Prepayment and Maturity
Considerations................. S-41
Credit Enhancement............... S-48
Use of Proceeds.................. S-49
Material Federal Income Tax
Consequences................... S-50
ERISA Considerations............. S-51
Method of Distribution........... S-53
Legal Matters.................... S-53
Ratings.......................... S-54
<CAPTION>
PROSPECTUS PAGE
---------- ----
<S> <C>
Important Notice About Information
in This Prospectus and Each
Accompanying Prospectus
Supplement..................... 3
Risk Factors..................... 4
The Trust Fund................... 12
Use of Proceeds.................. 24
The Depositor.................... 25
Mortgage Loan Program............ 25
Description of the Certificates... 28
Credit Enhancement............... 43
Yield and Prepayment
Considerations................. 48
The Pooling and Servicing
Agreement...................... 49
Certain Legal Aspects of the
Mortgage Loans................. 66
Material Federal Income Tax
Consequences................... 74
State Tax Considerations......... 102
ERISA Considerations............. 102
Legal Investment................. 106
Method of Distribution........... 107
Legal Matters.................... 108
Financial Information............ 108
Rating........................... 108
Index to Defined Terms........... 109
</TABLE>
S-2
<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 AN OFFERING OF THE
CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS.
OFFERED CERTIFICATES
Residential Asset Securitization Trust 1999- will issue classes of
certificates, of which are being offered by this prospectus
supplement and the accompanying prospectus. The assets of the trust that will
support both the offered certificates and other classes of certificates will
consist of a pool of mortgage loans with a principal balance of approximately
$ as of , 1999. The mortgage loans will consist primarily
of 30-year conventional fixed-rate mortgage loans secured by first liens on one-
to four-family residential properties.
The following chart lists certain characteristics of the classes of the offered
certificates. The classes of certificates listed below will not be offered
unless they are assigned the following ratings by and by
.
<TABLE>
<CAPTION>
CLASS RATING RATING TYPE
----- ------ ------ ----
<S> <C> <C> <C>
Class A-1 Senior
Class A-2 Senior
Class A-3 Senior
Class PO Senior/Principal Only
Class X Senior/Interest Only
Class A-R Senior/Residual
Class M Subordinate
Class B-1 Subordinate
Class B-2 Subordinate
</TABLE>
A rating is not a recommendation to buy, sell or hold securities. These ratings
may be lowered or withdrawn at any time by either of the rating agencies.
See 'Ratings.'
See 'Description of the Certificates -- General' and ' -- Book-Entry
Certificates' in this prospectus supplement and 'The Mortgage Pool' in this
prospectus supplement and 'The Trust Fund -- The Mortgage Loans -- General' in
the prospectus.
CUT-OFF DATE
, 1999
CLOSING DATE
On or about, 1999
DEPOSITOR
IndyMac MBS, Inc. is a limited purpose finance subsidiary of IndyMac, Inc. Its
address is 155 North Lake Avenue, Pasadena, California 91101, and its telephone
number is (800) 669-2300.
SELLER AND MASTER SERVICER
[IndyMac, Inc.]
TRUSTEE
[The Bank of New York]
DISTRIBUTION DATES
We will make distributions on the th day of each month. If the th day of
a month is not a business day, then we will make distributions on the next
business day. The first distribution is scheduled for .
INTEREST PAYMENTS
Interest will accrue at the rate specified or described on the cover page on
each interest bearing class of certificates on the basis of a 360-day year
divided into twelve 30-day months. The interest accrual period for the interest
bearing classes of certificates for any
S-3
<PAGE>
distribution date will be the calendar month before the distribution date.
See 'Description of the Certificates -- Interest.'
PRINCIPAL PAYMENTS
Principal will be paid on the certificates on the th day of each month as
described in this prospectus supplement beginning at page S-39.
See 'Description of the Certificates -- Principal.'
OPTIONAL TERMINATION
The master servicer may purchase all of the remaining assets of the trust after
the principal balance of the mortgage loans and real estate owned by the trust
declines below 10% of the principal balance of the mortgage loans on
, 1999.
See 'Description of the Certificates -- Optional Termination.'
COLLECTION ACCOUNT; PRIORITY
OF DISTRIBUTIONS
On each distribution date amounts available in the trust to make distributions
on the certificates will be applied in the following order of priority:
(1) to interest on the interest bearing classes of senior certificates;
(2) to principal on the classes of senior certificates in the manner, order and
priority described under 'Description of the Certificates -- Principal';
(3) to any deferred amounts payable on the Class PO Certificates, as described
under 'Description of the Certificates -- Principal'; and
(4) to interest on and then principal of each class of subordinated
certificates, in order of their numerical class designations, beginning with
the Class M Certificates, as described under 'Description of the
Certificates -- Principal.'
ADVANCES
The master servicer will make cash advances with respect to delinquent payments
of principal and interest on the mortgage loans to the extent the master
servicer reasonably believes that the cash advances can be repaid from future
payments on the mortgage loans. These cash advances are only intended to
maintain a regular flow of scheduled interest and principal payments on the
certificates and are not intended to guarantee or insure against losses.
See 'Servicing of Mortgage Loans -- Advances.'
CREDIT ENHANCEMENT
The issuance of senior certificates and subordinated certificates by the trust
is designed to increase the likelihood that senior certificateholders will
receive regular payments of interest and principal.
SUBORDINATION
The senior certificates will have a payment priority over the subordinated
certificates. Within the classes of subordinated certificates, the Class M
Certificates will have payment priority over the Class B-1 and B-2 Certificates,
and the Class B-1 Certificates will have a payment priority over the Class B-2
Certificates. The Class B-3, Class B-4, and Class B-5 Certificates, which are
not being offered to the public, are also subordinated, in that order, with the
Class B-5 Certificates having the lowest priority of payment.
Subordination is designed to provide the holders of certificates with a higher
payment priority with protection against most losses realized when the remaining
unpaid principal balance on a mortgage loan exceeds the amount of proceeds
recovered upon the liquidation of that mortgage loan. In general, this loss
protection is accomplished by allocating the realized losses among the
subordinated certificates, beginning with the subordinated certificates with the
lowest payment priority, before realized losses are
S-4
<PAGE>
allocated to the senior certificates. However, some losses such as special
hazard losses, bankruptcy losses, and fraud losses in excess of the amounts set
forth in this prospectus supplement are, in general, allocated pro rata to each
class of certificates instead of first being allocated among the subordinated
certificates.
See 'Description of the Certificates -- Allocation of Losses' and 'Credit
Enhancement -- Subordination.'
TAX STATUS
The trust will elect to be treated, for federal income tax purposes as a real
estate mortgage investment conduit. The classes of certificates that are
designated as the regular certificates will constitute regular interests in the
REMIC. The Class A-R Certificates will represent the sole class of residual
interests in the REMIC.
See 'Material Federal Income Tax Consequences' in this prospectus supplement and
in the prospectus.
ERISA CONSIDERATIONS
The Class A Certificates, other than the Class A-R Certificates, may be
purchased by a pension or other employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code of 1986, so long as the conditions described under 'ERISA Considerations'
are met.
See 'ERISA Considerations' in this prospectus supplement and in the prospectus.
LEGAL INVESTMENT
The senior certificates [and the Class M Certificates] will be mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of 1984
as long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization. The [Class B-1
and Class B-2] Certificates will not be rated in one of the two highest rating
categories by a nationally recognized statistical rating organization, and
therefore, will not be mortgage related securities for purposes of that Act.
See 'Legal Investment' in this prospectus supplement and in the prospectus.
S-5
<PAGE>
RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE CERTIFICATES.
YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE 4 IN THE PROSPECTUS.
<TABLE>
<S> <C>
YOUR YIELD WILL BE AFFECTED BY HOW Borrowers may, at their option, prepay their
BORROWERS REPAY THEIR MORTGAGE LOANS mortgage loans in whole or in part at any time. We
cannot predict the rate at which borrowers will
repay their mortgage loans. A prepayment of a
mortgage loan, however, will usually result in a
prepayment on the certificates.
The rate and timing of prepayment of mortgage loans
will affect the yields to maturity and weighted
average lives of the certificates. Any reinvestment
risks from faster or slower prepayments of mortgage
loans will be borne entirely by the holders of the
certificates.
If you purchase principal only certificates or you
purchase your certificates at a discount and
principal is repaid slower than you anticipate,
then your yield may be lower than you anticipate.
If you purchase interest only certificates or you
purchase your certificates at a premium and
principal is repaid faster than you anticipate,
then your yield may be lower than you anticipate.
If you purchase interest only certificates and
principal is repaid faster than you anticipate, you
may lose your initial investment.
Approximately % of the mortgage loans by
cut-off date pool principal balance require the
mortgagor to pay a penalty if the mortgagor
prepays the mortgage loan during periods ranging
from one year to five years after the mortgage
loan was originated. A prepayment penalty may
discourage a mortgagor from prepaying the mortgage
loan during the applicable period. Prepayment
penalties will not be available for distribution
to the certificateholders.
See 'Yield, Prepayment and Maturity Considerations'
for a description of factors that may influence the
rate and timing of prepayments on the mortgage
loans.
YOUR YIELD WILL BE AFFECTED BY HOW The timing of principal payments on the
DISTRIBUTIONS ARE ALLOCATED TO THE certificates will be affected by a number of
CERTIFICATES factors, including:
the extent of prepayments on the mortgage loans,
how payments of principal are allocated among the
classes of certificates as specified on page S-31,
whether the master servicer exercises its right, in
its sole discretion, to terminate the trust fund,
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
the rate and timing of payment defaults and losses
on the mortgage loans,
repurchases of mortgage loans for material breaches
of representations and warranties.
Since distributions on the certificates are
dependent upon the payments on the mortgage loans,
we cannot guarantee the amount of any particular
payment or the amount of time that will elapse
before the trust is terminated.
See 'Description of the Certificates -- Principal,'
and ' -- Optional Termination' for a description of
the manner in which principal will be paid to the
certificates. See 'The Mortgage
Pool -- Representations by Seller; Repurchases,
etc.' for more information regarding the repurchase
of mortgage loans.
CREDIT ENHANCEMENT MAY NOT BE SUFFICIENT The certificates are not insured by any financial
TO PROTECT SENIOR CERTIFICATES FROM LOSSES guaranty insurance policy. The subordination
features are intended to enhance the likelihood
that senior certificateholders will receive regular
payments of interest and principal.
SUBORDINATION. Credit enhancement will be provided
for the certificates, first, by the right of the
holders of certificates to receive payments of
principal before the classes subordinated to them
and, second, by the allocation of realized losses
to subordinated classes in the inverse order of
their subordination. This form of credit
enhancement is provided by using collections on the
mortgage loans otherwise payable to holders of
subordinated classes to pay amounts due on more
senior classes. Collections otherwise payable to
subordinated classes comprise the sole source of
funds from which this type of credit enhancement is
provided. Realized losses are allocated to the
subordinated certificates, beginning with the
subordinated certificates with the lowest payment
priority, until the principal amount of that class
has been reduced to zero. Subsequent realized
losses will be allocated to the next most junior
classes of subordinated certificates sequentially,
until the principal balances of each succeeding
class has been reduced to zero. Accordingly, if the
aggregate principal balance of each subordinated
class were to be reduced to zero, delinquencies and
defaults on the mortgage loans would reduce the
amount of funds available for monthly distributions
to holders of the senior certificates. Furthermore,
the subordinated classes will provide only limited
protection against some categories of losses such
as special hazard losses, bankruptcy losses and
fraud losses in excess of the amounts specified in
this prospectus supplement. Any losses in excess of
those
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
amounts will be allocated pro rata to each class,
even if the principal balance of each subordinated
class has not been reduced to zero. Among the
subordinated certificates the Class M Certificates
are the least subordinated, that is, they have the
highest payment priority. Then come the Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5
Certificates, in that order.
See 'Credit Enhancement -- Subordination.'
CERTIFICATES MAY NOT BE APPROPRIATE FOR The offered certificates may not be an appropriate
SOME INVESTORS investment for investors who do not have sufficient
resources or expertise to evaluate the particular
characteristics of the applicable class of offered
certificates. This may be the case because, among
other things:
The yield to maturity of offered certificates
purchased at a price other than par will be
sensitive to the uncertain rate and timing of
principal prepayments on the mortgage loans;
The rate of principal distributions on and the
weighted average lives of the offered certificates
will be sensitive to the uncertain rate and timing
of principal prepayments on the mortgage loans and
the priority of principal distributions among the
classes of certificates. Accordingly, the offered
certificates may be an inappropriate investment if
you require a distribution of a particular amount
of principal on a specific date or an otherwise
predictable stream of distributions;
You may not be able to reinvest distributions on an
offered certificate (which, in general, are
expected to be greater during periods of
relatively low interest rates) at a rate at least
as high as the pass-through rate applicable to
your certificate; or
A secondary market for the offered certificates may
not develop or provide certificateholders with
liquidity of investment.
GEOGRAPHIC CONCENTRATION INCREASES RISK Approximately % of the mortgage loans expected
THAT CERTIFICATE YIELDS COULD BE IMPAIRED to be in the trust on the cut-off date are secured
by property in [California]. Property in
[California] may be more susceptible than homes
located in other parts of the country to some types
of uninsurable hazards, such as [earthquakes,
floods, mudslides] and other natural disasters. In
addition,
Economic conditions in [California] (which may or
may not affect real property values) may affect the
ability of borrowers to repay their loans on time;
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Declines in the [California] residential real
estate market may reduce the values of properties
located in [California], which would result in an
increase in the loan-to-value ratios; and
Any increase in the market value of properties
located in [California] would reduce the
loan-to-value ratios and could, therefore, make
alternative sources of financing available to the
borrowers at lower interest rates, which could
result in an increased rate of prepayment of the
mortgage loans.
YOU MAY HAVE DIFFICULTY RESELLING No market for any of the certificates will exist
CERTIFICATES before they are issued. Each underwriter intends to
make a secondary market in the classes of
certificates actually purchased by it, but neither
underwriter has any obligation to do so. We cannot
assure you that a secondary market will develop or,
if it develops, that it will continue.
Consequently, you may not be able to sell your
certificates readily or at prices that will enable
you to realize your desired yield. The market
values of the certificates are likely to fluctuate;
these fluctuations may be significant and could
result in significant losses to you.
The secondary markets for mortgage backed
securities have experienced periods of illiquidity
and can be expected to do so in the future.
Illiquidity can have a severely adverse effect on
the prices of securities that are especially
sensitive to prepayment, credit, or interest rate
risk, or that have been structured to meet the
investment requirements of limited categories of
investors.
See 'Risk Factors -- Ability to Resell Certificates
May Be Limited' in the prospectus.
YEAR 2000 COMPUTER PROBLEMS COULD DISRUPT Many computer systems and microprocessors with data
DISTRIBUTIONS ON CERTIFICATES functions, including those in non-information
technology equipment and systems, use only two
digits to identify a year in the date field with
the assumption that the first two digits of the
year are always '19.' Consequently, on January 1,
2000, computers that are not year 2000 compliant
may read the year as 1900 and malfunction.
We have developed a plan to become year 2000
compliant by mid-1999. We cannot guarantee,
however, that our efforts to achieve year 2000
readiness will be fully effective. Moreover, we
cannot guarantee that any of our third-party
service providers, such as trustees, borrowers'
banks, [loan servicers] and DTC, will be year 2000
ready. We also cannot assure you that any future
developments in connection with our year 2000
readiness or the readiness of third parties will be
those that we have anticipated.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Our failure, or the failure of any of our
third-party service providers, to become fully year
2000 ready could disrupt, at least temporarily, our
ability to carry out our servicing duties,
including the calculation of amounts distributable
to you and the timely transfer of funds to the
trustee for your benefit. Your investment in the
certificates could consequently suffer.
</TABLE>
SOME OF THE STATEMENTS CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CONSIST OF FORWARD-LOOKING
STATEMENTS RELATING TO FUTURE ECONOMIC PERFORMANCE OR PROJECTIONS AND OTHER
FINANCIAL ITEMS. THESE STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING WORDS SUCH AS 'MAY,' 'WILL,' 'SHOULD,' 'EXPECTS,' 'BELIEVES,'
'ANTICIPATES,' 'ESTIMATES,' OR OTHER COMPARABLE WORDS. FORWARD- LOOKING
STATEMENTS ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER FROM THE PROJECTED RESULTS. THOSE RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND OUR CONTROL.
BECAUSE WE CANNOT PREDICT THE FUTURE, WHAT ACTUALLY HAPPENS MAY BE VERY
DIFFERENT FROM WHAT WE PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
S-10
<PAGE>
THE MORTGAGE POOL
GENERAL
The depositor, IndyMac MBS, Inc. will purchase mortgage loans in the
mortgage pool from [IndyMac, Inc. ('IndyMac')] pursuant to a pooling and
servicing agreement dated as of the cut-off date among IndyMac, as seller and
master servicer, the depositor and [The Bank of New York], as trustee, and will
cause the mortgage loans to be assigned to the trustee for the benefit of the
holders of the certificates.
Under the pooling and servicing agreement, the seller will make
representations, warranties and covenants to the depositor relating to, among
other things, the due execution and enforceability of the pooling and servicing
agreement and some of the characteristics of the mortgage loans and, subject to
the limitations described under ' -- Assignment of the Mortgage Loans,' will be
obligated to repurchase or substitute a similar mortgage loan for any mortgage
loan as to which there exists deficient documentation or as to which there has
been an uncured breach of any representation or warranty relating to the
characteristics of the mortgage loans that materially and adversely affect the
interests of the certificateholders in the mortgage loan. The seller will
represent and warrant to the depositor in the pooling and servicing agreement
that the mortgage loans were selected from among the outstanding one- to
four-family mortgage loans in the seller's portfolio as to which the
representations and warranties set forth in the pooling and servicing agreement
can be made and that the selection was not made in a manner intended to affect
the interests of the certificateholders adversely. See 'Mortgage Loan Program --
Representations by Sellers; Repurchases' in the prospectus. Under the pooling
and servicing agreement, the depositor will assign all its interest in the
representations, warranties and covenants (including the seller's repurchase
obligation) to the trustee for the benefit of certificateholders. The depositor
will make no representations or warranties with respect to the mortgage loans
and will have no obligation to repurchase or substitute mortgage loans with
deficient documentation or which are otherwise defective. IndyMac is selling the
mortgage loans without recourse and will have no obligation with respect to the
certificates in its capacity as seller other than the repurchase obligation
described above. The obligations of IndyMac, as master servicer, with respect to
the certificates are limited to the master servicer's contractual servicing
obligations under the pooling and servicing agreement.
Information with respect to the mortgage loans expected to be included in
the mortgage pool is set forth under this heading. Before the closing date,
mortgage loans may be removed from the mortgage pool and other mortgage loans
may be substituted for them. The depositor believes that the information set
forth in this prospectus supplement with respect to the mortgage pool as
presently constituted is representative of the characteristics of the mortgage
pool as it will be constituted at the closing date, but some characteristics of
the mortgage loans in the mortgage pool may vary. Unless otherwise indicated,
information presented in this prospectus supplement expressed as a percentage
(other than rates of interest) are approximate percentages based on the Stated
Principal Balances of the mortgage loans as of the cut-off date.
As of the cut-off date, the aggregate of the Stated Principal Balances of
the mortgage loans is expected to be approximately $ , which is referred to as
the cut-off date pool principal balance. The mortgage loans provide for the
amortization of the amount financed over a series of substantially equal monthly
payments. All the mortgage loans provide for payments due as of the first day of
each month (the 'Due Date'). At origination, substantially all of the mortgage
loans had stated terms to maturity of 30 years. Scheduled monthly payments made
by the mortgagors on the mortgage loans (referred to as scheduled payments)
either earlier or later than their scheduled Due Dates will not affect the
amortization schedule or the relative application of
S-11
<PAGE>
the payments to principal and interest. The mortgagors may prepay their mortgage
loans at any time without penalty.
Each mortgage loan was originated after .
The latest stated maturity date of any mortgage loan is . The
earliest stated maturity date of any mortgage loan is .
As of the cut-off date, no mortgage loan was delinquent more than 30 days.
[No] mortgage loan will be subject to buydown agreements. [No] mortgage
loan provides for deferred interest or negative amortization.
As of the cut-off date, mortgage loans, representing approximately % of
the cut-off date pool principal balance, were each originated as an adjustable
rate mortgage loan but converted to a fixed rate mortgage loan before its
inclusion in the mortgage pool.
No mortgage loan has a Loan-to-Value Ratio at origination of more than 95%.
Generally, each mortgage loan with a Loan-to-Value Ratio at origination of
greater than 80% is covered by a primary mortgage guaranty insurance policy
issued by a mortgage insurance company acceptable to Fannie Mae or Freddie Mac.
The policy provides coverage of a portion of the original principal balance of
each of these mortgage loans equal to the product of (a) the original principal
balance of the mortgage loan and (b) a fraction, with a numerator equal to the
excess of the original principal balance of that mortgage loan over 75% of the
lesser of (1) the appraised value of the mortgaged property and (2) the selling
price of the mortgaged property, and a denominator equal to the sum of (1) the
original principal balance of the mortgage loan and (2) accrued interest and
foreclosure expenses. After the date on which the Loan-to-Value Ratio of a
mortgage loan is 80% or less, either because of principal payments on the
mortgage loan or because of a new appraisal of the mortgaged property, no
primary mortgage guaranty insurance policy will be required on that mortgage
loan. See ' -- Underwriting Standards.'
The 'Loan-to-Value Ratio' of a mortgage loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related mortgage loan at the date of determination and the
denominator of which is
in the case of a purchase, the lesser of the selling price of the
mortgaged property or its appraised value at the time of sale, or
in the case of a refinance, the appraised value of the mortgaged property
at the time of the refinance.
No assurance can be given that the value of any mortgaged property has remained
or will remain at the level that existed on the appraisal or sales date. If
residential real estate values generally or in a particular geographic area
decline, the Loan-to-Value Ratios might not be a reliable indicator of the rates
of delinquencies, foreclosures and losses that could occur with respect to the
mortgage loans.
The following information sets forth in tabular format information, as of
the cut-off date, as to the mortgage loans. Other than with respect to rates of
interest, percentages (approximate) are stated by Stated Principal Balance of
the mortgage loans as of the cut-off date and have been rounded in order to
total 100%.
S-12
<PAGE>
MORTGAGE RATES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES(%) LOANS OUTSTANDING POOL
----------------- ----- ----------- ----
<S> <C> <C> <C>
6.375............................................. $ %
6.500.............................................
6.625.............................................
6.750.............................................
6.875.............................................
7.000.............................................
7.125.............................................
7.250.............................................
7.375.............................................
7.500.............................................
7.625.............................................
7.750.............................................
7.875.............................................
8.000.............................................
8.125.............................................
8.250.............................................
8.375.............................................
8.500.............................................
8.625.............................................
8.750.............................................
--- ------- ------
Total........................................ $ 100.00%
--- ------- ------
--- ------- ------
</TABLE>
The lender acquired mortgage insurance mortgage loans are shown in the
preceding table at the mortgage rates net of the interest premium charged by the
related lenders. As of the cut-off date, the weighted average mortgage rate of
the mortgage loans (as so adjusted) is expected to be approximately %. Without
the adjustment, the weighted average mortgage rate of the mortgage loans is
expected to be approximately % per annum.
S-13
<PAGE>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
CURRENT MORTGAGE MORTGAGE BALANCE MORTGAGE
LOAN AMOUNTS LOANS OUTSTANDING POOL
------------ ----- ----------- ----
<S> <C> <C> <C>
$ 0 -- $ 50,000.......................... $ %
$ 50,001 -- $ 100,000..........................
$ 100,001 -- $ 150,000..........................
$ 150,001 -- $ 200,000..........................
$ 200,001 -- $ 250,000..........................
$ 250,001 -- $ 300,000..........................
$ 300,001 -- $ 350,000..........................
$ 350,001 -- $ 400,000..........................
$ 400,001 -- $ 450,000..........................
$ 450,001 -- $ 500,000..........................
$ 500,001 -- $ 550,000..........................
$ 550,001 -- $ 600,000..........................
$ 600,001 -- $ 650,000..........................
$ 650,001 -- $ 750,000..........................
$ 750,001 -- $1,000,000..........................
$1,500,001 -- $2,000,000..........................
$2,000,001 -- $2,500,000..........................
--- ------- ------
Total........................................ $ 100.00%
--- ------- ------
--- ------- ------
</TABLE>
As of the cut-off date, the average current mortgage loan principal balance is
expected to be approximately $ .
DOCUMENTATION PROGRAM FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING POOL
--------------- ----- ----------- ----
<S> <C> <C> <C>
Full.............................................. $ %
Reduced...........................................
No Income/No Asset................................
--- ------- ------
Total........................................ $ 100.00%
--- ------- ------
--- ------- ------
</TABLE>
S-14
<PAGE>
The weighted average original Loan-to-Value Ratio of the mortgage loans is
expected to be approximately %.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE PERCENT OF
RATIOS (%) LOANS OUTSTANDING MORTGAGE POOL
---------- ----- ----------- -------------
<S> <C> <C> <C>
50.00 and below............................... $ %
50.01 to 55.00................................
55.01 to 60.00................................
60.01 to 65.00................................
65.01 to 70.00................................
70.01 to 75.00................................
75.01 to 80.00................................
80.01 to 85.00................................
85.01 to 90.00................................
90.01 to 95.00................................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
STATE LOANS OUTSTANDING MORTGAGE POOL
----- ----- ----------- -------------
<S> <C> <C> <C>
California.................................... $ %
Colorado......................................
Georgia.......................................
Illinois......................................
Massachusetts.................................
Michigan......................................
New Jersey....................................
Texas.........................................
Washington....................................
Other(1)......................................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
- ------------
(1) Other includes other states and the District of Columbia with under [2]%
concentrations individually. No more than approximately % of the mortgage
loans will be secured by mortgaged properties located in any one postal zip
code area.
S-15
<PAGE>
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
LOAN PURPOSE LOANS OUTSTANDING MORTGAGE POOL
------------ ----- ----------- -------------
<S> <C> <C> <C>
Purchase...................................... $ %
Refinance (rate/term).........................
Refinance (cash out)..........................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
PROPERTY TYPE LOANS OUTSTANDING MORTGAGE POOL
------------- ----- ----------- -------------
<S> <C> <C> <C>
Single Family................................. $ %
Condominium...................................
High Rise Condo...............................
2-4 Family....................................
Planned Unit Development......................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
OCCUPANCY TYPES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
OCCUPANCY TYPES LOANS OUTSTANDING MORTGAGE POOL
--------------- ----- ----------- -------------
<S> <C> <C> <C>
Primary Residence............................. $ %
Investor Property.............................
Second Residence..............................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
S-16
<PAGE>
As of the cut-off date, the weighted average remaining term to maturity of
the mortgage loans in the following table is expected to be approximately
months.
REMAINING TERMS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
REMAINING TERM TO MORTGAGE BALANCE PERCENT OF
MATURITY (MONTHS) LOANS OUTSTANDING MORTGAGE POOL
----------------- ----- ----------- -------------
<S> <C> <C> <C>
360........................................... $ %
359...........................................
358...........................................
357...........................................
356...........................................
355...........................................
354...........................................
353...........................................
351...........................................
339...........................................
333...........................................
311...........................................
300...........................................
299...........................................
287...........................................
240...........................................
239...........................................
238...........................................
----- -------------- ------
Total.................................... $ 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the pooling and servicing agreement, the depositor on the
closing date will sell, transfer, assign, set over and otherwise convey without
recourse to the trustee in trust for the benefit of the certificateholders all
interest of the depositor in each mortgage loan and all interest in all other
assets included in Residential Asset Securitization Trust 1999- , including all
principal and interest received on or with respect to the mortgage loans,
exclusive of principal and interest due on or before the cut-off date.
In connection with the transfer and assignment, the depositor will deliver
or cause to be delivered to the trustee, or a custodian for the trustee, the
mortgage file, which contains among other things, the original mortgage note
(and any modification or amendment to it) endorsed in blank without recourse,
except that the depositor may deliver or cause to be delivered a lost note
affidavit in lieu of any original mortgage note that has been lost, the original
mortgage creating a first lien on the related mortgaged property with evidence
of recording indicated thereon, an assignment in recordable form of the
mortgage, the title policy with respect to the related mortgaged property and,
if applicable, all recorded intervening assignments of the mortgage and any
riders or modifications to the mortgage note and mortgage (except for any
documents not returned from the public recording office, which will be delivered
to the trustee as soon as the same is available to the depositor). With respect
to up to % of the mortgage loans, the depositor may deliver all or a portion
of each related mortgage file to the trustee not later than thirty days after
the closing date. Assignments of the mortgage loans to the trustee (or
S-17
<PAGE>
its nominee) will be recorded in the appropriate public office for real property
records, except in states such as California where in the opinion of counsel
recording is not required to protect the trustee's interests in the mortgage
loan against the claim of any subsequent transferee or any successor to or
creditor of the depositor or the seller.
The trustee will review each mortgage file within 90 days of the closing
date (or promptly after the trustee's receipt of any document permitted to be
delivered after the closing date) and if any document in a mortgage file is
found to be missing or defective in a material respect and the seller does not
cure the defect within 90 days of notice of the defect from the trustee (or
within such longer period not to exceed 720 days after the closing date as
provided in the pooling and servicing agreement in the case of missing documents
not returned from the public recording office), the seller will be obligated to
repurchase the related mortgage loan from the trust fund. Rather than repurchase
the mortgage loan as provided above, the seller may remove the mortgage loan
(referred to as a deleted mortgage loan) from the trust fund and substitute in
its place another mortgage loan (referred to as a replacement mortgage loan);
however, substitution is permitted only within two years of the closing date and
may not be made unless an opinion of counsel is provided to the trustee to the
effect that the substitution will not disqualify the REMIC or result in a
prohibited transaction tax under the Code. Any replacement mortgage loan
generally will, on the date of substitution, among other characteristics set
forth in the pooling and servicing agreement,
have a principal balance, after deduction of all scheduled payments due in
the month of substitution, not in excess of, and not more than 10% less
than, the Stated Principal Balance of the deleted mortgage loan (the
amount of any shortfall to be deposited by the seller in the Certificate
Account and held for distribution to the certificateholders on the related
Distribution Date (a 'Substitution Adjustment Amount')),
have a mortgage rate not lower than, and not more than 1% per annum higher
than, that of the deleted mortgage loan,
have a Loan-to-Value Ratio not higher than that of the deleted mortgage
loan,
have a remaining term to maturity not greater than (and not more than one
year less than) that of the deleted mortgage loan, and
comply with all of the representations and warranties set forth in the
pooling and servicing agreement as of the date of substitution.
This cure, repurchase or substitution obligation constitutes the sole remedy
available to certificateholders or the trustee for omission of, or a material
defect in, a mortgage loan document.
UNDERWRITING PROCESS
[IndyMac operates a conduit program established in April 1993 to purchase
conventional non-conforming mortgage loans, which are loans which are not
insured by the FHA or partially guaranteed by the VA or which do not qualify for
sale to Fannie Mae or Freddie Mac, and that are secured by first liens on one-
to four-family residential properties. Non-conforming loans purchased by IndyMac
pursuant to its underwriting programs typically differ from those purchased
pursuant to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae
primarily with respect to loan-to-value ratios, borrower income, required
documentation, interest rates, borrower occupancy of the mortgaged property
and/or property types. To the extent that these programs reflect underwriting
standards different from those of Fannie Mae, Freddie Mac
S-18
<PAGE>
and Ginnie Mae, the performance of loans made pursuant to these different
underwriting standards may reflect higher delinquency rates and/or credit
losses.
IndyMac purchases mortgage loans from banks, savings and loan associations,
mortgage bankers (which may or may not be affiliated with IndyMac) and other
mortgage loan originators (each is referred to as a seller/servicer). Each
seller/servicer must be an approved HUD mortgagee in good standing or a
seller/servicer in good standing and approved by either Fannie Mae or Freddie
Mac. IndyMac approves individual institutions as eligible seller/servicers after
an evaluation of criteria that include the seller/servicer's mortgage
origination and servicing experience and financial stability.
IndyMac currently operates three mortgage loan purchase programs as part of
its conduit operations:
1. Prior Approval Program. Under this program, IndyMac performs a full
credit review and analysis of each mortgage loan to be purchased to ensure
compliance with its underwriting guidelines. Only after IndyMac issues an
approval notice to a seller/servicer is a mortgage loan eligible for
purchase pursuant to this program.
2. Standard Delivery Program. Under this program, IndyMac does not
perform a full underwriting review prior to purchase of a mortgage loan,
but instead relies on the credit review and analysis performed by a
mortgage pool insurer previously selected by IndyMac and its own
post-purchase quality review. Only mortgage loans with mortgage pool
insurance commitments are eligible for purchase pursuant to this program.
3. Preferred Delegated Underwriting Program. Under this program,
seller/servicers which meet certain eligibility requirements are allowed to
underwrite mortgage loans for purchase without the need for either prior
pool insurance approval or prior IndyMac approval. The eligibility
requirements for participation in the Preferred Delegated Underwriting
Program vary based on the net worth of the seller/servicer with more
stringent requirements imposed on seller/servicers with a lower net worth.
Under the Preferred Delegated Underwriting Program, each eligible
seller/servicer is required to underwrite mortgage loans in compliance with
IndyMac's underwriting guidelines, as the underwriting guidelines may have
been modified pursuant to commitments negotiated with that seller/servicer.
A greater percentage of mortgage loans purchased pursuant to this program
are selected for post-purchase quality control review than for the other
two programs. Notwithstanding the seller/servicer's status as an eligible
seller/servicer, some types of mortgage loans are required to receive an
approval notice prior to purchase. The majority of mortgage loans currently
being purchased by IndyMac are originated under the Preferred Delegated
Underwriting Program.
All mortgage loans purchased by IndyMac must meet credit, appraisal and
underwriting standards acceptable to IndyMac. These underwriting standards,
including any negotiated modifications to them, are applied to evaluate the
prospective borrower's credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral. These standards are applied in
accordance with applicable federal and state laws and regulations. Exceptions to
these underwriting standards are permitted where compensating factors are
present or in the context of negotiated bulk purchases. In addition, the
requirements of a mortgage pool insurer may differ from these underwriting
standards as a result of which mortgage loans certified by such mortgage pool
insurer may not comply with these underwriting standards.
IndyMac's underwriting standards for purchase money or rate/term refinance
loans secured by primary residences generally allow Loan-to-Value Ratios at
origination of up to 95% for mortgage loans with original principal balances of
up to $400,000, up to 90% for mortgage loans with original principal balances of
up to $600,000, up to 85% for mortgage loans with original principal balances of
up to $750,000 and up to 80% for mortgage loans with original
S-19
<PAGE>
principal balances of up to $1,500,000. IndyMac also acquires mortgage loans
with principal balances up to $3,000,000 if the mortgage loan is secured by the
borrower's primary residence. The Loan-to-Value Ratio for mortgage loans with
principal balances up to $3,000,000 generally may not exceed 80%. For cash-out
refinance loans, the maximum Loan-to-Value Ratio generally is 80%, and the
maximum 'cash out' amount permitted is based in part on the Loan-to-Value Ratio
of the related mortgage loan. IndyMac generally does not purchase cash-out
refinance mortgage loans with original principal balances in excess of
$3,000,000.
IndyMac's underwriting standards for mortgage loans secured by investor
properties generally allow Loan-to-Value Ratios at origination of up to 90% for
mortgage loans with original principal balances up to $225,000. IndyMac's
underwriting standards permit mortgage loans secured by investor properties to
have higher original principal balances if they have lower Loan-to-Value Ratios
at origination.
For each mortgage loan with a Loan-to-Value Ratio at origination exceeding
80%, IndyMac generally requires a primary mortgage guarantee insurance policy.
The policy provides coverage of a portion of the original principal balance of
each of these mortgage loans equal to the product of (a) the original principal
balance of the mortgage loan and (b) a fraction, with a numerator equal to the
excess of the original principal balance of that mortgage loan over 75% of the
lesser of (1) the appraised value of the mortgaged property and (2) the selling
price of the mortgaged property, and a denominator equal to the sum of (1) the
original principal balance of the mortgage loan and (2) accrued interest and
foreclosure expenses. After the date on which the Loan-to-Value Ratio of a
mortgage loan is 80% or less, either because of principal payments on the
mortgage loan or because of a new appraisal of the mortgaged property, no
primary mortgage guaranty insurance policy will be required on that mortgage
loan.
All of the insurers which have issued primary mortgage guaranty insurance
policies with respect to the mortgage loans meet Fannie Mae's or Freddie Mac's
standards or are acceptable to the Rating Agencies. In some circumstances,
however, IndyMac does not require primary mortgage guaranty insurance on
mortgage loans with principal balances up to $500,000 that have Loan-to-Value
Ratios greater than 80% but less than or equal to 95%. All residences except
cooperatives and certain high-rise condominium dwellings are eligible for this
program. Each qualifying mortgage loan will be made at an interest rate that is
higher than the rate would be if the Loan-to-Value Ratio was 80% or less or if
primary mortgage guaranty insurance was obtained. Under those circumstances, the
certificateholders will not have the benefit of primary mortgage guaranty
insurance coverage.
In determining whether a prospective borrower has sufficient monthly income
available (1) to meet the borrower's monthly obligation on the proposed mortgage
loan and (2) to meet monthly housing expenses and other financial obligations
including the borrower's monthly obligations on the proposed mortgage loan,
IndyMac generally considers the ratio of these amounts to the proposed
borrower's acceptable stable monthly gross income. These ratios vary depending
on a number of underwriting criteria, including Loan-to-Value Ratios, and are
determined on a loan-by-loan basis.
IndyMac purchases loans which have been originated under one of three
documentation programs: the Full/Alternate Documentation Program, the Reduced
Documentation Program and the No Income/No Asset Program.
Under the Full/Alternate Documentation Program, the prospective borrower's
employment, income and assets are verified through written or telephonic
communications. All loans may be submitted under the Full/Alternate
Documentation Program. The Full/Alternate Documentation Program also provides
for alternative methods of employment verification generally using W-2 forms or
pay stubs.
S-20
<PAGE>
Under the Reduced Documentation Program, more emphasis is placed on the
value and adequacy of the mortgaged property as collateral and other assets of
the borrower than on credit underwriting. Mortgage loans underwritten under the
Reduced Documentation Program are limited to borrowers with credit histories
that demonstrate an established ability to repay indebtedness in a timely
fashion. Under the Reduced Documentation Program, credit underwriting
documentation concerning income or income verification and/or employment
verification is waived. For some loans submitted under the Reduced Documentation
Program with Loan-to-Value Ratios less than or equal to 80%, income ratios for
the prospective borrower are not calculated. Income ratios will not have been
calculated for Mortgage Loans expected to constitute approximately % of the
Pool Principal Balance.
Loans acquired under the Reduced Documentation Program include cash-out
refinance loans, loans with principal balances up to $3,000,000 and mortgage
loans secured by investor-owned properties. Permitted maximum Loan-to-Value
Ratios (including secondary financing) under the Reduced Documentation Program,
which range up to 90%, are more restrictive than under the Full/Alternate
Documentation Program.
Under the No Income/No Asset Program, emphasis is placed on the value and
adequacy of the mortgaged property as collateral rather than on credit
underwriting and assets of the borrower. Mortgage Loans underwritten under the
No Income/No Asset Program are limited to borrowers with excellent credit
histories. Under the No Income/No Asset Program, credit underwriting
documentation concerning income, employment verification and asset verification
is waived and income ratios are not calculated.
REPRESENTATIONS BY SELLER; REPURCHASES, ETC.
In the event of a breach of any representation or warranty in respect of a
mortgage loan that materially and adversely affects the interests of the
certificateholders, the seller will be obligated, in accordance with the pooling
and servicing agreement, to cure that breach, to repurchase the mortgage loan at
the purchase price or to substitute a qualified mortgage loan for the mortgage
loan. See 'Mortgage Loan Program -- Representations by Sellers; Repurchases' in
the prospectus. If, however, the substance of such breach constitutes fraud in
the origination of such mortgage loan and the seller, at the time of such
origination and on the Closing Date, had no actual knowledge of the fraud, the
seller shall have no obligation to cure such breach or to repurchase or
substitute for the mortgage loan.
SERVICING OF MORTGAGE LOANS
THE MASTER SERVICER
IndyMac, Inc. will act as master servicer. The principal executive offices
of the master servicer are located at 155 North Lake Avenue, Pasadena,
California 91101.
The master servicer will be responsible for servicing the mortgage loans in
accordance with the terms set forth in the pooling and servicing agreement
employing the same degree of skill and care which it employs in servicing
mortgage loans comparable to the mortgage loans serviced by the master servicer
for itself or others. The master servicer intends to perform its servicing
obligations under the pooling and servicing agreement through one or more
qualified mortgage loan servicers selected by the master servicer.
Notwithstanding any other servicing arrangement, the master servicer will remain
liable for its servicing duties and obligations under the pooling and servicing
agreement as if the master servicer alone were servicing the mortgage loans.
SERVICING AND COLLECTION PROCEDURES
The master servicer has entered into servicing contracts with servicers to
perform, as independent contractors, servicing functions for the master servicer
subject to its supervision.
S-21
<PAGE>
These servicing functions include collection and remittance of principal and
interest payments, administration of mortgage escrow accounts, collection of
certain insurance claims and, if necessary, foreclosure. The master servicer may
permit servicers to contract with subservicers to perform some or all of the
servicer's servicing duties, but the servicer will not, as a result, be released
from its obligations under the servicer contract. The master servicer also may
enter into servicing contracts directly with an affiliate of a servicer or
permit a servicer to transfer its servicing rights and obligations to a third
party. In such instances, the affiliate or third party, as the case may be, will
perform servicing functions comparable to those normally performed by the
servicer as described above, and the servicer will not be obligated to perform
those servicing functions. In this paragraph, with respect to servicing
obligations, the term servicer includes any affiliate or third party of that
servicer. The master servicer may perform certain supervisory functions with
respect to servicing by the servicers directly or through an agent or
independent contractor and will be responsible for administering and servicing
the mortgage loans pursuant to the pooling and servicing agreement. The master
servicer has established an investment account into which collections on the
mortgage loans will be deposited (net of the applicable servicing fees). The
investment account may be a commingled account with other similar accounts
maintained by the master servicer. For purposes of the pooling and servicing
agreement, the master servicer will be deemed to have received any amounts with
respect to the mortgage loans that are received by a servicer regardless of
whether such amounts are remitted by the servicer to the master servicer. The
master servicer has reserved the right to remove the servicer servicing any
mortgage loan at any time and will exercise that right if the master servicer
considers that removal to be in the best interest of the certificateholders. In
the event that the master servicer removes a servicer, the master servicer will
continue to be responsible for servicing the related mortgage loans.
S-22
<PAGE>
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
Historically, a variety of factors, including the appreciation of real
estate values, have limited the master servicer's loss and delinquency
experience on its portfolio of serviced mortgage loans. There can be no
assurance that factors beyond the master servicer's control, such as national or
local economic conditions or downturns in the real estate markets of its lending
areas, will not result in increased rates of delinquencies and foreclosure
losses in the future.
A general deterioration of the real estate market in regions where the
mortgaged properties are located may result and weakening in increases in
delinquencies of loans secured by real estate, slower absorption rates of real
estate into the market and lower sales prices for real estate. A general
weakening of the economy may result in decreases in the financial strength of
borrowers and decreases in the value of collateral serving as security for
loans. If the real estate market and economy were to decline, the master
servicer may experience an increase in delinquencies on the loans it services
and higher net losses on liquidated loans.
The following table summarizes the delinquency, foreclosure and loss
experience, respectively, on the dates indicated, of all mortgage loans
originated or acquired by IndyMac, serviced or master serviced by the master
servicer and securitized by the depositor, excluding mortgage loans subserviced
for others. The delinquency, foreclosure and loss percentages may be affected by
the size and relative lack of seasoning of the servicing portfolio which
increased from approximately $ billion at to approximately $
billion at , to approximately $ billion at , to
approximately $ billion at and to approximately $ billion at
. Accordingly, the information should not be considered as a basis
for assessing the likelihood, amount or severity of delinquency or losses on the
mortgage loans and no assurances can be given that the foreclosure, delinquency
and loss experience presented in the following table will be indicative of the
actual experience on the mortgage loans:
<TABLE>
<CAPTION>
AT , AT
------------------ -----------
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent Mortgage Loans and Pending Foreclosures
at Period End:
30-59 days..................................... % % % % %
60-89 days.....................................
90 days or more (excluding pending
foreclosures)...............................
--- --- --- --- ---
Total of delinquencies................... % % % % %
--- --- --- --- ---
--- --- --- --- ---
Foreclosures pending................................ % % % % %
--- --- --- --- ---
--- --- --- --- ---
Total delinquencies and foreclosures pending........ % % % % %
--- --- --- --- ---
--- --- --- --- ---
Net Gains/(Losses) on liquidated loans(1)...........
Percentage of Net Gains/(Losses) on liquidated
loans(1)(2)....................................... % % % % %
Percentage of Net Gains/(Losses) on liquidated loans
(based on average outstanding principal
balance)(1)....................................... % % % % %
</TABLE>
- ------------
(1) 'Net Gains (Losses)' are actual gains or losses incurred on liquidated
properties that are calculated as net liquidation proceeds less book value
(excluding loan purchase premium or discount).
(2) Based upon the total principal balance of the mortgage loans outstanding on
the last day of the indicated period.
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<PAGE>
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of all mortgage loans serviced or master
serviced by the master servicer, excluding mortgage loans subserviced for
others. The mortgage loans have a variety of underwriting, payment and other
characteristics, many of which differ from those of the mortgage loans, and no
assurances can be given that the delinquency and foreclosure experience
presented in the following table will be indicative of such actual experience of
the mortgage loans. The delinquency and foreclosure percentages may be affected
by the size and relative lack of seasoning of the servicing portfolio which
increased from approximately $ billion at to approximately $
billion at, to approximately $ billion at , to approximately
$ billion at , and to approximately $ billion at .
<TABLE>
<CAPTION>
AT , AT
------------------ -----------
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans and pending foreclosures
at period end:
30-59 days..................................... % % % % %
260-89 days....................................
90 days or more (excluding pending
foreclosures)...............................
--- --- --- --- ---
Total of delinquencies................... % % % % %
--- --- --- --- ---
--- --- --- --- ---
Foreclosures pending................................ % % % % %
--- --- --- --- ---
--- --- --- --- ---
Total delinquencies and foreclosures pending........ % % % % %
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The expense fees with respect to the mortgage pool are payable out of the
interest payments on each mortgage loan. The expense fees will vary from
mortgage loan to mortgage loan. The rate at which the expense fees accrue
(referred to as the expense fee rate) is expected to range from % to %
per annum, in each case of the Stated Principal Balance of the related mortgage
loan. As of the cut-off date, the weighted average expense fee rate is expected
to equal approximately %. The expense fees consist of (a) master servicing
compensation payable to the master servicer in respect of its master servicing
activities, (b) servicing compensation payable to the servicers in respect of
their servicing activities and (c) fees payable to the trustee in respect of its
activities as trustee under the pooling and servicing agreement. The fee payable
to the master servicer will be % per annum of the Stated Principal Balance of
each mortgage loan. The servicing fee payable to each servicer will vary from
mortgage loan to mortgage loan and is expected to range from % to % per
annum, in each case of the Stated Principal Balance of the related mortgage
loan. The master servicer is obligated to pay certain ongoing expenses
associated with the trust fund and incurred by the master servicer in connection
with its responsibilities under the pooling and servicing agreement and those
amounts will be paid by the master servicer out of its fee. The amount of the
master servicer's fee is subject to adjustment with respect to prepaid mortgage
loans, as described herein under ' -- Adjustment to Master Servicing Fee in
Connection with Certain Prepaid Mortgage Loans.' The master servicer or the
related servicer will also be entitled to receive late payment fees, assumption
fees, prepayment penalties and other similar charges. The master servicer will
be entitled to receive all reinvestment income earned on amounts on deposit in
the investment account and the Distribution Account. The adjusted net mortgage
rate of a mortgage loan is the mortgage loan's mortgage rate minus the related
expense fee rate.
S-24
<PAGE>
ADJUSTMENT TO MASTER SERVICER'S FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays a mortgage loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Similarly, if the master servicer purchases a mortgage loan
as described under ' -- Certain Modifications and Refinancings,' the trust fund
is entitled to the interest paid by the borrower only to the date of purchase.
Principal prepayments by borrowers received during a calendar month will be
distributed to certificateholders on the Distribution Date in the month
following the month of receipt. Pursuant to the pooling and servicing agreement,
the master servicer's fee for any month will be reduced by an amount with
respect to each prepaid mortgage loan sufficient to pass through to
certificateholders the full amount of interest to which they would be entitled
in respect of the prepaid mortgage loan on the related Distribution Date. If
shortfalls in interest as a result of prepayments in any month exceed the amount
of the master servicer's fee for such month, the amount of interest available to
be distributed to certificateholders will be reduced by the difference between
them.
ADVANCES
Except as described below, with respect to each mortgage loan and each Due
Date, the master servicer will be required to make 'advances' prior to each
Distribution Date. Each advance for a mortgage loan is equal to
all of the payments of principal and interest on the mortgage loans due
but delinquent as of the Determination Date
minus
the total of
the master servicer's fee due and
the applicable servicer's fee due
plus
an amount equivalent to interest on each mortgage loan as to which the
related mortgaged property has been acquired by the trust fund (through
foreclosure or deed-in-lieu of foreclosure.
The master servicer will make these advances from its own funds, funds
advanced by the related servicers or other amounts received that are not
available funds for such Distribution Date on or before the 'Determination Date'
(which will be the 18th of the month or the next business day after the 18th day
of the month).
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the certificates rather than to guarantee or insure
against losses. The master servicer is obligated to make advances with respect
to delinquent payments of principal of or interest on each mortgage loan only to
the extent that advances made on that mortgage loan are, in its reasonable
judgment, recoverable from future payments and collections or insurance payments
or proceeds of liquidation of the related mortgage loan. If the master servicer
determines on any Determination Date to make an advance, that advance will be
included with the distribution to certificateholders on the related Distribution
Date. Any failure by the master servicer to make a deposit in the Distribution
Account as required under the pooling and servicing agreement, including any
failure to make an advance, will constitute an event of default under the
pooling and servicing agreement if such failure remains unremedied for five days
(provided that at least three of the five days are business days) after written
notice thereof. If the master servicer is terminated as a result of the
occurrence of an Event of Default, the trustee or the successor master servicer
will be obligated to make any required advance, in accordance with the terms of
the pooling and servicing agreement.
S-25
<PAGE>
CERTAIN MODIFICATIONS AND REFINANCINGS
The master servicer may modify any mortgage loan upon the request of the
related mortgagor, provided that the master servicer purchases such mortgage
loan from the trust fund immediately following such modification. Any
modification of a mortgage loan may not be made unless the modification includes
a change in the interest rate on the related mortgage loan to approximately a
prevailing market rate. Any purchase of a mortgage loan subject to a
modification will be for a price equal to 100% of the Stated Principal Balance
of that mortgage loan, plus accrued and unpaid interest on the mortgage loan up
to the date of purchase at the applicable adjusted net mortgage rate, net of any
unreimbursed advances of principal and interest on the mortgage loan made by the
master servicer. The master servicer will deposit the purchase price in the
investment account within one business day of the purchase of that mortgage
loan. Purchases of mortgage loans may occur when prevailing interest rates are
below the interest rates on the mortgage loans and mortgagors request
modifications as an alternative to refinancings. The master servicer will
indemnify the trust fund against liability for any prohibited transactions taxes
and any related interest, additions or penalties imposed on the REMIC as a
result of any modification or purchase.
COLLECTION PROCEDURES
The master servicer will make commercially reasonable efforts to collect
all payments called for under the mortgage loans and will, consistent with the
pooling and servicing agreement, follow those collection procedures as it
customarily follows with respect to mortgage loans that are comparable to the
mortgage loans. Consistent with the above, the master servicer may, in its
discretion, (1) waive any assumption fee, late payment or other charge in
connection with a mortgage loan and (2) arrange with a mortgagor a schedule for
the liquidation of delinquencies running for no more than 180 days after the
applicable due date for each payment, rather than the number of days specified
under 'The Pooling and Servicing Agreement -- Collection Procedures' in the
prospectus. To the extent the master servicer is obligated to make or to cause
to be made advances, that obligation will remain during any period of such an
arrangement.
SPECIAL SERVICING AGREEMENTS
The pooling and servicing agreement may permit the master servicer to enter
into a special servicing agreement with an unaffiliated holder of one or more
classes of subordinated certificates or of a class of securities representing
interests in one or more classes of subordinated certificates. Pursuant to such
an agreement, that certificateholder may instruct the master servicer to
commence or delay foreclosure proceedings with respect to delinquent mortgage
loans. A commencement or delay of foreclosure proceedings at that
certificateholder's direction will be taken by the master servicer only after
that certificateholder deposits a specified amount of cash with the master
servicer. The deposited cash will be available for distribution to
certificateholders if liquidation proceeds are less than they otherwise may have
been had the master servicer acted pursuant to its normal servicing procedures.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement requires that a firm of independent
public accountants furnish an annual statement to the trustee to the effect that
the servicing of the mortgage loans was conducted in compliance with the pooling
and servicing agreement (or agreements that are substantially similar), except
for exceptions that may be immaterial or otherwise noted in the annual
statement. The accountant's examination will be conducted in accordance with the
Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees rather than the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for
S-26
<PAGE>
Freddie Mac as is currently specified in the Prospectus. See 'The Pooling and
Servicing Agreement -- Evidence as to Compliance' in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the pooling and servicing
agreement. The following summaries of the material terms pursuant to which the
certificates will be issued do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
pooling and servicing agreement. When particular provisions or terms used in the
pooling and servicing agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference. The certificates
represent obligations of the trust only and do not represent an interest in or
obligation of IndyMac MBS, Inc., IndyMac, Inc. or any of their affiliates.
The Mortgage Pass-Through Certificates, Series 1999- will consist of
the Class A-1, Class A-2, Class A-3, Class PO, Class X and Class A-R
Certificates (senior certificates) and the Class M, Class B-1, Class B-2,
Class B-3, Class B-4 and Class B-5 Certificates (subordinated certificates).
Only the classes of certificates listed on the cover page are offered by this
prospectus supplement. The classes of offered certificates will have the
respective initial Class Certificate Balances or initial Notional Amounts and
pass-through rates set forth on the cover page or described in this prospectus
supplement. The initial Class Certificate Balances may vary in the aggregate by
plus or minus %.
The 'Class Certificate Balance' of any class of certificates as of any
Distribution Date is the initial Class Certificate Balance of the class reduced
by the sum of
all amounts previously distributed to holders of certificates of the class
as payments of principal,
the amount of Realized Losses (including Excess Losses) allocated to the
class and
in the case of any class of subordinated certificates, any amounts
allocated to the class in reduction of its Class Certificate Balance in
respect of payments of class PO Deferred Amounts, as described under
' -- Allocation of Losses.'
In addition, the Class Certificate Balance of the class of subordinated
certificates then outstanding with the highest numerical class designation will
be reduced if and to the extent that the aggregate of the Class Certificate
Balances of all classes of certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the pool principal
balance as of the Due Date occurring in the month of the Distribution Date. The
Notional Amount Certificates do not have principal balances and are not entitled
to any distributions in respect of principal of the mortgage loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount mortgage loans with respect to the Distribution Date. The initial
Notional Amount of the Class X Certificates will be equal to the aggregate of
the Stated Principal Balance of the Non-Discount mortgage loans as of the
cut-off date.
The senior certificates will have an initial aggregate principal balance of
approximately $ and will evidence in the aggregate an initial
beneficial ownership interest of approximately % in the trust fund. The
Class M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates
will each evidence in the aggregate an initial beneficial
S-27
<PAGE>
ownership interest of approximately %, %, %, %, % and %,
respectively, in the trust fund.
The Class PO, Class X, Class A-R, Class M, Class B-1 and Class B-2
Certificates will be issued in fully registered certificated form. All of the
remaining Classes will be represented by book-entry certificates. The book-entry
certificates will be issuable in book-entry form only. The Class A-R
Certificates will be issued as a single certificate in a denomination of $100.
BOOK-ENTRY CERTIFICATES
Each class of book-entry certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
class of certificates and which will be held by a depository, initially a
nominee of The Depository Trust Company. Beneficial interests in the book-entry
certificates will be held indirectly by investors through the book-entry
facilities of the depository, as described in this prospectus supplement.
Investors may hold the beneficial interests in the book-entry certificates in
minimum denominations representing an original principal amount of $25,000 and
integral multiples of $1,000 in excess thereof. One investor of each class of
book-entry certificates may hold a beneficial interest therein that is not an
integral multiple of $1,000. The depositor has been informed by the depository
that its nominee will be CEDE & Co. Accordingly, CEDE is expected to be the
holder of record of the book-entry certificates. Except as described in the
prospectus under 'Description of the Certificates -- Book-Entry Certificates,'
no beneficial owner acquiring a Book-Entry Certificate will be entitled to
receive a physical certificate representing the Certificate.
Unless and until definitive certificates are issued, it is anticipated that
the only certificateholder of the book-entry certificates will be CEDE, as
nominee of the depository. Beneficial owners of the book-entry certificates will
not be certificateholders, as that term is used in the pooling and servicing
agreement. Beneficial owners are only permitted to exercise the rights of
certificateholders indirectly through financial intermediaries and the
depository. Monthly and annual reports on the trust fund provided to CEDE, as
nominee of the depository, 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
depository accounts the book-entry certificates of the beneficial owners are
credited.
For a description of the procedures generally applicable to the book-entry
certificates, see 'Description of the Certificates -- Book-Entry Certificates'
in the prospectus.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or before the closing date, the master servicer will establish an
account (the 'Certificate Account'), which will be maintained in trust for the
benefit of the certificateholders. Funds credited to the Certificate Account may
be invested for the benefit and at the risk of the master servicer in Permitted
Investments, as defined in the pooling and servicing agreement, that are
scheduled to mature on or before the business day preceding the next
Distribution Date. On or before the business day immediately preceding each
Distribution Date, the master servicer will withdraw from the Certificate
Account the amount of Available Funds and will deposit the Available Funds in an
account established and maintained with the trustee on behalf of the
certificateholders (the 'Distribution Account').
S-28
<PAGE>
DISTRIBUTIONS
Distributions on the certificates will be made by the trustee on the [25th]
day of each month or, if that day is not a business day, on the first business
day thereafter, commencing in 1999 (each, a 'Distribution Date'), to
the persons in whose names the certificates are registered at the close of
business on the last business day of the month preceding the month of the
Distribution Date.
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled to it as it appears on the applicable certificate
register or, in the case of a Certificateholder who holds 100% of a class of
certificates or who holds certificates with an aggregate initial certificate
balance of $1,000,000 or more or who holds an Interest Only Certificate and who
has so notified the trustee in writing in accordance with the pooling and
servicing agreement, by wire transfer in immediately available funds to the
account of the Certificateholder at a bank or other depository institution
having appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of the certificates will be made only upon
presentment and surrender of the certificates at the Corporate Trust Office of
the trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described in this prospectus supplement, distributions will
be made on each Distribution Date from Available Funds in the following order of
priority:
to interest on each interest bearing class of senior certificates;
to principal on the classes of senior certificates then entitled to
receive distributions of principal, in the order and subject to the
priorities set forth under 'Description of the Certificates -- Principal,'
in each case in an aggregate amount up to the maximum amount of principal
to be distributed on the classes on the Distribution Date;
to any Class PO Deferred Amounts with respect to the Class PO
Certificates, but only from amounts that would otherwise be distributed on
the Distribution Date as principal of the subordinated certificates; and
to interest on and then principal of each class of subordinated
certificates, in the order of their numerical class designations,
beginning with the Class M Certificates, in each case subject to the
limitations set forth under 'Description of the
Certificates -- Principal.'
'Available Funds' for any Distribution Date will be equal to the sum of
all scheduled installments of interest (net of the related Expense Fees)
and principal due on the Due Date in the month in which the Distribution
Date occurs and received before the related Determination Date, together
with any advances with respect to them;
all proceeds of any primary mortgage guaranty insurance policies and any
other insurance policies with respect to the mortgage loans, to the extent
the proceeds are not applied to the restoration of the related mortgaged
property or released to the mortgagor in accordance with the master
servicer's normal servicing and all other cash amounts received and
retained in connection with the liquidation of defaulted mortgage loans,
by foreclosure or otherwise during the calendar month preceding the month
of the Distribution Date (in each case, net of unreimbursed expenses
incurred in connection with a liquidation or foreclosure and unreimbursed
advances, if any);
all partial or full prepayments received during the related Prepayment
Period; and
S-29
<PAGE>
amounts received with respect to the Distribution Date as the Substitution
Adjustment Amount or purchase price in respect of a deleted mortgage loan
or a mortgage loan repurchased by the seller or the master servicer as of
the Distribution Date, reduced by amounts in reimbursement for advances
previously made and other amounts as to which the master servicer is
entitled to be reimbursed from the Certificate Account pursuant to the
pooling and servicing agreement.
INTEREST
The classes of offered certificates will have the respective pass-through
rates set forth or described on the cover page hereof.
The pass-through rate for the Class X Certificates for any Distribution
Date will be equal to the excess of the average of the net mortgage rates of the
Non-Discount mortgage loans, weighted on the basis of their Stated Principal
Balances, over % per annum. The pass-through rate for the Class X
Certificates for the first Distribution Date is expected to be approximately
% per annum. The net mortgage rate for each mortgage loan is its mortgage
rate (net of the interest premium charged by the related lenders for the lender
acquired mortgage insurance mortgage loans) less the expense fee rate for the
mortgage loan.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing class of certificates will be entitled to receive an amount
allocable to interest for the related interest accrual period. This interest
distribution amount for any interest bearing class will be equal to the sum of
(a) interest at the applicable pass-through rate on the related Class
Certificate Balance or Notional Amount, as the case may be, and (b) the sum of
the amounts, if any, by which the amount described in clause (a) above on each
prior Distribution Date exceeded the amount actually distributed as interest on
the prior Distribution Dates and not subsequently distributed (which are called
unpaid interest amounts). The Class PO Certificates are Principal Only
Certificates and will not bear interest.
With respect to each Distribution Date, the interest accrual period for
each interest bearing class of certificates will be the calendar month preceding
the month of the Distribution Date.
The interest entitlement described above for each class of certificates for
any Distribution Date will be reduced by the amount of 'Net Interest Shortfalls'
for the Distribution Date. With respect to any Distribution Date, the 'Net
Interest Shortfall' is equal to
any net prepayment interest shortfalls for the Distribution Date and
the amount of interest that would otherwise have been received with
respect to any mortgage loan that was the subject of a Relief Act
Reduction or a Special Hazard Loss, Fraud Loss, Debt Service Reduction or
Deficient Valuation, after the exhaustion of the respective amounts of
coverage provided by the subordinated certificates for those types of
losses.
A 'Relief Act Reduction' is a reduction in the amount of monthly interest
payment on a mortgage loan pursuant to the Soldiers' and Sailors' Civil Relief
Act of 1940. See 'Legal Aspects of the Mortgage Loans -- Soldiers' and Sailors'
Civil Relief Act' in the prospectus. With respect to any Distribution Date, a
net prepayment interest shortfall is the amount by which the aggregate of
prepayment interest shortfalls during the portion of the Prepayment Period
occurring in the calendar month preceding the month of the Distribution Date
exceeds the aggregate amount payable on the Distribution Date by the master
servicer as described under 'Servicing of Mortgage Loans -- Adjustment to Master
Servicing Fee in Connection with Prepaid Mortgage Loans.' A prepayment interest
shortfall is the amount by which interest paid by a borrower in
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<PAGE>
connection with a prepayment of principal on a mortgage loan is less than one
month's interest at the related mortgage rate on the Stated Principal Balance of
the mortgage loan. Each class' pro rata share of the Net Interest Shortfalls
will be based on the amount of interest the class otherwise would have been
entitled to receive on the Distribution Date.
Interest will be calculated and payable on the basis of a 360-day year
divided into twelve 30-day months.
If on a particular Distribution Date, Available Funds in the Certificate
Account applied in the order described above under ' -- Priority of
Distributions Among Certificates' are not sufficient to make a full distribution
of the interest entitlement on the certificates, interest will be distributed on
each class of certificates of equal priority based on the amount of interest it
would otherwise have been entitled to receive in the absence of the shortfall.
Any unpaid interest amount will be carried forward and added to the amount
holders of each class of certificates will be entitled to receive on the next
Distribution Date. A shortfall could occur, for example, if losses realized on
the mortgage loans were exceptionally high or were concentrated in a particular
month. Any unpaid interest amount so carried forward will not bear interest.
PRINCIPAL
General. All payments and other amounts received in respect of principal of
the mortgage loans will be allocated between the Class PO Certificates, on the
one hand, and the senior certificates (other than the Notional Amount
Certificates and the Class PO Certificates) and the subordinated certificates,
on the other hand, in each case based on the applicable Non-PO Percentage and
the applicable PO Percentage, respectively, of those amounts.
The Non-PO Percentage with respect to any mortgage loan with a net mortgage
rate less than % (each a 'Discount mortgage loan') will be equal to the net
mortgage rate divided by %. The Non-PO Percentage with respect to any
mortgage loan with a net mortgage rate equal to or greater than % (each a
'Non-Discount mortgage loan') will be 100%. The PO Percentage with respect to
any Discount mortgage loan will be equal to ( % minus the net mortgage rate)
divided by %. The PO Percentage with respect to any Non-Discount mortgage
loan will be 0%.
Non-PO Formula Principal Amount. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the senior
certificates (other than the Notional Amount Certificates and the Class PO
Certificates) in an amount up to the Senior Principal Distribution Amount and as
principal of the subordinated certificates, in an amount up to the Subordinated
Principal Distribution Amount.
The 'Non-PO Formula Principal Amount' for any Distribution Date will equal
the sum of the applicable Non-PO Percentage of
(a) all monthly payments of principal due on each mortgage loan on the
related Due Date,
(b) the principal portion of the purchase price of each mortgage loan that
was repurchased by the seller or another person pursuant to the pooling
and servicing agreement as of the Distribution Date,
(c) the Substitution Adjustment Amount in connection with any deleted
mortgage loan received with respect to the Distribution Date,
(d) any insurance proceeds or liquidation proceeds allocable to recoveries
of principal of mortgage loans that are not yet Liquidated mortgage
loans received during the calendar month preceding the month of the
Distribution Date,
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<PAGE>
(e) with respect to each mortgage loan that became a Liquidated mortgage
loan during the calendar month preceding the month of the Distribution
Date, the amount of the liquidation proceeds allocable to principal
received with respect to the mortgage loan and
(f) all partial and full principal prepayments by borrowers received during
the related Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date before the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount, up to
the amount of the Senior Principal Distribution Amount for the Distribution
Date, will be distributed as principal of the following classes of senior
certificates, in the following order of priority:
to the Class A-R Certificates, until their Class Certificate Balance is
reduced to zero;
concurrently, to the Class A- , Class and Class Certificates, pro rata,
based on their then outstanding Class Certificate Balances, until their
Class Certificate Balances are reduced to zero;
sequentially, to the Class Certificates, in that order, until their Class
Certificate Balances are reduced to zero;
sequentially, to the Class and Class Certificates, in that order, until
their Class Certificate Balances are reduced to zero; and
to the Class Certificates, until their Class Certificate Balance is
reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the classes of senior certificates
(other than the Notional Amount Certificates and the Class PO Certificates), pro
rata, in accordance with their respective Class Certificate Balances immediately
before the Distribution Date.
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each class of subordinated certificates has been reduced
to zero.
'Prepayment Period' means the period from the sixteenth day of a calendar
month (or in the case of the first Distribution Date, from the cut-off date)
through the fifteenth day of the succeeding calendar month.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of
the Senior Percentage of the applicable Non-PO Percentage of all amounts
described in clauses (a) through (d) of the definition of 'Non-PO Formula
Principal Amount' for the Distribution Date,
for each mortgage loan that became a Liquidated mortgage loan during the
calendar month preceding the month of the Distribution Date, the lesser of
the Senior Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of the mortgage loan and
either
the Senior Prepayment Percentage or
if an Excess Loss was sustained on the Liquidated mortgage loan
during the preceding calendar month, the Senior Percentage of the
applicable Non-PO Percentage of the amount of the liquidation
proceeds allocable to principal received on the mortgage loan, and
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the Senior Prepayment Percentage of the applicable Non-PO Percentage of
amounts described in clause (f) of the definition of 'Non-PO Formula
Principal Amount' for the Distribution Date;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is sustained
on a mortgage loan that is not a Liquidated mortgage loan, the Senior Principal
Distribution Amount will be reduced on the related Distribution Date by the
Senior Percentage of the applicable Non-PO Percentage of the principal portion
of the Bankruptcy Loss.
'Stated Principal Balance' means for any mortgage loan and Due Date, the
unpaid principal balance of the mortgage loan as of the Due Date, as specified
in its amortization schedule at the time (before any adjustment to the
amortization schedule for any moratorium or similar waiver or grace period),
after giving effect to any previous partial prepayments and liquidation proceeds
received and to the payment of principal due on the Due Date and irrespective of
any delinquency in payment by the related mortgagor. The pool principal balance
with respect to any Distribution Date equals the aggregate of the Stated
Principal Balances of the mortgage loans outstanding on the Due Date in the
month preceding the month of the Distribution Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each class of senior certificates (other than the
Class PO Certificates) immediately before the Distribution Date and the
denominator of which is the aggregate of the Class Certificate Balances of all
classes of certificates, other than the Class PO Certificates, immediately
before the Distribution Date. The Subordinated Percentage for any Distribution
Date will be calculated as the difference between 100% and the Senior Percentage
for the Distribution Date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will be subject to gradual
reduction as described in the following paragraph. This disproportionate
allocation of unscheduled payments of principal will have the effect of
accelerating the amortization of the senior certificates (other than the
Class PO Certificates) which receive these unscheduled payments of principal
while, in the absence of Realized Losses, increasing the interest in the pool
principal balance evidenced by the subordinated certificates. Increasing the
respective interest of the subordinated certificates relative to that of the
senior certificates is intended to preserve the availability of the
subordination provided by the subordinated certificates. The Subordinated
Prepayment Percentage as of any Distribution Date will be calculated as the
difference between 100% and the Senior Prepayment Percentage.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the fifth anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the Subordinated Percentage for the Distribution Date; for any
Distribution Date in the second year thereafter, the Senior Percentage plus 60%
of the Subordinated Percentage for the Distribution Date; for any Distribution
Date in the third year thereafter, the Senior Percentage plus 40% of the
Subordinated Percentage for the Distribution Date; for any Distribution Date in
the fourth year thereafter, the Senior Percentage plus 20% of the Subordinated
Percentage for the Distribution Date; and for any Distribution Date thereafter,
the Senior Percentage for the Distribution Date (unless on any Distribution Date
the Senior Percentage exceeds the initial Senior Percentage, in which case the
Senior Prepayment Percentage for the Distribution Date will once again equal
100%). Notwithstanding the foregoing, no decrease in the Senior Prepayment
Percentage will occur unless both of the step down conditions are satisfied:
the outstanding principal balance of all mortgage loans delinquent 60 days
or more (averaged over the preceding six month period), as a percentage of
the aggregate principal
S-33
<PAGE>
balance of the subordinated certificates on the Distribution Date, does
not equal or exceed 50%, and
cumulative Realized Losses on the mortgage loans do not exceed
for the Distribution Date on the fifth anniversary of the first
Distribution Date, % of the aggregate of the principal balances of
the subordinated certificates as of the cut-off date,
for the Distribution Date on the sixth anniversary of the first
Distribution Date, % of the aggregate of the principal balances of
the subordinated certificates as of the cut-off date,
for the Distribution Date on the seventh anniversary of the first
Distribution Date, % of the aggregate of the principal balances of
the subordinated certificates as of the cut-off date,
for the Distribution Date on the eighth anniversary of the first
Distribution Date, % of the aggregate of the principal balances of
the subordinated certificates as of the cut-off date, and
for the Distribution Date on the ninth anniversary of the first
Distribution Date, % of the aggregate of the principal balances of
the subordinated certificates as of the cut-off date.
If on any Distribution Date the allocation to the class or classes of
senior certificates (other than the Class PO Certificates) then entitled to
distributions of principal of full and partial principal prepayments and other
amounts in the percentage required above would reduce the outstanding Class
Certificate Balance of the class or classes below zero, the distribution to the
class or classes of certificates of the Senior Prepayment Percentage of those
amounts for the Distribution Date will be limited to the percentage necessary to
reduce the related Class Certificate Balance(s) to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount, up
to the amount of the Subordinated Principal Distribution Amount for the
Distribution Date, will be distributed as principal of the subordinated
certificates. Except as provided in the next paragraph, each class of
subordinated certificates will be entitled to receive its pro rata share of the
Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of the
subordinated certificates will be made sequentially to the classes of
subordinated certificates in the order of their numerical class designations,
beginning with the Class M Certificates, until their respective Class
Certificate Balances are reduced to zero.
With respect to each class of subordinated certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of the
class and all classes of subordinated certificates which have higher numerical
class designations than the class (the 'Applicable Credit Support Percentage')
is less than the Applicable Credit Support Percentage for the class on the date
of issuance of the certificates (the 'Original Applicable Credit Support
Percentage'), no distribution of partial principal prepayments and principal
prepayments in full will be made to any of those classes (the 'Restricted
Classes') and the amount of partial principal prepayments and principal
prepayments in full otherwise distributable to the Restricted Classes will be
allocated among the remaining classes of subordinated certificates, pro rata,
based upon their respective Class Certificate Balances, and distributed in the
sequential order described above.
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<PAGE>
The Class Subordination Percentage with respect to any Distribution Date
and each class of subordinated certificates, will equal the fraction (expressed
as a percentage) the numerator of which is the Class Certificate Balance of the
class of subordinated certificates immediately before the Distribution Date and
the denominator of which is the aggregate of the Class Certificate Balances of
all classes of certificates immediately before the Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
subordinated certificates on the date of issuance of the certificates are
expected to be as follows:
<TABLE>
<S> <C>
Class M................... %
Class B-1................. %
Class B-2................. %
Class B-3................. %
Class B-4................. %
Class B-5................. %
</TABLE>
For purposes of calculating the Applicable Credit Support Percentages of
the subordinated certificates, the Class M Certificates will be considered to
have a lower numerical class designation than each other class of subordinated
certificates.
The Subordinated Principal Distribution Amount for any Distribution Date
will equal
the sum of
the Subordinated Percentage of the applicable Non-PO Percentage of
all amounts described in clauses (a) through (d) of the definition
of 'Non-PO Formula Principal Amount' for the Distribution Date,
for each mortgage loan that became a Liquidated mortgage loan during
the calendar month preceding the month of the Distribution Date, the
applicable Non-PO Percentage of the liquidation proceeds allocable
to principal received on the mortgage loan, after application of the
amounts pursuant to the second bulleted item of the definition of
Senior Principal Distribution Amount up to the Subordinated
Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of the mortgage loan and
the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of the amounts described in clause (f) of the definition
of 'Non-PO Formula Principal Amount' for the Distribution Date
reduced by the amount of any payments in respect of Class PO Deferred
Amounts on the related Distribution Date.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the trust fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions of
interest and principal as described above, on each Distribution Date, the
holders of the Class A-R Certificates will be entitled to receive any Available
Funds remaining after payment of interest and principal on the senior
certificates and Class PO Deferred Amounts on the Class PO Certificates and
interest and principal on the subordinated certificates, as described above. It
is not anticipated that there will be any significant amounts remaining for that
distribution.
Class PO Principal Distribution Amount. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount equal to the lesser of (x) the PO Formula Principal Amount for the
Distribution Date and (y) the product of
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<PAGE>
Available Funds remaining after distribution of interest on the senior
certificates and
a fraction, the numerator of which is the PO Formula Principal Amount and
the denominator of which is the sum of the PO Formula Principal Amount and
the Senior Principal Distribution Amount.
If the Class PO principal distribution amount on a Distribution Date is
calculated as provided in clause (y) above, principal distributions to holders
of the senior certificates (other than the Class PO Certificates) will be in an
amount equal to the product of Available Funds remaining after distribution of
interest on the senior certificates and a fraction, the numerator of which is
the Senior Principal Distribution Amount and the denominator of which is the sum
of the Senior Principal Distribution Amount and the PO Formula Principal Amount.
The PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable PO Percentage of
all monthly payments of principal due on each mortgage loan on the related
Due Date,
the principal portion of the purchase price of each mortgage loan that was
repurchased by the seller or another person pursuant to the pooling and
servicing agreement as of the Distribution Date,
the Substitution Adjustment Amount in connection with any deleted mortgage
loan received for the Distribution Date,
any insurance proceeds or liquidation proceeds allocable to recoveries of
principal of mortgage loans that are not yet Liquidated mortgage loans
received during the calendar month preceding the month of the Distribution
Date,
for each mortgage loan that became a Liquidated mortgage loan during the
calendar month preceding the month of the Distribution Date, the amount of
liquidation proceeds allocable to principal received on the mortgage loan
and
all partial and full principal prepayments by borrowers received during
the related Prepayment Period;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is sustained
on a Discount mortgage loan that is not a Liquidated mortgage loan, the PO
Formula Principal Amount will be reduced on the related Distribution Date by the
applicable PO Percentage of the principal portion of the Bankruptcy Loss.
ALLOCATION OF LOSSES
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount mortgage loan will be allocated
to the Class PO Certificates until their Class Certificate Balance is reduced to
zero. The amount of any Realized Loss, other than an Excess Loss, allocated on
or before the Senior Credit Support Depletion Date will be treated as a
Class PO Deferred Amount. To the extent funds are available on the Distribution
Date or on any future Distribution Date from amounts that would otherwise be
allocable to the Subordinated Principal Distribution Amount, Class PO Deferred
Amounts will be paid on the Class PO Certificates before distributions of
principal on the subordinated certificates. Any distribution of Available Funds
in respect of unpaid Class PO Deferred Amounts will not further reduce the Class
Certificate Balance of the Class PO Certificates. The Class PO Deferred Amounts
will not bear interest. The Class Certificate Balance of the class of
subordinated certificates then outstanding with the highest numerical class
designation will be reduced by the
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<PAGE>
amount of any payments in respect of Class PO Deferred Amounts. After the Senior
Credit Support Depletion Date, no new Class PO Deferred Amounts will be created.
For purposes of allocating losses to the subordinated certificates, the
Class M Certificates will be considered to have a lower numerical class
designation than each other class of subordinated certificates.
On each Distribution Date, the applicable Non-PO Percentage of any Realized
Loss, other than any Excess Loss, will be allocated first to the subordinated
certificates, in the reverse order of their numerical class designations
(beginning with the class of subordinated certificates then outstanding with the
highest numerical class designation), in each case until the Class Certificate
Balance of the respective class of certificates has been reduced to zero, and
then to the senior certificates (other than the Notional Amount Certificates and
the Class PO Certificates) pro rata, based upon their respective Class
Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the classes of senior certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the subordinated certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to some classes of certificates
(other than the Class PO Certificates) before other classes of certificates,
holders of the certificates that are entitled to receive principal later bear a
greater risk of being allocated Realized Losses on the mortgage loans than
holders of classes that are entitled to receive principal earlier.
In general, a 'Realized Loss' means, for a Liquidated mortgage loan, the
amount by which the remaining unpaid principal balance of the mortgage loan
exceeds the amount of liquidation proceeds applied to the principal balance of
the related mortgage loan. 'Excess Losses' are Special Hazard Losses in excess
of the Special Hazard Loss Coverage Amount, Bankruptcy Losses in excess of the
Bankruptcy Loss Coverage Amount and Fraud Losses in excess of the Fraud Loss
Coverage Amount. 'Bankruptcy Losses' are losses that are incurred as a result of
Debt Service Reductions and Deficient Valuations. 'Special Hazard Losses' are
Realized Losses in respect of Special Hazard mortgage loans. 'Fraud Losses' are
losses sustained on a Liquidated mortgage loan by reason of a default arising
from fraud, dishonesty or misrepresentation. See 'Credit
Enhancement -- Subordination of Certain Classes.'
A 'Liquidated mortgage loan' is a defaulted mortgage loan as to which the
master servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A 'Special Hazard mortgage loan' is a Liquidated
mortgage loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the prospectus under 'Credit
Enhancement -- Special Hazard Insurance Policies.' See 'Credit
Enhancement -- Subordination of Certain Classes.'
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
prospectus supplement has been prepared on the basis of the following assumed
characteristics of the mortgage loans and the following additional assumptions,
which combined are the structuring assumptions:
the mortgage pool consists of two mortgage loans with the following
characteristics:
S-37
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL REMAINING
NET TERM TO TERM TO
MORTGAGE MORTGAGE MATURITY MATURITY
PRINCIPAL BALANCE RATE RATE (IN MONTHS) (IN MONTHS)
- ----------------- ---- ---- ----------- -----------
<S> <C> <C> <C> <C>
$
% %
% %
</TABLE>
the mortgage loans prepay at the specified constant percentages of SPA,
no defaults in the payment by mortgagors of principal of and interest on
the mortgage loans are experienced,
scheduled payments on the mortgage loans are received on the first day of
each month commencing in the calendar month following the closing date and
are computed before giving effect to prepayments received on the last day
of the prior month,
prepayments are allocated as described in this prospectus supplement
without giving effect to loss and delinquency tests,
there are no Net Interest Shortfalls and prepayments represent prepayments
in full of individual mortgage loans and are received on the last day of
each month, commencing in the calendar month of the closing date,
the scheduled monthly payment for each mortgage loan has been calculated
such that each mortgage loan will amortize in amounts sufficient to repay
the current balance of the mortgage loan by its respective remaining term
to maturity,
the initial Class Certificate Balance or Notional Amount, as applicable,
of each class of certificates is as set forth on the cover page hereof and
under 'Summary of Terms -- Certificates other than the Offered
Certificates,'
interest accrues on each interest bearing class of certificates at the
applicable interest rate set forth or described on the cover page hereof
and as described in this prospectus supplement,
distributions in respect of the certificates are received in cash on the
day of each month commencing in the calendar month following the closing
date,
the closing date of the sale of the certificates is , 1999,
the seller is not required to repurchase or substitute for any mortgage
loan,
the master servicer does not exercise the option to repurchase the
mortgage loans described under ' -- Optional Purchase of Defaulted Loans'
and ' -- Optional Termination' and
no class of certificates becomes a Restricted Class. While it is assumed
that each of the mortgage loans prepays at the specified constant
percentages of SPA, this is not likely to be the case. Moreover,
discrepancies may exist between the characteristics of the actual mortgage
loans which will be delivered to the trustee and characteristics of the
mortgage loans used in preparing the tables.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the Standard Prepayment Assumption ('SPA'), which represents an assumed rate of
prepayment each month of the then outstanding principal balance of a pool of new
mortgage loans. SPA does not purport to be either a historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
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<PAGE>
mortgage loans. 100% SPA assumes prepayment rates of 0.2% per annum of the then
unpaid principal balance of the pool of mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter (for example, 0.4% per annum in the second month) until the 30th
month. Beginning in the 30th month and in each month thereafter during the life
of the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per
annum. Multiples may be calculated from this prepayment rate sequence. For
example, % SPA assumes prepayment rates will be % per annum in month one,
% per annum in month two, and increasing by % in each succeeding month until
reaching a rate of % per annum in month 30 and remaining constant at % per
annum thereafter. 0% SPA assumes no prepayments. There is no assurance that
prepayments will occur at any SPA rate or at any other constant rate.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The master servicer may, at its option, purchase from the trust fund any
mortgage loan which is delinquent in payment by 91 days or more. Any purchase
shall be at a price equal to 100% of the Stated Principal Balance of the
mortgage loan plus accrued interest on it at the applicable mortgage rate from
the date through which interest was last paid by the related mortgagor or
advanced (and not reimbursed) to the first day of the month in which the amount
is to be distributed.
OPTIONAL TERMINATION
The master servicer will have the right to repurchase all remaining
mortgage loans and foreclosed or otherwise repossessed properties in the
mortgage pool and thereby effect early retirement of the certificates, subject
to the pool principal balance of the mortgage loans and foreclosed or otherwise
repossessed properties at the time of repurchase being less than 10% of the
cut-off date pool principal balance. If the master servicer exercises the
option, the purchase price distributed with respect to each Certificate will be
100% of its then outstanding principal balance plus any Class PO Deferred
Amounts in the case of the Class PO Certificates and, in the case of an interest
bearing Certificate, any unpaid accrued interest thereon at the applicable
pass-through rate, in each case 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 foreclosed or otherwise repossessed properties and the appraised
value is less than the Stated Principal Balance of the related mortgage loans.
Distributions on the certificates in respect of any optional termination will
first be paid to the senior certificates and then to the subordinated
certificates. The proceeds from any optional termination distribution may not be
sufficient to distribute the full amount to which each class of certificates is
entitled if the purchase price is based in part on the appraised value of any
foreclosed or otherwise repossessed property and the appraised value is less
than the Stated Principal Balance of the related mortgage loan.
THE TRUSTEE
[The Bank of New York] will be the trustee under the pooling and servicing
agreement. The depositor and the master servicer may maintain other banking
relationships in the ordinary course of business with [The Bank of New York].
Offered certificates may be surrendered at the Corporate Trust Office of the
trustee located at [101 Barclay Street, 12E, New York, New York 10286,
Attention: Corporate Trust Administration] or at any other address the trustee
designates from time to time.
S-39
<PAGE>
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on transfer
described in the prospectus under 'Material Federal Income Tax
Consequences -- REMIC Certificates -- Tax-Related Restrictions on Transfers of
Residual Certificates -- Disqualified Organizations,' ' -- Noneconomic Residual
Interests' and ' -- Foreign Investors.' The pooling and servicing agreement
provides that the Class A-R Certificates (in addition to other ERISA restricted
classes of certificates) may not be acquired by an ERISA Plan. See 'ERISA
Considerations.' Each Class A-R Certificate will contain a legend describing the
foregoing restrictions.
S-40
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of each interest bearing class of
certificates will be lower than the yield otherwise produced by the applicable
rate at which interest is passed through to the holders and the purchase price
of the certificates because monthly distributions will not be payable to the
holders until the day (or, if that day is not a business day, the following
business day) of the month following the month in which interest accrues on the
mortgage loans (without any additional distribution of interest or earnings on
them for the delay).
Delinquencies on the mortgage loans which are not advanced by or on behalf
of the master servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the subordinated certificates, in the reverse order of their
numerical class designations, and then by the senior certificates. If, as a
result of the shortfalls, the aggregate of the Class Certificate Balances of all
classes of certificates exceeds the pool principal balance, the Class
Certificate Balance of the class of subordinated certificates then outstanding
with the highest numerical class designation will be reduced by the amount of
the excess.
Net Interest Shortfalls will adversely affect the yields on the classes of
offered certificates. In addition, although all losses initially will be borne
by the subordinated certificates, in the reverse order of their numerical class
designations (either directly or through distributions in respect of Class PO
Deferred Amounts on the Class PO Certificates), Excess Losses will be borne by
all classes of certificates (other than the Notional Amount Certificates) on a
pro rata basis. Moreover, since the Subordinated Principal Distribution Amount
for each Distribution Date will be reduced by the amount of any distributions on
the Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each Distribution Date to each class of
subordinated certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of the Class PO Deferred Amounts.
As a result, the yields on the offered certificates will depend on the rate and
timing of Realized Losses, including Excess Losses. Excess Losses could occur at
a time when one or more classes of subordinated certificates are still
outstanding and otherwise available to absorb other types of Realized Losses.
For purposes of allocating losses and shortfalls resulting from
delinquencies to the subordinated certificates, the Class M Certificates will be
considered to have a lower numerical class designation than each other class of
subordinated certificates.
PREPAYMENT CONSIDERATIONS AND RISKS
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 or master
servicer. The mortgage loans may be prepaid by the mortgagors at any time
without a prepayment penalty. The mortgage loans are subject to the
'due-on-sale' provisions included therein. See 'The Mortgage Pool.'
Prepayments, liquidations and purchases of the mortgage loans will result
in distributions on the offered certificates of principal amounts which would
otherwise be distributed over the
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<PAGE>
remaining terms of the mortgage loans. This includes any optional purchase by
the master servicer of a defaulted mortgage loans and any optional repurchase of
the remaining mortgage loans in connection with the termination of the trust
fund, in each case as described in this prospectus supplement. 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 of payment of
principal of the mortgage loans or the rate of principal prepayments. The extent
to which the yield to maturity of a class of offered certificates may vary from
the anticipated yield will depend upon the degree to which the offered
certificate is purchased at a discount or premium, and the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the mortgage loans. Further, an investor should consider the risk
that, in the case of the Principal Only Certificates and any other offered
certificate purchased at a discount, a slower than anticipated rate of principal
payments (including prepayments) on the mortgage loans could result in an actual
yield to the investor that is lower than the anticipated yield and, in the case
of the Interest Only Certificates and any other offered certificate purchased at
a premium, a faster than anticipated rate of principal payments could result in
an actual yield to the investor that is lower than the anticipated yield.
Investors in the Interest Only Certificates should carefully consider the risk
that a rapid rate of principal payments on the mortgage loans could result in
the failure of the investors to recover their initial investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties, servicing decisions, as well as the characteristics of the
mortgage loans included in the mortgage pool as described under 'The Mortgage
Pool -- General' and ' -- Underwriting Process.' In general, if prevailing
interest rates were to fall significantly below the mortgage rates on the
mortgage loans, the mortgage loans could be subject to higher prepayment rates
than if prevailing interest rates were to remain at or above the mortgage rates
on the mortgage loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the mortgage loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the mortgage loans in stable or changing interest rate environments.
Furthermore, with respect to up to 50% of the mortgage loans, the depositor may
deliver all or a portion of each related Mortgage File to the trustee not later
than thirty days after the closing date, a delayed delivery. Should the seller
fail to deliver all or a portion of any mortgage files to the depositor or other
designee of the depositor or, at the depositor's direction, to the trustee
within that period, the seller will be required to use its best efforts to
deliver a Substitute mortgage loan for the related delayed delivery mortgage
loan or repurchase the related delayed delivery mortgage loan. Any repurchases
pursuant to this provision would also have the effect of accelerating the rate
of prepayments on the mortgage loans.
As described under 'Description of the Certificates -- Principal,' the
Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the classes of senior
certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of the principal prepayments being distributed to
holders of the classes of senior certificates and none (or less than their pro
rata share) of the principal prepayments being distributed to holders of the
subordinated certificates during the periods of time described in the definition
of 'Senior Prepayment Percentage.'
The timing of changes in the rate of prepayments on the mortgage loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the
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<PAGE>
mortgage loans, the greater the effect on an investor's yield to maturity. The
effect on an investor's yield as a result of principal payments occurring at a
rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the offered certificates may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
The tables in the 'Yield, Prepayment and Maturity Considerations' section
indicate the sensitivity of the pre-tax corporate bond equivalent yields to
maturity of the illustrated classes of certificates to various constant
percentages of SPA. The yields set forth in the tables were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the applicable classes of certificates, would cause
the discounted present value of the assumed streams of cash flows to equal the
assumed aggregate purchase prices of the applicable classes and converting the
monthly rates to corporate bond equivalent rates. Those calculations do not take
into account variations that may occur in the interest rates at which investors
may be able to reinvest funds received by them as distributions on the
certificates and consequently do not purport to reflect the return on any
investment in any the class of certificate when the reinvestment rates are
considered.
SENSITIVITY OF THE CLASS X CERTIFICATES
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE NON-DISCOUNT MORTGAGE LOANS (PARTICULARLY THOSE WITH HIGH
NET MORTGAGE RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF
THE ASSUMPTIONS DESCRIBED UNDER THIS HEADING, THE YIELD TO MATURITY ON THE
CLASS X CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT A
CONSTANT RATE OF APPROXIMATELY % SPA. IF THE ACTUAL PREPAYMENT RATE OF THE
NON-DISCOUNT MORTGAGE LOANS WERE TO EXCEED THE FOREGOING LEVEL FOR AS LITTLE AS
ONE MONTH WHILE EQUALING THE LEVEL FOR THE REMAINING MONTHS, THE INVESTORS IN
THE CLASS X CERTIFICATES WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
As described under 'Description of the Certificates -- General,' the
pass-through rate of the Class X Certificates in effect from time to time is
calculated by reference to the net mortgage rates of the Non-Discount mortgage
loans. The Non-Discount mortgage loans will have higher net mortgage rates (and
higher mortgage rates) than the other mortgage loans. In general, mortgage loans
with higher mortgage rates tend to prepay at higher rates than mortgage loans
with relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Non-Discount mortgage loans may prepay at
higher rates, thereby reducing the pass-through rate and Notional Amount of the
Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the structuring assumptions and on the assumption that the purchase
price of the Class X Certificates (expressed as a percentage of initial Notional
Amount) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
----- ------
<S> <C>
Class X.................................................... %
</TABLE>
- ------------
*The price does not include accrued interest. Accrued interest has been added to
the price in calculating the yields in the following table.
S-43
<PAGE>
SENSITIVITY OF THE CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
-----------------------------------------------
CLASS 0% % % % %
----- -- - - - -
<S> <C> <C> <C> <C> <C>
Class X.............. % % % % %
</TABLE>
It is unlikely that the Non-Discount mortgage loans will have the precise
characteristics described in this prospectus supplement or that the Non-Discount
mortgage loans will all prepay at the same rate until maturity or that all of
the Non-Discount mortgage loans will prepay at the same rate or time. As a
result of these factors, the pre-tax yields on the Class X Certificates are
likely to differ from those shown in the table above, even if all of the
Non-Discount mortgage loans prepay at the indicated percentages of SPA. No
representation is made as to the actual rate of principal payments on the
Non-Discount mortgage loans for any period or over the life of the Class X
Certificates or as to the yield on the Class X Certificates. Investors must make
their own decisions as to the appropriate prepayment assumptions to be used in
deciding whether to purchase the Class X Certificates.
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES
THE CLASS PO CERTIFICATES WILL BE 'PRINCIPAL ONLY' CERTIFICATES AND WILL
NOT BEAR INTEREST. AS INDICATED IN THE FOLLOWING TABLE, A LOWER THAN ANTICIPATED
RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE DISCOUNT MORTGAGE
LOANS WITH RESPECT TO THE CLASS PO CERTIFICATES WILL HAVE A NEGATIVE EFFECT ON
THE YIELD TO INVESTORS IN THE PRINCIPAL ONLY CERTIFICATES.
As described above under 'Description of the Certificates -- Principal,'
the Class PO principal distribution amount is calculated by reference to the
principal payments (including prepayments) on the Discount mortgage loans. The
Discount mortgage loans will have lower net mortgage rates (and lower mortgage
rates) than the other mortgage loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market interest
rates. As a result, the Discount mortgage loans may prepay at lower rates,
thereby reducing the rate of payment of principal and the resulting yield of the
Class PO Certificates.
The information set forth in the following table has been prepared on the
basis of the structuring assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage of
its initial Class Certificate Balance) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE
----- -----
<S> <C>
Class PO.................................................... %
</TABLE>
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
-----------------------------------------------
CLASS 0% % % % %
----- -- - - - -
<S> <C> <C> <C> <C> <C>
Class X.............. % % % % %
</TABLE>
It is unlikely that the Discount mortgage loans will have the precise
characteristics described in this prospectus supplement or that the Discount
mortgage loans will all prepay at the same rate until maturity or that all of
the Discount mortgage loans will prepay at the same rate or time. As a result of
these factors, the pre-tax yield on the Principal Only Certificates is
S-44
<PAGE>
likely to differ from those shown in the table above, even if all of the
Discount mortgage loans prepay at the indicated percentages of SPA. No
representation is made as to the actual rate of principal payments on the
Discount mortgage loans for any period or over the life of the Principal Only
Certificates or as to the yield on the Principal Only Certificates. Investors
must make their own decisions as to the appropriate prepayment assumptions to be
used in deciding whether to purchase the Principal Only Certificates.
ADDITIONAL INFORMATION
The depositor intends to file additional yield tables and other
computational materials with respect to one or more classes of offered
certificates with the Commission in a report on Form 8-K. The tables and
materials were prepared by the Underwriter at the request of prospective
investors, based on assumptions provided by, and satisfying their special
requirements. The tables and assumptions may be based on assumptions that differ
from the structuring assumptions. Accordingly, the tables and other materials
may not be relevant to or appropriate for investors other than those
specifically requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an offered certificate is determined by
(a) multiplying the amount of the net reduction, if any, of the Class
Certificate Balance of the Certificate on each Distribution Date by the number
of years from the date of issuance to the Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate amount of the net reductions
in Class Certificate Balance of the Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the mortgage loans, see ' -- Prepayment
Considerations and Risks' in this prospectus supplement and 'Yield and
Prepayment Considerations' in the prospectus.
In general, the weighted average lives of the offered certificates will be
shortened if the level of prepayments of principal of the mortgage loans
increases. However, the weighted average lives of the offered certificates will
depend upon a variety of other factors, including the timing of changes in the
rate of principal payments, the priority sequence of distributions of principal
of the classes of certificates. See 'Description of the
Certificates -- Principal.'
The interaction of the foregoing factors may have different effects on
various classes of offered certificates and the effects on any class may vary at
different times during the life of the class. Accordingly, no assurance can be
given as to the weighted average life of any class of offered certificates.
Further, to the extent the prices of the offered certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of the classes of offered certificates
will result in variability in the related yields to maturity. For an example of
how the weighted average lives of the classes of offered certificates may be
affected at various constant percentages of SPA, see the Decrement Tables under
the next heading.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the classes of offered certificates (other than the
Class X Certificates) that would be outstanding after each of the dates shown at
various constant percentages of SPA and the corresponding weighted average lives
of the classes. The tables have been prepared on the basis of the structuring
assumptions. It is not likely that the mortgage loans will have the precise
S-45
<PAGE>
characteristics described in this prospectus supplement or all of the mortgage
loans will prepay at the constant percentages of SPA specified in the tables or
at any other constant rate. Moreover, the diverse remaining terms to maturity of
the mortgage loans could produce slower or faster principal distributions than
indicated in the tables, which have been prepared using the specified constant
percentages of SPA, even if the remaining term to maturity of the mortgage loans
is consistent with the remaining terms to maturity of the mortgage loans
specified in the structuring assumptions.
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS PERCENTAGES OF
CLASS A-PERCENTAGES OF SPA SPA
------------------------------------------ ---------------------
DISTRIBUTION DATE 0% % % % % 0% % % % %
----------------- -- - - - - -- - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial.................. 100 100 100 100 100 100 100 100 100 100
1999.....................
2000.....................
2001.....................
2002.....................
2003.....................
2004.....................
2005.....................
2006.....................
2007.....................
2008.....................
2009.....................
2010.....................
2011.....................
2012.....................
2013.....................
2014.....................
2015.....................
2016.....................
2017.....................
2018.....................
2019.....................
2020.....................
2021.....................
2022.....................
2023.....................
2024.....................
2025.....................
2026.....................
2027.....................
2028.....................
Weighted Average Life
(in years)**...........
</TABLE>
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each class of offered certificates
is the Distribution Date in 20 , which is the Distribution Date in the
month following the
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<PAGE>
month of the latest scheduled maturity date for any of the mortgage loans. Since
the rate of distributions in reduction of the Class Certificate Balance or
Notional Amount of each class of offered certificates will depend on the rate of
payment (including prepayments) of the mortgage loans, the Class Certificate
Balance or Notional Amount of any class could be reduced to zero significantly
earlier or later than the Last Scheduled Distribution Date. The rate of payments
on the mortgage loans will depend on their particular characteristics, as well
as on prevailing interest rates from time to time and other economic factors,
and no assurance can be given as to the actual payment experience of the
mortgage loans. See 'Yield, Prepayment and Maturity Considerations -- Prepayment
Considerations and Risks' and ' -- Weighted Average Lives of the Offered
Certificates' in this prospectus supplement and 'Yield and Prepayment
Considerations' in the prospectus.
THE SUBORDINATED CERTIFICATES
The weighted average life of, and the yield to maturity on, the
subordinated certificates, in increasing order of their numerical class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the mortgage loans. In
particular, the rate and timing of mortgagor defaults and the severity of
ensuing losses on the mortgage loans may be affected by the characteristics of
the mortgage loans included in the mortgage pool as described under 'The
Mortgage Pool -- General' and ' -- Underwriting Process.' If the actual rate and
severity of losses on the mortgage loans is higher than those assumed by a
holder of a subordinated certificate, the actual yield to maturity of the
Certificate may be lower than the yield expected by the holder based on the
holder's assumptions. The timing of losses on mortgage loans will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses over the life of the mortgage pool are consistent with an investor's
expectations. In general, the earlier a loss occurs, the greater the effect on
an investor's yield to maturity. Realized Losses on the mortgage loans will
reduce the Class Certificate Balances of the applicable class of subordinated
certificates to the extent of any losses allocated to it (as described under
'Description of the Certificates -- Allocation of Losses'), without the receipt
of cash attributable to the reduction. In addition, shortfalls in cash available
for distributions on the subordinated certificates will result in a reduction in
the Class Certificate Balance of the class of subordinated certificates then
outstanding with the highest numerical class designation if and to the extent
that the aggregate of the Class Certificate Balances of all classes of
certificates, following all distributions and the allocation of Realized Losses
on a Distribution Date, exceeds the pool principal balance as of the Due Date
occurring in the month of the Distribution Date. As a result of the reductions,
less interest will accrue on the class of subordinated certificates than
otherwise would be the case. The yield to maturity of the subordinated
certificates will also be affected by the disproportionate allocation of
principal prepayments to the senior certificates, Net Interest Shortfalls, other
cash shortfalls in Available Funds and distribution of funds to Class PO
certificateholders otherwise available for distribution on the subordinated
certificates to the extent of reimbursement for Class PO Deferred Amounts. See
'Description of the Certificates -- Allocation of Losses.'
If on any Distribution Date, the Applicable Credit Support Percentage for
any class of subordinated certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the subordinated certificates
will be allocated solely to that class and all other classes of subordinated
certificates with lower numerical class designations, thereby accelerating their
amortization relative to that of the Restricted Classes and reducing the
weighted average lives of the classes of subordinated certificates receiving the
distributions. Accelerating the amortization of the classes of subordinated
certificates with lower numerical class designations relative to the
S-47
<PAGE>
other classes of subordinated certificates is intended to preserve the
availability of the subordination provided by the other classes.
For purposes of allocating losses and prepayments to the subordinated
certificates, the Class M Certificates will be considered to have a lower
numerical class designation than each other class of subordinated certificates.
CREDIT ENHANCEMENT
SUBORDINATION
The rights of the holders of the subordinated certificates to receive
distributions with respect to the mortgage loans will be subordinated to the
rights of the holders of the senior certificates and the rights of the holders
of each class of subordinated certificates (other than the Class M Certificates)
to receive the distributions will be further subordinated to the rights of the
class or classes of subordinated certificates with lower numerical class
designations, in each case only to the extent described in this prospectus
supplement. The subordination of the subordinated certificates to the senior
certificates and the subordination of the classes of subordinated certificates
with higher numerical class designations to those with lower numerical class
designations is intended to increase the likelihood of receipt, respectively, by
the senior certificateholders and the holders of subordinated certificates with
lower numerical class designations of the maximum amount to which they are
entitled on any Distribution Date and to provide the holders protection against
Realized Losses, other than Excess Losses. In addition, the subordinated
certificates will provide limited protection against Special Hazard Losses,
Bankruptcy Losses and Fraud Losses up to the Special Hazard Loss Coverage
Amount, Bankruptcy Loss Coverage Amount and Fraud Loss Coverage Amount,
respectively, as described in the following paragraphs. The applicable Non-PO
Percentage of Realized Losses, other than Excess Losses, will be allocated to
the class of subordinated certificates then outstanding with the highest
numerical class designation. In addition, the Class Certificate Balance of the
class of subordinated certificates will be reduced by the amount of
distributions on the Class PO Certificates in reimbursement for Class PO
Deferred Amounts.
For purposes of allocating losses to the subordinated certificates, the
Class M Certificates will be considered to have a lower numerical class
designation than each other class of subordinated certificates.
The subordinated certificates will provide limited protection to the
classes of certificates of higher relative priority against
Special Hazard Losses in an initial amount expected to be up to
approximately $ (the 'Special Hazard Loss Coverage Amount'),
Bankruptcy Losses in an initial amount expected to be up to approximately
$ (the 'Bankruptcy Loss Coverage Amount') and
Fraud Losses in an initial amount expected to be up to approximately $
(the 'Fraud Loss Coverage Amount').
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of
the Special Hazard Loss Coverage Amount as of the closing date less the
amount, if any, of losses attributable to Special Hazard mortgage loans
incurred since the closing date
the greatest of
S-48
<PAGE>
1% of the aggregate of the principal balances of the mortgage loans,
twice the principal balance of the largest mortgage loan and
the aggregate principal balances of the mortgage loans secured by
mortgaged properties located in the single California postal zip code area
having the highest aggregate principal balance of any zip code area.
All principal balances for the purpose of this definition will be calculated as
of the first day of the month preceding the Distribution Date after giving
effect to scheduled installments of principal and interest on the mortgage loans
then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the certificates. In addition, the Fraud
Loss Coverage Amount will be reduced on the fifth anniversary of the cut-off
date, to zero and on the first, second, third and fourth anniversaries of the
cut-off date, to an amount equal to the lesser of 1% of the then current pool
principal balance and the excess of the Fraud Loss Coverage Amount as of the
preceding anniversary of the cut-off date over the cumulative amount of Fraud
Losses allocated to the certificates since the preceding anniversary.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the certificates.
The amount of coverage provided by the subordinated certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the then
current ratings of the certificates assigned by the rating agencies are not
adversely affected as a result. In addition, a reserve fund or other form of
credit enhancement may be substituted for the protection provided by the
subordinated certificates for Special Hazard Losses, Bankruptcy Losses and Fraud
Losses.
A 'Deficient Valuation' is a bankruptcy proceeding whereby the bankruptcy
court may establish the value of the mortgaged property at an amount less than
the then outstanding principal balance of the mortgage loan secured by the
mortgaged property or may reduce the outstanding principal balance of a mortgage
loan. In the case of a reduction in that value of the related mortgaged
property, the amount of the secured debt could be reduced to that value, and the
holder of the mortgage loan thus would become an unsecured creditor to the
extent the outstanding principal balance of the mortgage loan exceeds the value
so assigned to the mortgaged property by the bankruptcy court. In addition,
other modifications of the terms of a mortgage loan can result from a bankruptcy
proceeding, including the reduction (a 'Debt Service Reduction') of the amount
of the monthly payment on the related mortgage loan. However, none of these
shall be considered a Debt Service Reduction or Deficient Valuation so long as
the master servicer is pursuing any other remedies that may be available with
respect to the related mortgage loan and either the mortgage loan has not
incurred payment default or scheduled monthly payments of principal and interest
are being advanced by the master servicer without giving effect to any Debt
Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The depositor will apply the net proceeds of the sale of the certificates
against the purchase price of the mortgage loans.
S-49
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
trust fund as a REMIC. The Residual Certificates will constitute the sole class
of residual interests in the REMIC.
All classes of the certificates except the Class A-R Certificates (the
'Regular Certificates,' and the Class A-R Certificates, the 'Residual
Certificates') will be treated as debt instruments issued by the REMIC for
federal income tax purposes. Income on the Regular Certificates must be reported
under an accrual method of accounting. Under the accrual method of accounting,
interest income may be required to be included in a holder's gross income in
advance of the holder's actual receipt of that interest income.
The Principal Only Certificates will be treated for federal income tax
purposes as having been issued with an amount of Original Issue Discount ('OID')
equal to the difference between their principal balance and their issue price.
Although the tax treatment is not entirely certain, Notional Amount Certificates
will be treated as having been issued with OID for federal income tax purposes
equal to the excess of all expected payments of interest on the certificates
over their issue price. Although unclear, a holder of a Notional Amount
Certificate may be entitled to deduct a loss to the extent that its remaining
basis exceeds the maximum amount of future payments to which the
Certificateholder would be entitled if there were no further prepayments of the
mortgage loans. The remaining classes of Regular Certificates, depending on
their respective issue prices (as described in the prospectus under 'Material
Federal Income Tax Consequences'), may be treated as having been issued with OID
for federal income tax purposes. For purposes of determining the amount and rate
of accrual of OID and market discount, the trust fund intends to assume that
there will be prepayments on the mortgage loans at a rate equal to % SPA. No
representation is made as to whether the mortgage loans will prepay at the
foregoing rate or any other rate. See 'Yield, Prepayment and Maturity
Considerations' and 'Material Federal Income Tax Consequences' in the
prospectus. Computing accruals of OID in the manner described in the prospectus
may (depending on the actual rate of prepayments during the accrual period)
result in the accrual of negative amounts of OID on the certificates issued with
OID in an accrual period. Holders will be entitled to offset negative accruals
of OID only against future OID accrual on their certificates.
If the holders of any Regular Certificates are treated as holding their
certificates at a premium, the holders are encouraged to consult their tax
advisors regarding the election to amortize bond premium and the method to be
employed. See 'Material Federal Income Tax Consequences -- REMIC
Certificates -- a. Regular Certificates' in the prospectus.
As is described more fully under 'Material Federal Income Tax Consequences'
in the prospectus, the offered certificates will represent qualifying assets
under Sections 856(c)(4)(A) and 7701(a)(19)(C) of the Code, and net interest
income attributable to the offered certificates will be 'interest on obligations
secured by mortgages on real property' within the meaning of
Section 856(c)(3)(B) of the Internal Revenue Code of 1986, as amended (the
'Code'), to the extent the assets of the trust fund are assets described in
those sections. The Regular Certificates will represent qualifying assets under
Section 860G(a)(3) if acquired by a REMIC within the prescribed time periods of
the Code.
The holders of the Residual Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to them during certain periods. All or a
portion of the taxable income from a Residual Certificate recognized by a holder
may be treated as 'excess inclusion' income, which with limited exceptions, is
subject to U.S. federal income tax.
S-50
<PAGE>
In computing alternative minimum taxable income, the special rule providing
that taxable income cannot be less than the sum of the taxpayer's excess
inclusions for the year does not apply. However, a taxpayer's alternative
minimum taxable income cannot be less than the sum of the taxpayer's excess
inclusions for the year. In addition, the amount of any alternative minimum tax
net operating loss is determined without regard to any excess inclusions.
Purchasers of a Residual Certificate are encouraged to consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
prospectus and consult their own tax advisors with respect to those
consequences. See 'Material Federal Income Tax Consequences -- REMIC
Certificates -- b. Residual Certificates' in the prospectus. Specifically,
prospective holders of Residual Certificates should consult their tax advisors
regarding whether, at the time of acquisition, a Residual Certificate will be
treated as a 'noneconomic' residual interest, a 'non-significant value' residual
interest and a 'tax avoidance potential' residual interest. See 'Material
Federal Income Tax Consequences -- Tax-Related Restrictions on Transfer of
Residual Certificates -- Noneconomic Residual Certificates,' 'Material Federal
Income Tax Consequences -- b. Residual Certificates -- Mark to Market Rules,'
' -- Excess Inclusions' and 'Material Federal Income Tax Consequences -- Tax
Related Restrictions on Transfers of Residual Certificates -- Foreign Investors'
in the prospectus. Additionally, for information regarding Prohibited
Transactions and Treatment of Realized Losses, see 'Material Federal Income Tax
Consequences -- Prohibited Transactions and Other Taxes' and ' -- REMIC
Certificates -- a. Regular Certificates -- Treatment of Realized Losses' in the
prospectus.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit or other plan or arrangement (such as
an individual retirement plan or Keogh plan) that is subject to the Employee
Retirement Income Security Act of 1974, as amended, or to Section 4975 of the
Code (a 'Plan') that proposes to cause the Plan to acquire any of the offered
certificates is encouraged to consult with its counsel with respect to the
potential consequences of the Plan's acquisition and ownership of the
certificates under ERISA and Section 4975 of the Code. See 'ERISA
Considerations' in the prospectus. Section 406 of ERISA prohibits 'parties in
interest' with respect to an employee benefit plan subject to ERISA from
engaging in various different types of transactions involving the Plan and its
assets unless a statutory, regulatory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes excise taxes on prohibited
transactions involving 'disqualified persons' and Plans described under that
Section. ERISA authorizes the imposition of civil penalties for prohibited
transactions involving Plans not subject to the requirements of Section 4975 of
the Code.
Some employee benefit plans, including governmental plans and some church
plans, are not subject to ERISA's requirements. Accordingly, assets of those
plans may be invested in the offered certificates without regard to the ERISA
considerations described in this prospectus supplement and in the prospectus,
subject to the provisions of other applicable federal and state law. Any of
those plans that is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code may nonetheless be subject to the prohibited transaction
rules set forth in Section 503 of the Code.
Except as noted above, 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. A fiduciary that decides to
invest the assets of a Plan in the offered certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the mortgage loans.
S-51
<PAGE>
The U.S. Department of Labor has granted an individual administrative
exemption to (Prohibited Transaction Exemption , Exemption Application
No. D- Fed. Reg. ( )) (the 'Exemption') from some of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of specified receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The Exemption applies to mortgage
loans such as the mortgage loans in the trust fund.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see 'ERISA Considerations' in the
prospectus.
It is expected that the Exemption will apply to the acquisition and holding
by Plans of the Class A Certificates (other than the Class A-R 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 (5%) of the mortgage loans
included in the trust fund by aggregate unamortized principal balance of the
assets of the trust fund. BECAUSE THE CLASS PO AND CLASS X CERTIFICATES ARE NOT
BEING PURCHASED BY ANY UNDERWRITER TO WHOM AN EXEMPTION SIMILAR TO THE EXEMPTION
HAS BEEN GRANTED, THOSE CLASSES OF CERTIFICATES DO NOT CURRENTLY MEET THE
REQUIREMENTS OF THE EXEMPTION OR ANY COMPARABLE INDIVIDUAL ADMINISTRATIVE
EXEMPTION GRANTED TO ANY UNDERWRITER. CONSEQUENTLY, THE CLASS PO AND CLASS X
CERTIFICATES MAY BE TRANSFERRED ONLY IF THE CONDITIONS IN THE FIRST OR THIRD
BULLET POINTS IN THE NEXT PARAGRAPH ARE MET.
BECAUSE THE CHARACTERISTICS OF THE CLASS M, CLASS B-1, CLASS B-2 AND
CLASS A-R CERTIFICATES MAY NOT MEET THE REQUIREMENTS OF PROHIBITED TRANSACTION
CLASS EXEMPTION 83-1 ('PTE 83-1'), THE EXEMPTION, OR ANY OTHER ISSUED EXEMPTION
UNDER ERISA, A PLAN MAY HAVE ENGAGED IN A PROHIBITED TRANSACTION OR INCUR EXCISE
TAXES OR CIVIL PENALTIES IF IT PURCHASES AND HOLDS CLASS M, CLASS B-1,
CLASS B-2 AND CLASS A-R CERTIFICATES. CONSEQUENTLY, TRANSFERS OF THE CLASS M,
CLASS B-1, B-2 AND CLASS A-R CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE
UNLESS THE TRUSTEE RECEIVES:
A REPRESENTATION FROM THE TRANSFEREE OF THE CERTIFICATE, ACCEPTABLE TO AND
IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THAT THE TRANSFEREE IS
NOT A PLAN, OR A PERSON ACTING ON BEHALF OF A PLAN OR USING A PLAN'S
ASSETS TO EFFECT THE TRANSFER;
IF THE PURCHASER IS AN INSURANCE COMPANY, A REPRESENTATION THAT THE
PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING THE CERTIFICATES
WITH FUNDS CONTAINED IN AN 'INSURANCE COMPANY GENERAL ACCOUNT' (AS DEFINED
IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ('PTE
95-60')) AND THAT THE PURCHASE AND HOLDING OF THE CERTIFICATES ARE COVERED
UNDER SECTIONS I AND III OF PTE 95-60; OR
AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR
HOLDING OF THE CERTIFICATE BY A PLAN, OR ANY PERSON ACTING ON BEHALF OF A
PLAN OR USING A PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF THE TRUST
FUND BEING DEEMED TO BE 'PLAN ASSETS' AND SUBJECT TO THE PROHIBITED
TRANSACTION REQUIREMENTS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE
TRUSTEE TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING
AND SERVICING AGREEMENT.
THIS REPRESENTATION SHALL BE CONSIDERED TO HAVE BEEN MADE TO THE TRUSTEE
BY THE TRANSFEREE'S ACCEPTANCE OF A CLASS M, CLASS B-1, OR CLASS B-2
CERTIFICATE. IF THE REPRESENTATION IS NOT TRUE, OR ANY ATTEMPT TO TRANSFER
TO A PLAN OR PERSON ACTING ON BEHALF OF A PLAN OR USING THE PLAN'S ASSETS
IS INITIATED WITHOUT THE REQUIRED OPINION OF COUNSEL, THE ATTEMPTED
TRANSFER OR ACQUISITION SHALL BE VOID.
S-52
<PAGE>
Prospective Plan investors are encourged to consult with their legal
advisors concerning the impact of ERISA and the Code, the applicability of the
Exemption and PTE 83-1 described in the prospectus, and the potential
consequences in their specific circumstances, before making an investment in any
of the offered certificates. Moreover, each Plan fiduciary is encouraged to
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in any of the offered certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
among the depositor, (' ') and (' ' and,
together with , the 'Underwriters'), the depositor has agreed to sell
the certificates to the Underwriters, has agreed to purchase from the
depositor the senior certificates, other than the Class PO and Class X
Certificates (the ' Underwritten Certificates') and has agreed to
purchase from the depositor the Class M, Class B-1 and Class B-2 Certificates
(the ' Underwritten Certificates' and, together with the
Underwritten Certificates, the 'Underwritten Certificates'). Distribution of the
Underwritten Certificates will be made by and distribution of the
Underwritten Certificates will be made by , in each case from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. In connection with the sale of the Underwritten
Certificates, the Underwriters may be deemed to have received compensation from
the depositor in the form of underwriting discounts.
intends to make a secondary market in the Underwritten
Certificates and intends to make a secondary market in the
Underwritten Certificates, but neither Underwriter has any obligation to do so.
There can be no assurance that a secondary market for the offered certificates
will develop or, if it does develop, that it will continue or that it will
provide certificateholders with a sufficient level of liquidity of investment.
The depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, liabilities, customarily
indemnified against, including liabilities under the Securities Act of 1933, as
amended.
The Class PO and Class X Certificates may be offered by the seller or the
depositor from time to time directly or through underwriters or agents (either
of which may include Countrywide Securities Corporation, an affiliate of the
depositor, the seller and the master servicer) in one or more negotiated
transactions, or otherwise, at varying prices to be determined at the time of
sale, in one or more separate transactions at prices to be negotiated at the
time of each sale. Any underwriters or agents that participate in the
distribution of the Class PO and Class X Certificates may be deemed to be
'underwriters' within the meaning of the Securities Act of 1933 and any profit
on the sale of those Certificates by them and any discounts, commissions,
concessions or other compensation received by any of them may be deemed to be
underwriting discounts and commissions under the Securities Act.
LEGAL MATTERS
The validity of the certificates, including their material federal income
tax consequences, will be passed upon for the depositor by Brown & Wood LLP, New
York, New York. [ ] will pass upon certain legal
matters on behalf of the Underwriters.
S-53
<PAGE>
RATINGS
It is a condition to the issuance of the senior certificates that they be
rated by and by . It is a condition to the
issuance of the Class , Class PO and Class X Certificates that they be rated
by . It is a condition to the issuance of the Class M,
Class B-1 and Class B-2 Certificates that they be rated at least , and
, respectively, by .
The ratings assigned by to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related certificateholders under the agreements pursuant to which the
certificates are issued. ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent to
which the payment stream on the mortgage pool is adequate to make the payments
required by the certificates.
ratings on the certificates do not, however, constitute a statement
regarding frequency of prepayments of the mortgage loans. The ' ' symbol is
appended to the rating by of those certificates that believes
may experience high volatility or high variability in expected returns due to
non-credit risks. The absence of an ' ' symbol in the ratings of the
other offered certificates should not be taken as an indication that the
certificates will exhibit no volatility or variability in total return.
The ratings assigned by to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
to which they are entitled under the transaction structure. 's ratings
reflect its analysis of the riskiness of the mortgage loans and its analysis of
the structure of the transaction as set forth in the operative documents.
's ratings do not address the effect on the certificates' yield
attributable to prepayments or recoveries on the underlying mortgage loans.
Further the rating on the Class X Certificates does not address whether
investors will recoup their initial investment. The rating assigned by
to the Class PO Certificates only addresses the return of its Stated Principal
Balance. The rating assigned by to the Class A-R Certificates only
addresses the return of its Class Certificate Balance and interest thereon at
its stated pass-through rate.
The ratings of the rating agencies do not address the possibility that, as
a result of principal prepayments, certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the offered certificates should be
evaluated independently from similar ratings on other types of securities. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the rating agencies.
The depositor has not requested a rating of the offered certificates by any
rating agency other than the rating agencies; there can be no assurance,
however, as to whether any other rating agency will rate the offered
certificates or, if it does, what rating would be assigned by the other rating
agency. The rating assigned by the other rating agency to the offered
certificates could be lower than the respective ratings assigned by the rating
agencies.
S-54
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, ISSUED JULY , 1999
PROSPECTUS
INDYMAC MBS, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PLEASE CAREFULLY CONSIDER
OUR DISCUSSION OF SOME OF
THE RISKS OF INVESTING IN
THE CERTIFICATES UNDER
'RISK FACTORS' BEGINNING
ON PAGE 4.
THE TRUSTS
Each trust will be established to hold assets in its
trust fund transferred to it by IndyMac MBS, Inc. The
assets in each trust fund will be specified in the
prospectus supplement for the particular trust and will
generally consist of:
first lien mortgage loans secured by one- to four-family
residential properties or participations in that type of
loan,
mortgage pass-through securities issued or guaranteed by
Ginnie Mae, Fannie Mae, or Freddie Mac, or
private mortgage-backed securities backed by first lien
mortgage loans secured by one- to four-family
residential properties or participations in that type of
loan.
THE CERTIFICATES
IndyMac MBS, Inc. will sell the certificates pursuant to a prospectus
supplement. The certificates will be grouped into one or more series, each
having its own distinct designation. Each series will be issued in one or more
classes and each class will evidence beneficial ownership of a specified portion
of future payments on the assets in the trust fund that the series relates to. A
prospectus supplement for a series will specify all of the terms of the series
and of each of the classes in the series.
OFFERS OF CERTIFICATES
The certificates may be offered through several different methods, including
offerings through underwriters.
------------------------
THE SEC AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Important Notice About Information In
This Prospectus and Each
Accompanying Prospectus
Supplement.......................... 3
Risk Factors.......................... 4
Limited Source of Payments -- No
Recourse to Sellers, Depositor
or Servicer.................... 4
Credit Enhancement May Not Be
Sufficient To Protect You From
Losses......................... 5
Losses on Balloon Payment
Mortgages Are Borne By You..... 5
Nature of Mortgages.............. 6
You Could Be Adversely Affected
By Violations of Environmental
Laws........................... 7
Ratings of the Certificates Does
Not Assure Their Payment....... 8
Book-Entry Registration.......... 9
Bankruptcy or Insolvency May
Affect the Timing and Amount of
Distributions on the
Certificates................... 9
The Trust Fund........................ 12
The Mortgage Loans -- General.... 13
Agency Securities................ 16
Private Mortgage-Backed
Securities..................... 22
Substitution of Mortgage
Assets......................... 23
Available Information............ 24
Incorporation of Certain
Documents by Reference......... 24
Use of Proceeds....................... 24
The Depositor......................... 25
Mortgage Loan Program................. 25
Underwriting Process............. 25
Qualifications of Sellers........ 26
Representations by Sellers;
Repurchases.................... 26
Description of the Certificates....... 28
General.......................... 29
Distributions on Certificates.... 31
Advances......................... 33
Reports to Certificateholders.... 33
Categories of Classes of
Certificates................... 35
Indices Applicable to Floating
Rate and Inverse Floating Rate
Classes........................ 37
Book-Entry Certificates.......... 41
Credit Enhancement.................... 43
General.......................... 43
Subordination.................... 43
Mortgage Pool Insurance
Policies....................... 44
Special Hazard Insurance
Policies....................... 45
Bankruptcy Bonds................. 46
Reserve Fund..................... 46
Cross Support.................... 47
Insurance Policies, Surety Bonds
and Guaranties................. 47
<CAPTION>
PAGE
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<S> <C>
Over-Collateralization........... 48
Yield and Prepayment Considerations... 48
The Pooling and Servicing Agreement... 49
Assignment of Mortgage Assets.... 49
Payments on Mortgage Assets;
Deposits to Certificate
Account........................ 51
Collection Procedures............ 54
Hazard Insurance................. 55
Realization Upon Defaulted
Mortgage Loans................. 56
Servicing and Other Compensation
and Payment of Expenses........ 60
Evidence as to Compliance........ 61
List of Certificateholders....... 61
Certain Matters Regarding the
Master Servicer and the
Depositor...................... 61
Events of Default................ 62
Rights Upon Event of Default..... 63
Amendment........................ 63
Termination; Optional
Termination.................... 65
The Trustee...................... 65
Certain Legal Aspects of the Mortgage
Loans............................... 66
General.......................... 66
Foreclosure and Repossession..... 67
Rights of Redemption............. 69
Anti-Deficiency Legislation and
Other Limitations on Lenders... 69
Environmental Risks.............. 70
Due-on-Sale Clauses.............. 72
Prepayment Charges............... 72
Applicability of Usury Laws...... 72
Soldiers' and Sailors' Civil
Relief Act..................... 73
Material Federal Income Tax
Consequences........................ 74
General.......................... 74
Non-REMIC Certificates........... 74
REMIC Certificates............... 83
Prohibited Transactions and Other
Taxes.......................... 98
Liquidation and Termination...... 98
Administrative Matters........... 99
Tax-Exempt Investors............. 99
Non-U.S. Persons................. 99
Tax-Related Restrictions on
Transfers of Residual
Certificates................... 100
State Tax Considerations.............. 102
ERISA Considerations.................. 102
Legal Investment...................... 106
Method of Distribution................ 107
Legal Matters......................... 108
Financial Information................. 108
Rating................................ 108
Index to Defined Terms................ 109
</TABLE>
2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of certificates is contained in two separate
documents:
this prospectus, which provides general information, some of which may not
apply to a particular series; and
the accompanying prospectus supplement for a particular series, which
describes the specific terms of the certificates of that series.
The prospectus supplement will contain information about a particular series
that supplements the information contained in this prospectus, and you should
rely on that supplementary information in the prospectus supplement.
You should rely only on the information in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement.
------------------------
If you require additional information, the mailing address of our principal
executive offices is IndyMac MBS, Inc., 155 North Lake Avenue, Pasadena,
California 91101 and the telephone number is (800) 669-2300. For other means of
acquiring additional information about us or a series of securities, see 'The
Trust Fund -- Incorporation of Certain Documents by Reference' beginning on
page 24.
3
<PAGE>
RISK FACTORS
You should carefully consider the following information since it identifies
significant risks associated with an investment in the certificates.
<TABLE>
<S> <C>
LIMITED SOURCE OF PAYMENTS -- NO RECOURSE The applicable prospectus supplement may provide
TO SELLERS, DEPOSITOR OR SERVICER that certificates will be payable from other trust
funds in addition to their associated trust fund,
but if it does not, they will be payable solely
from their associated trust fund. If the trust fund
does not have sufficient assets to distribute the
full amount due to you as a certificateholder, your
yield will be impaired, and perhaps even the return
of your principal may be impaired, without your
having recourse to anyone else. Furthermore, at the
times specified in the applicable prospectus
supplement, certain assets of the trust fund may be
released and paid out to other people, such as the
depositor, a servicer, a credit enhancement
provider, or any other person entitled to payments
from the trust fund. Those assets will no longer be
available to make payments to you. Those payments
are generally made after other specified payments
that may be set forth in the applicable prospectus
supplement have been made.
You will not have any recourse against the
depositor or any servicer if you do not receive a
required distribution on the certificates. Nor will
you have recourse against the assets of the trust
fund of any other series of certificates.
The certificates will not represent an interest in
the depositor, any servicer, any seller to the
depositor, or any one else except the trust fund.
The only obligation of the depositor to a trust
fund comes from certain representations and
warranties made by it about assets transferred to
the trust fund. If these representations and
warranties turn out to be untrue, the depositor may
be required to repurchase some of the transferred
assets. IndyMac MBS, Inc., which is the depositor,
does not have significant assets and is unlikely to
have significant assets in the future. So if the
depositor were required to repurchase a loan
because of a breach of a representation, its only
sources of funds for the repurchase would be:
funds obtained from enforcing a corresponding
obligation of a seller or originator of the
loan, or
funds from a reserve fund or similar credit
enhancement established to pay for loan
repurchases.
The only obligations of the master servicer to a
trust fund (other than its master servicing
obligations) comes from
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4
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<S> <C>
certain representations and warranties made by it
in connection with its loan servicing activities.
If these representations and warranties turn out to
be untrue, the master servicer may be required to
repurchase some of the loans. However, the master
servicer may not have the financial ability to make
the required repurchase.
The only obligations to a trust fund of a seller of
loans to the depositor comes from certain
representations and warranties made by it in
connection with its sale of the loans and certain
document delivery requirements. If these
representations and warranties turn out to be
untrue, or the seller fails to deliver required
documents, it may be required to repurchase some of
the loans. However, the seller may not have the
financial ability to make the required repurchase.
CREDIT ENHANCEMENT MAY NOT BE SUFFICIENT Credit enhancement is intended to reduce the effect
TO PROTECT YOU FROM LOSSES of loan losses. But credit enhancements may benefit
only some classes of a series of certificates and
the amount of any credit enhancement will be
limited as described in the applicable prospectus
supplement. Furthermore, the amount of a credit
enhancement may decline over time pursuant to a
schedule or formula or otherwise, and could be
depleted from payments or for other reasons before
the certificates covered by the credit enhancement
are paid in full. In addition, a credit enhancement
may not cover all potential sources of loss. For
example, a credit enhancement may or may not cover
fraud or negligence by a loan originator or other
parties. Also, the trustee may be permitted to
reduce, substitute for, or even eliminate all or a
portion of a credit enhancement so long as the
rating agencies that have rated the certificates at
the request of the depositor indicate that that
would not cause them to change adversely their
rating of the certificates. Consequently,
certificateholders may suffer losses even though a
credit enhancement exists and its provider does not
default.
LOSSES ON BALLOON PAYMENT MORTGAGES ARE Some of the underlying loans may not be fully
BORNE BY YOU amortizing over their terms to maturity and, thus,
will require substantial principal payments (that
is, balloon payments) at their stated maturity.
Loans with balloon payments involve a greater
degree of risk than fully amortizing loans because
typically the borrower must be able to refinance
the loan or sell the property to make the balloon
payment at maturity. The ability of a borrower to
do this will depend on such factors as mortgage
rates at the time of sale or refinancing, the
borrower's equity in the property, the relative
strength of the local housing market,
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5
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<S> <C>
the financial condition of the borrower, and tax
laws. Losses on these loans that are not otherwise
covered by a credit enhancement will be borne by
the holders of one or more classes of certificates.
NATURE OF MORTGAGES The value of the properties underlying the loans
Declines in Property Values May held in the trust fund may decline over time. Among
Adversely Affect You 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 they are
located,
a decline in their general condition from the
failure of borrowers to maintain their
property adequately, and
natural disasters that are not covered by
insurance, such as earthquakes and floods.
If property values decline, the actual rates of
delinquencies, foreclosures, and losses on all
underlying loans could be higher than those
currently experienced in the mortgage lending
industry in general. These losses, to the extent
not otherwise covered by a credit enhancement, will
be borne by the holder of one or more classes of
certificates.
Delays In Liquidation May Adversely Even if the properties underlying the loans held in
Affect You the trust fund provide adequate security for the
loans, substantial delays could occur before
defaulted loans are liquidated and their proceeds
are forwarded to investors. Property foreclosure
actions are regulated by state statutes and rules
and are subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are
made, sometimes requiring several years to
complete. Furthermore, in some states if the
proceeds of the foreclosure are insufficient to
repay the loan, the borrower is not liable for the
deficit. Thus, if a borrower defaults, these
restrictions may impede the trust's ability to
dispose of the property and obtain sufficient
proceeds to repay the loan in full. In addition,
the servicer will be entitled to deduct from
liquidation proceeds all expenses reasonably
incurred in attempting to recover on the defaulted
loan, including legal fees and costs, real estate
taxes, and property maintenance and preservation
expenses.
Disproportionate Effect of Liquidation expenses of defaulted loans generally
Liquidation Expenses May Adversely do not vary directly with the outstanding principal
Affect You balance of the loan at the time of default.
Therefore, if a servicer takes the same steps for a
defaulted loan having a small remaining principal
balance as it does for a defaulted loan having a
large remaining principal balance, the amount
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6
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<TABLE>
<S> <C>
realized after expenses is smaller as a percentage
of the outstanding principal balance of the small
loan than it is for the defaulted loan having a
large remaining principal balance.
Consumer Protection Laws May State laws generally regulate interest rates and
Adversely Affect You other charges, require certain disclosures, and
require licensing of mortgage loan originators and
servicers. In addition, most states have other laws
and public policies for the protection of consumers
that prohibit unfair and deceptive practices in the
origination, servicing, and collection of mortgage
loans. Depending on the particular law and the
specific facts involved, violations may limit the
ability to collect all or part of the principal or
interest on the underlying loans held in the trust
fund. In some cases, the borrower may even be
entitled to a refund of amounts previously paid.
The loans held in the trust fund may also be
subject to certain federal laws, including:
the Federal Truth in Lending Act and its
regulations, which require disclosures to the
borrowers regarding the terms of any mortgage
loan;
the Equal Credit Opportunity Act and its
regulations, which prohibit discrimination in
the extension of credit on the basis of age,
race, color, sex, religion, marital status,
national origin, receipt of public assistance,
or the exercise of any right under the
Consumer Credit Protection Act; and
the Fair Credit Reporting Act, which regulates
the use and reporting of information related
to the borrowers' credit experience.
Some violations of these federal laws may limit the
ability to collect the principal or interest on the
loans held in the trust fund, and in addition could
subject the trust fund to damages and
administrative enforcement. Losses on loans from
the application of those laws that are not
otherwise covered by a credit enhancement will be
borne by the holders of one or more classes of
certificates.
YOU COULD BE ADVERSELY AFFECTED BY Federal, state, and local laws and regulations
VIOLATIONS OF ENVIRONMENTAL LAWS impose a wide range of requirements on activities
that may affect the environment, health, and
safety. In certain circumstances, these laws and
regulations impose obligations on owners or
operators of residential properties such as those
that secure the loans held in the trust fund.
Failure to comply with these laws and regulations
can
</TABLE>
7
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<S> <C>
result in fines and penalties that could be
assessed against the trust as owner of the related
property.
In some states, a lien on the property due to
contamination has priority over the lien of an
existing mortgage. Also, a mortgage lender may be
held liable as an 'owner' or 'operator' for costs
associated with the release of petroleum from an
underground storage tank under certain
circumstances. If the trust is considered the owner
or operator of a property, it will suffer losses as
a result of any liability imposed for environmental
hazards on the property.
RATINGS OF THE CERTIFICATES DOES NOT Any class of certificates issued under this
ASSURE THEIR PAYMENT prospectus and the accompanying prospectus
supplement will be rated in one of the four highest
rating categories of at least one nationally
recognized rating agency. A rating is based on the
adequacy of the value of the trust assets and any
credit enhancement for that class, and reflects the
rating agency's assessment of how likely it is that
holders of the class of certificates will receive
the payments to which they are entitled. A rating
does not constitute an assessment of how likely it
is that principal prepayments on the underlying
loans will be made, the degree to which the rate of
prepayments might differ from that originally
anticipated, or the likelihood that the
certificates will be redeemed early. A rating is
not a recommendation to purchase, hold, or sell
certificates because it does not address the market
price of the certificates or the suitability of the
certificates for any particular investor.
A rating may not remain in effect for any given
period of time and the rating agency could lower or
withdraw the rating entirely in the future. For
example, the rating agency could lower or withdraw
its rating due to:
a decrease in the adequacy of the value of the
trust assets or any related credit
enhancement,
an adverse change in the financial or other
condition of a credit enhancement provider, or
a change in the rating of the credit
enhancement provider's long-term debt.
The amount, type, and nature of credit enhancement
established for a class of certificates will be
determined on the basis of criteria established by
each rating agency rating classes of the
certificates. These criteria are sometimes based
upon an actuarial analysis of the behavior of
similar loans in a larger group. That analysis is
often the basis upon which each rating agency
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8
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<S> <C>
determines the amount of credit enhancement
required for a class. The historical data
supporting any actuarial analysis may not
accurately reflect future experience, and the data
derived from a large pool of similar loans may not
accurately predict the delinquency, foreclosure, or
loss experience of any particular pool of mortgage
loans. Mortgaged properties may not retain their
values. If residential real estate markets
experience an overall decline in property values
such that the outstanding principal balances of the
loans held in a particular trust fund and any
secondary financing on the related mortgaged
properties become equal to or greater than the
value of the mortgaged properties, the rates of
delinquencies, foreclosures, and losses could be
higher than those now generally experienced in the
mortgage lending industry. In addition, adverse
economic conditions may affect timely payment by
mortgagors on their loans whether or not the
conditions affect real property values and,
accordingly, the rates of delinquencies,
foreclosures, and losses in any trust fund. Losses
from this that are not covered by a credit
enhancement will be borne, at least in part, by the
holders of one or more classes of certificates.
BOOK-ENTRY REGISTRATION Certificates issued in book-entry form may have
Limit on Liquidity only limited liquidity in the resale market, since
investors may be unwilling to purchase certificates
for which they cannot obtain physical instruments.
Limit on Ability to Transfer or Pledge Transactions in book-entry certificates can be
effected only through The Depository Trust Company,
its participating organizations, its indirect
participants, and certain banks. Therefore, your
ability to transfer or pledge certificates issued
in book-entry form may be limited.
Delays in Distributions You may experience some delay in the receipt of
distributions on book-entry certificates since the
distributions will be forwarded by the trustee to
The Depository Trust Company for it to credit the
accounts of its participants. In turn, these
participants will then credit the distributions to
your account either directly or indirectly through
indirect participants.
BANKRUPTCY OR INSOLVENCY MAY AFFECT THE The seller and the depositor will treat the
TIMING AND AMOUNT OF DISTRIBUTIONS ON THE transfer of the loans held in the trust fund by the
CERTIFICATES seller to the depositor as a sale for accounting
purposes. The depositor and the trust fund will
treat the transfer of the loans from the depositor
to the trust fund as a sale for accounting
purposes. If these characterizations are correct,
then if the seller were to become bankrupt, the
loans would not be part of the seller's bankruptcy
estate and would not be available to the seller's
creditors. On the other hand, if the
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seller becomes bankrupt, its bankruptcy trustee or
one of its creditors may attempt to recharacterize
the sale of the loans as a borrowing by the seller,
secured by a pledge of the loans. Presenting this
position to a bankruptcy court could prevent timely
payments on the certificates and even reduce the
payments on the certificates. Similarly, if the
characterizations of the transfers as sales are
correct, then if the depositor were to become
bankrupt, the loans would not be part of the
depositor's bankruptcy estate and would not be
available to the depositor's creditors. On the
other hand, if the depositor becomes bankrupt, its
bankruptcy trustee or one of its creditors may
attempt to recharacterize the sale of the loans as
a borrowing by the depositor, secured by a pledge
of the loans. Presenting this position to a
bankruptcy court could prevent timely payments on
the certificates and even reduce the payments on
the certificates.
If the master servicer becomes bankrupt, the
bankruptcy trustee may have the power to prevent
the appointment of a successor master servicer. The
period during which cash collections may be
commingled with the master servicer's own funds
before each distribution date for certificates will
be specified in the applicable prospectus
supplement. If the master servicer becomes bankrupt
and cash collections have been commingled with the
master servicer's own funds for at least ten days,
the trust fund will likely not have a perfected
interest in those collections. In this case the
trust might be an unsecured creditor of the master
servicer as to the commingled funds and could
recover only its share as a general creditor, which
might be nothing. Collections commingled less than
ten days but still in an account of the master
servicer might also be included in the bankruptcy
estate of the master servicer even though the trust
may have a perfected security interest in them.
Their inclusion in the bankruptcy estate of the
master servicer may result in delays in payment and
failure to pay amounts due on the certificates.
Federal and state statutory provisions affording
protection or relief to distressed borrowers may
affect the ability of the secured mortgage lender
to realize upon its security in other situations as
well. For example, in a proceeding under the
federal Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of
the bankruptcy court. And in certain instances a
bankruptcy court may allow a borrower to reduce the
monthly payments, change the rate of interest, and
alter the mortgage loan repayment schedule for
under
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collateralized mortgage loans. The effect of these
types of proceedings can be to cause delays in
receiving payments on the loans underlying
certificates and even to reduce the aggregate
amount of payments on the loans underlying
certificates.
Certain capitalized terms are used in this
prospectus to assist you in understanding the terms
of the certificates. The capitalized terms used in
this prospectus are defined on the pages indicated
under the caption 'Index to Defined Terms'
beginning on page 109.
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THE TRUST FUND*
This prospectus relates to Mortgage Pass-Through Certificates, which may be
sold from time to time in one or more series by the depositor, IndyMac MBS,
Inc., on terms determined at the time of sale and described in this prospectus
and the related prospectus supplement. Each series will be issued under a
separate pooling and servicing agreement to be entered into with respect to each
series. The certificates of a series will evidence beneficial ownership of a
trust fund. The trust fund for a series of certificates will include certain
mortgage related assets (the 'Mortgage Assets') consisting of
a pool of first lien mortgage loans (or participation interests in them)
secured by one- to four-family residential properties,
mortgage pass-through securities (the 'Agency Securities') issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac or
other mortgage pass-through certificates or collateralized mortgage
obligations (the 'Private Mortgage-Backed Securities') evidencing an
interest in, or secured by, mortgage loans of the type that would
otherwise be eligible to be mortgage loans.
The Mortgage Assets will be acquired by the depositor, either directly or
indirectly, from one or more institutions, which may be affiliates of the
depositor, and conveyed by the depositor to the related trust fund. The trustee
for each series of certificates will be specified in the related prospectus
supplement. See 'The Pooling and Servicing Agreement' for a description of the
trustee's rights and obligations. The entity or entities named as master
servicer in the related prospectus supplement, which may be an affiliate of the
depositor. See 'The Pooling and Servicing Agreement -- Certain Matters Regarding
the Master Servicer and the Depositor.' The mortgage loans will be secured by
first mortgage liens on one- to four-family residential properties and, if so
specified in the related prospectus supplement, may include cooperative
apartment loans secured by security interests in shares issued by private,
nonprofit, cooperative housing corporations and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. In addition, the Mortgage Assets
of the related trust fund may include mortgage participation certificates
evidencing interests in mortgage loans. The mortgage loans may be conventional
loans (i.e., loans that are not insured or guaranteed by any governmental
agency), insured by the FHA or partially guaranteed by the VA as specified in
the related prospectus supplement. All or a portion of the mortgage loans in a
mortgage pool may be insured by FHA insurance and may be partially guaranteed by
the VA.
The certificates will be entitled to payment from the assets of the related
trust fund or other assets pledged for the benefit of the holders of the
certificates as specified in the related prospectus supplement and will not be
entitled to payments in respect of the assets of any other trust fund
established by the depositor. The applicable prospectus supplement may specify
the Mortgage Assets that a trust fund will consist of, but if it does not, the
Mortgage Assets of any trust fund will consist of mortgage loans, Agency
Securities or Private Mortgage-Backed Securities but not a combination of them.
Mortgage loans acquired by the depositor will have been originated in accordance
with the underwriting criteria specified below under 'Mortgage
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* Whenever the terms mortgage pool and certificates are used in this prospectus,
those terms will be considered to apply, unless the context indicates
otherwise, to one specific mortgage pool and the certificates representing
certain undivided interests in a single trust fund consisting primarily of the
Mortgage Assets in the mortgage pool. Similarly, the term pass-through rate
will refer to the pass- through rate borne by the certificates of one specific
series and the term trust fund will refer to one specific trust fund.
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Loan Program -- Underwriting Standards' or as otherwise described in a related
prospectus supplement.
The following is a brief description of the Mortgage Assets expected to be
included in the trust funds. If specific information about the Mortgage Assets
is not known at the time the related series of certificates initially is
offered, more general information of the nature described below will be provided
in the related prospectus supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the SEC within fifteen days after the
initial issuance of the certificates. A maximum of 5% of the Mortgage Assets as
they will be constituted at the time that the applicable detailed description of
Mortgage Assets is filed will deviate in any material respect from the Mortgage
Asset pool characteristics described in the related prospectus supplement, other
than the aggregate number or amount of mortgage loans. A schedule of the
Mortgage Assets relating to the series will be attached to the pooling and
servicing agreement delivered to the trustee upon delivery of the certificates.
THE MORTGAGE LOANS -- GENERAL
The real property that secures repayment of the mortgage loans is referred
to collectively as mortgaged properties. The mortgaged properties will be
located in any one of the fifty states, the District of Columbia, Guam, Puerto
Rico or any other territory of the United States. Mortgage loans with certain
Loan-to-Value Ratios or certain principal balances or both may be covered wholly
or partially by primary mortgage guaranty insurance policies. The existence,
extent and duration of coverage will be described in the applicable prospectus
supplement.
The applicable prospectus supplement may specify the day on which monthly
payments on the mortgage loans in a mortgage pool will be due, but if it does
not, all of the mortgage loans in a mortgage pool will have monthly payments due
on the first day of each month. The payment terms of the mortgage loans to be
included in a trust fund will be described in the related prospectus supplement
and may include any of the following features or combination thereof or other
features described in the related prospectus supplement:
Interest may be payable at a fixed rate, a rate adjustable from time to
time in relation to an index (which will be specified in the related
prospectus supplement), a rate that is fixed for a period of time or under
certain circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate may be
subject to periodic limitations, maximum rates, minimum rates or a
combination of the limitations. Accrued interest may be deferred and added
to the principal of a loan for the periods and under the circumstances as
may be specified in the related prospectus supplement.
Principal may be payable on a level debt service basis to fully amortize
the mortgage loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from
the interest rate specified in its mortgage note or may not be amortized
during all or a portion of the original term. Payment of all or a
substantial portion of the principal may be due on maturity, called
balloon payments. Principal may include interest that has been deferred
and added to the principal balance of the mortgage loan.
Monthly payments of principal and interest may be fixed for the life of
the mortgage loan, may increase over a specified period of time or may
change from period to period. The terms of a mortgage loan may include
limits on periodic increases or decreases in the amount of monthly
payments and may include maximum or minimum amounts of monthly payments.
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The mortgage loans generally may be prepaid at any time without the
payment of any prepayment fee. If so specified in the related prospectus
supplement, some prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the mortgage loan or may decline
over time, and may be prohibited for the life of the mortgage loan or for
certain periods, which are called lockout periods. Certain mortgage loans
may permit prepayments after expiration of the applicable lockout period
and may require the payment of a prepayment fee in connection with any
subsequent prepayment. Other mortgage loans may permit prepayments without
payment of a fee unless the prepayment occurs during specified time
periods. The loans may include 'due-on-sale' clauses that permit the
mortgagee to demand payment of the entire mortgage loan in connection with
the sale or certain transfers of the related mortgaged property. Other
mortgage loans may be assumable by persons meeting the then applicable
underwriting standards of the seller.
A trust fund may contain buydown loans that include provisions whereby a
third party partially subsidizes the monthly payments of the obligors on the
mortgage loans during the early years of the mortgage loans, the difference to
be made up from a buydown fund contributed by the third party at the time of
origination of the mortgage loan. A buydown fund will be in an amount equal
either to the discounted value or full aggregate amount of future payment
subsidies. Thereafter, buydown funds are applied to the applicable mortgage loan
upon receipt by the master servicer of the mortgagor's portion of the monthly
payment on the mortgage loan. The master servicer administers the buydown fund
to ensure that the monthly allocation from the buydown fund combined with the
monthly payment received from the mortgagor equals the scheduled monthly payment
on the applicable mortgage loan. The underlying assumption of buydown plans is
that the income of the mortgagor will increase during the buydown period as a
result of normal increases in compensation and inflation, so that the mortgagor
will be able to meet the full mortgage payments at the end of the buydown
period. To the extent that this assumption as to increased income is not
fulfilled, the possibility of defaults on buydown loans is increased. The
related prospectus supplement will contain information with respect to any
Buydown Loan concerning limitations on the interest rate paid by the mortgagor
initially, on annual increases in the interest rate and on the length of the
buydown period.
Each prospectus supplement will contain information, as of the date of the
prospectus supplement and to the extent then specifically known to the
depositor, with respect to the mortgage loans contained in the related mortgage
pool, including
the aggregate outstanding principal balance and the average outstanding
principal balance of the mortgage loans as of the first day of the month
of issuance of the related series of certificates or another date
specified in the related prospectus supplement called a cut-off date,
the type of property securing the mortgage loans (e.g., separate
residential properties, individual units in condominium apartment
buildings or in buildings owned by cooperatives, vacation and second
homes),
the original terms to maturity of the mortgage loans,
the largest principal balance and the smallest principal balance of any of
the mortgage loans,
the earliest origination date and latest maturity date of any of the
mortgage loans,
the aggregate principal balance of mortgage loans having Loan-to-Value
Ratios at origination exceeding 80%,
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the maximum and minimum per annum mortgage rates and
the geographical distribution of the mortgage loans. If specific
information respecting the mortgage loans is not known to the depositor at
the time the related certificates are initially offered, more general
information of the nature described above will be provided in the detailed
description of Mortgage Assets.
The 'Loan-to-Value Ratio' of a mortgage loan at any given time is the
fraction, expressed as a percentage, the numerator of which is the original
principal balance of the related mortgage loan and the denominator of which is
the collateral value of the related mortgaged property. The applicable
prospectus supplement may specify how the collateral value of a mortgaged
property will be calculated, but if it does not, the collateral value of a
mortgaged property is the lesser of the sales price for the property and the
appraised value determined in an appraisal obtained by the originator at
origination of the mortgage loan.
No assurance can be given that values of the mortgaged properties have
remained or will remain at their levels on the dates of origination of the
related mortgage loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the mortgage loans, and any secondary financing on the mortgaged
properties, in a particular mortgage pool become equal to or greater than the
value of the mortgaged properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest on
the mortgage loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any mortgage pool. To the extent that
the losses are not covered by subordination provisions or alternative
arrangements, the losses will be borne, at least in part, by the holders of the
certificates of the related series.
The depositor will cause the mortgage loans comprising each mortgage pool
to be assigned to the trustee named in the related prospectus supplement for the
benefit of the certificateholders of the related series. The master servicer
named in the related prospectus supplement will service the mortgage loans,
either directly or through sub-servicers, pursuant to the pooling and servicing
agreement, and will receive a fee for its services. See 'Mortgage Loan Program'
and 'The Pooling and Servicing Agreement.' With respect to mortgage loans
serviced by the master servicer through a sub-servicer, the master servicer will
remain liable for its servicing obligations under the related pooling and
servicing agreement as if the master servicer alone were servicing the mortgage
loans.
The applicable prospectus supplement may provide for additional obligations
of the depositor, but if it does not, the only obligations of the depositor with
respect to a series of certificates will be to obtain certain representations
and warranties from the sellers and to assign to the trustee for the series of
certificates the depositor's rights with respect to the representations and
warranties. See 'The Pooling and Servicing Agreement -- Assignment of Mortgage
Assets.' The obligations of the master servicer with respect to the mortgage
loans will consist principally of its contractual servicing obligations under
the related pooling and servicing agreement (including its obligation to enforce
the obligations of the sub-servicers or sellers, or both, as more fully
described under 'Mortgage Loan Program -- Representations by Sellers;
Repurchases' and its obligation to make cash advances upon delinquencies in
payments on or with respect to the mortgage loans in the amounts described under
'Description of the Certificates -- Advances.' The obligations of the master
servicer to make advances may be subject to limitations, to the extent provided
in this prospectus and in the related prospectus
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supplement. The master servicer may also be a seller in which case a breach of
its obligations in one capacity will not constitute a breach of its obligations
in the other capacity.
The mortgage loans will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first liens on
one- to four-family residential properties and, if so specified in the related
prospectus supplement, may include cooperative apartment loans secured by
security interests in shares issued by private, non-profit, cooperative housing
corporations and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the cooperatives'
buildings. In addition, Mortgage Assets of the related trust fund may include
mortgage participation certificates evidencing interests in mortgage loans.
These loans may be conventional loans (i.e., loans that are not insured or
guaranteed by any governmental agency) or loans insured by the FHA or partially
guaranteed by the VA, as specified in the related prospectus supplement. The
mortgaged properties relating to mortgage loans will consist of detached or
semi-detached one-family dwelling units, two- to four-family dwelling units,
townhouses, rowhouses, individual condominium units, individual units in planned
unit developments and certain other dwelling units. The mortgaged properties may
include vacation and second homes, investment properties and leasehold
interests. In the case of leasehold interests, the applicable prospectus
supplement may specify that the term of the leasehold may be less than five
years beyond the scheduled maturity of the mortgage loan, but if it does not,
the term of the leasehold will exceed the scheduled maturity of the mortgage
loan by at least five years.
AGENCY SECURITIES
Government National Mortgage Association. Ginnie Mae is a wholly-owned
corporate instrumentality of the United States with the United States Department
of Housing and Urban Development. Section 306(g) of Title II of the National
Housing Act of 1934, as amended, authorizes Ginnie Mae to guarantee the timely
payment of the principal of and interest on certificates that represent an
interest in a pool of mortgage loans insured by the FHA under the National
Housing Act of 1934 or Title V of the Housing Act of 1949, or partially
guaranteed by the VA under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code.
Section 306(g) of the National Housing Act of 1934 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.' In
order to meet its obligations under that guaranty, Ginnie Mae may, under Section
306(d) of the National Housing Act of 1934, borrow from the United States
Treasury in an unlimited amount which is at any time sufficient to enable Ginnie
Mae to perform its obligations under its guarantee.
Ginnie Mae Certificates. Each Ginnie Mae certificate held in a trust fund
will be a 'fully modified pass-through' mortgage backed certificate issued and
serviced by a Ginnie Mae issuer approved by Ginnie Mae or by Fannie Mae as a
seller-servicer of FHA loans or VA loans. The Ginnie Mae certificates may be
issued under either the Ginnie Mae I program or the Ginnie Mae II program. The
mortgage loans underlying the Ginnie Mae certificates will consist of FHA loans
or VA loans. Each mortgage loan is secured by a one- to four-family or
multifamily residential property. Ginnie Mae will approve the issuance of each
Ginnie Mae certificate in accordance with a guaranty agreement between Ginnie
Mae and the Ginnie Mae issuer. Pursuant to its guaranty agreement, a Ginnie Mae
issuer will be required to advance its own funds in order to make timely
payments of all amounts due on each Ginnie Mae certificate if the payments
received by the Ginnie Mae issuer on the FHA loans or VA loans underlying each
Ginnie Mae certificate are less than the amounts due on each Ginnie Mae
certificate.
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The full and timely payment of principal of and interest on each Ginnie Mae
certificate will be guaranteed by Ginnie Mae, which obligation is backed by the
full faith and credit of the United States. Each Ginnie Mae certificate will
have an original maturity of not more than 30 years (but may have original
maturities of substantially less than 30 years). Each Ginnie Mae certificate
will be based on and backed by a pool of FHA loans or VA loans secured by one to
four-family residential properties and will provide for the payment by or on
behalf of the Ginnie Mae issuer to the registered holder of the Ginnie Mae
certificate of scheduled monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA loan or VA loan underlying
the Ginnie Mae certificate, less the applicable servicing and guaranty fee,
which together equal the difference between the interest on the FHA loan or VA
loan and the pass-through rate on the Ginnie Mae certificate. In addition, each
payment will include proportionate pass-through payments of any prepayments of
principal on the FHA loans or VA loans underlying the Ginnie Mae certificate and
liquidation proceeds upon a foreclosure or other disposition of the FHA loans or
VA loans.
If a Ginnie Mae issuer is unable to make the payments on a Ginnie Mae
certificate as it becomes due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make the payment. Upon notification and request, Ginnie Mae will
make the payments directly to the registered holder of the Ginnie Mae
certificate. If no payment is made by a Ginnie Mae issuer and the Ginnie Mae
issuer fails to notify and request Ginnie Mae to make the payment, the holder of
the Ginnie Mae certificate will have recourse only against Ginnie Mae to obtain
the payment. The trustee or its nominee, as registered holder of the Ginnie Mae
certificates held in a trust fund, will have the right to proceed directly
against Ginnie Mae under the terms of the guaranty agreements relating to the
Ginnie Mae certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular Ginnie Mae I certificate must
have the same interest rate over the term of the loan, except in pools of
mortgage loans secured by manufactured homes. The interest rate on the Ginnie
Mae I certificate will equal the interest rate on the mortgage loans included in
the pool of mortgage loans underlying the Ginnie Mae I certificate, less
one-half percentage point per annum of the unpaid principal balance of the
mortgage loans.
Mortgage loans underlying a particular Ginnie Mae II certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each Ginnie Mae II certificate will be between one
half percentage point and one and one-half percentage points lower than the
highest interest rate on the mortgage loans included in the pool of mortgage
loans underlying the Ginnie Mae II certificate, except for pools of mortgage
loans secured by manufactured homes.
Regular monthly installment payments on each Ginnie Mae certificate held in
a trust fund will be comprised of interest due as specified on the Ginnie Mae
certificate plus the scheduled principal payments on the FHA loans or VA loans
underlying the Ginnie Mae certificate due on the first day of the month in which
the scheduled monthly installments on the Ginnie Mae certificate are due. The
regular monthly installments on each Ginnie Mae certificate are required to be
paid to the trustee as registered holder by the 15th day of each month in the
case of a Ginnie Mae I certificate and are required to be mailed to the trustee
by the 20th day of each month in the case of a Ginnie Mae II certificate. Any
principal prepayments on any FHA loans or VA loans underlying a Ginnie Mae
certificate held in a trust fund or any other early recovery of principal on the
loans will be passed through to the trustee as the registered holder of the
Ginnie Mae certificate.
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Ginnie Mae certificates may be backed by graduated payment mortgage loans
or by buydown loans for which funds will have been provided (and deposited into
escrow accounts) for application to the payment of a portion of the borrowers'
monthly payments during the early years of the mortgage loan. Payments due the
registered holders of Ginnie Mae certificates backed by pools containing buydown
loans will be computed in the same manner as payments derived from other Ginnie
Mae certificates and will include amounts to be collected from both the borrower
and the related escrow account. The graduated payment mortgage loans will
provide for graduated interest payments that, during the early years of the
mortgage loans, will be less than the amount of stated interest on the mortgage
loans. The interest not so paid will be added to the principal of the graduated
payment mortgage loans and, together with interest on them, will be paid in
subsequent years. The obligations of Ginnie Mae and of a Ginnie Mae issuer will
be the same irrespective of whether the Ginnie Mae certificates are backed by
graduated payment mortgage loans or buydown loans. No statistics comparable to
the FHA's prepayment experience on level payment, non-buydown mortgage loans are
available for graduated payment or buydown loans. Ginnie Mae certificates
related to a series of certificates may be held in book-entry form.
The Ginnie Mae certificates included in a trust fund, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any different characteristics and terms will be described
in the related prospectus supplement.
Federal Home Loan Mortgage Corporation. 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. The common stock of Freddie Mac
is owned by the Federal Home Loan Banks and its preferred stock is owned by
stockholders of the Federal Home Loan Banks. Freddie Mac was established
primarily to increase the availability of mortgage credit to finance urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of Freddie
Mac currently consists of the purchase of first lien conventional mortgage loans
or participation interests in mortgage loans and the sale of the mortgage loans
or participations so purchased in the form of mortgage securities, primarily
mortgage participation certificates issued and either guaranteed as to timely
payment of interest or guaranteed as to timely payment of interest and ultimate
payment of principal by Freddie Mac. Freddie Mac is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
Freddie Mac Certificates. Each Freddie Mac certificate represents an
undivided interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA loans or VA loans. Freddie Mac certificates are sold
under the terms of a Mortgage Participation Certificate Agreement. A Freddie Mac
certificate may be issued under either Freddie Mac's Cash Program or Guarantor
Program.
Mortgage loans underlying the Freddie Mac certificates held by a trust fund
will consist of mortgage loans with original terms to maturity of between 10 and
40 years. Each mortgage loan must meet the applicable standards set forth in the
Emergency Home Finance Act of 1970. A Freddie Mac certificate group may include
whole loans, participation interests in whole loans and undivided interests in
whole loans and participations comprising another Freddie Mac certificate group.
Under the Guarantor Program, a Freddie Mac certificate group may include only
whole loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable certificate
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interest rate on the registered holder's pro rata share of the unpaid principal
balance outstanding on the underlying mortgage loans in the Freddie Mac
certificate group represented by the Freddie Mac certificate, whether or not
received. Freddie Mac also guarantees to each registered holder of a Freddie Mac
certificate collection by the holder of all principal on the underlying mortgage
loans, without any offset or deduction, to the extent of the holder's pro rata
share of it, but does not, except if and to the extent specified in the related
prospectus supplement for a series of certificates, guarantee the timely payment
of scheduled principal. Under Freddie Mac's Gold PC Program, Freddie Mac
guarantees the timely payment of principal based on the difference between the
pool factor published in the month preceding the month of distribution and the
pool factor published in the month of distribution. Pursuant to its guaranties,
Freddie Mac indemnifies holders of Freddie Mac certificates against any
diminution in principal from charges for property repairs, maintenance and
foreclosure. Freddie Mac may remit the amount due on account of its guaranty of
collection of principal at any time after default on an underlying mortgage
loan, but not later than 30 days following foreclosure sale, 30 days following
payment of the claim by any mortgage insurer or 30 days following the expiration
of any right of redemption, whichever occurs later, but in any event no later
than one year after demand has been made upon the mortgagor for accelerated
payment of principal. In taking actions regarding the collection of principal
after default on the mortgage loans underlying Freddie Mac certificates,
including the timing of demand for acceleration, Freddie Mac reserves the right
to exercise its judgment with respect to the mortgage loans in the same manner
as for mortgage loans that it has purchased but not sold. The length of time
necessary for Freddie Mac to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
Freddie Mac has not adopted standards which require that the demand be made
within any specified period.
Freddie Mac certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of Freddie Mac under its
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 the mortgage loans.
Registered holders of Freddie Mac certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial prepayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or their seller. Freddie
Mac is required to remit each registered Freddie Mac certificateholder's pro
rata share of principal payments on the underlying mortgage loans, interest at
the Freddie Mac pass-through rate and any other sums such as prepayment fees,
within 60 days of the date on which the payments are deemed to have been
received by Freddie Mac.
Under Freddie Mac's Cash Program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a Freddie Mac certificate
may exceed the pass-through rate on the Freddie Mac certificate. Under that
program, Freddie Mac purchases groups of whole mortgage loans from sellers at
specified percentages of their unpaid principal balances, adjusted for accrued
or prepaid interest, which when applied to the interest rate of the mortgage
loans and participations purchased results in the yield required by Freddie Mac.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance. The range of
interest rates on the mortgage loans and
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participations in a Freddie Mac certificate group under the Cash Program will
vary since mortgage loans and participations are purchased and assigned to a
Freddie Mac certificate group based upon their yield to Freddie Mac rather than
on the interest rate on the underlying mortgage loans. Under Freddie Mac's
Guarantor Program, the pass-through rate on a Freddie Mac certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of Freddie Mac's management
and guaranty income as agreed upon between the seller and Freddie Mac.
Freddie Mac certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a Freddie Mac
certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the Freddie Mac certificate. Thereafter, the remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts for Freddie Mac certificates sold by Freddie Mac on or after
January 2, 1985, and makes payments of principal and interest each month to
their registered holders in accordance with the holders' instructions.
Federal National Mortgage Association. 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, thereby replenishing their funds for additional
lending. Fannie Mae acquires funds to purchase mortgage loans from many capital
market investors that may not ordinarily invest in mortgages, thereby expanding
the total amount of funds available for housing. Operating nationwide, Fannie
Mae helps to redistribute mortgage funds from capital-surplus to capital-short
areas.
Fannie Mae Certificates. These are guaranteed mortgage pass-through
certificates issued and guaranteed as to timely payment of principal and
interest by Fannie Mae representing fractional undivided interests in a pool of
mortgage loans formed by Fannie Mae. Each mortgage loan must meet the applicable
standards of the Fannie Mae purchase program. Mortgage loans comprising a pool
are either provided by Fannie Mae from its own portfolio or purchased pursuant
to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae certificates held by a trust fund will
consist of conventional mortgage loans, FHA loans or VA loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae certificate are expected to be between either 8 to
15 years or 20 to 40 years. The original maturities of substantially all of the
fixed rate, level payment FHA loans or VA loans are expected to be 30 years.
Mortgage loans underlying a Fannie Mae certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate of
interest payable on a Fannie Mae certificate is equal to the lowest interest
rate of any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and Fannie Mae's guaranty fee.
Under a regular servicing option, the annual interest rates on the mortgage
loans underlying a Fannie Mae certificate will be between 50 basis points and
250 basis points greater than is its annual pass through rate. Under this option
the mortgagee or each other servicer assumes the entire risk of foreclosure
losses. Under a special servicing option, the annual
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interest rates on the mortgage loans underlying a Fannie Mae certificate will
generally be between 55 basis points and 255 basis points greater than the
annual Fannie Mae certificate pass-through rate. Under this option Fannie Mae
assumes the entire risk for foreclosure losses. If specified in the related
prospectus supplement, Fannie Mae certificates may be backed by adjustable rate
mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae certificate
that it will distribute amounts representing the holder's proportionate share of
scheduled principal and interest payments at the applicable pass through rate
provided for by the Fannie Mae certificate on the underlying mortgage loans,
whether or not received, and the holder's proportionate share of the full
principal amount of any foreclosed or other finally liquidated mortgage loan,
whether or not the principal amount is actually recovered. The obligations of
Fannie Mae under its guaranties are obligations solely of Fannie Mae and are not
backed by, or entitled to, the full faith and credit of the United States.
Although the Secretary of the Treasury of the United States has discretionary
authority to lend Fannie Mae up to $2.25 billion outstanding at any time,
neither the United States nor any of its agencies is obligated to finance Fannie
Mae's operations or to assist Fannie Mae in any other manner. If Fannie Mae were
unable to satisfy its obligations, distributions to holders of Fannie Mae
certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Fannie Mae certificates would be affected by delinquent payments and defaults on
the mortgage loans.
Except for Fannie Mae certificates backed by pools containing graduated
payment mortgage loans or mortgage loans secured by multifamily projects, Fannie
Mae certificates evidencing interests in pools of mortgage loans formed on or
after May 1, 1985 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 as of the close of business on the last
day of the preceding month. Distributions on Fannie Mae certificates issued in
book-entry form will be made by wire. Distributions on fully registered Fannie
Mae certificates will be made by check.
The Fannie Mae certificates included in a trust fund, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any different characteristics and terms will be described
in the related prospectus supplement.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described in this
prospectus and in the related prospectus supplement. Each Agency Security will
represent an undivided interest in all or part of either the principal
distributions (but not the interest distributions) or the interest distributions
(but not the principal distributions), or in some specified portion of the
principal and interest distributions (but not all the distributions) on certain
Freddie Mac, Fannie Mae or Ginnie Mae certificates. The underlying securities
will be held under a trust agreement by Freddie Mac, Fannie Mae or Ginnie Mae,
each as trustee, or by another trustee named in the related prospectus
supplement. The applicable prospectus supplement may specify that Freddie Mac,
Fannie Mae or Ginnie Mae will not guarantee each stripped Agency Security to the
same extent it guarantees the underlying securities backing the stripped Agency
Security, but if it does not, then Freddie Mac, Fannie Mae or Ginnie Mae will
guarantee each stripped Agency Security to the same extent it guarantees the
underlying securities backing the stripped Agency Security.
Other Agency Securities. If specified in the related prospectus supplement,
a trust fund may include other mortgage pass-through certificates issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. The characteristics of
those mortgage pass-through certificates will be
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described in the prospectus supplement. If so specified, a combination of
different types of Agency Securities may be held in a trust fund.
PRIVATE MORTGAGE-BACKED SECURITIES
Private Mortgage-Backed Securities may consist of mortgage pass-through
certificates or participation certificates evidencing an undivided interest in a
pool of mortgage loans or collateralized mortgage obligations secured by
mortgage loans. Private Mortgage-Backed Securities may include stripped
mortgage-backed securities representing an undivided interest in all or a part
of either the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all the
distributions) on certain mortgage loans. Private Mortgage-Backed Securities
will have been issued pursuant to a pooling and servicing agreement, an
indenture or similar agreement. The applicable prospectus supplement may provide
that the seller/servicer of the underlying mortgage loans will not have entered
into a pooling and servicing agreement with a private trustee, but if it does
not, the seller/servicer of the underlying mortgage loans will have entered into
the pooling and servicing agreement with a private trustee. The private trustee
or its agent, or a custodian, will possess the mortgage loans underlying the
Private Mortgage-Backed Security. Mortgage loans underlying a Private
Mortgage-Backed Security will be serviced by a private servicer directly or by
one or more subservicers who may be subject to the supervision of the private
servicer.
The issuer of the Private Mortgage-Backed Securities will be a financial
institution or other entity engaged generally in the business of mortgage
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 housing loans to the
trusts and selling beneficial interests in the trusts. If so specified in the
related prospectus supplement, the issuer of Private Mortgage-Backed Securities
may be an affiliate of the depositor. The obligations of the issuer of Private
Mortgage-Backed Securities will generally be limited to certain representations
and warranties with respect to the assets conveyed by it to the related trust
fund. The issuer of Private Mortgage-Backed Securities will not have guaranteed
any of the assets conveyed to the related trust fund or any of the Private
Mortgage-Backed Securities issued under the pooling and servicing agreement.
Additionally, although the mortgage loans underlying the Private Mortgage-Backed
Securities may be guaranteed by an agency or instrumentality of the United
States, the Private Mortgage-Backed Securities themselves will not be so
guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related prospectus
supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the private trustee or the private servicer. The issuer of Private
Mortgage-Backed Securities or the private servicer may have the right to
repurchase assets underlying the Private Mortgage-Backed Securities after a
certain date or under other circumstances specified in the related prospectus
supplement.
The mortgage loans underlying the Private Mortgage-Backed Securities may
consist of fixed rate, level payment, fully amortizing loans or graduated
payment mortgage loans, buydown loans, adjustable rate mortgage loans or loans
having balloon or other special payment features. The mortgage loans may be
secured by single family property or multifamily property or by an assignment of
the proprietary lease or occupancy agreement relating to a specific dwelling
within a cooperative and the related shares issued by the cooperative.
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The prospectus supplement for a series for which the trust fund includes
Private Mortgage-Backed Securities will specify
the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the trust fund;
certain characteristics of the mortgage loans that comprise the underlying
assets for the Private Mortgage-Backed Securities including
the payment features of the mortgage loans,
the approximate aggregate principal balance, if known, of underlying
mortgage loans insured or guaranteed by a governmental entity,
the servicing fee or range of servicing fees with respect to the
mortgage loans and
the minimum and maximum stated maturities of the underlying mortgage
loans at origination;
the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities;
the weighted average term-to stated maturity of the Private
Mortgage-Backed Securities;
the pass-through or certificate rate of the Private Mortgage-Backed
Securities;
the weighted average pass-through or certificate rate of the Private
Mortgage-Backed Securities;
the issuer of Private Mortgage-Backed Securities, the private servicer (if
other than the issuer of Private Mortgage-Backed Securities) and the
private trustee for the Private Mortgage-Backed Securities;
certain characteristics of credit support, if any, the as reserve funds,
insurance policies, surety bonds, letters of credit or guaranties relating
to the mortgage loans underlying the Private Mortgage-Backed Securities or
to the Private Mortgage-Backed Securities themselves;
the terms on which the underlying mortgage loans for the Private
Mortgage-Backed Securities may, or are required to, be purchased before
their stated maturity or the stated maturity of the Private
Mortgage-Backed Securities; and
the terms on which mortgage loans may be substituted for those originally
underlying the Private Mortgage-Backed Securities.
Private Mortgage-Backed Securities included in the trust fund for a series
of certificates that were issued by an issuer of Private Mortgage-Backed
Securities that is not affiliated with the depositor must be acquired in bona
fide secondary market transactions or either have been previously registered
under the Securities Act of 1933 or have been held for at least the holding
period required to be eligible for sale under Rule 144(k) under the Securities
Act of 1933.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted upon breaches of
representations and warranties with respect to any original Mortgage Asset or if
the documentation with respect to any Mortgage Asset is determined by the
trustee to be incomplete. The period during which the substitution will be
permitted generally will be indicated in the related prospectus supplement. The
related prospectus supplement will describe any other conditions upon which
Mortgage Assets may be substituted for Mortgage Assets initially included in the
trust fund.
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AVAILABLE INFORMATION
The depositor has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, covering the certificates. This prospectus,
which forms a part of the Registration Statement, and the prospectus supplement
relating to each series of certificates contain summaries of the material terms
of the documents referred to in this prospectus and in the prospectus
supplement, but do not contain all of the information in the Registration
Statement pursuant to the rules and regulations of the SEC. For further
information, reference is made to the Registration Statement and its exhibits.
The Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at its
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices located as follows: Chicago Regional Office, 500 West
Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven
World Trade Center, New York, New York 10048. You may obtain information on the
operation of the Public Reference Room by calling the SEC a 1-800-SEC-0330. The
SEC maintains an Internet Web site that contains reports, information statements
and other information regarding the registrants that file electronically with
the SEC, including the depositor. The address of that Internet Web site is
http://www.sec.gov.
This prospectus and any applicable prospectus supplement do not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the certificates offered by this prospectus and the prospectus supplement nor an
offer of the certificates to any person in any state or other jurisdiction in
which the offer would be unlawful.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed for the trust fund referred to in the accompanying
prospectus supplement after the date of this prospectus and before the end of
the related offering with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, are incorporated by
reference in this prospectus and are a part of this prospectus from the date of
their filing. Any statement contained in a document incorporated by reference in
this prospectus is modified or superseded for all purposes of this prospectus to
the extent that a statement contained in this prospectus (or in the accompanying
prospectus supplement) or in any other subsequently filed document that also is
incorporated by reference differs from that statement. Any statement so modified
or superseded shall not, except as so modified or superseded, constitute a part
of this prospectus.
The trustee on behalf of any trust fund will provide without charge to each
person to whom this prospectus is delivered, on the person's written or oral
request, a copy of any or all of the documents referred to above that have been
or may be incorporated by reference in this prospectus (not including exhibits
to the information that is incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that this prospectus
incorporates). Requests should be directed to the corporate trust office of the
trustee specified in the accompanying prospectus supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will be
applied by the depositor to the purchase of Mortgage Assets or will be used by
the depositor for general corporate purposes. The depositor expects to sell
certificates in series from time to time, but the timing and amount of offerings
of certificates will depend on a number of factors, including the
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volume of Mortgage Assets acquired by the depositor, prevailing interest rates,
availability of funds and general market conditions.
THE DEPOSITOR
IndyMac MBS, Inc., a Delaware corporation, was organized on ,
1999 for the limited purpose of acquiring, owning and transferring Mortgage
Assets and selling interests in them or bonds secured by them. The depositor is
a subsidiary of IndyMac, Inc., a Delaware corporation. The depositor maintains
its principal office at 155 North Lake Avenue, Pasadena, California 91101. Its
telephone number is (800) 669-2300.
Neither the depositor nor any of the depositor's affiliates will ensure or
guarantee distributions on the certificates of any series.
MORTGAGE LOAN PROGRAM
The mortgage loans will have been purchased by the depositor, either
directly or through affiliates, from sellers. The applicable prospectus
supplement may specify the mortgage loans acquired by the depositor will have
been originated the under different criteria than the servicer's underwriting
criteria, but if it does not, the mortgage loans acquired by the depositor will
have been originated in accordance with the underwriting criteria specified
under 'Underwriting Process.'
UNDERWRITING PROCESS
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source, typically the borrower's
employer. The verification reports the length of employment with that
organization, the borrower's current salary and whether it is expected that the
borrower will continue employment in the future. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available to meet monthly housing
expenses and other financial obligations and monthly living expenses and to meet
the borrower's monthly obligations on the proposed mortgage loan (generally
determined on the basis of the monthly payments due in the year of origination)
and other
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expenses related to the mortgaged property such as property taxes and hazard
insurance). The underwriting standards applied by sellers, particularly with
respect to the level of loan documentation and the mortgagor's income and credit
history, may be varied in appropriate cases where factors as low Loan-to-Value
Ratios or other favorable credit factors exist.
In the case of a mortgage loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, the seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least as long as the remaining term on the loan agreement
or promissory note for the mortgage loan.
Certain of the types of mortgage loans that may be included in a trust fund
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of the mortgage loans may
provide for escalating or variable payments by the mortgagor. These types of
mortgage loans are underwritten on the basis of a judgment that the mortgagors
have the ability to make the monthly payments required initially. In some
instances, however, a mortgagor's income may not be sufficient to permit
continued loan payments as the payments increase. These types of mortgage loans
may also be underwritten primarily on the basis of Loan-to-Value Ratios or other
favorable credit factors.
QUALIFICATIONS OF SELLERS
Each seller must be an institution experienced in originating and servicing
mortgage loans of the type contained in the related mortgage pool and must
maintain satisfactory facilities to originate and service those mortgage loans.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each seller will have made representations and warranties in respect of the
mortgage loans sold by it and evidenced by a series of certificates. The
applicable prospectus supplement may specify the different representations and
warranties, but if it does not, the representations and warranties will
generally include, among other things:
that title insurance (or in the case of mortgaged properties located in
areas where title insurance policies are generally not available, an
attorney's certificate of title) and any required hazard insurance policy
and primary mortgage insurance policy were effective at the origination of
each mortgage loan other than cooperative loans, and that each policy (or
certificate of title as applicable) remained in effect on the date of
purchase of the mortgage loan from the seller by or on behalf of the
depositor;
that the seller had good title to each mortgage loan and the mortgage loan
was subject to no valid offsets, defenses, counterclaims or rights of
rescission except to the extent that any buydown agreement described in
this prospectus may forgive certain indebtedness of a mortgagor;
that each mortgage loan constituted a valid first lien on, or a first
perfected security interest with respect to, the mortgaged property
(subject only to permissible title insurance exceptions, if applicable,
and certain other exceptions described in the pooling and servicing
agreement);
that there were no delinquent tax or assessment liens against the
mortgaged property; and
that each mortgage loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws and regulations in all
material respects.
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In addition, if any required payment on a mortgage loan was more than 31
days delinquent at any time during the twelve months before the cut-off date,
the related prospectus supplement shall so indicate.
As to any mortgage loan insured by the FHA or partially guaranteed by the
VA, the seller will represent that it has complied with underwriting policies of
the FHA or the VA, as the case may be.
As indicated in the related pooling and servicing agreement, the
representations and warranties of a seller in respect of a mortgage loan will be
made as of the date of initial issuance of the series of certificates, the
related cut-off date, the date on which the seller sold the mortgage loan to the
depositor or one of its affiliates, or the date of origination of the related
mortgage loan, as the case may be. If representations and warranties are made as
of a date other than the closing date or cut-off date, a substantial period of
time may have elapsed between the other date and the date of initial issuance of
the series of certificates evidencing an interest in the mortgage loan. Since
the representations and warranties of a seller do not address events that may
occur following the sale of a mortgage loan by the seller or following the
origination of the mortgage loan, as the case may be, its repurchase obligation
will not arise if the relevant event that would otherwise have given rise to a
repurchase obligation with respect to a mortgage loan occurs after the date of
sale of the mortgage loan by the seller to the depositor or its affiliates or
after the origination of the mortgage loan, as the case may be. In addition,
certain representations, including the condition of the related mortgaged
property, will be limited to the extent the seller has knowledge and the seller
will be under no obligation to investigate the substance of the representation.
However, the depositor will not include any mortgage loan in the trust fund for
any series of certificates if anything has come to the depositor's attention
that would cause it to believe that the representations and warranties of a
seller will not be accurate and complete in all material respects in respect of
the mortgage loan as of the date of initial issuance of the related series of
certificates. If the master servicer is also a seller of mortgage loans with
respect to a particular series, the representations will be in addition to the
representations and warranties made by the master servicer in its capacity as
the master servicer.
The trustee, if the master servicer is the seller, or the master servicer
will promptly notify the relevant seller of any breach of any representation or
warranty made by it in respect of a mortgage loan that materially and adversely
affects the interests of the certificateholders in the mortgage loan. The
applicable prospectus supplement may specify that the seller has a different
repurchase obligation, but if it does not, then if the seller cannot cure the
breach within 90 days after notice from the master servicer or the trustee, as
the case may be, then the seller will be obligated to repurchase the mortgage
loan from the trust fund at a price equal to 100% of the outstanding principal
balance of the mortgage as of the date of the repurchase plus accrued interest
on it to the first day of the month in which the purchase price is to be
distributed at the mortgage rate, less any unreimbursed advances or amount
payable as related servicing compensation if the seller is the master servicer
with respect to the mortgage loan. If an election is to be made to treat a trust
fund or designated portions of it as a 'real estate mortgage investment conduit'
as defined in the Internal Revenue Code of 1986, as amended (the 'Code'), the
master servicer or a holder of the related residual certificate will be
obligated to pay any prohibited transaction tax that may arise in connection
with the repurchase. The applicable prospectus supplement may contain different
reimbursement options, but if it does not, the master servicer will be entitled
to reimbursement for that payment from the assets of the related trust fund or
from any holder of the related residual certificate. See 'Description of the
Certificates -- General' and in the related prospectus supplement. Except in
those cases in which the master servicer is the seller, the master servicer will
be required under the applicable pooling and servicing agreement to enforce this
obligation for the benefit of the trustee and the
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certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of the mortgage loan. This repurchase
obligation will constitute the sole remedy available to certificateholders or
the trustee for a breach of representation by a seller.
Neither the depositor nor the master servicer will be obligated to purchase
a mortgage loan if a seller defaults on its obligation to do so, and no
assurance can be given that sellers will carry out their respective repurchase
obligations with respect to mortgage loans. However, to the extent that a breach
of a representation and warranty of a seller may also constitute a breach of a
representation made by the master servicer, the master servicer may have a
repurchase obligation as described under 'The Pooling and Servicing
Agreement -- Assignment of Mortgage Assets.'
DESCRIPTION OF THE CERTIFICATES
The prospectus supplement relating to the certificates of each series to be
offered under this prospectus will, among other things, set forth for the
certificates, as appropriate:
a description of the class or classes of certificates and the rate at
which interest will be passed through to holders of each class of
certificates entitled to interest or the method of determining the amount
of interest, if any, to be passed through to each class;
the initial aggregate certificate balance of each class of certificates
included in the series, the dates on which distributions on the
certificates will be made and, if applicable, the initial and final
scheduled distribution dates for each class;
information as to the assets comprising the trust fund, including the
general characteristics of the Mortgage Assets included in the trust fund
and, if applicable, the insurance, surety bonds, guaranties, letters of
credit or other instruments or agreements included in the trust fund, and
the amount and source of any reserve fund;
the circumstances, if any, under which the trust fund may be subject to
early termination;
the method used to calculate the amount of principal to be distributed
with respect to each class of certificates;
the order of application of distributions to each of the classes within
the series, whether sequential, pro rata, or otherwise;
the distribution dates with respect to the series;
additional information with respect to the plan of distribution of the
certificates;
whether one or more REMIC elections will be made and designation of the
regular interests and residual interests;
the aggregate original percentage ownership interest in the trust fund to
be evidenced by each class of certificates;
information as to the nature and extent of subordination with respect to
any class of certificates that is subordinate in right of payment to any
other class; and
information as to the seller, the master servicer and the trustee.
Each series of certificates will be issued pursuant to an pooling and
servicing agreement, dated as of the related cut-off date, among the depositor,
the master servicer and the trustee for the benefit of the holders of the
certificates of the series. The provisions of each pooling and servicing
agreement will vary depending upon the nature of the certificates to be issued
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thereunder and the nature of the related trust fund. A form of an pooling and
servicing agreement is an exhibit to the Registration Statement of which this
prospectus is a part.
The prospectus supplement for a series of certificates will describe any
provision of the pooling and servicing agreement relating to the series that
materially differs from its description contained in this prospectus. 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 for each series of certificates and the applicable
prospectus supplement. The depositor will provide a copy of the pooling and
servicing agreement (without exhibits) relating to any series without charge
upon written request of a holder of record of a certificate of the series
addressed to IndyMac MBS, Inc., 155 North Lake Avenue, Pasadena, California
91101, Attention: Secretary. The following summaries describe material
provisions that may appear in each pooling and servicing agreement.
GENERAL
The certificates of each series will be issued in either fully registered
or book-entry form in the authorized denominations specified in the related
prospectus supplement, will evidence specified beneficial ownership interests in
the related trust fund created pursuant to the related pooling and servicing
agreement and will not be entitled to payments in respect of the assets included
in any other trust fund established by the depositor. The applicable prospectus
supplement may provide for guarantees by a governmental entity or other person,
but if it does not, the Mortgage Assets will not be insured or guaranteed by any
governmental entity or other person. Each trust fund will consist of, to the
extent provided in the related pooling and servicing agreement,
the Mortgage Assets that from time to time are subject to the related
pooling and servicing agreement (exclusive of any amounts specified in the
related prospectus supplement as a retained interest);
the assets required to be deposited in the related Certificate Account
from time to time;
property that secured a mortgage loan and that is acquired on behalf of
the certificateholders by foreclosure or deed in lieu of foreclosure; and
any primary mortgage insurance policies, FHA insurance and VA guaranties,
and any other insurance policies or other forms of credit enhancement
required to be maintained pursuant to the related pooling and servicing
agreement.
If so specified in the related prospectus supplement, a trust fund may also
include one or more of the following: reinvestment income on payments received
on the Mortgage Assets, a reserve fund, a mortgage pool insurance policy, a
special hazard insurance policy, a bankruptcy bond, one or more letters of
credit, a surety bond, guaranties or similar instruments or other agreements.
Each series of certificates will be issued in one or more classes. Each
class of certificates of a series will evidence beneficial ownership of a
specified percentage or portion of future interest payments and a specified
percentage or portion of future principal payments on the Mortgage Assets in the
related trust fund. These specified percentages may be 0%. A series of
certificates may include one or more classes that are senior in right to payment
to one or more other classes of certificates of the series. Certain series or
classes of certificates may be covered by insurance policies, surety bonds or
other forms of credit enhancement, in each case as described in this prospectus
and in the related prospectus supplement. One or more classes of certificates of
a series may be entitled to receive distributions of principal, interest or any
combination of
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principal and interest. Distributions on one or more classes of a series of
certificates may be made before one or more other classes, after the occurrence
of specified events, in accordance with a schedule or formula, on the basis of
collections from designated portions of the Mortgage Assets in the related trust
fund, or on a different basis, in each case as specified in the related
prospectus supplement. The timing and amounts of the distributions may vary
among classes or over time as specified in the related prospectus supplement.
Distributions of either or both of principal and interest on the related
certificates will be made by the trustee on each distribution date (i.e.,
monthly, quarterly, semi-annually or at other intervals and on the dates
specified in the prospectus supplement) in proportion to the percentages
specified in the related prospectus supplement. Distributions will be made to
the persons in whose names the certificates are registered at the close of
business on the dates specified in the related prospectus supplement.
Distributions will be made by check or money order mailed to the persons
entitled to them at the address appearing in the certificates register
maintained for holders of certificates or, if specified in the related
prospectus supplement, in the case of certificates that are of a certain minimum
denomination, upon written request by the certificateholder, by wire transfer or
by another means described in the prospectus supplement; provided, however, that
the final distribution in retirement of the certificates will be made only upon
presentation and surrender of the certificates at the office or agency of the
trustee or other person specified in the notice to certificateholders of the
final distribution.
The certificates will be freely transferable and exchangeable at the
corporate trust office of the trustee as set forth in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of certificates of any series, but the trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding by or on behalf of any employee
benefit plan or other retirement arrangement subject to provisions of the
Employee Retirement Income Security Act of 1974, as amended, or the Code of
certain classes of certificates may result in 'prohibited transactions' within
the meaning of ERISA and the Code. See 'ERlSA Considerations.' Retirement
arrangements subject to these provisions include individual retirement accounts
and annuities, Keogh plans and collective investment funds in which the plans,
accounts or arrangements are invested. The applicable prospectus supplement may
specify other conditions under which transfers of this type would be permitted,
but if it does not, transfer of the certificates will not be registered unless
the transferee represents that it is not, and is not purchasing on behalf of, a
plan, account or other retirement arrangement or provides an opinion of counsel
satisfactory to the trustee and the depositor that the purchase of the
certificates by or on behalf of a plan, account or other retirement arrangement
is permissible under applicable law and will not subject the trustee, the master
servicer or the depositor to any obligation or liability in addition to those
undertaken in the pooling and servicing agreement.
As to each series, an election may be made to treat the related trust fund
or designated portions of it as a real estate mortgage investment conduit or
REMIC as defined in the Code. The related prospectus supplement will specify
whether a REMIC election is to be made. Alternatively, the pooling and servicing
agreement for a series may provide that a REMIC election may be made at the
discretion of the depositor or the master servicer and may be made only if
certain conditions are satisfied. The terms applicable to the making of a REMIC
election, as well as any material federal income tax consequences to
certificateholders not described in this prospectus, will be set forth in the
related prospectus supplement. If a REMIC an election is made with respect to a
series, one of the classes will be designated as evidencing the sole class of
residual interests in the related REMIC, as defined in the Code. All other
classes of certificates in the series will constitute regular interests in the
related REMIC, as defined in the
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Code. As to each series with respect to which a REMIC election is to be made,
the master servicer or a holder of the related residual certificate will be
obligated to take all actions required to comply with applicable laws and
regulations and will be obligated to pay any prohibited transaction taxes. The
applicable prospectus supplement may restrict the master servicer's
reimbursement rights, but if it does not, the master servicer will be entitled
to reimbursement for that payment from the assets of the trust fund or from any
holder of the related residual certificate.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular series of certificates will depend on the type of credit
support, if any, that is used with respect to the series. See 'Credit
Enhancement' and in the related prospectus supplement. Various methods that may
be used to determine the amount of distributions on the certificates of a
particular series. The prospectus supplement for each series of certificates
will describe the method to be used in determining the amount of distributions
on the certificates of its series.
Distributions allocable to principal of and interest on the certificates
will be made by the trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any reserve
fund. As between certificates of different classes and as between distributions
of principal (and, if applicable, between distributions of principal prepayments
and scheduled payments of principal) and interest, distributions made on any
distribution date will be applied as specified in the related prospectus
supplement. The applicable prospectus supplement may provide for payment
distinctions within classes, but if it does not, distributions to any class of
certificates will be made pro rata to all certificateholders of that class.
Available Funds. All distributions on the certificates of each series on
each distribution date will be made from the Available Funds, in accordance with
the terms described in the related prospectus supplement and specified in the
pooling and servicing agreement. The applicable prospectus supplement may define
Available Funds with reference to different accounts or different amounts, but
if it does not, 'Available Funds' for each distribution date will generally
equal the amount on deposit in the related Certificate Account on the
distribution date (net of related fees and expenses payable by the related trust
fund) other than amounts to be held in the Certificate Account for distribution
on future distribution dates.
Distributions of Interest. Interest will accrue on the aggregate original
balance of the certificates (or, in the case of certificates entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of certificates (the initial 'Class Certificate Balance') entitled to
interest at the pass-through rate (which may be a fixed rate or a rate
adjustable as specified in the prospectus supplement) from the date and for the
periods specified in the prospectus supplement. To the extent funds are
available therefor, interest accrued during each specified period on each class
of certificates entitled to interest (other than a class of certificates that
provides for interest that accrues, but is not currently payable) will be
distributable on the distribution dates specified in the related prospectus
supplement until the Class Certificate Balance of the class has been distributed
in full or, in the case of certificates entitled only to distributions allocable
to interest, until the aggregate notional amount of the certificates is reduced
to zero or for the period of time designated in the related prospectus
supplement. The original certificate balance of each certificate will equal the
aggregate distributions allocable to principal to which the certificate is
entitled. The applicable prospectus supplement may specify some other basis for
these distributions, but if it does not, distributions allocable to interest on
each certificate that is not entitled to distributions allocable to principal
will be calculated based
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on the notional amount of the certificate. The notional amount of a certificate
will not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
With respect to any class of accrual certificates, any interest that has
accrued but is not paid on a given distribution date will be added to the Class
Certificate Balance of the class of certificates on that distribution date. The
applicable prospectus supplement may specify some other basis for these
distributions, but if it does not, distributions of interest on each class of
accrual certificates will commence only after the occurrence of the events
specified in the prospectus supplement and, before that time, the beneficial
ownership interest of the class of accrual certificates in the trust fund, as
reflected in the Class Certificate Balance of the class of accrual certificates,
will increase on each distribution date by the amount of interest that accrued
on the class of accrual certificates during the preceding interest accrual
period but that was not required to be distributed to the class on the
distribution date. The class of accrual certificates will thereafter accrue
interest on its outstanding Class Certificate Balance as so adjusted.
Distributions of Principal. The related prospectus supplement will specify
the method by which the amount of principal to be distributed on the
certificates on each distribution date will be calculated and the manner in
which that amount will be allocated among the classes of certificates entitled
to distributions of principal. The Class Certificate Balance of any class of
certificates entitled to distributions of principal will be the original Class
Certificate Balance of the class of certificates specified in the prospectus
supplement, reduced by all distributions reported to the holders of the
certificates as allocable to principal and in the case of accrual certificates,
unless otherwise specified in the related prospectus supplement, increased by
all interest accrued but not then distributable on the accrual certificates and
in the case of adjustable rate certificates, unless otherwise specified in the
related prospectus supplement, subject to the effect of negative amortization.
The related prospectus supplement will specify the method by which the amount of
principal to be distributed on the certificates on each distribution date will
be calculated and the manner in which that amount will be allocated among the
classes of certificates entitled to distributions of principal.
A series of certificates may include one or more classes of senior
certificates and one or more classes of subordinate certificates. If so provided
in the related prospectus supplement, one or more classes of senior certificates
will be entitled to receive all or a disproportionate percentage of the payments
of principal that are received from borrowers in advance of their scheduled due
dates and are not accompanied by amounts representing scheduled interest due
after the month of the payments in the percentages and under the circumstances
or for the periods specified in the prospectus supplement. Any disproportionate
allocation of these principal prepayments to senior certificates will have the
effect of accelerating the amortization of the senior certificates while
increasing the interests evidenced by the subordinated certificates in the trust
fund. Increasing the interests of the subordinated certificates relative to that
of the senior certificates is intended to preserve the availability of the
subordination provided by the subordinated certificates. See 'Credit
Enhancement -- Subordination' and 'Credit Enhancement -- Subordination of the
Subordinated Certificates' in the related prospectus supplement.
Unscheduled Distributions. If specified in the related prospectus
supplement, the certificates will be subject to receipt of distributions before
the next scheduled distribution date. If applicable, the trustee will be
required to make unscheduled distributions on the day and in the amount
specified in the related prospectus supplement if, due to substantial payments
of principal (including principal prepayments) on the Mortgage Assets, the
trustee or the master servicer determines that the funds available or
anticipated to be available from the Certificate Account and, if applicable, any
reserve fund, may be insufficient to make required distributions
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<PAGE>
on the certificates on the distribution date. The applicable prospectus
supplement may specify some other basis for these distributions, but if it does
not, the amount of the unscheduled distribution that is allocable to principal
will not exceed the amount that would otherwise have been required to be
distributed as principal on the certificates on the next distribution date. The
applicable prospectus supplement may provide that unscheduled distributions will
not include interest or that interest will be computed on a different basis, but
if it does not, all unscheduled distributions will include interest at the
applicable pass-through rate on the amount of the unscheduled distribution
allocable to principal for the period and to the date specified in the
prospectus supplement.
ADVANCES
To the extent provided in the related prospectus supplement, the master
servicer will be required to advance on or before each distribution date (from
its own funds, funds advanced by sub-servicers or funds held in the Certificate
Account for future distributions to certificateholders), an amount equal to the
aggregate of payments of principal and interest that were delinquent on the
related Determination Date, subject to the master servicer's determination that
the advances will be recoverable out of late payments by obligors on the
Mortgage Assets, liquidation proceeds, insurance proceeds not used to restore
the property or otherwise. In the case of cooperative loans, the master servicer
also will be required to advance any unpaid maintenance fees and other charges
under the related proprietary leases as specified in the related prospectus
supplement.
In making advances, the master servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to certificateholders, rather
than to guarantee or insure against losses. If advances are made by the master
servicer from cash being held for future distribution to certificateholders, the
master servicer will replace the funds on or before any future distribution date
to the extent that funds in the applicable Certificate Account on the
distribution date would be less than the amount required to be available for
distributions to certificateholders on the Distribution Date. Any advances will
be reimbursable to the master servicer out of recoveries on the specific
Mortgage Assets with respect to which the advances were made (e.g., late
payments made by the related obligors, any related insurance proceeds,
liquidation proceeds or proceeds of any mortgage loan repurchased by the
depositor, a sub-servicer or a seller pursuant to the related pooling and
servicing agreement). In addition, advances by the master servicer or
sub-servicer also will be reimbursable to the master servicer or a sub-servicer
from cash otherwise distributable to certificateholders to the extent that the
master servicer determines that the advances previously made are not ultimately
recoverable as described in the preceding sentence. The master servicer also
will be obligated to make advances, to the extent recoverable out of insurance
proceeds not used to restore the property, liquidation proceeds or otherwise,
for certain taxes and insurance premiums not paid by mortgagors on a timely
basis. Funds so advanced are reimbursable to the master servicer to the extent
permitted by the pooling and servicing agreement. If specified in the related
prospectus supplement, the obligations of the master servicer to make advances
may be supported by a cash advance reserve fund, a surety bond or other
arrangement, in each case as described in the prospectus supplement.
REPORTS TO CERTIFICATEHOLDERS
The applicable prospectus supplement may specify different items to be
reported, but if it does not, before or concurrently with each distribution on a
distribution date the master servicer
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or the trustee will furnish to each certificateholder of record of the related
series a statement setting forth, to the extent applicable to the series of
certificates, among other things:
the amount of the distribution allocable to principal, separately
identifying the aggregate amount of any principal prepayments and, if so
specified in the related prospectus supplement, prepayment penalties;
the amount of the distribution allocable to interest;
the amount of any advance;
the aggregate amount otherwise allocable to the subordinated
certificateholders on the distribution date and the aggregate amount
withdrawn from the reserve fund, if any, that is included in the amounts
distributed to the certificateholders;
the Class Certificate Balance or notional amount of each class of the
related series after giving effect to the distribution of principal on the
distribution date;
the percentage of principal payments on the Mortgage Assets (excluding
prepayments), if any, which each class will be entitled to receive on the
following distribution date;
the percentage of principal prepayments with respect to the Mortgage
Assets, if any, which each class will be entitled to receive on the
following distribution date;
the related amount of the servicing compensation retained or withdrawn
from the Certificate Account by the master servicer, and the amount of
additional servicing compensation received by the master servicer
attributable to penalties, fees, excess liquidation proceeds and other
similar charges and items;
the number and aggregate principal balances of mortgage loans (A)
delinquent (exclusive of mortgage loans in foreclosure) 1 to 30 days, 31
to 60 days, 61 to 90 days and 91 or more days and (B) in foreclosure and
delinquent 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 or more days,
as of the close of business on the last day of the calendar month
preceding the distribution date;
the book value of any real estate acquired through foreclosure or grant of
a deed in lieu of foreclosure;
the pass-through rate, if adjusted from the date of the last statement, of
a class expected to be applicable to the next distribution to the class;
if applicable, the amount remaining in the reserve fund at the close of
business on the distribution date;
the pass-through rate as of the day before the preceding distribution
date; and
any amounts remaining under letters of credit, pool policies or other
forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single certificate of the relevant class having the percentage
interest specified in the related prospectus supplement. The report to
certificateholders for any series of certificates may include additional or
other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the master servicer or the trustee will mail to each
certificateholder of record at any time during the calendar year a report as to
the aggregate of amounts reported pursuant to the first two items for the
calendar year or, if the person was a certificateholder of record during a
portion of the
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calendar year, for the applicable portion of the year and other customary
information deemed appropriate for certificateholders to prepare their tax
returns.
CATEGORIES OF CLASSES OF CERTIFICATES
In general, classes of pass-through certificates fall into different
categories. The following chart identifies and generally defines the more
typical categories. The prospectus supplement for a series of certificates may
identify the classes which comprise the series by reference to the following
categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
<S> <C>
Accretion Directed........................ A class that receives principal payments from the
accreted interest from specified accrual classes.
An accretion directed class also may receive
principal payments from principal paid on the
underlying Mortgage Assets or other assets of the
trust fund for the related series.
Component Certificates.................... A class consisting of 'components.' The components
of a class of component certificates may have
different principal and interest payment
characteristics but together constitute a single
class. Each component of a class of component
certificates may be identified as falling into one
or more of the categories in this chart.
Notional Amount Certificates.............. A class having no principal balance and bearing
interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Principal Class or PACs........... A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming two constant
prepayment rates for the underlying Mortgage
Assets. These two rates are the endpoints for the
'structuring range' for the planned principal
class. The planned principal classes in any series
of certificates may be subdivided into different
categories (e.g., primary planned principal
classes, secondary planned principal classes and so
forth) having different effective structuring
ranges and different principal payment priorities.
The structuring range for the secondary planned
principal class of a series of certificates will be
narrower than that for the primary planned
principal class of the series.
Scheduled Principal Class................. A class that is designed to receive principal
payments using a predetermined principal balance
schedule but is not designated as a planned
principal class or targeted principal class. In
many cases, the schedule is derived by assuming two
constant prepayment rates for the underlying
Mortgage Assets. These two rates are the endpoints
for the 'structuring range' for the scheduled
principal class.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Sequential Pay............................ Classes that receive principal payments in a
prescribed sequence, that do not have predetermined
principal balance schedules and that under all
circumstances receive payments of principal
continuously from the first distribution date on
which they receive principal until they are
retired. A single class that receives principal
payments before or after all other classes in the
same series of certificates may be identified as a
sequential pay class.
Strip..................................... A class that receives a constant proportion, or
'strip,' of the principal payments on the
underlying Mortgage Assets or other assets of the
trust fund.
Support Class (also sometimes referred to
as 'companion classes')................. A class that receives principal payments on any
distribution date only if scheduled payments have
been made on specified planned principal classes,
targeted principal classes or scheduled principal
classes.
Targeted Principal Class or TACs.......... A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming a single constant
prepayment rate for the underlying Mortgage Assets.
INTEREST TYPES
Fixed Rate................................ A class with an interest rate that is fixed
throughout the life of the class.
Floating Rate............................. A class with an interest rate that resets
periodically based upon a designated index and that
varies inversely with changes in the index.
Inverse Floating Rate..................... A class with an interest rate that resets
periodically based upon a designated index and that
varies directly with changes in the index.
Variable Rate............................. A class with an interest rate that resets
periodically and is calculated by reference to the
rate or rates of interest applicable to specified
assets or instruments (e.g., the mortgage rates
borne by the underlying mortgage loans).
Interest Only............................. A class that receives some or all of the interest
payments made on the underlying Mortgage Assets or
other assets of the trust fund and little or no
principal. Interest only classes have either a
nominal principal balance or a notional amount. A
nominal principal balance represents actual
principal that will be paid on the class. It is
referred to as nominal since it is extremely small
compared to other classes. A notional amount is the
amount used as a reference to calculate the amount
of interest due on an interest only class that is
not entitled to any distributions of principal.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Principal Only............................ A class that does not bear interest and is entitled
to receive only distributions of principal.
Partial Accrual........................... A class that accretes a portion of the amount of
accrued interest on it, which amount will be added
to the principal balance of the class on each
applicable distribution date, with the remainder of
the accrued interest to be distributed currently as
interest on the class. The accretion may continue
until a specified event has occurred or until the
partial accrual class is retired.
Accrual................................... A class that accretes the amount of accrued
interest otherwise distributable on the class,
which amount will be added as principal to the
principal balance of the class on each applicable
distribution date. The accretion may continue until
some specified event has occurred or until the
accrual class is retired.
</TABLE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
The applicable prospectus supplement may specify some other basis for
determining LIBOR, but if it does not, on the LIBOR determination date (as
defined in the related prospectus supplement) for each class of certificates of
a series for which the applicable interest rate is determined by reference to an
index denominated as LIBOR, the person designated in the related pooling and
servicing agreement as the calculation agent will determine LIBOR in accordance
with one of the two methods described below (which method will be specified in
the related prospectus supplement):
LIBO Method
If using this method to calculate LIBOR, the calculation agent will
determine LIBOR by reference to the quotations, as set forth on the Reuters
Screen LIBO Page, offered by the principal London office of each of the
designated reference banks meeting the criteria set forth in this prospectus for
making one-month United States dollar deposits in leading banks in the London
Interbank market, as of 11:00 a.m. (London time) on the LIBOR determination
date. In lieu of relying on the quotations for those reference banks that appear
at the time on the Reuters Screen LIBO Page, the calculation agent will request
each of the reference banks to provide the offered quotations at the time.
Under this method LIBOR will be established by the calculation agent on
each LIBOR determination date as follows:
(a) If on any LIBOR determination date two or more reference banks
provide offered quotations, LIBOR for the next interest accrual period
shall be the arithmetic mean of the offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR determination date only one or none of the
reference banks provides offered quotations, LIBOR for the next interest
accrual period shall be whichever is the higher of
LIBOR as determined on the previous LIBOR determination date or
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the reserve interest rate.
The reserve interest rate shall be the rate per annum which the calculation
agent determines to be either
the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/32%) of the one-month United States dollar
lending rates that New York City banks selected by the calculation
agent are quoting, on the relevant LIBOR determination date, to the
principal London offices of at least two of the reference banks to
which the quotations are, in the opinion of the calculation agent
being so made, or
if the calculation agent cannot determine the arithmetic mean, the
lowest one-month United States dollar lending rate which New York
City banks selected by the calculation agent are quoting on the LIBOR
determination date to leading European banks.
(c) If on any LIBOR determination date for a class specified in the
related prospectus supplement, the calculation agent is required but is
unable to determine the reserve interest rate in the manner provided in
paragraph (b) above, LIBOR for the next interest accrual period shall be
LIBOR as determined on the preceding LIBOR determination date, or, in the
case of the first LIBOR determination date, LIBOR shall be considered to be
the per annum rate specified as such in the related prospectus supplement.
Each reference bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; shall not control,
be controlled by, or be under common control with the calculation agent; and
shall have an established place of business in London. If reference bank should
be unwilling or unable to act as such or if appointment of a reference bank is
terminated, another leading bank meeting the criteria specified above will be
appointed.
BBA Method
If using this method of determining LIBOR, the calculation agent will
determine LIBOR on the basis of the British Bankers' Association 'Interest
Settlement Rate' for one-month deposits in United States dollars as found on
Telerate page 3750 as of 11:00 a.m. London time on each LIBOR determination
date. Interest Settlement Rates currently are based on rates quoted by eight
British Bankers' Association designated banks as being, in the view of the
banks, the offered rate at which deposits are being quoted to prime banks in the
London interbank market. The Interest Settlement Rates are calculated by
eliminating the two highest rates and the two lowest rates, averaging the four
remaining rates, carrying the result (expressed as a percentage) out to six
decimal places, and rounding to five decimal places.
If on any LIBOR determination date, the calculation agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next interest accrual period shall be
calculated in accordance with the LIBOR method described under 'LIBO Method.'
The establishment of LIBOR on each LIBOR determination date by the
calculation agent and its calculation of the rate of interest for the applicable
classes for the related interest accrual period shall (in the absence of
manifest error) be final and binding.
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<PAGE>
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the 'Eleventh District'). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ('FHLBSF') to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: savings deposits, time
deposits, FHLBSF advances, repurchase agreements and all other borrowings.
Because the component funds represent a variety of maturities whose costs may
react in different ways to changing conditions, the Eleventh District Cost of
Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index, which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury Bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month before the month in which it is due
to be published. Additionally, the Eleventh District Cost of Funds Index may not
necessarily move in the same direction as market interest rates at all times,
since as longer term deposits or borrowings mature and are renewed at prevailing
market interest rates, the Eleventh District Cost of Funds Index is influenced
by the differential between the prior and the new rates on those deposits or
borrowings. In addition, movements of the Eleventh District Cost of Funds Index,
as compared to other indices tied to specific interest rates, may be affected by
changes instituted by the FHLBSF in the method used to calculate the Eleventh
District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month 'will be announced on or near the last
working day' of the following month and also has stated that it 'cannot
guarantee the announcement' of the index on an exact date. So long as the index
for a month is announced on or before the tenth day of the second following
month, the interest rate for each class of certificates of a series for which
the applicable interest rate is determined by reference to an index denominated
as COFI for the interest accrual period commencing in the second following month
will be based on the Eleventh District Cost of Funds Index for the second
preceding month. If publication is delayed beyond the tenth day, the interest
rate will be based on the Eleventh District Cost of Funds Index for the third
preceding month.
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<PAGE>
The applicable prospectus supplement may specify some other basis for
determining COFI, but if it does not, then if on the tenth day of the month in
which any interest accrual period commences for a class of COFI certificates the
most recently published Eleventh District Cost of Funds Index relates to a month
before the third preceding month, the index for the current interest accrual
period and for each succeeding interest accrual period will, except as described
in the next to last sentence of this paragraph, be based on the National Monthly
Median Cost of Funds Ratio to SAIF-Insured Institutions (the 'National Cost of
Funds Index') published by the Office of Thrift Supervision (the 'OTS') for the
third preceding month (or the fourth preceding month if the National Cost of
Funds Index for the third preceding month has not been published on the tenth
day of an interest accrual period). Information on the National Cost of Funds
Index may be obtained by writing the OTS at 1700 G Street, N.W., Washington,
D.C. 20552 or calling (202) 906-6677, and the current National Cost of Funds
Index may be obtained by calling (202) 906-6988. If on the tenth day of the
month in which an interest accrual period commences the most recently published
National Cost of Funds Index relates to a month before the fourth preceding
month, the applicable index for the interest accrual period and each succeeding
interest accrual period will be based on LIBOR, as determined by the calculation
agent in accordance with the pooling and servicing agreement relating to the
series of certificates. A change of index from the Eleventh District Cost of
Funds Index to an alternative index will result in a change in the index level
and could increase its volatility, particularly if LIBOR is the alternative
index.
The establishment of COFI by the calculation agent and its calculation of
the rates of interest for the applicable classes for the related interest
accrual period shall (in the absence of manifest error) be final and binding.
Treasury Index
The applicable prospectus supplement may specify some other basis for
determining and defining the Treasury index, but if it does not, on the Treasury
index determination date for each class of certificates of a series for which
the applicable interest rate is determined by reference to an index denominated
as a Treasury index, the calculation agent will ascertain the Treasury index for
Treasury securities of the maturity and for the period (or, if applicable, date)
specified in the related prospectus supplement. The Treasury index for any
period means the average of the yield for each business day during the specified
period (and for any date means the yield for the date), expressed as a per annum
percentage rate, on U.S. Treasury securities adjusted to the 'constant maturity'
specified in the prospectus supplement or if no 'constant maturity' is so
specified, U.S. Treasury securities trading on the secondary market having the
maturity specified in the prospectus supplement, in each case as published by
the Federal Reserve Board in its Statistical Release No. H.15 (519). Statistical
Release No. H.15 (519) is published on Monday or Tuesday of each week and may be
obtained by writing or calling the Publications Department at the Board of
Governors of the Federal Reserve System, 21st and C Streets, Washington, D.C.
20551 (202) 452-3244. If the calculation agent has not yet received Statistical
Release No. H.15 (519) for a week, then it will use the Statistical Release from
the preceding week.
Yields on U.S. Treasury securities at 'constant maturity' are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. If the Treasury index is no longer published, a new
index based upon comparable data and methodology will be designated in
accordance with the pooling and servicing agreement relating to the particular
series of certificates. The calculation agent's determination of the Treasury
index, and its calculation of the rates of interest for the applicable
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<PAGE>
classes for the related interest accrual period shall (in the absence of
manifest error) be final and binding.
Prime Rate
The applicable prospectus supplement may specify some other basis for
determining and defining the prime rate, but if it does not, on the prime rate
determination date for each class of certificates of a series for which the
applicable interest rate is determined by reference to an index denominated as
the prime rate, the calculation agent will ascertain the prime rate for the
related interest accrual period. The prime rate for an interest accrual period
will be the 'prime rate' as published in the 'Money Rates' section of The Wall
Street Journal on the related prime rate determination date, or if not so
published, the 'prime rate' as published in a newspaper of general circulation
selected by the calculation agent in its sole discretion. If a prime rate range
is given, then the average of the range will be used. If the prime rate is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the pooling and servicing agreement relating to
the particular series of certificates. The calculation agent's determination of
the prime rate and its calculation of the rates of interest for the related
interest accrual period shall (in the absence of manifest error) be final and
binding.
BOOK-ENTRY CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of the certificates of any series may be initially issued through the book-entry
facilities of The Depository Trust Company. Each class of book-entry
certificates of a series will be issued in one or more certificates which equal
the aggregate initial Class Certificate Balance of each class and which will be
held by a nominee of the depository. The applicable prospectus supplement may
specify other procedures for book-entry certificates, but if it does not, the
following generally describes the procedures that will be applicable to any
class of book-entry certificates.
Beneficial interests in the book-entry certificates of a series will be
held indirectly by investors through the book-entry facilities of the
depository, as described in this prospectus. Accordingly, the depository or its
nominee is expected to be the holder of record of the book-entry certificates.
Except as described below, no person acquiring a beneficial interest in a book-
entry certificate will be entitled to receive a physical certificate
representing the certificate.
The beneficial owner's ownership of a book-entry certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for that
purpose. In turn, the financial intermediary's ownership of a book-entry
certificate will be recorded on the records of the depository (or of a
participating firm that acts as agent for the financial intermediary, whose
interest will in true be recorded on the records of the depository, if the
beneficial owner's financial intermediary is not a depository participant).
Therefore, the beneficial owner must rely on the foregoing procedures to
evidence its beneficial ownership of a book-entry certificate. Beneficial
ownership of a book-entry certificate may only be transferred by compliance with
the procedures of the financial intermediaries and depository participants.
In accordance with its normal procedures, the depository is expected to
record the positions held by each depository 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 the depository and
depository participants as in effect from time to time.
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to the depository. The depository will be
responsible for crediting the amount of the payments to the accounts of the
applicable depository participants in accordance with the
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depository's normal procedures. Each depository 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 payments will be
forwarded by the trustee to the depository or its nominee, as the case may be,
as holder of record of the book-entry certificates. Because the depository can
act only on behalf of financial intermediaries, the ability of a beneficial
owner to pledge book-entry certificates to persons or entities that do not
participate in the depository system, or otherwise take actions in respect of
the book-entry certificates, may be limited due to the lack of physical
certificates for the book-entry certificates. In addition, issuance of the
book-entry certificates in book-entry form may reduce the liquidity of the
certificates in the secondary market since some potential investors may be
unwilling to purchase certificates for which they cannot obtain physical
certificates.
Until definitive certificates are issued, it is anticipated that the only
'certificateholder' of the book-entry certificates will be the depository or its
nominee. Beneficial owners of the book-entry certificates will not be
certificateholders, as that term will be used in the pooling and servicing
agreement relating to the series of certificates. Beneficial owners are only
permitted to exercise the rights of certificateholders indirectly through
financial intermediaries and the depository. Monthly and annual reports on the
related trust fund provided to the depository or its nominee, as the case may
be, as holder of record of the book-entry certificates, 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 depository accounts the book-entry certificates of the
beneficial owners are credited.
Until definitive certificates are issued, the depository will take any
action permitted to be taken by the holders of the book-entry certificates of a
particular series under the related pooling and servicing agreement only at the
direction of one or more financial intermediaries to whose depository accounts
the book-entry certificates are credited to the extent that the actions are
taken on behalf of financial intermediaries whose holdings include the
book-entry certificates.
The applicable prospectus supplement may when and for what reasons
definitive certificates may be issued, but if it does not, definitive
certificates will be issued to beneficial owners of book-entry certificates, or
their nominees, rather than to the depository, only if the depository or the
depositor advises the trustee in writing that the depository is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the book-entry certificates and the depositor or
the trustee is unable to locate a qualified successor; the depositor, at its
sole option, elects to terminate the book-entry system through the depository;
or after the occurrence of an event of default, beneficial owners of
certificates representing not less than 51% of the aggregate percentage
interests evidenced by each class of certificates of the related series issued
as book-entry certificates advise the trustee and the depository through the
financial intermediaries in writing that the continuation of a book-entry system
through the depository (or a successor to it) is no longer in the best interests
of the beneficial owners.
Upon the occurrence of any of the events described in the preceding
paragraph, the trustee will be required to notify all beneficial owners of the
occurrence of the event and the availability of definitive certificates. Upon
surrender by the depository of the global certificate or certificates
representing the book-entry certificates and instructions for re-registration,
the trustee will issue the definitive certificates, and thereafter the trustee
will recognize the holders of the definitive certificates as certificateholders
under the pooling and servicing agreement relating to the series of
certificates.
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CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided for one or more classes of a series of
certificates or with respect to the Mortgage Assets in the related trust fund.
Credit enhancement may be in the form of a limited financial guaranty policy
issued by an entity named in the related prospectus supplement, the
subordination of one or more classes of the certificates of the series, the
establishment of one or more reserve funds, the use of a cross-support feature,
use of a mortgage pool insurance policy, bankruptcy bond, special hazard
insurance policy, surety bond, letter of credit, guaranteed investment contract
or other method of credit enhancement described in the related prospectus
supplement, or any combination of them. Credit enhancement may not provide
protection against all risks of loss or guarantee repayment of the entire
principal balance of the certificates and interest on them. If losses occur
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, certificateholders will bear their allocable share of
any deficiencies.
SUBORDINATION
If so specified in the related prospectus supplement, the rights of holders
of one or more classes of subordinated certificates will be subordinate to the
rights of holders of one or more other classes of senior certificates of the
series to distributions of scheduled principal, principal prepayments, interest
or any combination of them that otherwise would have been payable to holders of
subordinated certificates under the circumstances and to the extent specified in
the related prospectus supplement. If specified in the related prospectus
supplement, delays in receipt of scheduled payments on the Mortgage Assets and
losses with respect to the Mortgage Assets will be borne first by the various
classes of subordinated certificates and thereafter by the various classes of
senior certificates, in each case under the circumstances and subject to the
limitations specified in the related prospectus supplement. The aggregate
distributions of delinquent payments on the Mortgage Assets over the lives of
the certificates or at any time, the aggregate losses on Mortgage Assets which
must be borne by the subordinated certificates by virtue of subordination and
the amount of the distributions otherwise distributable to the subordinated
certificateholders that will be distributable to senior certificateholders on
any distribution date may be limited as specified in the related prospectus
supplement. If aggregate distributions of delinquent payments on the Mortgage
Assets or aggregate losses on the Mortgage Assets were to exceed the amount
specified in the related prospectus supplement, senior certificateholders would
experience losses on the certificates.
If specified in the related prospectus supplement, various classes of
senior certificates and subordinated certificates may themselves be subordinate
in their right to receive certain distributions to other classes of senior and
subordinated certificates, respectively, through a cross support mechanism or
otherwise.
As between classes of senior certificates and as between classes of
subordinated certificates, distributions may be allocated among the classes in
the order of their scheduled final distribution dates, in accordance with a
schedule or formula, in relation to the occurrence of events, or otherwise, in
each case as specified in the related prospectus supplement. As between classes
of subordinated certificates, payments to senior certificateholders on account
of delinquencies or losses and payments to the reserve fund will be allocated as
specified in the related prospectus supplement.
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MORTGAGE POOL INSURANCE POLICIES
If specified in the related prospectus supplement relating to a mortgage
pool, a separate mortgage pool insurance policy will be obtained for the
mortgage pool and issued by the insurer named in the prospectus supplement. Each
mortgage pool insurance policy will, subject to policy limitations, cover loss
from default in payment on mortgage loans in the mortgage pool in an amount
equal to a percentage specified in the prospectus supplement of the aggregate
principal balance of the mortgage loans on the cut-off date that are not covered
as to their entire outstanding principal balances by primary mortgage insurance
policies. As more fully described below, the master servicer will present claims
under the insurance to the pool insurer on behalf of itself, the trustee and the
certificateholders. The mortgage pool insurance policies, however, are not
blanket policies against loss, since claims under them may be made only for
particular defaulted mortgage loans and only upon satisfaction of conditions
precedent in the policy. The applicable prospectus supplement may specify that
mortgage pool insurance will cover the failure to pay or the denial of a claim
under a primary mortgage insurance policy, but if it does not, the mortgage pool
insurance policies will not cover losses due to a failure to pay or denial of a
claim under a primary mortgage insurance policy.
In general, each mortgage pool insurance policy will provide that no claims
may be validly presented unless
any required primary mortgage insurance policy is in effect for the
defaulted mortgage loan and a claim under it has been submitted and
settled;
hazard insurance on the related mortgaged property has been kept in force
and real estate taxes and other protection and preservation expenses have
been paid;
if there has been physical loss or damage to the mortgaged property, it
has been restored to its physical condition (reasonable wear and tear
excepted) at the time of issuance of the policy; and
the insured has acquired good and merchantable title to the mortgaged
property free and clear of liens except certain permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the option
either to purchase the mortgaged property at a price equal to the principal
balance of the related mortgage loan plus accrued and unpaid interest at the
mortgage rate to the date of the purchase and certain expenses incurred by the
master servicer on behalf of the trustee and certificateholders or to pay the
amount by which the sum of the principal balance of the defaulted mortgage loan
plus accrued and unpaid interest at the mortgage rate to the date of payment of
the claim and the aforementioned expenses exceeds the proceeds received from an
approved sale of the mortgaged property, in either case net of certain amounts
paid or assumed to have been paid under the related primary mortgage insurance
policy. If any mortgaged property is damaged, and proceeds, if any, from the
related hazard insurance policy or a special hazard insurance policy or policies
maintained for a series are insufficient to restore the damaged property to a
condition sufficient to permit recovery under the mortgage pool insurance
policy, the master servicer will not be required to expend its own funds to
restore the damaged property unless it determines that the restoration will
increase the proceeds to certificateholders on liquidation of the mortgage loan
after reimbursement of the master servicer for its expenses and the expenses
will be recoverable by it through proceeds of the sale of the mortgaged property
or proceeds of the related mortgage pool insurance policy or any related primary
mortgage insurance policy.
The applicable prospectus supplement may specify that mortgage pool
insurance will cover various origination and servicing defaults, but if it does
not, then no mortgage pool insurance policy will insure (and many primary
mortgage insurance policies do not insure) against loss
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sustained from a default arising from, among other things, fraud or negligence
in the origination or servicing of a mortgage loan, including misrepresentation
by the mortgagor, the originator or persons involved in its origination, or
failure to construct a mortgaged property in accordance with plans and
specifications. A failure of coverage for one of these reasons might result in a
breach of the related seller's representations and, in that case, might result
in an obligation on the part of the seller to repurchase the defaulted mortgage
loan if the breach cannot be cured by the seller. No mortgage pool insurance
policy will cover (and many primary mortgage insurance policies do not cover) a
claim with respect to a defaulted mortgage loan occurring when the servicer of
the mortgage loan, at the time of default or thereafter, was not approved by the
applicable insurer.
The original amount of coverage under each mortgage pool insurance policy
will be maintained to the extent provided in the related prospectus supplement
and may be reduced over the life of the related certificates by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the pool insurer upon disposition of all foreclosed properties. The applicable
prospectus supplement may provide that the claims paid will be net of master
servicer expenses and accrued interest, but if it does not, then the amount of
claims paid will include certain expenses incurred by the master servicer as
well as accrued interest on delinquent mortgage loans to the date of payment of
the claim. Accordingly, if aggregate net claims paid under any mortgage pool
insurance policy reach the original policy limit, coverage under that mortgage
pool insurance policy will be exhausted and any further losses will be borne by
the certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related prospectus supplement, a separate special
hazard insurance policy will be obtained for the mortgage pool and will be
issued by the insurer named in the prospectus supplement. Each special hazard
insurance policy will, subject to policy limitations, protect holders of the
related certificates from loss caused by the application of the coinsurance
clause contained in hazard insurance policies and loss from damage to mortgaged
properties caused by certain hazards not insured against under the standard form
of hazard insurance policy in the states where the mortgaged properties are
located or under a flood insurance policy if the mortgaged property is located
in a federally designated flood area. Some of the losses covered include
earthquakes and, to a limited extent, tidal waves and related water damage or as
otherwise specified in the related prospectus supplement. See 'The Pooling and
Servicing Agreement -- Hazard Insurance.' No special hazard insurance policy
will cover losses from fraud or conversion by the trustee or master servicer,
war, insurrection, civil war, certain governmental action, errors in design,
faulty workmanship or materials (except under certain circumstances), nuclear or
chemical reaction, flood (if the mortgaged property is located in a federally
designated flood area), nuclear or chemical contamination and certain other
risks. The amount of coverage under any special hazard insurance policy will be
specified in the related prospectus supplement. Each special hazard insurance
policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the mortgage loan have been kept in
force and other protection and preservation expenses have been paid.
The applicable prospectus supplement may provide for other payment
coverage, but if it does not, then, subject to these limitations, each special
hazard insurance policy will provide that where there has been damage to
property securing a foreclosed mortgage loan (title to which has been acquired
by the insured) and to the extent the damage is not covered by the hazard
insurance policy or flood insurance policy, if any, maintained by the mortgagor
or the master servicer, the special hazard insurer will pay the lesser of the
cost of repair or replacement of the property or, upon transfer of the property
to the special hazard insurer, the unpaid principal
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balance of the mortgage loan at the time of acquisition of the property by
foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of
claim settlement and certain expenses incurred by the master servicer with
respect to the property. If the unpaid principal balance of a mortgage loan plus
accrued interest and certain expenses is paid by the special hazard insurer, the
amount of further coverage under the related special hazard insurance policy
will be reduced by that amount less any net proceeds from the sale of the
property. Any amount paid to repair the property will further reduce coverage by
that amount. So long as a mortgage 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 mortgage loan plus accrued interest and certain
expenses will not affect the total insurance proceeds paid to
certificateholders, but will affect the relative amounts of coverage remaining
under the related special hazard insurance policy and mortgage pool insurance
policy.
To the extent specified in the prospectus supplement, the master servicer
may deposit cash, an irrevocable letter of credit, or any other instrument
acceptable to each nationally recognized rating agency rating the certificates
of the related series at the request of the depositor in a special trust account
to provide protection in lieu of or in addition to that provided by a special
hazard insurance policy. The amount of any special hazard insurance policy or of
the deposit to the special trust account relating to the certificates may be
reduced so long as the reduction will not result in a downgrading of the rating
of the certificates by a rating agency rating certificates at the request of the
depositor.
BANKRUPTCY BONDS
If specified in the related prospectus supplement, a bankruptcy bond to
cover losses resulting from proceedings under the federal Bankruptcy Code with
respect to a mortgage loan will be issued by an insurer named in the prospectus
supplement. Each bankruptcy bond will cover, to the extent specified in the
related prospectus supplement, certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal and interest on a mortgage
loan or a reduction by the court of the principal amount of a mortgage loan and
will cover certain unpaid interest on the amount of a principal reduction from
the date of the filing of a bankruptcy petition. The required amount of coverage
under each bankruptcy bond will be set forth in the related prospectus
supplement. Coverage under a bankruptcy bond may be cancelled or reduced by the
master servicer if the cancellation or reduction would not adversely affect the
then current rating or ratings of the related certificates. See 'Certain Legal
Aspects of the Mortgage Loans -- Anti-Deficiency Legislation and Other
Limitations on Lenders.'
To the extent specified in the prospectus supplement, the master servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the certificates
of the related series at the request of the depositor in a special trust account
to provide protection in lieu of or in addition to that provided by a bankruptcy
bond. The amount of any bankruptcy bond or of the deposit to the special trust
account relating to the certificates may be reduced so long as the reduction
will not result in a downgrading of the rating of the certificates by a rating
agency rating certificates at the request of the depositor.
RESERVE FUND
If so specified in the related prospectus supplement, credit support with
respect to a series of certificates may be provided by one or more reserve funds
held by the trustee, in trust, for the series of certificates. The related
prospectus supplement will specify whether or not a reserve fund will be
included in the trust fund for a series.
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The reserve fund for a series will be funded by a deposit of cash, U.S.
Treasury securities or instruments evidencing ownership of principal or interest
payments on U.S. Treasury securities, letters of credit, demand notes,
certificates of deposit, or a combination of them in an aggregate amount
specified in the related prospectus supplement; by the deposit from time to time
of amounts specified in the related prospectus supplement to which the
subordinated certificateholders, if any, would otherwise be entitled; or in any
other manner specified in the related prospectus supplement.
Any amounts on deposit in the reserve fund and the proceeds of any other
instrument deposited in it upon maturity will be held in cash or will be
invested in permitted investments. The applicable prospectus supplement may
specify a different definition of permitted investments, but if it does not,
then permitted investments will include obligations of the United States and
specified agencies of the United States, certificates of deposit, specified
commercial paper, time deposits and bankers acceptances sold by eligible
commercial banks, and specified repurchase agreements for United States
government securities with eligible commercial banks. If a letter of credit is
deposited with the trustee, the letter of credit will be irrevocable. Generally,
any deposited instrument will name the trustee, in its capacity as trustee for
the certificateholders, as beneficiary and will be issued by an entity
acceptable to each rating agency that rates the certificates at the request of
the depositor. Additional information about the instruments deposited in the
reserve funds will be set forth in the related prospectus supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the reserve fund for distribution to the
certificateholders for the purposes, in the manner and at the times specified in
the related prospectus supplement.
CROSS SUPPORT
If specified in the related prospectus supplement, the beneficial ownership
of separate groups of assets included in a trust fund may be evidenced by
separate classes of the related series of certificates. In that case, credit
support may be provided by a cross support feature that requires that
distributions be made on certificates evidencing a beneficial ownership interest
in other asset groups within the same trust fund. The related prospectus
supplement for a series that includes a cross support feature will describe the
manner and conditions for applying the cross support feature.
If specified in the related prospectus supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
related trust funds. If applicable, the related prospectus supplement will
identify the trust funds to which the credit support relates and the manner of
determining the amount of the coverage provided by it and of the application of
the coverage to the identified trust funds.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain of
their classes will be covered by insurance policies or surety bonds provided by
one or more insurance companies or sureties. These instruments may cover timely
distributions of interest or full distributions of principal or both on the
basis of a schedule of principal distributions set forth in or determined in the
manner specified in the related prospectus supplement. In addition, if specified
in the related prospectus supplement, a trust fund may also include bankruptcy
bonds, special hazard insurance policies, other insurance or guaranties for the
purpose of maintaining timely payments or providing additional protection
against losses on the assets included in the trust fund, paying
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administrative expenses, or establishing a minimum reinvestment rate on the
payments made on the assets or principal payment rate on the assets. These
arrangements may include agreements under which certificateholders are entitled
to receive amounts deposited in various accounts held by the trustee on the
terms specified in the prospectus supplement.
OVER-COLLATERALIZATION
If so provided in the prospectus supplement for a series of certificates, a
portion of the interest payment on each Loan may be applied as an additional
distribution of principal to reduce the principal balance of a particular class
or classes of certificates and, thus, accelerate the rate of payment of
principal on the class or classes of certificates. Reducing the principal
balance of the certificates without a corresponding reduction in the principal
balance of the underlying Mortgage Assets will result in over-collateralization.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the certificates will
be affected primarily by the amount and timing of principal payments received on
or in respect of the Mortgage Assets included in the related trust fund. The
original terms to maturity of the underlying mortgage loans of the Mortgage
Assets in a given mortgage pool will vary depending upon the type of mortgage
loans included in it, and each prospectus supplement will contain information
about the type and maturities of the mortgage loans. The applicable prospectus
supplement may indicate that some mortgage loans provide for prepayment
penalties, but if it does not, then the mortgage loans may be prepaid without
penalty in full or in part at any time. The prepayment experience on the
underlying mortgage loans of the Mortgage Assets will affect the life of the
related series of certificates.
A number of factors may affect the prepayment experience of mortgage loans,
including homeowner mobility, economic conditions, the presence and
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds.
The applicable prospectus supplement may indicate that some conventional
mortgage loans do not have due-on-sale provisions, but if it does not, then all
conventional mortgage loans will contain due-on-sale provisions permitting the
mortgagee to accelerate the maturity of the loan upon sale or specified
transfers by the mortgagor of the underlying mortgaged property. Mortgage loans
insured by the FHA and mortgage loans partially guaranteed by the VA are
assumable with the consent of the FHA and the VA, respectively. Thus, the rate
of prepayments on those mortgage loans may be lower than that on conventional
mortgage loans bearing comparable interest rates. The master servicer generally
will enforce any due-on-sale or due-on-encumbrance clause, to the extent it has
knowledge of the conveyance or further encumbrance or the proposed conveyance or
proposed further encumbrance of the mortgaged property and reasonably believes
that it is entitled to do so under applicable law. However, the master servicer
will not take any enforcement action that would impair or threaten to impair any
recovery under any related insurance policy. See 'The Pooling and Servicing
Agreement -- Collection Procedures' and 'Certain Legal Aspects of the Mortgage
Loans' for a description of certain provisions of each pooling and servicing
agreement and certain legal developments that may affect the prepayment
experience on the mortgage loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the mortgage rates borne by the mortgage loans, the mortgage
loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above those mortgage rates. Conversely, if
prevailing
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interest rates rise appreciably above the mortgage rates borne by the mortgage
loans, the mortgage loans are likely to experience a lower prepayment rate than
if prevailing rates remain at or below those mortgage rates. However, there can
be no assurance that this will be the case.
When a full prepayment is made on a mortgage loan, the mortgagor is charged
interest on the principal amount of the mortgage loan prepaid only for the
number of days in the month actually elapsed up to the date of the prepayment
rather than for a full month. Thus, in most instances, the effect of prepayments
in full will be to reduce the amount of interest passed through in the following
month to certificateholders. Partial prepayments in a given month may be applied
to the outstanding principal balances of the mortgage loans so prepaid in the
month of receipt or the month following receipt. In the latter case, partial
prepayments will not reduce the amount of interest passed through in the month.
Interest payable on the certificates on any given distribution date will
include all interest accrued during their related interest accrual period. The
interest accrual period for the certificates of each series will be specified in
the applicable prospectus supplement. If the interest accrual period ends two or
more days before the related distribution date, your effective yield will be
less than it would be if the interest accrual period ended the day before the
distribution date, and your effective yield at par would be less than the
indicated coupon rate.
Under specified circumstances, the master servicer or the holders of the
residual interests in a REMIC may have the option to purchase the assets of a
trust fund thereby effecting earlier retirement of the related series of
certificates. See 'The Pooling and Servicing Agreement -- Termination; Optional
Termination.'
Factors other than those identified in this prospectus and in the related
prospectus supplement could significantly affect principal prepayments at any
time and over the lives of the certificates. The relative contribution of the
various factors affecting prepayment may also vary from time to time. There can
be no assurance as to the rate of payment of principal of the Mortgage Assets at
any time or over the lives of the certificates.
The prospectus supplement relating to a series of certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including principal prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of the certificates.
THE POOLING AND SERVICING AGREEMENT
The following is a summary of the material provisions of the pooling and
servicing agreement which are not described elsewhere in this prospectus. Where
particular provisions or terms used in the pooling and servicing agreement are
referred to, the provisions or terms are as specified in the related pooling and
servicing agreement.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
certificates of a series, the depositor will cause the mortgage loans comprising
the related trust fund to be assigned to the trustee, together with all
principal and interest received by or on behalf of the depositor on or with
respect to the mortgage loans after the cut-off date, other than principal and
interest due on or before the cut-off date and other than any retained interest
specified in the related prospectus supplement. The trustee will, concurrently
with the assignment, deliver the certificates to the depositor in exchange for
the mortgage loans. Each mortgage loan will be identified in a schedule
appearing as an exhibit to the related pooling and servicing agreement. The
schedule will include information as to the outstanding principal balance of
each mortgage loan after
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application of payments due on the cut-off date, as well as information
regarding the mortgage rate, the current scheduled monthly payment of principal
and interest, the maturity of the loan, the Loan-to-Value Ratio at origination
and other specified information.
In addition, the depositor will deliver or cause to be delivered to the
trustee (or to the custodian) for each mortgage loan
the mortgage note endorsed without recourse in blank or to the order of
the trustee, except that the depositor may deliver or cause to be
delivered a lost note affidavit in lieu of any original mortgage note that
has been lost,
the mortgage, deed of trust or similar instrument with evidence of
recording indicated on it (except for any mortgage not returned from the
public recording office, in which case the depositor will deliver or cause
to be delivered a copy of the mortgage together with a certificate that
the original of the mortgage was delivered to the recording office or some
other arrangement will be provided for),
an assignment of the mortgage to the trustee in recordable form and
any other security documents specified in the related prospectus
supplement or the related pooling and servicing agreement.
The applicable prospectus supplement may provide other arrangements for assuring
the priority of the assignments, but if it does not, then the depositor will
promptly cause the assignments of the related loans to be recorded in the
appropriate public office for real property records, except in states in which
in the opinion of counsel recording is not required to protect the trustee's
interest in the loans against the claim of any subsequent transferee or any
successor to or creditor of the depositor or the originator of the loans.
With respect to any mortgage loans that are cooperative loans, the
depositor will cause to be delivered to the trustee
the related original cooperative note endorsed without recourse in blank
or to the order of the trustee (or, to the extent the related pooling and
servicing agreement so provides, a lost note affidavit),
the original security agreement,
the proprietary lease or occupancy agreement,
the recognition agreement,
an executed financing agreement and
the relevant stock certificate, related blank stock powers and any other
document specified in the related prospectus supplement.
The depositor will cause to be filed in the appropriate office an
assignment and a financing statement evidencing the trustee's security interest
in each cooperative loan.
The trustee (or the custodian) will review the mortgage loan documents
within the time period specified in the related prospectus supplement after
receipt of them, and the trustee will hold the documents in trust for the
benefit of the certificateholders. Generally, if the document is found to be
missing or defective in any material respect, the trustee (or the custodian)
will notify the master servicer and the depositor, and the master servicer will
notify the related seller. If the seller cannot cure the omission or defect
within the time period specified in the related prospectus supplement after
receipt of the notice, the seller will be obligated to purchase the related
mortgage loan from the trustee at the purchase price or, if so specified in the
related
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prospectus supplement, replace the mortgage loan with another mortgage loan that
meets specified requirements. There can be no assurance that a seller will
fulfill this purchase obligation. Although the master servicer may be obligated
to enforce the obligation to the extent described under 'Mortgage Loan
Program -- Representations by Sellers; Repurchases,' neither the master servicer
nor the depositor will be obligated to purchase the mortgage loan if the seller
defaults on its purchase obligation, unless the breach also constitutes a breach
of the representations or warranties of the master servicer or the depositor.
The applicable prospectus supplement may provide other remedies but if it does
not, then this purchase obligation constitutes the sole remedy available to the
certificateholders or the trustee for omission of, or a material defect in, a
constituent document.
The trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the mortgage loans as agent of the trustee.
Notwithstanding these provisions, unless the related prospectus supplement
otherwise provides, no mortgage loan will be purchased from a trust fund for
which a REMIC election is to be made if the purchase would result in a
prohibited transaction tax under the Code.
Assignment of Agency Securities. The depositor will cause the Agency
Securities to be registered in the name of the trustee or its nominee, and the
trustee concurrently will execute, countersign and deliver the certificates.
Each Agency Security will be identified in a schedule appearing as an exhibit to
the pooling and servicing agreement, which will specify as to each Agency
Security the original principal amount and outstanding principal balance as of
the cut-off date, the annual pass-through rate and the maturity date.
Assignment of Private Mortgage-Backed Securities. The depositor will cause
the Private Mortgage-Backed Securities to be registered in the name of the
trustee. The trustee (or the custodian) will have possession of any certificated
Private Mortgage-Backed Securities. Generally, the trustee will not be in
possession of or be assignee of record of any underlying assets for a Private
Mortgage-Backed Security. See 'The Trust Fund -- Private Mortgage-Backed
Securities.' Each Private Mortgage-Backed Security will be identified in a
schedule appearing as an exhibit to the related pooling and servicing 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 and other specified pertinent information for each Private Mortgage-Backed
Security conveyed to the trustee.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO CERTIFICATE ACCOUNT
The master servicer will establish and maintain or cause to be established
and maintained for the related trust fund a separate account or accounts for the
collection of payments on the related Mortgage Assets in the trust fund (the
'Certificate Account'). The applicable prospectus supplement may provide for
other requirements for the Certificate Account, but if it does not, then the
Certificate Account must be either
maintained with a depository institution the short-term unsecured debt
obligations of which are rated in the highest short-term rating category
by the nationally recognized statistical rating organizations that rated
one or more classes of the related series of certificates at the request
of the depositor, or in the case of a depository institution that is the
principal subsidiary of a holding company, the short-term debt obligations
of the holding company are so rated,
an account or accounts the deposits in which are insured by the FDIC or
SAIF to the limits established by the FDIC or the SAIF, and the uninsured
deposits in which are
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otherwise secured such that, as evidenced by an opinion of counsel, the
certificateholders have a claim with respect to the funds in the
Certificate Account or a perfected first priority security interest
against any collateral securing the funds that is superior to the claims
of any other depositors or general creditors of the depository institution
with which the Certificate Account is maintained,
a trust account or accounts maintained with the trust department of a
federal or a state chartered depository institution or trust company,
acting in a fiduciary capacity or
an account or accounts otherwise acceptable to each rating agency that
rated one or more classes of the related series of certificates at the
request of the depositor.
The collateral eligible to secure amounts in the Certificate Account is limited
to defined permitted investments. A Certificate Account may be maintained as an
interest bearing account or the funds held in it may be invested pending each
succeeding distribution date in defined permitted investments. To the extent
provided in the related prospectus supplement, the master servicer or its
designee will be entitled to receive the interest or other income earned on
funds in the Certificate Account as additional compensation and will be
obligated to deposit in the Certificate Account the amount of any loss
immediately as realized. The Certificate Account may be maintained with the
master servicer or with a depository institution that is an affiliate of the
master servicer, provided it meets the standards set forth above.
The master servicer will deposit or cause to be deposited in the
Certificate Account for each trust fund on a daily basis, to the extent
applicable and unless the related pooling and servicing agreement provides for a
different deposit arrangement, the following payments and collections received
or advances made by or on behalf of it after the cut-off date (other than
payments due on or before the cut-off date and exclusive of any amounts
representing any retained interest specified in the related prospectus
supplement):
all payments on account of principal, including principal prepayments and,
if specified in the related prospectus supplement, prepayment penalties,
on the mortgage loans;
all payments on account of interest on the mortgage loans, net of
applicable servicing compensation;
all proceeds (net of unreimbursed payments of property taxes, insurance
premiums and similar items ('Insured Expenses') incurred, and unreimbursed
advances made, by the master servicer) of the hazard insurance policies
and any primary mortgage insurance policies, to the extent the proceeds
are not applied to the restoration of the property or released to the
mortgagor in accordance with the master servicer's normal servicing
procedures and all other cash amounts (net of unreimbursed expenses
incurred in connection with liquidation or foreclosure and unreimbursed
advances, if any) received and retained in connection with the liquidation
of defaulted mortgage loans, by foreclosure or otherwise, together with
any net proceeds received on a monthly basis with respect to any
properties acquired on behalf of the certificateholders by foreclosure or
deed in lieu of foreclosure;
all proceeds of any mortgage loan or property in respect thereof purchased
by the master servicer, the depositor or any seller as described under
'Mortgage Loan Program -- Representations by Sellers; Repurchases' or 'The
Pooling and Servicing Agreement -- Assignment of Mortgage Assets' above
and all proceeds of any mortgage loan repurchased as described under 'The
Pooling and Servicing Agreement -- Termination; Optional Termination';
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all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy described
under ' -- Hazard Insurance';
any amount required to be deposited by the master servicer in connection
with losses realized on investments for the benefit of the master servicer
of funds held in the Certificate Account and, to the extent specified in
the related prospectus supplement, any payments required to be made by the
master servicer in connection with prepayment interest shortfalls; and
all other amounts required to be deposited in the Certificate Account
pursuant to the pooling and servicing agreement.
The master servicer (or the depositor, as applicable) may from time to time
direct the institution that maintains the Certificate Account to withdraw funds
from the Certificate Account for the following purposes:
to pay to the master servicer the servicing fees described in the related
prospectus supplement, the master servicing fees (subject to reduction)
and, as additional servicing compensation, earnings on or investment
income with respect to funds in the amounts in the Certificate Account
credited thereto;
to reimburse the master servicer for advances, the right of reimbursement
with respect to any mortgage loan being limited to amounts received that
represent late recoveries of payments of principal and interest on the
mortgage loan (or insurance proceeds or liquidation proceeds from the
mortgage loan) with respect to which the advance was made;
to reimburse the master servicer for any advances previously made that the
master servicer has determined to be nonrecoverable;
to reimburse the master servicer from insurance proceeds not used to
restore the property for expenses incurred by the master servicer and
covered by the related insurance policies;
to reimburse the master servicer for unpaid master servicing fees and
unreimbursed out-of-pocket costs and expenses incurred by the master
servicer in the performance of its servicing obligations, the right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which the advances were made;
to pay to the master servicer, with respect to each mortgage loan or
property acquired in respect thereof that has been purchased by the master
servicer pursuant to the pooling and servicing agreement, all amounts
received on them and not taken into account in determining the principal
balance of the repurchased mortgage loan;
to reimburse the master servicer or the depositor for expenses incurred
and reimbursable pursuant to the pooling and servicing agreement;
to withdraw any amount deposited in the Certificate Account that was not
required to be deposited in it; and
to clear and terminate the Certificate Account upon termination of the
pooling and servicing agreement.
In addition, the pooling and servicing agreement will generally provide
that on or before the business day preceding each distribution date, the master
servicer shall withdraw from the Certificate Account the amount of Available
Funds, to the extent on deposit, for deposit in an account maintained by the
trustee for the related series of certificates.
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COLLECTION PROCEDURES
The master servicer, directly or through one or more sub-servicers, will
make reasonable efforts to collect all payments called for under the mortgage
loans and will, consistent with each pooling and servicing agreement and any
mortgage pool insurance policy, primary mortgage insurance policy, FHA
insurance, VA guaranty and bankruptcy bond or alternative arrangements, follow
the collection procedures it customarily follows for mortgage loans that are
comparable to the mortgage loans. Consistent with the above, the master servicer
may, in its discretion, waive any assumption fee, late payment or other charge
in connection with a mortgage loan and arrange with a mortgagor a schedule for
the liquidation of delinquencies running for no more than 125 days after the
applicable due date for each payment to the extent not inconsistent with the
coverage of the mortgage loan by a mortgage pool insurance policy, primary
mortgage insurance policy, FHA insurance, VA guaranty or bankruptcy bond or
alternative arrangements, if applicable. To the extent the master servicer is
obligated to make or to cause to be made advances, the obligation will remain
during any period of such an arrangement.
The applicable prospectus supplement may provide for other alternatives
regarding due-on-sale clauses, but if it does not, then in any case in which
property securing a conventional mortgage loan has been, or is about to be,
conveyed by the mortgagor, the master servicer will, to the extent it has
knowledge of the conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of the mortgage loan under any
due-on-sale clause applicable to it, but only if permitted by applicable law and
the exercise will not impair or threaten to impair any recovery under any
related primary mortgage insurance policy. If these conditions are not met or if
the master servicer reasonably believes it is unable under applicable law to
enforce the due-on-sale clause or if the mortgage loan is insured by the FHA or
partially guaranteed by the VA, the master servicer will enter into or cause to
be entered into an assumption and modification agreement with the person to whom
the property has been or is about to be conveyed, pursuant to which that person
becomes liable for repayment of the mortgage loan and, to the extent permitted
by applicable law, the mortgagor also remains liable on it. Any fee collected by
or on behalf of the master servicer for entering into an assumption agreement
will be retained by or on behalf of the master servicer as additional servicing
compensation. See 'Certain Legal Aspects of the Mortgage Loans -- Due-on-Sale
Clauses.' The terms of the related mortgage loan may not be changed in
connection with an assumption.
Any prospective purchaser of a cooperative apartment will generally have to
obtain the approval of the board of directors of the relevant cooperative before
purchasing the shares and acquiring rights under the related proprietary lease
or occupancy agreement. See 'Certain Legal Aspects of the Mortgage Loans.' This
approval is usually based on the purchaser's income and net worth and numerous
other factors. Although the cooperative's approval is unlikely to be
unreasonably withheld or delayed, the necessity of acquiring the approval could
limit the number of potential purchasers for those shares and otherwise limit
the trust fund's ability to sell and realize the value of shares securing a
cooperative loan.
In general, a 'tenant-stockholder' (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a 'cooperative housing corporation' within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which the items are allowable as a deduction
to the corporation, the Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this
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requirement, the status of a corporation for purposes of Code Section 216(b)(1)
must be determined on a year-to-year basis. Consequently, there can be no
assurance that cooperatives relating to the cooperative loans will qualify under
Section 216(b)(1) for any particular year. If a cooperative fails to qualify for
one or more years, the value of the collateral securing any related cooperative
loans could be significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that a
failure to qualify would be permitted to continue over a period of years appears
remote.
HAZARD INSURANCE
The master servicer will require the mortgagor on each mortgage loan to
maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary for
the type of mortgaged property in the state in which the mortgaged property is
located. The coverage will be in an amount that is at least equal to the lesser
of
the maximum insurable value of the improvements securing the mortgage loan
or
the greater of
the outstanding principal balance of the mortgage loan and
an amount such that the proceeds of the policy shall be sufficient to
prevent the mortgagor or the mortgagee from becoming a co-insurer.
All amounts collected by the master servicer under any hazard policy (except for
amounts to be applied to the restoration or repair of the mortgaged property or
released to the mortgagor in accordance with the master servicer's normal
servicing procedures) will be deposited in the related Certificate Account. If
the master servicer maintains a blanket policy insuring against hazard losses on
all the mortgage loans comprising part of a trust fund, it will have satisfied
its obligation relating to the maintenance of hazard insurance. The blanket
policy may contain a deductible clause, in which case the master servicer will
be required to deposit from its own funds into the related Certificate Account
the amounts that would have been deposited therein but for the clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a mortgage loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the mortgage loans may have been
underwritten by different insurers under different state laws in accordance with
different applicable forms and therefore may not contain identical terms, their
basic terms are dictated by the respective state laws, and most policies
typically do not cover any physical damage resulting from war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mud flows), nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. This list is merely indicative of certain kinds of uninsured risks
and is not all inclusive. If the mortgaged property securing a mortgage loan is
located in a federally designated special flood area at the time of origination,
the master servicer will require the mortgagor to obtain and maintain flood
insurance.
The hazard insurance policies covering properties securing the mortgage
loans typically contain a clause that in effect requires the insured at all
times to carry insurance of a specified
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percentage (generally 80% to 90%) of the full replacement value of the insured
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability upon partial loss will not exceed the larger of the actual cash value
(generally defined as replacement cost at the time and place of loss, less
physical depreciation) of the improvements damaged or destroyed and the
proportion of the loss that the amount of insurance carried bears to the
specified percentage of the full replacement cost of the improvements. Since the
amount of hazard insurance the master servicer may cause to be maintained on the
improvements securing the mortgage loans declines as the principal balances
owing on them decrease, and since improved real estate generally has appreciated
in value over time in the past, the effect of this requirement upon partial loss
may be that hazard insurance proceeds will be insufficient to fully restore the
damaged property. If specified in the related prospectus supplement, a special
hazard insurance policy will be obtained to insure against certain of the
uninsured risks described above. See 'Credit Enhancement -- Special Hazard
Insurance Policies' and 'Credit Enhancements -- Insurance -- Special Hazard
Insurance Policy' in the related prospectus supplement.
The master servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
cooperative loan. Generally, the cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a cooperative loan do not maintain insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative dwelling or the
cooperative's building could significantly reduce the value of the collateral
securing the cooperative loan.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Primary Mortgage Insurance Policies. The master servicer will maintain or
cause to be maintained, as the case may be, in effect, to the extent specified
in the related prospectus supplement, a primary mortgage insurance policy with
regard to each mortgage loan for which coverage is required. The master servicer
will not cancel or refuse to renew any primary mortgage insurance policy in
effect at the time of the initial issuance of a series of certificates that is
required to be kept in force under the applicable pooling and servicing
agreement unless the replacement primary mortgage insurance policy for the
cancelled or nonrenewed policy is maintained with an insurer whose claims-paying
ability is sufficient to maintain the current rating of the classes of
certificates of the series that have been rated.
Although the terms of primary mortgage insurance vary, the amount of a
claim for benefits under a primary mortgage insurance policy covering a mortgage
loan will consist of the insured percentage of the unpaid principal amount of
the covered mortgage loan and accrued and unpaid interest on it and
reimbursement of certain expenses, less all rents or other payments collected or
received by the insured (other than the proceeds of hazard insurance) that are
derived from or in any way related to the mortgaged property, hazard insurance
proceeds in excess of the amount required to restore the mortgaged property and
which have not been applied to the payment of the mortgage loan, amounts
expended but not approved by the issuer of the related primary mortgage
insurance policy, claim payments previously made by the primary insurer and
unpaid premiums.
Primary mortgage insurance policies reimburse certain losses sustained from
defaults in payments by borrowers. Primary mortgage insurance policies will not
insure against, and exclude from coverage, a loss sustained from a default
arising from or involving certain matters,
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including fraud or negligence in origination or servicing of the mortgage loans,
including misrepresentation by the originator, mortgagor or other persons
involved in the origination of the mortgage loan; failure to construct the
mortgaged property subject to the mortgage loan in accordance with specified
plans; physical damage to the mortgaged property; and the related sub-servicer
not being approved as a servicer by the primary insurer.
Recoveries Under A Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a primary mortgage
insurance policy covering a mortgage loan, the insured will be required to
advance or discharge
all hazard insurance policy premiums and
as necessary and approved in advance by the primary insurer, real
estate property taxes, all expenses required to maintain the related
mortgaged property in at least as good a condition as existed at the
effective date of the primary mortgage insurance policy, ordinary wear
and tear excepted, mortgaged property sales expenses, any specified
outstanding liens on the mortgaged property and foreclosure costs,
including court costs and reasonable attorneys' fees;
upon any physical loss or damage to the mortgaged property, have the
mortgaged property restored and repaired to at least as good a condition
as existed at the effective date of the primary mortgage insurance policy,
ordinary wear and tear excepted; and
tender to the primary insurer good and merchantable title to and
possession of the mortgaged property.
The master servicer, on behalf of itself, the trustee and the
certificateholders, will present claims to the insurer under each primary
mortgage insurance policy, and will take any reasonable steps consistent with
its practices regarding comparable mortgage loans and necessary to receive
payment or to permit recovery under the policy with respect to defaulted
mortgage loans. As set forth above, all collections by or on behalf of the
master servicer under any primary mortgage insurance policy and, when the
mortgaged property has not been restored, the hazard insurance policy, are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described.
If the mortgaged property securing a defaulted mortgage loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged mortgaged property to a condition sufficient to permit
recovery under the related primary mortgage insurance policy, if any, the master
servicer is not required to expend its own funds to restore the damaged
mortgaged property unless it determines that the restoration will increase the
proceeds to certificateholders on liquidation of the mortgage loan after
reimbursement of the master servicer for its expenses and that the expenses will
be recoverable by it from related insurance proceeds or liquidation proceeds.
If recovery on a defaulted mortgage loan under any related primary mortgage
insurance policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted mortgage loan is not covered by a primary
mortgage insurance policy, the master servicer will be obligated to follow or
cause to be followed the normal practices and procedures that it deems
appropriate to realize upon the defaulted mortgage loan. If the proceeds of any
liquidation of the mortgaged property securing the defaulted mortgage loan are
less than the principal balance of the mortgage loan plus interest accrued on it
that is payable to certificateholders, the trust fund will realize a loss in the
amount of the difference plus the aggregate of expenses incurred by the master
servicer in connection with the proceedings that are reimbursable under the
pooling
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and servicing agreement. In the unlikely event that the proceedings result in a
total recovery which is, after reimbursement to the master servicer of its
expenses, in excess of the principal balance of the mortgage loan plus interest
accrued on it that is payable to certificateholders, the master servicer will be
entitled to withdraw or retain from the Certificate Account amounts representing
its normal servicing compensation with respect to the mortgage loan and, unless
otherwise specified in the related prospectus supplement, amounts representing
the balance of the excess, exclusive of any amount required by law to be
forwarded to the related mortgagor, as additional servicing compensation.
If the master servicer or its designee recovers insurance proceeds not used
to restore the property which, when added to any related liquidation proceeds
and after deduction of certain expenses reimbursable to the master servicer,
exceed the principal balance of a mortgage loan plus interest accrued thereon
that is payable to certificateholders, the master servicer will be entitled to
withdraw or retain from the Certificate Account amounts representing its normal
servicing compensation with respect to the mortgage loan. If the master servicer
has expended its own funds to restore the damaged mortgaged property and the
funds have not been reimbursed under the related hazard insurance policy, it
will be entitled to withdraw from the Certificate Account out of related
liquidation proceeds or insurance proceeds an amount equal to the expenses
incurred by it, in which event the trust fund may realize a loss up to the
amount so charged. Since insurance proceeds cannot exceed deficiency claims and
certain expenses incurred by the master servicer, no insurance payment or
recovery will result in a recovery to the trust fund that exceeds the principal
balance of the defaulted mortgage loan together with accrued interest on it. See
'Credit Enhancement' in this prospectus and in the related prospectus
supplement.
Unless the related pooling and servicing agreement provides for a different
application of liquidation proceeds, the proceeds from any liquidation of a
mortgage loan will be applied in the following order of priority:
first, to reimburse the master servicer for any unreimbursed expenses
incurred by it to restore the related mortgaged property and any
unreimbursed servicing compensation payable to the master servicer with
respect to the mortgage loan;
second, to reimburse the master servicer for any unreimbursed advances
with respect to the mortgage loan;
third, to accrued and unpaid interest (to the extent no advance has
been made for the amount) on the mortgage loan;
and fourth, as a recovery of principal of the mortgage loan.
FHA Insurance; VA Guaranties. Mortgage loans designated in the related
prospectus supplement as insured by the FHA will be insured by the FHA as
authorized under the United States National Housing Act of 1934 of 1937, as
amended. Those mortgage loans will be insured under various FHA programs
including the standard FHA 203(b) program to finance the acquisition of one-to
four-family housing units and the FHA 245 graduated payment mortgage program.
These programs generally limit the principal amount and interest rates of the
mortgage loans insured. Mortgage loans insured by the FHA generally require a
minimum down payment of approximately 5% of the original principal amount of the
loan. No FHA-insured mortgage loans relating to a series may have an interest
rate or original principal amount exceeding the applicable FHA limits at the
time of origination of the loan.
The insurance premiums for mortgage loans insured by the FHA are collected
by lenders approved by the HUD or by the master servicer or any sub-servicers
and are paid to the FHA. The regulations governing FHA single-family mortgage
insurance programs provide that
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insurance benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted mortgage loan to HUD. With respect to a defaulted FHA-insured
mortgage loan, the master servicer or any sub-servicer is limited in its ability
to initiate foreclosure proceedings. When it is determined, either by the master
servicer or any sub-servicer or HUD, that default was caused by circumstances
beyond the mortgagor's control, the master servicer or any sub-servicer is
expected to make an effort to avoid foreclosure by entering, if feasible, into
one of a number of available forms of forbearance plans with the mortgagor.
These plans may involve the reduction or suspension of regular mortgage payments
for a specified period, with the payments to be made up on or before the
maturity date of the mortgage, or the recasting of payments due under the
mortgage up to or beyond the maturity date. In addition, when a default caused
by circumstances beyond the mortgagor's control is accompanied by certain other
criteria, HUD may provide relief by making payments to the master servicer or
any sub-servicer in partial or full satisfaction of amounts due under the
mortgage loan (which payments are to be repaid by the mortgagor to HUD) or by
accepting assignment of the loan from the master servicer or any sub-servicer.
With certain exceptions, at least three full monthly installments must be due
and unpaid under the mortgage loan and HUD must have rejected any request for
relief from the mortgagor before the master servicer or any sub-servicer may
initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. The master servicer of any sub-servicer of each FHA-
insured mortgage loan will be obligated to purchase the debenture issued in
satisfaction of the mortgage loan upon default for an amount equal to the
principal amount of the debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted mortgage loan adjusted to
reimburse the master servicer or sub-servicer for certain costs and expenses and
to deduct certain amounts received or retained by the master servicer or
sub-servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
master servicer or sub-servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for accrued and unpaid interest but in
general only to the extent it was allowed pursuant to a forbearance plan
approved by HUD. When entitlement to insurance benefits results from assignment
of the mortgage loan to HUD, the insurance payment includes full compensation
for interest accrued and unpaid to the assignment date. The insurance payment
itself, upon foreclosure of an FHA-insured mortgage loan, bears interest from a
date 30 days after the mortgagor's first uncorrected failure to perform any
obligation to make any payment due under the mortgage loan and, upon assignment,
from the date of assignment to the date of payment of the claim, in each case at
the same interest rate as the applicable HUD debenture interest rate as
described above.
Mortgage loans designated in the related prospectus supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended. The Serviceman's Readjustment
Act of 1944, as amended, permits a veteran (or in certain instances the spouse
of a veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no mortgage loan guaranteed by the VA will
have an original principal amount greater than five times the partial VA
guaranty for the mortgage loan.
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The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 3703(a), as amended. As of
February 1996, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $50,750. The liability on the
guaranty is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guaranty
exceed the amount of the original guaranty. The VA may, at its option and
without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed mortgage loan, the master
servicer or sub-servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guaranty is submitted after liquidation
of the mortgaged property.
The amount payable under the guaranty will be the percentage of the
VA-insured mortgage loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guaranty will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that the amounts have not been recovered through
liquidation of the mortgaged property. The amount payable under the guaranty may
in no event exceed the amount of the original guaranty.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the master servicer in
respect of its master servicing activities for each series of certificates will
be equal to the percentage per annum described in the related prospectus
supplement (which may vary under certain circumstances) of the outstanding
principal balance of each mortgage loan, and the compensation will be retained
by it from collections of interest on the mortgage loan in the related trust
fund. As compensation for its servicing duties, a sub-servicer or, if there is
no sub-servicer, the master servicer will be entitled to a monthly servicing fee
as described in the related prospectus supplement. In addition, generally the
master servicer or a sub-servicer will retain all prepayment charges, assumption
fees and late payment charges, to the extent collected from mortgagors, and any
benefit that may accrue as a result of the investment of funds in the applicable
Certificate Account.
The master servicer will, to the extent provided in the related pooling and
servicing agreement, pay or cause to be paid certain ongoing expenses associated
with each trust fund and incurred by it in connection with its responsibilities
under the related 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, and
payment of expenses incurred in enforcing the obligations of sub-servicers and
sellers. The master servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of sub-servicers and sellers under certain
limited circumstances. In addition, as indicated in the preceding section, the
master servicer will be entitled to reimbursement for certain expenses incurred
by it in connection with any defaulted mortgage loan as to which it has
determined that all recoverable liquidation proceeds and insurance proceeds have
been received (a 'Liquidated Mortgage'), and in connection with the restoration
of mortgaged
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properties, the right of reimbursement being before the rights of
certificateholders to receive any related liquidation proceeds (including
insurance proceeds).
EVIDENCE AS TO COMPLIANCE
Each pooling and servicing agreement will provide that on or before a
specified date in each year, a firm of independent public accountants will
furnish a statement to the trustee to the effect that, on the basis of the
examination by the firm conducted substantially in compliance with the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for Freddie Mac, the servicing by or on behalf of the master
servicer of mortgage loans, Private Mortgage-Backed Securities or Agency
Securities, under pooling and servicing agreements substantially similar to each
other (including the related pooling and servicing agreement) was conducted in
compliance with those agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Audit Program for Mortgages
serviced for Freddie Mac or the Uniform Single Attestation Program for Mortgage
Bankers requires it to report. In rendering its statement the firm may rely, as
to matters relating to the direct servicing of mortgage loans, Private
Mortgage-Backed Securities or Agency Securities by sub-servicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for Freddie Mac (rendered within one year of the
statement) of firms of independent public accountants with respect to the
related sub-servicer.
Each pooling and servicing agreement will also provide for delivery to the
trustee, on or before a specified date in each year, of an annual statement
signed by two officers of the master servicer to the effect that the master
servicer has fulfilled its obligations under the pooling and servicing agreement
throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the master servicer may be obtained by certificateholders of the related
series without charge upon written request to the master servicer at the address
set forth in the related prospectus supplement.
LIST OF CERTIFICATEHOLDERS
Each pooling and servicing agreement will provide that three or more
holders of certificates of any series may, by written request to the trustee,
obtain access to the list of all certificateholders maintained by the trustee
for the purpose of communicating with other certificateholders with respect to
their rights under the pooling and servicing agreement and the certificates.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The master servicer under each pooling and servicing agreement will be
named in the related prospectus supplement. The entity serving as master
servicer may be an affiliate of the depositor and may have other business
relationships with the depositor or the depositor's affiliates.
Each pooling and servicing agreement will provide that the master servicer
may not resign from its obligations and duties under the pooling and servicing
agreement except upon a determination that the performance by it of its duties
under the pooling and servicing agreement is no longer permissible under
applicable law. No resignation will become effective until the trustee or a
successor servicer has assumed the master servicer's obligations and duties
under the pooling and servicing agreement.
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Each pooling and servicing agreement will further provide that neither the
master servicer, the depositor nor any director, officer, employee, or agent of
the master servicer or the depositor will be under any liability to the related
trust fund or certificateholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the pooling and servicing
agreement, or for errors in judgment. However, neither the master servicer, the
depositor nor any director, officer, employee, or agent of the master servicer
or the depositor will be protected against any liability that would otherwise be
imposed for willful misfeasance, bad faith or negligence in the performance of
duties under the pooling and servicing agreement or for reckless disregard of
obligations and duties under the pooling and servicing agreement. Each pooling
and servicing agreement will further provide that the master servicer, the
depositor and any director, officer, employee or agent of the master servicer or
the depositor will be entitled to indemnification by the related trust fund and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the pooling and servicing agreement
or the certificates, other than any loss, liability or expense related to any
specific Mortgage Asset or Mortgage Assets (except any loss, liability or
expense otherwise reimbursable pursuant to the pooling and servicing agreement)
and any loss, liability or expense incurred for willful misfeasance, bad faith
or negligence in the performance of duties under the pooling and servicing
agreement or for reckless disregard of obligations and duties under the pooling
and servicing agreement. In addition, each pooling and servicing agreement will
provide that neither the master servicer nor the depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the pooling and servicing
agreement and that in its opinion may involve it in any expense or liability.
The master servicer or the depositor may, however, in its discretion undertake
any action that it deems appropriate with respect to the pooling and servicing
agreement and the rights and duties of the parties to the pooling and servicing
agreement and the interests of the certificateholders under the pooling and
servicing agreement. In that event, the legal expenses and costs of the action
and any liability resulting from it will be expenses, costs and liabilities of
the trust fund, and the master servicer or the depositor, as the case may be,
will be entitled to be reimbursed for them out of funds otherwise distributable
to certificateholders.
Any person into which the master servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the master
servicer is a party, or any person succeeding to the business of the master
servicer, will be the successor of the master servicer under each pooling and
servicing agreement, provided that the person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, Fannie Mae or Freddie Mac and
further provided that the merger, consolidation or succession does not adversely
affect the then current rating or ratings of the class or classes of
certificates of any series that have been rated.
EVENTS OF DEFAULT
The applicable prospectus supplement may provide for other events of
default, but if it does not, then events of default under each pooling and
servicing agreement will consist of
any failure by the master servicer to deposit in the Certificate Account
or remit to the trustee any payment which continues unremedied for five
days after the giving of written notice of the failure to the master
servicer by the trustee or the depositor, or to the master servicer and
the trustee by the holders of certificates having not less than 25% of the
voting rights evidenced by the certificates;
any failure by the master servicer to observe or perform in any material
respect any of its other covenants or agreements in the pooling and
servicing agreement which failure materially affects the rights of
certificateholders that continues unremedied for sixty days
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after the giving of written notice of the failure to the master servicer
by the trustee or the depositor, or to the master servicer and the trustee
by the holders of certificates of any class evidencing not less than 25%
of the voting rights evidenced by the certificate; and
certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding and certain actions by or on behalf
of the master servicer indicating its insolvency, reorganization or
inability to pay its obligations.
'Voting rights' are the portion of voting rights of all of the certificates that
is allocated to any certificate pursuant to the terms of the pooling and
servicing agreement.
If specified in the related prospectus supplement, the pooling and
servicing agreement will permit the trustee to sell the Mortgage Assets and the
other assets of the trust fund if payments on them are insufficient to make
payments required in the pooling and servicing agreement. The assets of the
trust fund will be sold only under the circumstances and in the manner specified
in the related prospectus supplement.
RIGHTS UPON EVENT OF DEFAULT
So long as an event of default under an pooling and servicing agreement
remains unremedied, the depositor or the trustee may, and at the direction of
holders of certificates having not less than 66 2/3% of the voting rights and
under any other circumstances specified in the pooling and servicing agreement,
the trustee shall, terminate all of the rights and obligations of the master
servicer under the pooling and servicing agreement relating to the trust fund
and in the Mortgage Assets, whereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the master servicer under the
pooling and servicing agreement, including, if specified in the related
prospectus supplement, the obligation to make advances, and will be entitled to
similar compensation arrangements. If the trustee is unwilling or unable so to
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the master servicer under the pooling
and servicing agreement. Pending appointment, the trustee is obligated to act as
master servicer. The trustee and any successor may agree upon the servicing
compensation to be paid to the successor servicer, which may not be greater than
the compensation payable to the master servicer under the pooling and servicing
agreement.
No certificateholder, solely by virtue of its status as a
certificateholder, will have any right under any 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 the holders of any class of certificates of the series evidencing not
less than 25% of the voting rights have requested the trustee in writing to
institute a 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 the proceeding.
AMENDMENT
The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each pooling and servicing agreement may be
amended by the depositor, the master servicer and the trustee, without the
consent of any of the certificateholders,
(a) to cure any ambiguity or mistake;
(b) to correct any defective provision therein or to supplement any
provision in the pooling and servicing agreement that may be inconsistent
with any other provision in it;
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(c) to add to the duties of the depositor, the seller or the master
servicer;
(d) to add any other provisions with respect to matters or questions
arising under the pooling and servicing agreement; or
(e) to modify, alter, amend, add to or rescind any of the terms or
provisions contained in the pooling and servicing agreement.
However, no action pursuant to clauses (d) or (e) may, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
any certificateholder. But no opinion of counsel will be required if the person
requesting the amendment obtains a letter from each rating agency requested to
rate the class or classes of certificates of the series stating that the
amendment will not result in the downgrading or withdrawal of the respective
ratings then assigned to the certificates.
In addition, to the extent provided in the related pooling and servicing
agreement, an pooling and servicing agreement may be amended without the consent
of any of the certificateholders to change the manner in which the Certificate
Account is maintained, if the change does not adversely affect the then current
rating of the class or classes of certificates of the series that have been
rated at the request of the depositor. Moreover, the related pooling and
servicing agreement may be amended to modify, eliminate or add to any of its
provisions to the extent necessary to maintain the qualification of the related
trust fund as a REMIC or to avoid or minimize the risk of imposition of any tax
on the REMIC, if a REMIC election is made with respect to the trust fund, or to
comply with any other requirements of the Code, if the trustee has received an
opinion of counsel to the effect that the action is necessary or helpful to
maintain the qualification, avoid or minimize that risk or comply with those
requirements, as applicable.
The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each pooling and servicing agreement may
also be amended by the depositor, the master servicer and the trustee with the
consent of holders of certificates of the series evidencing a majority in
interest of each class affected thereby for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the pooling
and servicing agreement or of modifying in any manner the rights of the holders
of the related certificates. However, no amendment may
(a) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Assets that are required to be distributed on
any certificate without the consent of the holder of the certificate,
(b) adversely affect in any material respect the interests of the
holders of any class of certificates in a manner other than as described in
(a), without the consent of the holders of certificates of the class
evidencing, as to the class, percentage interests aggregating 66%, or
(c) reduce the aforesaid percentage of certificates of any class of
holders that is required to consent to the amendment without the consent of
the holders of all certificates of the class covered by the pooling and
servicing agreement then outstanding.
If a REMIC election is made with respect to a trust fund, the trustee will not
be entitled to consent to an amendment to the related pooling and servicing
agreement without having first received an opinion of counsel to the effect that
the amendment will not cause the trust fund to fail to qualify as a REMIC.
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TERMINATION; OPTIONAL TERMINATION
Generally, the obligations created by each pooling and servicing agreement
for each series of certificates will terminate upon the payment to the related
certificateholders of all amounts held in the Certificate Account or by the
master servicer and required to be paid to them pursuant to the pooling and
servicing agreement following the later of
the final payment or other liquidation of the last of the Mortgage Assets
subject to it or the disposition of all property acquired upon foreclosure
of the Mortgage Assets remaining in the trust fund and
the purchase by the master serviceer or, if REMIC treatment has been
elected and if specified in the related prospectus supplement, by the
holder of the residual interest in the REMIC (see 'Material Federal Income
Tax Consequences' in this prospectus and in the related prospectus
supplement), from the related trust fund of all of the remaining Mortgage
Assets and all property acquired in respect of the Mortgage Assets.
Any purchase of Mortgage Assets and property acquired in respect of
Mortgage Assets evidenced by a series of certificates will be made at the option
of the master servicer or the party specified in the related prospectus
supplement, including the holder of the REMIC residual interest, at a price, and
in accordance with the procedures, specified in the related prospectus
supplement. The exercise of that right will effect early retirement of the
certificates of that series, but the right of the master servicer or the other
party or, if applicable, the holder of the REMIC residual interest, to so
purchase is subject to the principal balance of the related Mortgage Assets
being less than the percentage specified in the related prospectus supplement of
the aggregate principal balance of the Mortgage Assets at the cut-off date for
the series. The foregoing is subject to the provision that if a REMIC election
is made with respect to a trust fund, any repurchase pursuant to the second
bulleted item above will be made only in connection with a 'qualified
liquidation' of the REMIC within the meaning of Section 860F(a)(4) of the Code.
THE TRUSTEE
The trustee under each pooling and servicing agreement will be named in the
applicable prospectus supplement. The commercial bank or trust company serving
as trustee may have normal banking relationships with the depositor, the master
servicer and any of their respective affiliates.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the mortgage loans. Because the legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state or to encompass the laws of all states in which the
security for the mortgage loans is situated.
GENERAL
The mortgage loans will be secured by deeds of trust, mortgages, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the property subject to the loan is located. Deeds of trust are
used almost exclusively in California instead of mortgages. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is generally
not before the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage, the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
Cooperatives. Certain of the mortgage loans may be cooperative loans. The
cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
cooperative or underlying land or both, as is generally the case, the
cooperative, as project mortgagor, is also responsible for meeting these
mortgage obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the cooperative's
apartment building. The interest of the occupant under proprietary leases or
occupancy agreements to which that cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket mortgage on a cooperative may
provide financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make the final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of a trust fund
including cooperative loans, the collateral securing the cooperative loans.
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The cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing the tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying rights is financed through a
cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
FORECLOSURE AND REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, such as California, 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 any notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest of record in the real property,
including any junior lien holders. If the deed of trust is not reinstated within
any applicable cure period, a notice of sale must be posted in a public place
and, in most states, including California, published for a specified period of
time in one or more newspapers. In addition, these notice provisions 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. In California, the entire
process from recording a notice of default to a non-judicial sale usually takes
four to five months.
In some states, including California, the borrower-trustor has the right to
reinstate the loan at any time following default until shortly before the
trustee's sale. In general, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recoverable by a lender.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement
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period, cure a monetary default by paying the entire amount in arrears plus
other designated costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the deed
of trust is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making repairs at its own expense 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.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
Cooperative Loans. The cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by the tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by the
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate the lease or agreement if an obligor fails
to make payments or defaults in the performance of covenants required under it.
Typically, the lender and the cooperative enter into a recognition agreement,
which establishes the rights and obligations of both parties upon a default by
the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, if the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from the sale of the cooperative apartment,
subject, however, to the cooperative's right
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to sums due under the proprietary lease or occupancy agreement. The total amount
owed to the cooperative by the tenant-stockholder, which the lender generally
cannot restrict and does not monitor, could reduce the value of the collateral
below the outstanding principal balance of the cooperative loan and accrued and
unpaid interest on it.
Recognition agreements also provide that upon foreclosure of a cooperative
loan, the lender must obtain the approval or consent of the cooperative as
required by the proprietary lease before transferring the cooperative shares or
assigning the proprietary lease. Generally, the lender is not limited in any
rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a 'commercially reasonable' manner. Whether a foreclosure sale has
been conducted in a 'commercially reasonable' manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See 'Anti-Deficiency Legislation and Other
Limitations on Lenders.'
In the case of foreclosure on a building converted from a rental building
to a building owned by a cooperative under a non-eviction plan, some states
require that a purchaser at a foreclosure sale take the property subject to rent
control and rent stabilization laws that apply to certain tenants who elected to
remain in the building but who did not purchase shares in the cooperative when
the building was so converted.
RIGHTS OF REDEMPTION
In some states after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, including California, this right of redemption applies
only to sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In some states, the right to redeem
is an equitable right. The effect of a 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 after judicial foreclosure or sale under a deed
of trust. Consequently, the practical effect of the redemption right is to force
the lender to retain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California,
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statutes limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure or a sale under a deed of
trust. A deficiency judgment is a personal judgment against the borrower equal
in most cases to the difference between the amount due to the lender and the
current fair market value of the property at the time of the foreclosure sale.
As a result of these prohibitions, it is anticipated that in most instances the
master servicer will utilize the non-judicial foreclosure remedy and will not
seek deficiency judgments against defaulting mortgagors.
Some state statutes may 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 that security.
However, in some of these states, following judgment on a personal action, the
lender may be considered to have elected a remedy and may be precluded from
exercising other remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, upon waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize on its security. For example, in a proceeding
under the federal Bankruptcy Code, a lender may not foreclose on a mortgaged
property without the permission of the bankruptcy court. And in certain
instances a bankruptcy court may allow a borrower to reduce the monthly
payments, change the rate of interest, and alter the mortgage loan repayment
schedule for under collateralized mortgage loans. The effect of these types of
proceedings can be to cause delays in receiving payments on the loans underlying
certificates and even to reduce the aggregate amount of payments on the loans
underlying certificates.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party. Numerous federal and state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These 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 and state laws impose specific
statutory liabilities on lenders who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the loans or
contracts.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
cooperative loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
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
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the property to assure the payment of the costs of clean-up. In several states
that lien has priority over the lien of an existing mortgage on 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 the costs on
any and all 'responsible parties,' including owners or operators. However,
CERCLA excludes from the definition of 'owner or operator' a secured creditor
who holds indicia of ownership primarily to protect its security interest but
does not 'participate in the management' of the property. Thus, if a lender's
activities begin to encroach on the actual management of a contaminated facility
or property, the lender may incur liability as an 'owner or operator' under
CERCLA. Similarly, if a lender forecloses and takes title to a contaminated
facility or property, the lender may incur CERCLA liability in various
circumstances, including 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.
Whether actions taken by a lender would constitute participation in the
management of a property causing the lender to lose the protection of the
secured creditor exclusion has been a matter of judicial interpretation of the
statutory language, and court decisions have historically been inconsistent. In
United States v. Fleet Factors Corp. (1990), the United States Court of Appeals
for the Eleventh Circuit suggested that the mere capacity of the lender to
influence a borrower's decisions regarding disposal of hazardous substances was
sufficient participation in the management of the borrower's business to deny
the protection of the secured creditor exclusion to the lender, regardless of
whether the lender actually exercised influence. Other judicial decisions did
not interpret the secured creditor exclusion as narrowly as did the Eleventh
Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
'Asset Conservation Act'), which took effect on September 30, 1996. The Asset
Conservation Act provides that to be deemed to have participated in the
management of a secured property, a lender must actually participate in the
operational affairs of the property or of the borrower. The Asset Conservation
Act also provides that participation in the management of the property does not
include 'merely having the capacity to influence, or unexercised right to
control' operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the secured property.
If a lender is or becomes liable, it can bring an action for contribution
against any other 'responsible parties,' including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that the costs arising from the
circumstances set forth above would result in a loss to certificateholders.
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
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for underground storage tanks under Subtitle I of RCRA. Under that 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. Moreover, under the Asset Conservation Act, the
protections accorded to lenders under CERCLA are also accorded to holders of
security interests in underground petroleum storage 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.
Except as otherwise specified in the applicable prospectus supplement, at
the time the mortgage loans were originated, no environmental assessment or a
very limited environmental assessment of the Mortgage Properties was conducted.
DUE-ON-SALE CLAUSES
Generally, each conventional mortgage loan will contain a due-on-sale
clause which will generally provide that if the mortgagor or obligor sells,
transfers or conveys the mortgaged property, the loan may be accelerated by the
mortgagee. In recent years, court decisions and legislative actions have placed
substantial restriction on the right of lenders to enforce these clauses in many
states. For instance, the California Supreme Court in August 1978 held that
due-on-sale clauses were generally unenforceable. However, the Garn-St Germain
Depository Institutions Act of 1982 (the 'Garn-St Germain Act'), subject to
specified exceptions, preempts state constitutional, statutory and case law
prohibiting the enforcement of due-on-sale clauses. As to loans secured by an
owner-occupied residence, the Garn-St Germain Act sets forth nine specific
instances in which a mortgagee covered by the Garn-St Germain Act may not
exercise its rights under a due-on-sale clause, notwithstanding the fact that a
transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related mortgaged property to
an uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
mortgage loans and the number of mortgage loans which may extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the mortgaged properties will be owner-occupied, it is
anticipated that prepayment charges may not be imposed on many of the mortgage
loans. The absence of this a restraint on prepayment, particularly with respect
to fixed rate mortgage loans having higher mortgage rates, may increase the
likelihood of refinancing or other early retirement of the loans or contracts.
APPLICABILITY OF USURY LAWS
Title V of the depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ('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. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision that expressly rejects an application of the
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federal law. 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. Certain states have taken action
to reimpose interest rate limits or to limit discount points or other charges,
or both.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of the borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of the borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that this interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the master servicer to
collect full amounts of interest on some of the mortgage loans. Unless the
applicable prospectus supplement provides a special feature for a particular
trust fund, any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the holders of the certificates. In
addition, the Relief Act imposes limitations which would impair the ability of
the master servicer to foreclose on an affected mortgage loan during the
borrower's period of active duty status. Thus, if an affected mortgage loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the mortgaged property in a timely fashion.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is the opinion of Brown & Wood LLP, counsel to the
depositor, as to the material federal income tax consequences of the purchase,
ownership, and disposition of certificates. The opinion of Brown & Wood LLP is
based on laws, regulations, administrative rulings, and judicial decisions now
in effect, all of which are subject to change either prospectively or
retroactively. The following discussion does not describe aspects of federal tax
law that are unique to insurance companies, securities dealers and investors who
hold certificates as part of a straddle within the meaning of Section 1092 of
the Internal Revenue Code of 1986, as amended. Prospective investors are
encouraged to consult their tax advisors regarding the federal, state, local,
and any other tax consequences to them of the purchase, ownership, and
disposition of certificates.
GENERAL
The federal income tax consequences to certificateholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of certificates as a REMIC under the Code. The prospectus
supplement for each series of certificates will specify whether a REMIC election
will be made.
NON-REMIC CERTIFICATES
If a REMIC election is not made, the trust fund will not be classified as
an association taxable as a corporation and that each trust fund will be
classified as a grantor trust under subpart E, Part I of subchapter J of
chapter 1 of subtitle A of the Internal Revenue Code of 1986 (the 'Code'
referred to in this section unless otherwise indicated). In this case, owners of
certificates will be treated for federal income tax purposes as owners of a
portion of the trust fund's assets as described below. Brown & Wood LLP will
issue an opinion confirming the above-stated conclusions for each trust fund for
which no REMIC election is made.
A. SINGLE CLASS OF CERTIFICATES
Characterization. The trust fund may be created with one class of
certificates. In this case, each certificateholder will be treated as the owner
of a pro rata undivided interest in the interest and principal portions of the
trust fund represented by the certificates and will be considered the equitable
owner of a pro rata undivided interest in each of the mortgage loans in the
Pool. Any amounts received by a certificateholder in lieu of amounts due with
respect to any mortgage loans because of a default or delinquency in payment
will be treated for federal income tax purposes as having the same character as
the payments they replace.
Each certificateholder will be required to report on its federal income tax
return in accordance with its method of accounting its pro rata share of the
entire income from the mortgage loans in the trust fund represented by
certificates, including interest, original issue discount ('OID'), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the master servicer. Under Code Sections 162 or
212 each certificateholder will be entitled to deduct its pro rata share of
servicing fees, prepayment fees, assumption fees, any loss recognized upon an
assumption and late payment charges retained by the master servicer, provided
that the amounts are reasonable compensation for services rendered to the trust
fund. Certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses only to the extent expenses of the
trust fund plus their other miscellaneous itemized deductions (as defined in the
Code) exceed two percent of their adjusted gross income. A certificateholder
using the cash method of accounting must
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take into account its pro rata share of income and deductions as and when
collected by or paid to the master servicer. A certificateholder using an
accrual method of accounting ust take into account its pro rata share of income
as it accrues, or when received if the income is received before it accrues, and
must take into account its pro rata share of deductions as they accrue. If the
servicing fees paid to the master servicer are deemed to exceed reasonable
servicing compensation, the amount of any excess could be considered as an
ownership interest retained by the master servicer (or any person to whom the
master servicer assigned for value all or a portion of the servicing fees) in a
portion of the interest payments on the mortgage loans. The mortgage loans would
then be subject to the 'coupon stripping' rules of the Code discussed below.
Generally, as to each series of certificates:
a certificate owned by a 'domestic building and loan association' within
the meaning of Code Section 7701(a)(19) representing principal and
interest payments on mortgage loans will be considered to represent 'loans
. . . secured by an interest in real property which is . . . residential
property' within the meaning of Code Section 7701(a)(19)(C)(v), to the
extent that the mortgage loans represented by that certificate are of a
type described in that Code section;
a certificate owned by a real estate investment trust representing an
interest in mortgage loans will be considered to represent 'real estate
assets' within the meaning of Code Section 856(c)(4)(A), and interest
income on the mortgage loans will be considered 'interest on obligations
secured by mortgages on real property' within the meaning of Code
Section 856(c)(3)(B), to the extent that the mortgage loans represented by
that certificate are of a type described in that Code section; and
a certificate owned by a REMIC will represent an 'obligation . . . which
is principally secured, directly or indirectly, by an interest in real
property' within the meaning of Code Section 860G(a)(3).
Buydown Loans. Certain trust funds may hold buydown loans. These loans can
be secured not only by a mortgage on real property but also by a pledged account
that is drawn upon to subsidize the mortgagor's monthly mortgage payments for a
limited period of time. So long as the loan value of the real property at least
equals the amount of the loan, then for purposes of the above-described
requirements, the mortgage loan will be treated as fully secured by real
property. If the loan value of the real property is less than the amount of the
loan, then, a certificateholder could be required to treat the loan as one
secured by an interest in real property only to the extent of the loan value of
the real property. The related prospectus supplement for any series of
certificates will specify whether apportionment would be required.
Premium. The price paid for a certificate by a holder will be allocated to
the holder's undivided interest in each mortgage loan based on each mortgage
loan's relative fair market value, so that the holder's undivided interest in
each mortgage loan will have its own tax basis. A certificateholder that
acquires an interest in mortgage loans at a premium may elect, under Code
Section 171, to amortize the premium under a constant interest method, provided
that the underlying mortgage loans with respect to the mortgage loans were
originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on the mortgage loans and allowed as an ordinary deduction as
principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on the certificate. The basis for the certificate will
be reduced to the extent that amortizable premium is applied to offset interest
payments. It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Code Section 171.
However, recent changes to the Code require the
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use of a prepayment assumption to accrue original issue discount on pools of
receivables the yield on which may be affected by prepayments for tax years
beginning after August 5, 1997 and prior legislative history indicated that if a
prepayment assumption applied to an instrument for purposes of the OID rules,
that prepayment assumption should be applied in amortizing bond premium.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a certificate acquired at a premium should recognize a
loss if a mortgage loan (or an underlying mortgage loan) prepays in full, equal
to the difference between the portion of the prepaid principal amount of the
mortgage loan (or underlying mortgage loan) that is allocable to the certificate
and the portion of the adjusted basis of the certificate that is allocable to
the mortgage loan (or underlying mortgage loan). If a reasonable prepayment
assumption is used to amortize premium, it appears that any loss would be
available, if at all, only if prepayments have occurred at a rate faster than
the reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments. In addition, under recent
legislation, amounts received on the redemption of an obligation issued by a
natural person are considered received in exchange for the obligation if the
debt obligation is purchased or issued after June 8, 1997 (i.e., treated the
same as obligations issued by corporations). This change could affect the
character of any loss (e.g., cause the loss to be treated as capital if the
assets are held as capital assets by the taxpayer).
On December 30, 1997 the IRS issued final regulations (the 'Amortizable
Bond Premium Regulations') dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject to
Code Section 1272(a)(6). Absent further guidance from the IRS, the trustee
intends to account for amortizable bond premium in the manner described above.
Prospective purchasers of the certificates are encouraged to consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described in this prospectus, the special rules
of the Code relating to 'original issue discount' (currently Code Sections 1271
through 1273 and 1275) will be applicable to a certificateholder's interest in
those mortgage loans meeting the conditions necessary for these sections to
apply. OID generally must be reported as ordinary gross income as it accrues
under a constant interest method. See ' -- Multiple Classes of
Certificates -- Certificates Representing Interests in Loans Other Than ARM
Loans.'
Market Discount. A certificateholder that acquires an undivided interest in
mortgage loans may be subject to the market discount rules of Code Sections 1276
through 1278 to the extent an undivided interest in a mortgage loan is
considered to have been purchased at a 'market discount.' The amount of market
discount is equal to the excess of the portion of the principal amount of the
mortgage loan allocable to the holder's undivided interest in the mortgage loans
over the holder's tax basis in the undivided interest. Market discount with
respect to a certificate will be considered to be zero if the amount allocable
to the certificate is less than 0.25% of the certificate's stated redemption
price at maturity multiplied by the weighted average maturity remaining after
the date of purchase. Treasury regulations implementing the market discount
rules have not yet been issued; therefore, investors are advised to consult
their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the
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accrued market discount at the time of the payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Although the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history describes how market discount should be accrued on
instruments bearing market discount. According to the legislative history, the
holder of a market discount bond may elect to accrue market discount either on
the basis of a constant interest rate or according to one of the following
methods. If a certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of the total
remaining market discount and a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of the total remaining market discount and a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the accrual period. For purposes of calculating market
discount under any of these methods in the case of instruments that provide for
payments that may be accelerated due to prepayments of other obligations
securing the instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Recent legislation expands the
required use of a prepayment assumption for purposes of calculating OID for tax
years beginning after August 5, 1997 to pools of receivables the yield on which
may be affected due to prepayments and previous legislative history states
Congress intends that if a prepayment assumption would be used to calculate OID
it should also be used to accrue marked discount. Because the regulations
described above have not been issued, it is impossible to predict what effect
those regulations might have on the tax treatment of a certificate purchased at
a discount or premium in the secondary market.
A holder who acquired a certificate at a market discount also may be
required to defer, until the maturity date of the certificate or its earlier
disposition in a taxable transaction, the deduction of a portion of the amount
of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry the certificate in
excess of the aggregate amount of interest (including OID) includible in the
holder's gross income for the taxable year with respect to the certificate. The
amount of the net interest expense deferred in a taxable year may not exceed the
amount of market discount accrued on the certificate for the days during the
taxable year on which the holder held the certificate and, in general, would be
deductible when the market discount is includible in income. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred deduction will be allowed to the extent of gain
recognized on the disposition. This deferral rule does not apply if the
certificateholder elects to include the market discount in income currently as
it accrues on all market discount obligations acquired by the certificateholder
in that taxable year or thereafter.
Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for certificates acquired on or after April 4,
1994. If an election to treat all interest as OID were to be made with respect
to a certificate with market discount, the certificateholder would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having
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market discount that the certificateholder acquires during the year of the
election or thereafter. Similarly, a certificateholder that makes this election
for a certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the certificateholder owns or acquires. See
' -- Single Class of Certificates -- Premium.' The election to accrue interest,
discount and premium on a constant yield method with respect to a certificate
cannot be revoked without the consent of the IRS.
B. MULTIPLE CLASSES OF CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, 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. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that the stripped interest is created. If a
trust fund is created with two classes of certificates, one class of
certificates may represent the right to principal and interest, or principal
only, on all or a portion of the mortgage loans (the 'Stripped Bond
Certificates'), while the second class of certificates may represent the right
to some or all of the interest on the same mortgage loans (the 'Stripped Coupon
Certificates').
Servicing fees in excess of reasonable servicing fees ('excess servicing')
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the mortgage loan principal
balance) or the certificates are initially sold with a de minimis discount
(which amount may be calculated without a prepayment assumption), any non-de
minimis discount arising from a subsequent transfer of the certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a mortgage loan by mortgage loan basis, which
could result in some mortgage loans being treated as having more than 100 basis
points of interest stripped off. See ' -- Non-REMIC Certificates' and 'Multiple
Classes of Senior Certificates -- Stripped Bonds and Stripped Coupons.'
Although current authority is not entirely clear, a Stripped Bond
Certificate should be treated as an interest in mortgage loans issued on the day
the certificate is purchased for purposes of calculating any OID. Generally, if
the discount on a mortgage loan is larger than a de minimis amount (as
calculated for purposes of the OID rules) a purchaser of the certificate will be
required to accrue the discount under the OID rules of the Code. See
' -- Non-REMIC Certificates' and ' -- Single Class of Certificates -- Original
Issue Discount.' However, a purchaser of a Stripped Bond Certificate will be
required to account for any discount on the mortgage loans as market discount
rather than OID if either the amount of OID with respect to the mortgage loan is
treated as zero under the OID de minimis rule when the certificate was stripped
or no more than 100 basis points (including any amount of servicing fees in
excess of reasonable servicing fees) is stripped off of the trust fund's
mortgage loans.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each mortgage loan. However, based on the recent IRS
guidance, it appears that all payments from a mortgage loan underlying a
Stripped Coupon Certificate should be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments from the
mortgage loan would be included in the mortgage loan's stated redemption price
at maturity
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for purposes of calculating income on the Stripped Coupon Certificate under the
OID rules of the Code.
Based on current authority it is unclear under what circumstances, if any,
the prepayment of mortgage loans will give rise to a loss to the holder of a
Stripped Bond Certificate purchased at a premium or a Stripped Coupon
Certificate. If the certificate is treated as a single instrument (rather than
an interest in discrete mortgage loans) and the effect of prepayments is taken
into account in computing yield with respect to the certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the assumed prepayment rate. However, if
a certificate is treated as an interest in discrete mortgage loans, or if no
prepayment assumption is used, then when a mortgage loan is prepaid, any
certificate so treated should be able to recognize a loss equal to the portion
of the unrecovered premium of the certificate that is allocable to the mortgage
loan. In addition, amounts received in redemption for debt instruments issued by
natural persons purchased or issued after June 8, 1997 are treated as received
in exchange therefore (i.e., treated the same as obligations issued by
corporations). This change could affect the character of any loss.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
encouraged to consult with their own tax advisors regarding the proper treatment
of these certificates for federal income tax purposes.
2. Certificates Representing Interests in Loans Other Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Under
the OID Regulations, original issue discount could arise by the charging of
points by the originator of the mortgage in an amount greater than the statutory
de minimis exception, including a payment of points that is currently deductible
by the borrower under applicable Code provisions, or under certain
circumstances, by the presence of 'teaser' rates (i.e., the initial rates on the
mortgage loans are lower than subsequent rates on the mortgage loans) on the
mortgage loans.
OID on each certificate must be included in the owner's ordinary income for
federal income tax purposes as it accrues, in accordance with a constant
interest method that takes into account the compounding of interest, in advance
of receipt of the cash attributable to the income. The amount of OID required to
be included in an owner's income in any taxable year with respect to a
certificate representing an interest in mortgage loans other than mortgage loans
with interest rates that adjust periodically ('ARM Loans') likely will be
computed as described under ' -- Accrual of Original Issue Discount.' The
following discussion is based in part on Treasury regulations issued on January
27, 1994, and amended on June 11, 1996, under Code Sections 1271 through 1273
and 1275 (the 'OID Regulations') and in part on the provisions of the Tax Reform
Act of 1986 (the '1986 Act'). The OID Regulations generally are effective for
debt instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments issued after December 21, 1992.
Alternatively, proposed Treasury regulations issued December 21, 1992 may be
treated as authority for debt instruments issued after December 21, 1992 and
before April 4, 1994, and proposed Treasury regulations issued in 1986 and 1991
may be treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issued date of the mortgage loans should be used, or,
in the case of Stripped Bond Certificates or Stripped Coupon Certificates, the
date the certificates are acquired. The holder of a certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
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Under the Code, the mortgage loans underlying the certificates will be
treated as having been issued on the date they were originated with an amount of
OID equal to the excess of the mortgage loan's stated redemption price at
maturity over its issue price. The issue price of a mortgage loan is generally
the amount lent to the mortgagee, which may be adjusted to take into account
certain loan origination fees. The stated redemption price at maturity of a
mortgage loan is the sum of all payments to be made on the mortgage loan other
than payments that are treated as qualified stated interest payments. The
accrual of this OID, as described under ' -- Accrual of Original Issue
Discount,' will, unless otherwise specified in the related prospectus
supplement, utilize the original yield to maturity of the certificates
calculated based on a reasonable assumed prepayment rate for the mortgage loans
underlying the certificates (the 'Prepayment Assumption'), and will take into
account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. The legislative history of the 1986 Act (the 'Legislative
History') provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the offering price of the certificate. No representation is made that any
certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in debt instruments, and, in
tax years beginning after August 5, 1997, to pools of receivables the yield on
which may be affected by prepayments of receivables such as those the
certificates represent. However, no other legal authority provides guidance with
regard to the proper method for accruing OID on obligations that are subject to
prepayment, and, until further guidance is issued, the master servicer intends
to calculate and report OID under the method described in ' -- Accrual of
Original Issue Discount.'
Accrual of Original Issue Discount. Generally, the owner of a certificate
must include in gross income the sum of the 'daily portions,' as defined below,
of the OID on any certificate for each day on which it owns the certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations. A
calculation will be made by the master servicer or other entity specified in the
related prospectus supplement of the portion of OID that accrues during each
successive monthly accrual period (or shorter period from the date of original
issue) that ends on the day in the calendar year corresponding to each of the
distribution dates on the certificates (or the day before each date). This will
be done, in the case of each full month accrual period, by adding the present
value at the end of the accrual period (determined by using as a discount factor
the original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and any payments received during the same
accrual period, and subtracting from that total the 'adjusted issue price' of
the respective component at the beginning of the same accrual period. The
adjusted issue price of a certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment made at
the end of or during that accrual period. The OID accruing during the accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under any
reasonable method.
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Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if mortgage loans acquired by a certificateholder are purchased at a price equal
to the then unpaid principal amount of those mortgage loans, no original issue
discount attributable to the difference between the issue price and the original
principal amount of those mortgage loans (e.g., due to points) will be
includible by the holder. Other original issue discount on the mortgage loans
(e.g., that arising from a 'teaser' rate) would still need to be accrued.
3. Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the certificates, which represent interests in ARM Loans. Additionally, the IRS
has not issued guidance under the Code's coupon stripping rules with respect to
instruments that represent interests in ARM Loans. In the absence of any
authority, the master servicer will report OID on certificates attributable to
ARM Loans ('Stripped ARM Obligations') to holders in a manner it believes is
consistent with the rules described under the heading ' -- Certificates
Representing Interests in Loans Other Than ARM Loans' and with the OID
Regulations. As such, for purposes of projecting the remaining payments and the
projected yield, the assumed rate payable on the ARM Loans will be the fixed
rate equivalent on the issue date. Application of these rules may require
inclusion of income on a Stripped ARM Obligation in advance of the receipt of
cash attributable to the income. Further, the addition of interest deferred due
to negative amortization ('Deferred Interest') to the principal balance of an
ARM Loan may require the inclusion of the interest deferred due to negative
amortization in the income of the certificateholder when it accrues.
Furthermore, the addition of Deferred Interest to the certificate's principal
balance will result in additional income (including possibly OID income) to the
certificateholder over the remaining life of the certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are encouraged to consult their tax advisors regarding how income will be
includible with respect to the certificates.
C. SALE OR EXCHANGE OF A CERTIFICATE
Sale or exchange of a certificate before its maturity will result in gain
or loss equal to the difference, if any, between the amount received and the
owner's adjusted basis in the certificate. The adjusted basis of a certificate
generally will equal the seller's purchase price for the certificate, increased
by the OID included in the seller's gross income with respect to the
certificate, and reduced by principal payments on the certificate previously
received by the seller. The gain or loss will be capital gain or loss to an
owner for which a certificate is a 'capital asset' within the meaning of Code
Section 1221, and will be long-term or short-term depending on whether the
certificate has been owned for the long-term capital gain holding period
(currently more than one year).
The certificates will be 'evidences of indebtedness' within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a
certificate by a bank or a thrift institution to which that section applies will
be ordinary income or loss.
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D. NON-U.S. PERSONS
Generally, to the extent that a certificate evidences ownership in
underlying mortgage loans that were issued on or before July 18, 1984, interest
or OID paid by the person required to withhold tax under Code Section 1441 or
1442 to an owner that is not a U.S. Person or a certificateholder holding on
behalf of an owner that is not a U.S. Person will be subject to federal income
tax, collected by withholding, at a rate of 30% or any lower rate provided for
interest by an applicable tax treaty. Accrued OID recognized by the owner on the
sale or exchange of a certificate also will be subject to federal income tax at
the same rate. Generally, accrued OID payments would not be subject to
withholding to the extent that a certificate evidences ownership in mortgage
loans issued after July 18, 1984, by natural persons if the certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the certificateholder under penalties of perjury,
certifying that the certificateholder is not a U.S. Person and providing the
name and address of the certificateholder). Additional restrictions apply to
mortgage loans where the mortgagor is not a natural person in order to qualify
for the exemption from withholding. Any foreclosure property owned by the trust
could be treated as a U.S. real property interest owned by certificateholders.
As used in this prospectus, a 'U.S. Person' means
a citizen or resident of the United States,
a corporation or a partnership (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) organized
in or created under the laws of the United States or any State thereof or
the District of Columbia (unless in the case of a partnership Treasury
Regulations provide otherwise),
an estate, the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of
its connection with the conduct of a trade or business within the United
States, or
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 persons have authority to control all substantial decisions of the
trust.
In addition, U.S. Persons would include certain trusts that can elect to be
treated as U.S. Persons. A 'Non-U.S. Person' is a person other than a U.S.
Person.
Interest paid (or accrued) on the mortgage loans to a certificateholder who
is a non-U.S. Person will be considered 'portfolio interest,' and generally will
not be subject to United States federal income tax and withholding tax,
provided, that the interest is not effectively connected with the conduct of a
trade or business within the United States by the non-U.S. Person, and the
non-U.S. Person provides the trust or other person who is otherwise required to
withhold U.S. tax with respect to the mortgage loans with an appropriate
statement (on Form W-8 or other similar form), signed under penalties of
perjury, certifying that the beneficial owner of the mortgage loan is a foreign
person and providing that non-U.S. person's name and address. If an interest in
a mortgage loan 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 non-U.S. Person that owns that interest in the mortgage loan. If interest
does not constitute portfolio interest, then it will be subject to U.S. federal
income and withholding tax at a rate of 30%, unless reduced or eliminated
pursuant to an applicable tax treaty and the non-U.S. Person provides the trust,
or an organization or financial institution described above, with an appropriate
statement (e.g., a Form 1001), signed under penalties of perjury, to that
effect.
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Final regulations dealing with backup withholding and information reporting
on income paid to foreign person and related matters (the 'New Withholding
Regulations') were published in the Federal Register on October 14, 1997. In
general, the New Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements, but do unify
current certification procedures and forms and clarify reliance standards. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to certain transition rules. The discussion set forth
above does not take the New Withholding Regulations into account. Prospective
Non-U.S. Persons who own interests in mortgage loans are strongly urged to
consult their own tax advisor with respect to the New Withholding Regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
certificateholder at any time during the year, the information deemed
appropriate to assist certificateholders in preparing their federal income tax
returns, or to enable holders to make any information available to beneficial
owners or financial intermediaries that hold certificates as nominees on behalf
of beneficial owners. If a holder, beneficial owner, financial intermediary or
other recipient of a payment on behalf of a beneficial owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that the person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against a
recipient's federal income tax liability.
REMIC CERTIFICATES
The trust fund relating to a series of certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however ' -- Residual Certificates' and ' -- Prohibited Transactions'), if
a trust fund with respect to which a REMIC election is made fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, including the implementation of restrictions on the purchase and
transfer of the residual interests in a REMIC as described under 'Residual
Certificates,' the Code provides that a trust fund will not be treated as a
REMIC for that year and thereafter. In that event, the entity may be taxable as
a separate corporation, and the related certificates (the 'REMIC Certificates')
may not be accorded the status or given the tax treatment described below. While
the Code authorizes the Treasury Department to issue regulations providing
relief upon an inadvertent termination of the status of a trust fund as a REMIC,
no such regulations have been issued. Any relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC's income for the period in which the requirements for REMIC status are
not satisfied. Assuming compliance with all provisions of the related pooling
and servicing agreement, each trust fund that elects REMIC status will qualify
as a REMIC, and the related certificates will be considered to be regular
interests ('Regular Certificates') or residual interests ('Residual
Certificates') in the REMIC. The related prospectus supplement for each series
of certificates will indicate whether the trust fund will make a REMIC election
and whether a class of certificates will be treated as a regular or residual
interest in the REMIC. With respect to each trust fund for which a REMIC
election is to be made, Brown & Wood LLP will issue an opinion confirming the
conclusions expressed above concerning the status of the trust fund as a REMIC
and the status of the certificates as representing regular or residual interests
in a REMIC.
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In general, with respect to each series of certificates for which a REMIC
election is made, certificates held by a thrift institution taxed as a 'domestic
building and loan association' will constitute assets described in Code
Section 7701(a)(19)(C); certificates held by a real estate investment trust will
constitute 'real estate assets' within the meaning of Code Section 856(c)(4)(A);
and interest on certificates held by a real estate investment trust will be
considered 'interest on obligations secured by mortgages on real property'
within the meaning of Code Section 856(c)(3)(B). If less than 95% of the REMIC's
assets are assets qualifying under any of these Code sections, the certificates
will be qualifying assets only to the extent that the REMIC's assets are
qualifying assets. In addition, payments on mortgage loans held pending
distribution on the REMIC Certificates will be considered to be real estate
assets for purposes of Code Section 856(c).
In some instances the mortgage loans may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
buydown loans contained in ' -- Non-REMIC Certificates -- Single Class of
Certificates.' REMIC Certificates held by a real estate investment trust will
not constitute 'Government Securities' within the meaning of Code
Section 856(c)(4)(A), and REMIC Certificates held by a regulated investment
company will not constitute 'Government Securities' within the meaning of Code
Section 851(b)(4)(A)(ii). REMIC Certificates held by certain financial
institutions will constitute 'evidences of indebtedness' within the meaning of
Code Section 582(c)(1).
A 'qualified mortgage' for REMIC purposes is any obligation (including
certificates of participation in an obligation) that is principally secured by
an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) that are
'single family residences' under Code Section 25(e)(10) will qualify as real
property without regard to state law classifications. Under Code
Section 25(e)(10), a single family residence includes any manufactured home that
has a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain series of certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs (respectively, the 'Subsidiary REMIC or REMICs' and the 'Master
REMIC') for federal income tax purposes. Upon the issuance of such a series of
certificates, assuming compliance with all provisions of the related pooling and
servicing agreement, the Master REMIC as well as each Subsidiary REMIC will each
qualify as a REMIC, and the REMIC Certificates issued by the Master REMIC and
each Subsidiary REMIC, respectively, will be considered to evidence ownership of
Regular Certificates or Residual Certificates in the related REMIC within the
meaning of the REMIC provisions. With respect to each trust fund for which more
than one REMIC election is to be made, Brown & Wood LLP will issue an opinion
confirming the conclusions expressed above concerning the status of the Master
REMIC and each Subsidiary REMIC as a REMIC and the status of the certificates as
regular or residual interests in a REMIC.
Only REMIC Certificates, other than the residual interest in any Subsidiary
REMIC, issued by the Master REMIC will be offered under this prospectus. All
Subsidiary REMICs and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be 'real estate
assets' within the meaning of Section 856(c)(4)(A) of the Code; 'loans secured
by an interest in real property' under Section 7701(a)(19)(C) of the Code; and
whether the income on the certificates is interest described in Section
856(c)(3)(B) of the Code.
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A. REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of Regular Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
Regular Certificates under an accrual method.
Original Issue Discount and Premium. The Regular Certificates may be issued
with OID. Generally, OID, if any, will equal the difference between the 'stated
redemption price at maturity' of a Regular Certificate and its 'issue price.'
Holders of any class of certificates issued with OID will be required to include
OID in gross income for federal income tax purposes as it accrues, in accordance
with a constant interest method based on the compounding of interest as it
accrues rather than in accordance with receipt of the interest payments. The
following discussion is based in part on the OID Regulations and in part on the
provisions of the 1986 Act. The OID Regulations generally are effective for debt
instruments issued on or after April 4, 1994. Holders of Regular Certificates
(the 'Regular Certificateholders') should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the Regular Certificates and prescribe a method for
adjusting the amount and rate of accrual of the discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of the Regular Certificates. The prospectus
supplement for each series of Regular Certificates will specify the Prepayment
Assumption to be used for the purpose of determining the amount and rate of
accrual of OID. No representation is made that the Regular Certificates will
prepay at the Prepayment Assumption or at any other rate.
The IRS issued final regulations (the 'Contingent Regulations') in June
1996 governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). The trustee
intends to base its computations 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.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
'stated redemption price at maturity' over its issue price. The issue price of a
Regular Certificate is the first price at which a substantial amount of Regular
Certificates of that class are first sold to the public (excluding bond houses,
brokers, underwriters or wholesalers). The issue price of a Regular Certificate
also includes the amount paid by an initial certificateholder for accrued
interest that relates to a period before the issue date of the Regular
Certificate. The stated redemption price at maturity of a Regular Certificate
includes the original principal amount of the Regular Certificate, but generally
will not include distributions of interest that constitute 'qualified stated
interest.' Qualified stated
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interest generally means interest unconditionally payable at intervals of one
year or less at a single fixed rate or qualified variable rate (as described
below) during the entire term of the Regular Certificate. 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 Regular
Certificates with respect to which Deferred Interest will accrue will not
constitute qualified stated interest payments, and the stated redemption price
at maturity of the Regular Certificates includes all distributions of interest
as well as principal thereon.
Where the interval between the issue date and the first distribution date
on a Regular Certificate is longer than the interval between subsequent
distribution dates, the greater of any original issue discount disregarding the
rate in the first period and any interest foregone during the first period is
treated as the amount by which the stated redemption price of the certificate
exceeds its issue price for purposes of the de minimis rule described below. The
OID Regulations suggest that all or a portion of the interest on a long first
period Regular Certificate that is issued with non-de minimis OID will be
treated as OID. Where the interval between the issue date and the first
distribution date on a Regular Certificate is shorter than the interval between
subsequent distribution dates, interest due on the first distribution date in
excess of the amount that accrued during the first period would be added to the
certificates stated redemption price at maturity. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate. Additionally, it is
possible that the IRS could assert that the stated pass-through rate of interest
on the Regular Certificates is not unconditionally payable because late payments
or nonpayments on the mortgage loans are not penalized nor are there reasonable
remedies in place to compel payment on the mortgage loans. That position, if
successful, would require all holders of Regular Certificates to accrue income
on the certificates under the OID Regulations.
Under the de minimis rule, OID on a Regular Certificate will be considered
to be zero if it is less than 0.25% of the stated redemption price at maturity
of the Regular Certificate multiplied by the weighted average maturity of the
Regular Certificate. For this purpose, the weighted average maturity of the
Regular Certificate is computed as the sum of the amounts determined by
multiplying the number of full years (i.e., rounding down partial years) from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each distribution included in the stated redemption price at maturity
of the Regular Certificate and the denominator of which is the stated redemption
price at maturity of the Regular Certificate. Although currently unclear, it
appears that the schedule of these distributions should be determined in
accordance with the Prepayment Assumption. The Prepayment Assumption with
respect to a series of Regular Certificates will be set forth in the related
prospectus supplement. Holders generally must report de minimis OID pro rata as
principal payments are received, and income will be capital gain if the Regular
Certificate 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.
The prospectus supplement with respect to a trust fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
'Super-Premium Certificates' ). The income tax treatment of Super-Premium
Certificates is not entirely certain. For information reporting purposes, the
trust fund intends to take the position that the stated redemption price at
maturity of Super-Premium Certificates is the sum of all payments to be made on
these Regular Certificates determined under the Prepayment Assumption, with the
result that these Regular Certificates would be issued with OID. The calculation
of income in this manner could result in negative original issue discount (which
delays future accruals of OID rather than being immediately deductible) when
prepayments on the mortgage loans exceed those estimated under the Prepayment
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Assumption. As discussed above, the Contingent Regulations specifically do not
apply to prepayable debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. However, if the Super-Premium Certificates were
treated as contingent payment obligations, it is unclear how holders of those
certificates would report income or recover their basis. In the alternative, the
IRS could assert that the stated redemption price at maturity of Super-Premium
Certificates should be limited to their principal amount (subject to the
discussion under ' -- Accrued Interest Certificates'), so that the Regular
Certificates would be considered for federal income tax purposes to be issued at
a premium. If this position were to prevail, the rules described under
' -- Regular Certificates -- Premium' would apply. It is unclear when a loss may
be claimed for any unrecovered basis for a Super-Premium Certificate. It is
possible that a holder of a Super-Premium Certificate may only claim a loss when
its remaining basis exceeds the maximum amount of future payments, assuming no
further prepayments or when the final payment is received with respect to the
Super-Premium Certificate. Absent further guidance, the trustee intends to treat
the Super-Premium Certificates as described in this prospectus.
Under the REMIC Regulations, if the issue price of a Regular Certificate
(other than those based on a notional amount) does not exceed 125% of its actual
principal amount, the interest rate is not considered disproportionately high.
Accordingly, the Regular Certificate generally should not be treated as a
Super-Premium Certificate and the rules described under ' -- Regular
Certificates -- Premium' should apply. However, it is possible that certificates
issued at a premium, even if the premium is less than 25% of the certificate's
actual principal balance, will be required to amortize the premium under an
original issue discount method or contingent interest method even though no
election under Code section 171 is made to amortize the premium.
Generally, a Regular Certificateholder must include in gross income the
'daily portions,' as determined below, of the OID that accrues on a Regular
Certificate for each day a certificateholder holds the Regular Certificate,
including the purchase date but excluding the disposition date. The daily
portions of OID are determined by allocating to each day in an accrual period
the ratable portion of OID allocable to the accrual period. Accrual periods may
be of any length and may vary in length over the term of the Regular
Certificates, provided that each accrual period is not longer than one year,
begins or ends on a distribution date (except for the first accrual period which
begins on the issue date) and begins on the day after the preceding accrual
period ends. This will be done, in the case of each full accrual period, by
adding
The present value at the end of the accrual period (determined by
using as a discount factor the original yield to maturity of the
Regular Certificates as calculated under the Prepayment Assumption)
of all remaining payments to be received on the Regular Certificates
under the Prepayment Assumption and
any payments included in the stated redemption price at maturity
received during the same accrual period, and
subtracting from that total the adjusted issue price of the Regular
Certificates at the beginning of the same accrual period.
The adjusted issue price of a Regular Certificate at the beginning of the first
accrual period is its issue price; the adjusted issue price of a Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number
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of days in the period to determine the daily portion of OID for each day in the
accrual period. The calculation of OID under the method described above will
cause the accrual of OID to either increase or decrease (but never below zero)
in a given accrual period to reflect the fact that prepayments are occurring
faster or slower than under the Prepayment Assumption. With respect to an
initial accrual period shorter than a full accrual period, the daily portions of
OID may be determined according to an appropriate allocation under any
reasonable method.
A subsequent purchaser of a Regular Certificate issued with OID who
purchases the Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that Regular Certificate. In computing
the daily portions of OID for a subsequent purchaser of a Regular Certificate
(as well as an initial purchaser that purchases at a price higher than the
adjusted issue price but less than the stated redemption price at maturity),
however, the daily portion is reduced by the amount that would be the daily
portion for the day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by which
the price paid by the holder for that Regular Certificate exceeds the following
amount:
the sum of the issue price plus the aggregate amount of OID that would
have been includible in the gross income of an original Regular
Certificateholder (who purchased the Regular Certificate at its issue
price), less
any prior payments included in the stated redemption price at maturity,
and the denominator of which is the sum of the daily portions for that
Regular Certificate for all days beginning on the date after the purchase
date and ending on the maturity date computed under the Prepayment
Assumption.
A holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate Regular Certificates. Regular Certificates may provide for
interest based on a variable rate. Interest is treated as payable at a variable
rate and not as contingent interest if, generally, the issue price does not
exceed the original principal balance by more than a specified amount and the
interest compounds or is payable at least annually at current values of certain
objective rates matured by or based on lending rates for newly borrowed funds.
For a debt instrument issued after August 13, 1996, an objective rate is a rate
(other than a qualified floating rate) that is determined using a single fixed
formula and that is based on objective financial or economic information. The
variable interest generally will be qualified stated interest to the extent it
is unconditionally payable at least annually and, to the extent successive
variable rates are used, interest is not significantly accelerated or deferred.
The amount of OID with respect to a Regular Certificate bearing a variable
rate of interest will accrue in the manner described under ' -- Original Issue
Discount and Premium' by assuming generally that the index used for the variable
rate will remain fixed throughout the term of the certificate. Appropriate
adjustments are made for the actual variable rate.
Although unclear at present, the depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on mortgage loans as variable rate certificates. In such case,
the weighted average rate used to compute the initial pass-through rate on the
Regular Certificates will be deemed to be the index in effect through the life
of the Regular Certificates. It is possible, however, that the IRS may treat
some or all of the interest on Regular Certificates with a weighted average rate
as taxable under the rules relating to obligations providing for contingent
payments. This treatment may effect the timing of income accruals on the Regular
Certificates. Additionally, if some or all of the mortgage loans are
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subject to 'teaser rates' (i.e., the initial rates on the mortgage loans are
less than subsequent rates on the mortgage loans) the interest paid on some or
all of the Regular Certificates may be subject to accrual using a constant yield
method notwithstanding the fact that these certificates may not have been issued
with 'true' non-de minimis original issue discount.
Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimus market or original issue discount) and premium in income as interest,
based on a constant yield method for certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Regular Certificate
with market discount, a certificateholder would be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that the certificateholder
acquires during the year of the election or thereafter. Similarly, a
certificateholder that makes this election for a certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that the
certificateholder owns or acquires. See ' -- Regular Certificates -- Premium.'
The election to accrue interest, discount and premium on a constant yield method
with respect to a certificate cannot be revoked without the consent of the IRS.
Market Discount. A purchaser of a Regular Certificate may also be subject
to the market discount provisions of Code Sections 1276 through 1278. Under
these provisions and the OID Regulations, 'market discount' equals the excess,
if any, of a Regular Certificate's stated principal amount or, in the case of a
Regular Certificate with OID, the adjusted issue price (determined for this
purpose as if the purchaser had purchased the Regular Certificate from an
original holder) over the price for the Regular Certificate paid by the
purchaser. A certificateholder that purchases a Regular Certificate at a market
discount will recognize income upon receipt of each distribution representing
stated redemption price. In particular, under Section 1276 of the Code a holder
generally will be required to allocate each principal distribution first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. A certificateholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, the election will
apply to all market discount bonds acquired by the electing certificateholder on
or after the first day of the first taxable year to which the election applies.
Market discount with respect to a Regular Certificate will be considered to
be zero if the amount allocable to the Regular Certificate is less than 0.25% of
the Regular Certificate's stated redemption price at maturity multiplied by the
Regular Certificate's weighted average maturity remaining after the date of
purchase. If market discount on a Regular Certificate is considered to be zero
under this rule, the actual amount of market discount must be allocated to the
remaining principal payments on the Regular Certificate, and gain equal to the
allocated amount will be recognized when the corresponding principal payment is
made. Treasury regulations implementing the market discount rules have not yet
been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
the payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is
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payable in more than one installment. Until regulations are issued by the
Treasury, rules described in the Legislative History will apply. Under those
rules, the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or according to one of the
following methods. For Regular Certificates issued with OID, the amount of
market discount that accrues during a period is equal to the product of the
total remaining market discount and a fraction, the numerator of which is the
OID accruing during the period and the denominator of which is the total
remaining OID at the beginning of the period. For Regular Certificates issued
without OID, the amount of market discount that accrues during a period is equal
to the product of the total remaining market discount and a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of calculating
market discount under any of the above methods in the case of instruments (such
as the Regular Certificates) that provide for payments that may be accelerated
due to prepayments of other obligations securing the instruments, the same
Prepayment Assumption applicable to calculating the accrual of OID will apply.
A holder of a Regular Certificate that acquires the Regular Certificate at
a market discount also may be required to defer, until the maturity date of the
Regular Certificate or its earlier disposition in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Regular Certificate in excess of the aggregate amount of interest
(including OID) includible in the holder's gross income for the taxable year
with respect to the Regular Certificate. The amount of the net interest expense
deferred in a taxable year may not exceed the amount of market discount accrued
on the Regular Certificate for the days during the taxable year on which the
holder held the Regular Certificate and, in general, would be deductible when
the market discount is includible in income. The amount of any remaining
deferred deduction is to be taken into account in the taxable year in which the
Regular Certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred deduction will be allowed to the extent of gain
recognized on the disposition. This deferral rule does not apply if the Regular
Certificateholder elects to include the market discount in income currently as
it accrues on all market discount obligations acquired by the Regular
Certificateholder in that taxable year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the Regular Certificate at a premium and may elect to amortize
the premium under a constant yield method. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of the
Regular Certificate for this purpose. The Amortizable Bond Premium Regulations
described above specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Regular Certificates. Absent further
guidance from the IRS, the trustee intends to account for amortizable bond
premium in the manner described in this prospectus. However, the Legislative
History states that the same rules that apply to accrual of market discount
(which rules require use of a Prepayment Assumption in accruing market discount
with respect to Regular Certificates without regard to whether the certificates
have OID) will also apply in amortizing bond premium under Code Section 171. The
Code provides that amortizable bond premium will be allocated among the interest
payments on the Regular Certificates and will be applied as an offset against
the interest payment. Prospective purchasers of the Regular Certificates should
consult their tax advisors regarding the possible application of the Amortizable
Bond Premium Regulations.
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On December 30, 1997 the IRS issued final Amortizable Bond Premium
Regulations. These regulations specifically do not apply to prepayable debt
instruments subject to Code Section 1272(a)(6). Absent further guidance from the
IRS, the trustee intends to account for amortizable bond premium in the manner
described above. Prospective purchasers of the certificates should consult their
tax advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Deferred Interest. Certain classes of Regular Certificates will provide for
the accrual of Deferred Interest with respect to one or more ARM Loans. Any
Deferred Interest that accrues with respect to a class of Regular Certificates
will constitute income to the holders of the certificates before the time
distributions of cash with respect to the Deferred Interest are made. It is
unclear, under the OID Regulations, whether any of the interest on the
certificates will constitute qualified stated interest or whether all or a
portion of the interest payable on the certificates must be included in the
stated redemption price at maturity of the certificates and accounted for as OID
(which could accelerate the inclusion). Interest on Regular Certificates must in
any event be accounted for under an accrual method by the holders of the
certificates and, therefore, applying the latter analysis may result only in a
slight difference in the timing of the inclusion in income of interest on the
Regular Certificates.
Effects of Defaults and Delinquencies. Certain series of certificates may
contain one or more classes of subordinated certificates, and in the event there
are defaults or delinquencies on the mortgage loans, amounts that would
otherwise be distributed on the subordinated certificates may instead be
distributed on the certificates. Subordinated certificateholders nevertheless
will be required to report income with respect to their certificates under an
accrual method without giving effect to delays and reductions in distributions
on the subordinated certificates attributable to defaults and delinquencies on
the mortgage loans, except to the extent that it can be established that the
amounts are uncollectible. As a result, the amount of income reported by a
subordinated certificateholder 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
subordinated certificate is reduced as a result of defaults and delinquencies on
the mortgage loans. However, the timing and characterization of any losses or
reductions in income are uncertain, and, accordingly, subordinated
certificateholders are urged to consult their own tax advisors on this point.
Sale, Exchange or Redemption. If a Regular Certificate is sold, exchanged,
redeemed or retired, the seller will recognize gain or loss equal to the
difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the Regular Certificate. The
adjusted basis generally will equal the cost of the Regular Certificate to the
seller, increased by any OID and market discount included in the seller's gross
income with respect to the Regular Certificate, and reduced (but not below zero)
by payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment that is part of the stated redemption price at maturity of a
Regular Certificate will recognize gain equal to the excess, if any, of the
amount of the payment over the holder's adjusted basis in the Regular
Certificate. A Regular Certificateholder who receives a final payment that is
less than the holder's adjusted basis in the Regular Certificate will generally
recognize a loss. Except as provided in the following paragraph and as provided
under 'Market Discount,' any gain or loss will be capital gain or loss, provided
that the Regular Certificate is held as a 'capital asset' (generally, property
held for investment) within the meaning of Code Section 1221.
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Gain from the sale or other disposition of a Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent that
the gain does not exceed the excess, if any, of the amount that would have been
includible in the holder s income with respect to the Regular Certificate had
income accrued on it at a rate equal to 110% of the AFR as defined in Code
Section 1274(d) determined as of the date of purchase of the Regular
Certificate, over the amount actually includible in the holder's income.
The Regular Certificates will be 'evidences of indebtedness' within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Regular Certificate by a bank or a thrift institution to which this section
applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
('Payment Lag Certificates') may provide for payments of interest based on a
period that corresponds to the interval between distribution dates but that ends
before each distribution date. The period between the Closing Date for Payment
Lag Certificates and their first distribution date may or may not exceed that
interval. Purchasers of Payment Lag Certificates for which the period between
the Closing Date and the first distribution date does not exceed that interval
could pay upon purchase of the Regular Certificates accrued interest in excess
of the accrued interest that would be paid if the interest paid on the
distribution date were interest accrued from distribution date to distribution
date. If a portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued before the issue date ('pre-issuance
accrued interest') and the Regular Certificate provides for a payment of stated
interest on the first payment date (and the first payment date is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the Regular Certificates issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the Regular Certificate. However, it is
unclear under this method how the OID Regulations treat interest on Payment Lag
Certificates. Therefore, in the case of a Payment Lag Certificate, the trust
fund intends to include accrued interest in the issue price and report interest
payments made on the first distribution date as interest to the extent the
payments represent interest for the number of days that the certificateholder
has held the Payment Lag Certificate during the first accrual period.
Investors are encouraged to consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under the temporary Treasury
regulations, if the REMIC is considered to be a 'single-class REMIC,' a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those Regular Certificateholders that are
'pass-through interest holders.' certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the Regular Certificates. See 'Pass-Through of
Non-Interest Expenses of the REMIC under Residual Certificates.'
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any
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loss sustained during the taxable year on account of the certificates becoming
wholly or partially worthless, and that, in general, holders of certificates
that are not corporations should be allowed to deduct as a short-term capital
loss any loss sustained during the taxable year on account of the certificates
becoming wholly worthless. Although the matter is unclear, non-corporate holders
of certificates may be allowed a bad debt deduction at the time that the
principal balance of a certificate is reduced to reflect realized losses
resulting from any liquidated mortgage loans. The Internal Revenue Service,
however, could take the position that non-corporate holders will be allowed a
bad debt deduction to reflect realized losses only after all mortgage loans
remaining in the related trust fund have been liquidated or the certificates of
the related series have been otherwise retired. Potential investors and Holders
of the certificates are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect to
their certificates, including any loss resulting from the failure to recover
previously accrued interest or discount income.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the Regular Certificates to a Regular
Certificateholder who is not a U.S. Person and is not engaged in a trade or
business within the United States will not be subject to federal withholding tax
if the Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that the Regular
Certificateholder is a foreign person and providing the name and address of the
Regular Certificateholder). If a Regular Certificateholder is not exempt from
withholding, distributions of interest, including distributions in respect of
accrued OID, the holder may be subject to a 30% withholding tax, subject to
reduction under any applicable tax treaty.
Further, it appears that a Regular Certificate would not be included in the
estate of a non-resident alien individual and would not be subject to United
States estate taxes. However, Certificateholders who are non-resident alien
individuals are encouraged to consult their tax advisors concerning this
question.
It is recommended that Regular Certificateholders who are not U.S. Persons
and persons related to them not acquire any Residual Certificates, and holders
of Residual Certificates (the 'Residual Certificateholder') and persons related
to Residual Certificateholders not acquire any Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so.
As previously mentioned, the New Withholding Regulations were published in
the Federal Register on October 14, 1997 and generally will be effective for
payments made after December 31, 1999, subject to certain transition rules. The
discussion set forth above does not take the New Withholding Regulations into
account. Prospective Non-U.S. Persons who own Regular Certificates are urged to
consult their own tax advisor with respect to the New Withholding Regulations.
Information Reporting and Backup Withholding. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Regular Certificateholder at any time
during the year, any information deemed appropriate to assist Regular
Certificateholders in preparing their federal income tax returns, or to enable
holders to make the information available to beneficial owners or financial
intermediaries that hold the Regular Certificates on behalf of beneficial
owners. If a holder, beneficial owner, financial intermediary or other recipient
of a payment on behalf of a beneficial owner fails to supply a certified
taxpayer identification number or if the Secretary of the Treasury determines
that the person has not reported all interest and dividend income required to be
shown on its federal income tax return, 31% backup withholding may be required
with respect to any
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payments. Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against a recipient's federal income tax liability.
In addition, prospective investors are encouraged to consult their tax advisors
with respect to the New Withholding Regulations.
B. RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See ' -- Prohibited
Transactions and Other Taxes.' Instead, each original holder of a Residual
Certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which it owns any Residual Certificates. The taxable income of the REMIC
for each day will be determined by allocating the taxable income of the REMIC
for each calendar quarter ratably to each day in the quarter. An original
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding Residual Certificates that the holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the holders of Residual Certificates without
regard to the timing or amounts of cash distributions by the REMIC. Ordinary
income derived from Residual Certificates will be 'portfolio income' for
purposes of the taxation of taxpayers subject to the limitations on the
deductibility of 'passive losses.' As residual interests, the Residual
Certificates will be subject to tax rules, described below, that differ from
those that would apply if the Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the certificates or as debt
instruments issued by the REMIC.
A Residual Certificateholder may be required to include taxable income from
the Residual Certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(that is, a fast-pay, slow-pay structure) may generate that sort of mismatching
of income and cash distributions (that is, 'phantom income'). This mismatching
may be caused by the use of certain required tax accounting methods by the
REMIC, variations in the prepayment rate of the underlying mortgage loans and
certain other factors. Depending upon the structure of a particular transaction,
the aforementioned factors may significantly reduce the after-tax yield of a
Residual Certificate to a Residual Certificateholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a Residual
Certificate and the impact of the tax treatment on the after-tax yield of a
Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that the Residual Certificateholder owns the Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual Certificateholder,
as described above. The Legislative History indicates that certain adjustments
may be appropriate to reduce (or increase) the income of a subsequent holder of
a Residual Certificate that purchased the Residual Certificate at a price
greater than (or less than) the adjusted basis the Residual Certificate would
have in the hands of an original Residual Certificateholder. See ' -- Sale or
Exchange of Residual Certificates.' It is not clear, however, whether these
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for these adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of the income from the mortgage loans
and the REMIC's other assets and the deductions allowed to the REMIC for
interest and OID on the Regular
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Certificates and, except as described under ' -- Regular
Certificates -- Non-Interest Expenses of the REMIC,' other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, all bad loans will be deductible as business
bad debts, and the limitation on the deductibility of interest and expenses
related to tax-exempt income is more restrictive than with respect to
individual. The REMIC's gross income includes interest, original issue discount
income, and market discount income, if any, on the mortgage loans, as well as,
income earned from temporary investments on reverse assets, reduced by the
amortization of any premium on the mortgage loans. In addition, a Residual
Certificateholder will recognize additional income due to the allocation of
realized losses to the Regular Certificates due to defaults, delinquencies and
realized losses on the mortgage loans. The timing of the inclusion of the income
by Residual Certificateholders may differ from the time the actual loss is
allocated to the Regular Certificates. The REMIC's deductions include interest
and original issue discount expense on the Regular Certificates, servicing fees
on the mortgage loans, other administrative expenses of the REMIC and realized
losses on the mortgage loans. The requirement that Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC will
continue until there are no certificates of any class of the related series
outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular Certificates and the Residual Certificates (or, if a class of
certificates is not sold initially, its fair market value). The aggregate basis
will be allocated among the mortgage loans and other assets of the REMIC in
proportion to their respective fair market value. A mortgage loan will be deemed
to have been acquired with discount or premium to the extent that the REMIC s
basis therein is less than or greater than its principal balance, respectively.
Any discount (whether market discount or OID) will be includible in the income
of the REMIC as it accrues, in advance of receipt of the cash attributable to
this income, under a method similar to the method described above for accruing
OID on the Regular Certificates. The REMIC expects to elect under Code
Section 171 to amortize any premium on the mortgage loans. Premium on any
mortgage loan to which the election applies would be amortized under a constant
yield method. It is not clear whether the yield of a mortgage loan would be
calculated for this purpose based on scheduled payments or taking account of the
Prepayment Assumption. Additionally, the election would not apply to the yield
with respect to any underlying mortgage loan originated on or before September
27, 1985. Instead, premium with respect to that mortgage loan would be allocated
among the principal payments thereon and would be deductible by the REMIC as
those payments become due.
The REMIC will be allowed a deduction for interest and OID on the Regular
Certificates. The amount and method of accrual of OID will be calculated for
this purpose in the same manner as described above with respect to Regular
Certificates except that the 0.25% per annum de minimis rule and adjustments for
subsequent holders described therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost of
the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, that taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the Residual Certificates will be added to the issue
price of the Regular Certificates in determining the REMIC's initial basis in
its assets. See ' -- Sale or Exchange of Residual Certificates.' For a
discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of the
Residual Certificate to the holder and the adjusted basis the Residual
Certificate would have in the hands of an original Residual Certificateholder,
see ' -- Allocation of the Income of the REMIC to the Residual Certificates.'
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Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. The net loss would be
allocated among the Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any Residual Certificate will
not be deductible by the holder to the extent that the net loss exceeds the
holder's adjusted basis in the Residual Certificate. Any net loss that is not
currently deductible due to this limitation may only be used by the Residual
Certificateholder to offset its share of the REMIC's taxable income in future
periods (but not otherwise). The ability of Residual Certificateholders that are
individuals or closely held corporations to deduct net losses may be subject to
additional limitations under the Code.
Mark to Market Rules. A Residual Certificate acquired after January 3, 1995
cannot be marked-to-market.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the Regular Certificateholders and the
Residual Certificateholders on a daily basis in proportion to the relative
amounts of income accruing to each certificateholder on that day. In general
terms, a single class REMIC is one that either 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 is similar to a grantor trust and is structured
with the principal purpose of avoiding the single class REMIC rules. The
applicable prospectus supplement may apportion expenses to the Regular
Certificates, but if it does not, then the expenses of the REMIC will be
allocated to holders of the related Residual Certificates in their entirety and
not to holders of the related Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
Regular Certificate or a Residual Certificate directly or through a pass-through
interest holder that is required to pass miscellaneous itemized deductions
through to its owners or beneficiaries (e.g. a partnership, an S corporation or
a grantor trust), the trust expenses will be deductible under Code Section 67
only to the extent that those expenses, plus other 'miscellaneous itemized
deductions' of the individual, exceed 2% of the individual's adjusted gross
income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the 'Applicable Amount') will be reduced by the lesser
of 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by Residual Certificateholders who are subject to the limitations of
either Code Section 67 or Code Section 68 may be substantial. Further, holders
(other than corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining their alternative minimum
taxable income. The REMIC is required to report to each pass-through interest
holder and to the IRS the holder's allocable share, if any, of the REMIC's
non-interest expenses. The term 'pass-through interest holder' generally refers
to individuals, entities taxed as individuals and certain pass-through entities,
but does not include real estate investment trusts. Residual Certificateholders
that are pass-through interest holders are encouraged to consult their own tax
advisors about the impact of these rules on an investment in the Residual
Certificates.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an 'excess inclusion') for any calendar quarter
generally will be subject to federal income tax in all events. Thus, for
example, an excess inclusion may not be offset by any
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unrelated losses, deductions or loss carryovers of a Residual Certificateholder;
will be treated as 'unrelated business taxable income' within the meaning of
Code Section 512 if the Residual Certificateholder is a pension fund or any
other organization that is subject to tax only on its unrelated business taxable
income (see ' -- Tax-Exempt Investors'); and is not eligible for any reduction
in the rate of withholding tax in the case of a Residual Certificateholder that
is a foreign investor. See ' -- Non-U.S. Persons.' An exception to the excess
inclusion rules that applied to thrifts holding certain residuals was repealed
by the Small Business Tax Act of 1996.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of the income of the Residual Certificateholder for that
calendar quarter from its Residual Certificate over the sum of the 'daily
accruals' for all days during the calendar quarter on which the Residual
Certificateholder holds the Residual Certificate. For this purpose, the daily
accruals with respect to a Residual Certificate are determined by allocating to
each day in the calendar quarter its ratable portion of the product of the
'adjusted issue price' of the Residual Certificate at the beginning of the
calendar quarter and 120 percent of the 'Federal long-term rate' in effect at
the time the Residual Certificate is issued. For this purpose, the 'adjusted
issue price' of a Residual Certificate at the beginning of any calendar quarter
equals the issue price of the Residual Certificate, increased by the amount of
daily accruals for all prior quarters, and decreased (but not below zero) by the
aggregate amount of payments made on the Residual Certificate before the
beginning of the same quarter. The 'federal long-term rate' is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
In the case of any Residual Certificates held by a real estate investment
trust, the aggregate excess inclusions with respect to the Residual
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of the trust in
proportion to the dividends received by the shareholders from the trust, and any
amount so allocated will be treated as an excess inclusion with respect to a
Residual Certificate as if held directly by the shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in the
Residual Certificate. To the extent a distribution exceeds the adjusted basis,
it will be treated as gain from the sale of the Residual Certificate.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the Residual Certificate (except that the recognition of loss may be
limited under the 'wash sale' rules). A holder's adjusted basis in a Residual
Certificate generally equals the cost of the Residual Certificate to the
Residual Certificateholder, increased by the taxable income of the REMIC that
was included in the income of the Residual Certificateholder with respect to the
Residual Certificate, and decreased (but not below zero) by the net losses that
have been allowed as deductions to the Residual Certificateholder with respect
to the Residual Certificate and by the distributions received thereon by the
Residual Certificateholder. In general, the gain or loss will be capital gain or
loss provided the Residual Certificate is held as a capital asset. However,
Residual Certificates will be 'evidences of indebtedness' within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from sale of a Residual
Certificate by a bank or thrift institution to which that section applies would
be ordinary income or loss.
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Except as provided in Treasury regulations yet to be issued, if the seller
of a Residual Certificate reacquires the Residual Certificate, or acquires any
other Residual Certificate, any residual interest in another REMIC or similar
interest in a 'taxable mortgage pool' (as defined in Code Section 7701(i))
during the period beginning six months before, and ending six months after, the
date of the sale, the sale will be subject to the 'wash sale' rules of Code
Section 1091. In that event, any loss realized by the Residual Certificateholder
on the sale will not be deductible, but, instead, will increase the Residual
Certificateholder's adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100 percent of the net income
derived from 'prohibited transactions' (the 'Prohibited Transactions Tax' ) and
prohibits deducting any loss with respect to prohibited transactions. In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a mortgage loan, the receipt of income from a source other
than a mortgage loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the mortgage loans for temporary investment pending
distribution on the certificates. It is not anticipated that the trust fund for
any series of certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a trust fund as to which an election
has been made to treat the trust fund as a REMIC made after the day on which the
trust fund issues all of its interest could result in the imposition of a tax on
the trust fund equal to 100% of the value of the contributed property (the
'Contributions Tax'). No trust fund for any series of certificates will accept
contributions that would subject it to a Contributions Tax.
In addition, a trust fund as to which an election has been made to treat
the trust fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on 'net income from foreclosure property,' determined by
reference to the rules applicable to real estate investment trusts. 'Net income
from foreclosure property' generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any series of certificates results from
a breach of the related master servicer's, trustee's or seller's
obligations under the related pooling and servicing agreement for the
series, the tax will be borne by the master servicer, trustee or seller,
as the case may be, out of its own funds or
the seller's obligation to repurchase a mortgage loan, the tax will be
borne by the seller.
If the master servicer, trustee or seller, as the case may be, fails to pay or
is not required to pay the tax as provided above, the tax will be payable out of
the trust fund for the series and will result in a reduction in amounts
available to be distributed to the certificateholders of the series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which the adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
that date, the REMIC will not be subject to any Prohibited
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Transactions Tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to meet
claims) to holders of Regular and Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the Regular
Certificates. If a Residual Certificateholder's adjusted basis in the Residual
Certificate exceeds the amount of cash distributed to the Residual
Certificateholder in final liquidation of its interest, then it would appear
that the Residual Certificateholder would be entitled to a loss equal to the
amount of the excess. It is unclear whether the loss, if allowed, will be a
capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the Residual
Certificateholders will be treated as the partners if there is more than one
holder of the Residual Certificate. Certain information will be furnished
quarterly to each Residual Certificateholder who held a Residual Certificate on
any day in the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its return
consistently with their treatment on the REMIC's return, unless the Residual
Certificateholder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from incorrect information received
from the REMIC. The IRS may assert a deficiency resulting from a failure to
comply with the consistency requirement without instituting an administrative
proceeding at the REMIC level. The REMIC does not intend to register as a tax
shelter pursuant to Code Section 6111 because it is not anticipated that the
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC, in a manner to be provided in
Treasury regulations, with the name and address of the person and other
information.
TAX-EXEMPT INVESTORS
Any Residual Certificateholder that is a pension fund or other entity that
is subject to federal income taxation only on its 'unrelated business taxable
income' within the meaning of Code Section 512 will be subject to the tax on
that portion of the distributions received on a Residual Certificate that is
considered an excess inclusion. See ' -- Residual Certificates -- Excess
Inclusions.'
NON-U.S. PERSONS
Amounts paid to Residual Certificateholders who are not U.S. persons (see
' -- Regular Certificates -- Non-U.S. Persons') are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to holders of Residual Certificates should qualify as
'portfolio interest,' subject to the conditions described in ' -- Regular
Certificates,' but only to the extent that the underlying mortgage loans were
originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a Residual Certificate that is excess inclusion income will not be
subject to reduction under any applicable tax treaties. See ' -- Residual
Certificates -- Excess Inclusions.' If the portfolio interest exemption is
unavailable, the amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where
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the Residual Certificates do not have significant value). See ' -- Residual
Certificates -- Excess Inclusions.' If the amounts paid to Residual
Certificateholders that are not U.S. persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to the
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of Residual
Certificates, see ' -- Tax-Related Restrictions on Transfers of Residual
Certificates.'
TAX-RELATED RESTRICTIONS ON TRANSFERS OF RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
the entity are not held by 'disqualified organizations.' Further, a tax is
imposed on the transfer of a residual interest in a REMIC to a 'disqualified
organization.' The amount of the tax equals the product of an amount (as
determined under the REMIC Regulations) equal to the present value of the total
anticipated 'excess inclusions' with respect to the interest for periods after
the transfer and the highest marginal federal income tax rate applicable to
corporations. The tax is imposed on the transferor unless the transfer is
through an agent (including a broker or other middleman) for a disqualified
organization, in which event the tax is imposed on the agent. The person
otherwise liable for the tax shall be relieved of liability for the tax if the
transferee furnished to it an affidavit that the transferee is not a
disqualified organization and, at the time of the transfer, the person does not
have actual knowledge that the affidavit is false. A 'disqualified organization'
means the United States, any State, possession or political subdivision of the
United States, any foreign government, any international organization or any
agency or instrumentality of any of the foregoing entities (provided that the
term does not include an instrumentality if all its activities are subject to
tax and, except for Freddie Mac, a majority of its board of directors is not
selected by a governmental agency), any organization (other than certain farmers
cooperatives) generally exempt from federal income taxes unless the organization
is subject to the tax on 'unrelated business taxable income' and a rural
electric or telephone cooperative.
A tax is imposed on a 'pass-through entity' holding a residual interest in
a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in the entity. The
amount of the tax is equal to the product of the amount of excess inclusions for
the taxable year allocable to the interest held by the disqualified organization
and the highest marginal federal income tax rate applicable to corporations. The
pass-through entity otherwise liable for the tax, for any period during which
the disqualified organization is the record holder of an interest in the entity,
will be relieved of liability for the tax if the record holder furnishes to the
entity an affidavit that the record holder is not a disqualified organization
and, for the applicable period, the pass-through entity does not have actual
knowledge that the affidavit is false. For this purpose, a 'pass-through entity'
means a regulated investment company, real estate investment trust, or common
trust fund; a partnership, trust, or estate; and certain cooperatives. Except as
may be provided in Treasury regulations not yet issued, any person holding an
interest in a pass-through entity as a nominee for another will, with respect to
the interest, be treated as a pass-through entity. The tax on pass-through
entities is generally effective for periods after March 31, 1988, except that in
the case of regulated investment companies, real estate investment trusts,
common trust funds and publicly-traded partnerships the tax shall apply only to
taxable years of the entities beginning after December 31, 1988. Under the
Taxpayer Relief Act of 1997, large partnerships (generally with 250 or more
partners) will be taxable on excess inclusion income as if all partners were
disqualified organizations.
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To comply with these rules, the pooling and servicing agreement will
provide that no record or beneficial ownership interest in a Residual
Certificate may be purchased, transferred or sold, directly or indirectly,
without the express written consent of the master servicer. The master servicer
will grant consent to a proposed transfer only if it receives an affidavit from
the proposed transferee to the effect that it is not a disqualified organization
and is not acquiring the Residual Certificate as a nominee or agent for a
disqualified organization and a covenant by the proposed transferee to the
effect that the proposed transferee agrees to be bound by and to abide by the
transfer restrictions applicable to the Residual Certificate.
Noneconomic Residual Certificates. The REMIC Regulations disregard, for
federal income tax purposes, any transfer of a Noneconomic Residual Certificate
to a 'U.S. Person,' as defined in the following section of this discussion,
unless no significant purpose of the transfer is to enable the transferor to
impede the assessment or collection of tax. In general, the definition of a U.S.
Person is the same as provided under 'Certain Federal Income Tax
Consequences -- Non-REMIC Certificates -- Non-U.S. Persons,' except that
entities or individuals that would otherwise be treated as Non-U.S. Persons, may
be considered U.S. Persons for this purpose if their income from the residual is
subject to tax under Code Section 871(b) or Code Section 882 (income effectively
connected with a U.S. trade or business). A Noneconomic Residual Certificate is
any Residual Certificate (including a Residual Certificate with a positive value
at issuance) unless, at the time of transfer, taking into account the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents, the present value of the
expected future distributions on the Residual Certificate at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs and the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known that the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC. A transferor is presumed not to
have that knowledge if the transferor conducted a reasonable investigation of
the transferee and the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay the taxes associated with the
residual interest as they become due. If a transfer of a Noneconomic Residual
Certificate is disregarded, the transferor would continue to be treated as the
owner of the Residual Certificate and would continue to be subject to tax on its
allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a 'tax avoidance potential' to a 'foreign person'
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a U.S. Person unless the transferee's income in
respect of the Residual Certificate is effectively connected with the conduct of
a United States trade or business. A Residual Certificate is deemed to have a
tax avoidance potential unless, at the time of transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee amounts that
will equal at least 30 percent of each excess inclusion, and that the amounts
will be distributed at or after the time the excess inclusion accrues and not
later than the end of the calendar year following the year of accrual. If the
non-U.S. Person transfers the Residual Certificate to a U.S. Person, the
transfer will be disregarded, and the foreign transferor will continue to be
treated as the owner, if the transfer has the effect of allowing the transferor
to avoid tax on accrued excess inclusions. The provisions in the REMIC
Regulations regarding transfers of Residual Certificates that have tax avoidance
potential to foreign persons are effective for all transfers after June 30,
1992. The pooling and servicing agreement will provide that no record or
beneficial ownership interest in a
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Residual Certificate may be transferred, directly or indirectly, to a non-U.S.
Person unless the person provides the trustee with a duly completed I.R.S. Form
4224 and the trustee consents to the transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in Residual Certificates are encouraged to consult their
own tax advisors with respect to transfers of the Residual Certificates and
pass-through entities are encouraged to consult their own tax advisors with
respect to any tax which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Considerations,' potential investors are encouraged to
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the certificates. State and local income tax law
may differ substantially from the corresponding federal law, and this discussion
does not purport to describe any aspect of the income tax laws of any state or
locality. Therefore, potential investors are encouraged to consult their own tax
advisors with respect to the various tax consequences of investments in the
certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to certificates of a series that are not divided into
subclasses. If certificates are divided into subclasses, the related prospectus
supplement will contain information concerning considerations relating to ERISA
and the Code that are applicable to them.
ERISA imposes requirements on employee benefit plans subject to ERISA (and
the Code imposes requirements on certain other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which the plans,
accounts or arrangements are invested) (collectively 'Plans') and on persons who
bear specified relationships to Plans ('Parties in Interest') or are fiduciaries
with respect to Plans. Generally, ERISA applies to investments made by Plans.
Among other things, ERISA requires that the assets of Plans be held in trust and
that the trustee, or other duly authorized fiduciary, have exclusive authority
and discretion to manage and control the assets of the Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of the Plan (subject to
certain exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
those plans may be invested in certificates without regard to the described
ERISA considerations, subject to the provisions of applicable state law.
However, any of those plans that are qualified and exempt from taxation under
Code Sections 401(a) and 501(a) are subject to the prohibited transaction rules
set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor issued final
regulations concerning the definition of what constitutes the assets of a Plan.
(Labor Reg. Section
2510.3-101.) Under this regulation, the underlying assets and properties of
corporations, partnerships and certain other entities in which a Plan makes an
'equity' investment could be deemed for purposes of ERISA to be assets of the
investing Plan in certain circumstances. However, the regulation provides that,
generally, the assets of a corporation or partnership in
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which a Plan invests will not be deemed for purposes of ERISA to be assets of
the Plan if the equity interest acquired by the investing Plan is a
publicly-offered security. A publicly-offered security, as defined in Labor Reg.
Section 2510.3-101, is a security that is widely held, freely transferable and
registered under the Securities Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA and the Code prohibit a broad range of
transactions involving Plan assets of a Plan and Parties in Interest with
respect to the Plan and impose additional prohibitions where Parties in Interest
are fiduciaries with respect to the Plan. Because the mortgage loans may be
deemed Plan assets of each Plan that purchases certificates, an investment in
the certificates by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless
a statutory, regulatory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), the DOL exempted
from ERISA's prohibited transaction rules and from the excise tax imposed under
Code Section 4975 certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' in the initial issuance of the certificates. PTE
83-1 permits, subject to certain conditions, transactions that might otherwise
be prohibited between Plans and Parties in Interest with respect to those Plans
related to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property, and the acquisition and holding of
certain mortgage pool pass-through certificates representing an interest in
those mortgage pools by Plans. If the general conditions of PTE 83-1 are
satisfied, investments by a Plan in certificates that represent interests in a
mortgage pool consisting of mortgage loans representing loans for single family
homes ('Single Family Certificates') will be exempt from the prohibitions of
ERISA Sections 406(a) and 407 (relating generally to transactions with Parties
in Interest who are not fiduciaries) if the Plan purchases the Single Family
Certificates at no more than fair market value and will be exempt from the
prohibitions of ERISA Sections 406(b)(1) and (2) (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved by an
independent fiduciary, no sales commission is paid to the pool sponsor, the Plan
does not purchase more than twenty-five percent (25%) of all Single Family
Certificates and at least fifty percent (50%) of all Single Family Certificates
are purchased by persons independent of the pool sponsor or pool trustee. PTE
83-1 does not provide an exemption for transactions involving subordinated
certificates. Accordingly, no transfer of a subordinated certificate generally
may be made to a Plan.
The discussion in this and the next paragraph applies only to Single Family
Certificates. The depositor believes that, for purposes of PTE 83-1, the term
'mortgage pass-through certificate' would include: (1) certificates issued in a
series consisting of only a single class of certificates; and (2) senior
certificates issued in a series in which there is only one class of senior
certificates; provided that the certificates in the case of clause (1), or the
senior certificates in the case of clause (2), evidence the beneficial ownership
of both a specified percentage of future interest payments (greater than zero
percent) and a specified percentage (greater than zero percent) of future
principal payments on the mortgage loans. It is not clear whether a class of
certificates that evidences the beneficial ownership in a trust fund divided
into mortgage loan groups, beneficial ownership of a specified percentage of
interest payments only or principal payments only, or a notional amount of
either principal or interest payments, or a class of certificates entitled to
receive payments of interest and principal on the mortgage loans only after
payments to other classes or after the occurrence of certain specified events
would be a 'mortgage pass-through certificate' for purposes of PTE 83-1.
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PTE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption:
the maintenance of a system of insurance or other protection for the
pooled mortgage loans and property securing the loans and for indemnifying
certificateholders against reductions in pass-through payments due to
property damage or defaults in loan payments in an amount not less than
the greater of one percent of the aggregate principal balance of all
covered pooled mortgage loans or the principal balance of the largest
covered pooled mortgage loan;
the existence of a pool trustee who is not an affiliate of the pool
sponsor; and
a limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than
adequate consideration for selling the mortgage loans plus reasonable
compensation for services provided by the pool sponsor to the mortgage
pool.
The depositor believes that the first general condition referred to above
will be satisfied with respect to the certificates in a series issued without a
subordination feature, or the senior certificates only in a series issued with a
subordination feature, provided that the subordination and reserve fund,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described in this prospectus (that subordination, pool
insurance or other form of credit enhancement being the system of insurance or
other protection referred to above) with respect to a series of certificates is
maintained in an amount not less than the greater of one percent of the
aggregate principal balance of the mortgage loans or the principal balance of
the largest mortgage loan. See 'Description of the Certificates.' In the absence
of a ruling that the system of insurance or other protection with respect to a
series of certificates satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by the DOL. The
trustee will not be affiliated with the depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Certificates
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the certificates is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
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.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
the acquisition of the certificates by a Plan is on terms (including the
price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
104
<PAGE>
the rights and interest evidenced by the certificates acquired by the Plan
are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
the certificates acquired by the Plan have received a rating at the time
of acquisition that is one of the three highest generic rating categories
from Standard & Poor's Ratings Group, a division of McGraw-Hill Companies,
Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, Inc.;
the trustee is not an affiliate of any other member of the Restricted
Group;
the sum of all payments made to and retained by the underwriters 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 assignment
of the loans to the trust fund represents not more than the fair market
value of the loans; the sum of all payments made to and retained by the
master servicer and any other servicer represents not more than reasonable
compensation for its services under the agreement pursuant to which the
loans are pooled and reimbursements of its reasonable expenses in
connection therewith; and
the Plan investing in the certificates is an 'accredited investor' as
defined in Rule 501(a)(1) of Regulation D of the SEC under the Securities
Act of 1933 as amended.
The trust fund must also meet the following requirements:
the corpus of the trust fund must consist solely of assets of the type
that have been included in other investment pools;
certificates in other investment pools must have been rated in one of the
three highest rating categories of S&P, Moody's, Fitch or D&P for at least
one year before the Plan's acquisition of certificates; and
certificates evidencing interests in the other investment pools must have
been purchased by investors other than Plans for at least one year before
any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing and conflict of interest prohibited transactions that may occur
when the Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor provided
that, among other requirements:
in the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each class of certificates in
which Plans have invested is acquired by persons independent of the
Restricted Group,
the fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in
the trust;
the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding
at the time of the acquisition; and
immediately after the acquisition, no more than twenty-five percent of the
assets of any Plan with respect to which the person is a fiduciary is
invested in certificates 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 Underwriter, the trustee, the master servicer, any servicer, any insurer
with respect to the mortgage loans, any obligor with respect to mortgage loans
included in the trust fund constituting more than five
105
<PAGE>
percent of the aggregate unamortized principal balance of the assets in the
trust fund, or any affiliate of those parties (the 'Restricted Group').
On July 21, 1997, DOL published in the Federal Register an amendment to the
Exemption, which extends exemptive relief to specified mortgage-backed and
asset-backed securities transactions using pre-funded accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables supporting payments to certificateholders, and
having a value equal to no more than twenty-five percent of the total principal
amount of the certificates being offered by the trust, to be transferred to the
trust within a 90-day or three-month period following the closing date, instead
of requiring that all obligations be either identified or transferred on or
before the closing date. The relief is available when certain conditions are
met.
The prospectus supplement for each series of certificates will indicate the
classes of certificates, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
Any Plan fiduciary that proposes to cause a Plan to purchase certificates
is encouraged to consult with its counsel concerning the impact of ERISA and the
Code, the applicability of PTE 83-1, the availability and applicability of any
Underwriter Exemption or any other exemptions from the prohibited transaction
provisions of ERISA and the Code and the potential consequences in their
specific circumstances, before making the investment. Moreover, each Plan
fiduciary should determine whether under the general fiduciary standards of
investment prudence and diversification an investment in the certificates 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
The prospectus supplement for each series of certificates will specify
which, if any, of the classes of certificates offered by it will constitute
'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA'). Classes of certificates that qualify as
'mortgage related securities' will be legal investments for those investors
whose authorized investments are subject to state regulation, to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States constitute legal investments for them. Those
investors are persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state (including the District of Columbia
and Puerto Rico). Under SMMEA, if a state enacts legislation before October 4,
1991 specifically limiting the legal investment authority of those entities with
respect to 'mortgage related securities,' the certificates will constitute legal
investments for entities subject to the legislation only to the extent provided
in it. Approximately twenty-one states adopted limiting legislation before the
October 4, 1991 deadline.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in certificates
without limitations as to the percentage of their assets represented by them,
federal credit unions may invest in mortgage related securities, and national
banks may purchase certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to regulations that the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration Letter to Credit Unions
106
<PAGE>
No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities, and the its regulation 'Investment and Deposit
Activities' (12 C.F.R. Part 703), (whether or not the class of certificates
under consideration for purchase constitutes a 'mortgage related security').
All depository institutions considering an investment in the certificates
(whether or not the class of certificates under consideration for purchase
constitutes a 'mortgage related security' should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on Securities
Activities (to the extent adopted by their respective regulators), setting
forth, in relevant part, certain securities trading and sales practices deemed
unsuitable for an institution's investment portfolio, and guidelines for (and
restrictions on) investing in mortgage derivative products, including 'mortgage
related securities' that are 'high-risk mortgage securities' as defined in the
policy statement. According to the policy statement, 'high-risk mortgage
securities' include securities such as certificates not entitled to
distributions allocated to principal or interest, or subordinated certificates.
Under the policy statement, each depository institution must determine, before
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a 'high-risk mortgage security,' and whether the purchase
(or retention) of such a product would be consistent with the policy statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including 'prudent
investor' provisions, percentage-of-assets limits and provisions that may
restrict or prohibit investment in securities that are not 'interest bearing' or
'income paying.'
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of the
investor's assets. Investors are encouraged to consult their own legal advisors
in determining whether and to what extent the certificates constitute legal
investments for them.
METHOD OF DISTRIBUTION
Certificates are being offered hereby in series from time to time (each
series evidencing a separate trust fund) through any of the following methods:
by negotiated firm commitment underwriting and public reoffering by
underwriters;
by agency placements through one or more placement agents primarily with
institutional investors and dealers; and
by placement directly by the depositor with institutional investors.
A prospectus supplement will be prepared for each series which will
describe the method of offering being used for that series and will set forth
the identity of any of its underwriters and either the price at which the series
is being offered, the nature and amount of any underwriting discounts or
additional compensation to the underwriters and the proceeds of the offering to
the depositor, or the method by which the price at which the underwriters will
sell the certificates will be determined. Each prospectus supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters obligations, any material relationship between the depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the certificates so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the certificates of the series if any
107
<PAGE>
certificates are purchased. Certificates may be acquired by the underwriters for
their own accounts and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale.
This prospectus, together with the related prospectus supplement, may be
used by Countrywide Securities Corporation, an affiliate of IndyMac MBS, Inc.,
in connection with offers and sales related to market making transactions in the
certificates in which Countrywide Securities Corporation acts as principal.
Countrywide Securities Corporation may also act as agent in those transactions.
Sales in those transactions will be made at prices related to prevailing prices
at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the depositor to indemnification by the depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which the underwriters or agents may
be required to make in respect thereof.
If a series is offered other than through underwriters, the prospectus
supplement relating to it will contain information regarding the nature of the
offering and any agreements to be entered into between the depositor and
purchasers of certificates of the series.
LEGAL MATTERS
The validity of the certificates, including certain federal income tax
consequences with respect to the certificates, will be passed upon for the
depositor by Brown & Wood LLP, One World Trade Center, New York, New York 10048.
FINANCIAL INFORMATION
A new trust fund will be formed for each series of certificates and no
trust fund will engage in any business activities or have any assets or
obligations before the issuance of the related series of certificates.
Accordingly, no financial statements for any trust fund will be included in this
prospectus or in the related prospectus supplement.
RATING
It is a condition to the issuance of the certificates of each series
offered by this prospectus and by the prospectus supplement that they shall have
been rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
prospectus supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with the certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which the
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
108
<PAGE>
INDEX TO DEFINED TERMS
<TABLE>
<S> <C>
1986 Act...................... 80
Agency Securities............. 13
Amortizable Bond Premium
Regulations................. 77
Applicable Amount............. 97
ARM Loans..................... 80
Asset Conservation Act........ 72
CERCLA........................ 72
Certificate Account........... 52
Class Certificate Balance..... 32
Code.......................... 28, 75
Contingent Regulations........ 86
Contributions Tax............. 99
Deferred Interest............. 82
Eleventh District............. 39
excess inclusion.............. 97
FHLBSF........................ 40
Garn-St Germain Act........... 73
Insured Expenses.............. 53
Legislative History........... 81
Liquidated Mortgage........... 61
Loan-to-Value Ratio........... 16
Master REMIC.................. 85
Mortgage Assets............... 13
National Cost of Funds
Index....................... 40
New Withholding Regulations... 83
Non-U.S. Person............... 83
OID........................... 75
OID Regulations............... 80
OTS........................... 40
Parties in Interest........... 103
Payment Lag Certificates...... 93
Plans......................... 103
pre-issuance accrued
interest.................... 93
Prepayment Assumption......... 81
Private Mortgage-Backed
Securities.................. 13
Prohibited Transactions Tax... 99
PTE 83-1...................... 104
RCRA.......................... 72
Regular Certificateholders.... 86
Regular Certificates.......... 84
Relief Act.................... 74
REMIC Certificates............ 84
REMICs........................ 31
Residual Certificateholder.... 94
Residual Certificates......... 84
Restricted Group.............. 107
Single Family Certificates.... 104
SMMEA......................... 107
Stripped ARM Obligations...... 82
Stripped Bond Certificates.... 79
Stripped Coupon
Certificates................ 79
Subsidiary REMIC.............. 85
Super-Premium Certificates.... 87
Title V....................... 73
U.S. Person................... 83
Underwriter Exemptions........ 105
</TABLE>
109
<PAGE>
RESIDENTIAL ASSET SECURITIZATION TRUST 1999-
ISSUER
INDYMAC MBS, INC.
DEPOSITOR
[[LOGO]
SELLER AND MASTER SERVICER]
$
(APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
[NAME OF UNDERWRITER]
[NAME OF 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 different information.
We are not offering the Series 1999- Mortgage Pass-Through Certificates in
any state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Series 1999- Mortgage Pass-Through Certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the Series 1999- Mortgage Pass-Through Certificates will be required to
deliver a prospectus supplement and prospectus until , 1999.
, 1999
<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:
<TABLE>
<S> <C>
SEC Registration Fee. $
Printing and Engraving......................................
Legal Fees and Expenses.....................................
Trustee Fees and Expenses...................................
Rating Agency Fees..........................................
Miscellaneous...............................................
-------------
Total.................................................. $
-------------
-------------
</TABLE>
- ------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of a Series of
Certificates in an aggregate principal amount assumed for these purposes to
be equal to $ of Certificates registered by this Registration
Statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides for indemnification
of directors and officers of the Registrant to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in substance,
that Delaware corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Delaware General Corporation Law also provides
that the Registrant may purchase insurance on behalf of any such director,
officer, employee or agent.
ITEM 16. EXHIBITS.
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Indemnification and Contribution Agreement.
3.1 -- Certificate of Incorporation of the Registrant.
3.2 -- Bylaws of the Registrant.
4.1 -- Form of Pooling and Servicing Agreement.
5.1 -- Opinion of Brown & Wood LLP as to the legality of the
Certificates (including its consent).
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters
(included in exhibit 5.1).
23.1 -- Consent of Brown & Wood LLP (included in exhibits 5.1 and
8.1).
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the 'Act');
(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.
II-1
<PAGE>
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 to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Act,
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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934, as amended, that is incorporated by reference in this 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.
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.
Insofar as indemnification for liabilities arising under the Act 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that (i) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and (ii) it reasonably believes that the
security rating requirement of Transaction Requirement B.5 of Form S-3 will be
met by the time of sale of each Series of Certificates to which this
Registration Statement relates and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pasadena, State of California, on the 14th day of July, 1999.
INDYMAC MBS, INC.
By: /s/ S. BLAIR ABERNATHY
...................................
S. BLAIR ABERNATHY
CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of S. Blair Abernathy, Marianne Churney,
Carmella L. Grahn and Jeffrey P. Grogin, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ S. BLAIR ABERNATHY Chairman of the Board, July 14, 1999
......................................... President and Director
S. BLAIR ABERNATHY (principal executive officer)
/s/ CARMELLA L. GRAHN Executive Vice President and Chief July 14, 1999
......................................... Financial Officer (principal
CARMELLA L. GRAHN financial and accounting officer)
/s/ MARIANNE CHURNEY Senior Vice President, General July 14, 1999
......................................... Counsel, Secretary and Director
MARIANNE CHURNEY
/s/ JEFFREY P. GROGIN Director July 14, 1999
.........................................
JEFFREY P. GROGIN
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
--- ---------------------- ------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement...........................
1.2 -- Form of Indemnification and Contribution Agreement.......
3.1 -- Certificate of Incorporation of the Registrant...........
3.2 -- Bylaws of the Registrant.................................
4.1 -- Form of Pooling and Servicing Agreement..................
5.1 -- Opinion of Brown & Wood LLP as to legality of the
Certificates (including its consent).....................
8.1 -- Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1)................................
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5.1 and
8.1).....................................................
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ............................. 'SS'
<PAGE>
EXHIBIT 1.1
INDYMAC MBS, INC.
Mortgage Pass-Through Certificates
UNDERWRITING AGREEMENT
Dated the date specified on
the signature page hereof
The Firm or Firms
of Underwriters named
on the signature page hereof
Ladies and Gentlemen:
IndyMac MBS, Inc., a Delaware corporation (the "Depositor"),
proposes to cause to be issued and to sell to you, as underwriters (each, an
"Underwriter"), the Mortgage Pass-Through Certificates of the series specified
on the signature page hereof and described in Section 2 hereof (the
"Underwritten Public Certificates" and, together with any certificates of such
series retained by the Depositor or the Seller, if any, set forth on the cover
page of the Prospectus Supplement (as defined below), collectively, the "Public
Certificates") having the characteristics set forth in the Prospectus
Supplement, evidencing ownership interests in a trust consisting of mortgage
notes and the related mortgages acquired by the Depositor (the "Mortgage Loans")
and related property, but excluding the Retained Interest (as defined in the
Prospectus Supplement), if any (collectively, the "Trust Fund"). The Mortgage
Loans will be of the type and will have the characteristics described in the
Prospectus Supplement, subject to the variances, ranges, minimums and maximums
set forth in the Prospectus Supplement, and will have the aggregate principal
balance set forth in the Prospectus Supplement, subject to an upward or downward
<PAGE>
variance in principal balance, not to exceed the percentage set forth in the
Prospectus Supplement, the precise aggregate principal balance within such range
to be determined by the Depositor in its sole discretion.
The Public Certificates, together with the other classes of
certificates of the series specified on the signature page hereof (the "Private
Certificates," and collectively with the Public Certificates, the
"Certificates") are to be issued under a pooling and servicing agreement (the
"Pooling and Servicing Agreement"), dated as of the Cut-off Date (as defined in
the Prospectus Supplement), among the Depositor, as depositor, the master
servicer and seller specified in the Prospectus Supplement (the "Master
Servicer" and the "Seller"), and ____________________, as trustee (the
"Trustee"). The Public Certificates of each class will be issued in the minimum
denominations and will have the terms set forth in the Prospectus Supplement.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Pooling and Servicing Agreement.
1. Representations and Warranties. The Depositor represents and
warrants to, and agrees with, each Underwriter that:
(i) A registration statement on Form S-3 (File No. 333- ),
including a prospectus, has been filed with the Securities and Exchange
Commission (the "Commission") and has become effective under the
Securities Act of 1933, as amended (the "Act"). As of the Closing Date
(as hereinafter defined), no stop order suspending the effectiveness of
such registration statement has been issued and no proceedings for that
purpose have been initiated or to the Depositor's knowledge threatened
by the Commission. The prospectus in the form in which it will be used
in connection with the
-2-
<PAGE>
offering of the Public Certificates is proposed to be supplemented by a
prospectus supplement dated the date hereof relating to the Certificates
and, as so supplemented, to be filed with the Commission pursuant to
Rule 424 under the Act. (Such registration statement is hereinafter
referred to as the "Registration Statement"; such prospectus supplement,
as first filed with the Commission, is hereinafter referred to as the
"Prospectus Supplement"; and such prospectus, in the form in which it
will first be filed with the Commission in connection with the offering
of the Public Certificates, including documents incorporated therein as
of the time of such filing and as supplemented by the Prospectus
Supplement, is hereinafter referred to as the "Prospectus"). Any
reference herein to the Registration Statement, a preliminary prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 which
were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") on or before the date on which the Registration
Statement, as amended, became effective or the issue date of such
preliminary prospectus or the date on which the Prospectus is filed
pursuant to Rule 424(b) under the Act, as the case may be; and any
reference herein to the terms "amend", "amendment" or supplement with
respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the filing of any
document under the Exchange Act after the date on which the Registration
Statement became effective or the issue date of any preliminary
prospectus or the date on which the Prospectus is filed pursuant to Rule
424(b) under the Act, as the case may be, deemed to be incorporated
therein by reference.
-3-
<PAGE>
(ii) The Registration Statement and the Prospectus, as of the
date of the Prospectus Supplement will conform, and the Registration
Statement and the Prospectus as revised, amended or supplemented and
filed with the Commission prior to the termination of the offering of
the Public Certificates, as of their respective effective or issue
dates, will conform in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder
applicable to such documents as of such respective dates, and the
Registration Statement and the Prospectus as revised, amended or
supplemented and filed with the Commission as of the Closing Date will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder applicable to such
documents as of the Closing Date. The Registration Statement, at the
time it became effective, did not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
the Prospectus as of the date of the Prospectus Supplement, and the
Prospectus as revised, amended or supplemented and filed prior to the
Closing Date, as of the Closing Date, will not include any untrue
statement of a material fact and will not omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Depositor makes no
representations, warranties or agreements as to the information
contained in or omitted from the Prospectus or any revision or amendment
thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Depositor by or on behalf of any
Underwriter specifically for use in connection with the preparation of
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the Prospectus or any revision or amendment thereof or supplement
thereto, such information being defined in the Indemnification and
Contribution Agreement, dated the date hereof (the "Indemnification
Agreement"), among the Depositor, the Master Servicer and the other
parties named therein.
(iii) The Public Certificates will conform in all material
respects to the description thereof contained in the Prospectus, and
each of the Certificates, when validly authenticated, issued and
delivered in accordance with the Pooling and Servicing Agreement, will
be duly and validly issued and outstanding and entitled to the benefits
of the Pooling and Servicing Agreement. Each Certificate of the classes
indicated to be "mortgage related securities" under the heading
"Summary--Legal Investment" in the Prospectus Supplement will, when
issued, be a "mortgage related security" as such term is defined in
Section 3(a)(41) of the Exchange Act.
(iv) This Agreement has been duly authorized, executed and
delivered by the Depositor. As of the Closing Date, the Pooling and
Servicing Agreement will have been duly authorized, executed and
delivered by the Depositor and will conform in all material respects to
the descriptions thereof contained in the Prospectus and, assuming the
valid execution and delivery thereof by the other parties thereto, this
Agreement and the Pooling and Servicing Agreement each will constitute
a legal, valid and binding agreement of the Depositor enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by general principles of equity.
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(v) The Depositor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own its properties and
conduct its business as described in the Prospectus and to enter into
and perform its obligations under the Pooling and Servicing Agreement
and this Agreement.
(vi) Neither the issuance or delivery of the Certificates, nor the
consummation of any other of the transactions contemplated herein, nor
compliance with the provisions of the Pooling and Servicing Agreement,
the Indemnification Agreement or this Agreement, will conflict with or
result in the breach of any material term or provision of the
certificate of incorporation or by-laws of the Depositor, and the
Depositor is not in breach or violation of or in default (nor has an
event occurred which with notice or lapse of time or both would
constitute a default) under the terms of (i) any indenture, contract,
lease, mortgage, deed of trust, note, agreement or other evidence of
indebtedness or other agreement, obligation or instrument to which the
Depositor is a party or by which it or its properties are bound, or (ii)
any law, decree, order, rule or regulation applicable to the Depositor
of any court or supervisory, regulatory, administrative or governmental
agency, body or authority, or arbitrator having jurisdiction over the
Depositor, or its properties, the default in or the breach or violation
of which would have a material adverse effect on the Depositor or the
Certificates or the ability of the Depositor to perform its obligations
under the Pooling and Servicing Agreement, the Indemnification Agreement
or this Agreement; and neither the delivery of the Certificates, nor the
consummation of any other of the transactions contemplated herein, nor
the compliance with the provisions of
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the Pooling and Servicing Agreement, the Indemnification Agreement or
this Agreement will result in such a breach, violation or default which
would have such a material adverse effect.
(vii) No filing or registration with, notice to, or consent,
approval, authorization or order or other action of any court or
governmental authority or agency is required for the consummation by the
Depositor of the transactions contemplated by this Agreement, the
Indemnification Agreement or the Pooling and Servicing Agreement (other
than as required under "blue sky" or state securities laws, as to which
no representations and warranties are made by the Depositor), except
such as have been, or will have been prior to the Closing Date, obtained
under the Act, and such recordations of the assignment of the Mortgage
Loans to the Trustee (to the extent such recordations are required
pursuant to the Pooling and Servicing Agreement) that have not yet been
completed.
(viii) There is no action, suit or proceeding before or by any
court, administrative or governmental agency now pending to which the
Depositor is a party, or to the best of the Depositor's knowledge
threatened against the Depositor, which could reasonably result
individually or in the aggregate in any material adverse change in the
condition (financial or otherwise), earnings, affairs, regulatory
situation or business prospects of the Depositor or could reasonably
interfere with or materially and adversely affect the consummation of
the transactions contemplated in the Pooling and Servicing Agreement,
the Indemnification Agreement or this Agreement.
(ix) At the time of execution and delivery of the Pooling and
Servicing Agreement, (1) the Depositor will own the Mortgage Loans being
transferred to the Trust Fund pursuant
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thereto, free and clear of any lien, mortgage, pledge, charge,
encumbrance, adverse claim or other security interest (collectively,
"Liens"), except to the extent permitted in the Pooling and Servicing
Agreement, and will not have assigned to any person other than the Trust
Fund any of its right, title or interest, exclusive of the Retained
Interest, if any, in the Mortgage Loans, (2) the Depositor will have the
power and authority to transfer the Mortgage Loans to the Trust Fund and
to transfer the Certificates to you, and (3) upon execution and delivery
to the Trustee of the Pooling and Servicing Agreement, and delivery of
the Certificates to the Depositor, the Trust Fund will own the Mortgage
Loans (exclusive of the Retained Interest, if any) free of Liens other
than Liens permitted by the Pooling and Servicing Agreement or created
or granted by you and (4) upon payment and delivery of the Underwritten
Public Certificates to you, you will acquire ownership of the
Underwritten Public Certificates, free of Liens other than Liens
permitted by the Pooling and Servicing Agreement or created or granted
by you.
(x) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement, the
Indemnification Agreement, the Pooling and Servicing Agreement and the
Certificates have been or will be paid by the Depositor at or prior to
the Closing Date, except for fees for recording assignments of the
Mortgage Loans to the Trustee pursuant to the Pooling and Servicing
Agreement that have not yet been completed, which fees will be paid by
or on behalf of the Depositor in accordance with the Pooling and
Servicing Agreement.
(xi) The Master Servicer or any subservicer who will be servicing
any Mortgage Loans pursuant to the Pooling and Servicing Agreement is
qualified to do business in all
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jurisdictions in which its activities as servicer or subservicer of the
Mortgage Loans serviced by it require such qualification except where
failure to be so qualified will not have a material adverse effect on
such servicing activities.
(xii) The transfer of the Mortgage Loans to the Trust Fund at the
Closing Date will be treated by the Depositor for financial accounting
and reporting purposes as a sale of assets and not as a pledge of assets
to secure debt.
(xiii) The Depositor is not doing business with Cuba.
2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Depositor
agrees to sell, and each Underwriter agrees, severally and not jointly, to
purchase from the Depositor, the respective initial Class Certificate Balance of
each Class of Underwritten Public Certificates to be purchased by such
Underwriter as specified in the Prospectus Supplement. The purchase price at
which each Underwriter will purchase its Underwritten Public Certificates shall
be as set forth in a separate pricing letter dated the date hereof between such
Underwriter and the Depositor (each, a "Pricing Letter"), and the terms of each
such Pricing Letter are hereby incorporated herein by reference as if such terms
were stated herein in their entirety. References herein to this "Agreement"
shall include the terms of each Pricing Letter.
3. Delivery and Payment. The Public Certificates shall be
delivered at the office, on the date and at the time specified in the Prospectus
Supplement, which place, date and time may be changed by agreement between the
Underwriters and the Depositor (such date and time of delivery of and payment
for such Public Certificates being hereinafter referred to as the "Closing
Date"). Delivery of the Underwritten Public Certificates shall be made to each
of the
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Underwriters as against their respective payment of the purchase price
therefor to or upon the order of the Depositor in immediately available federal
funds. The Underwritten Public Certificates shall be registered in such names
and in such denominations as the respective Underwriters may have requested or
as required by book-entry registration not less than two full business days
prior to the Closing Date. The Depositor agrees to make the Underwritten Public
Certificates available for inspection, checking and packaging in New York, New
York, on the business day prior to the Closing Date.
4. Offering by Underwriters. It is understood that the
Underwriters propose to offer the Underwritten Public Certificates for sale as
set forth in the Prospectus and that you will not offer, sell or otherwise
distribute the Underwritten Public Certificates (except for the sale thereof in
exempt transactions) in any state in which the Underwritten Public Certificates
are not exempt from registration under "blue sky" or state securities laws
(except where the Underwritten Public Certificates will have been qualified for
offering and sale at your direction under such "blue sky" or state securities
laws).
5. Agreements. The Depositor agrees with each Underwriter that:
(a) The Depositor will cause the Prospectus to be filed with the
Commission pursuant to Rule 424 under the Act and, if necessary, within 15 days
of the Closing Date, will file a report on Form 8-K setting forth specific
information concerning the Mortgage Loans, and will promptly advise each
Underwriter when the Prospectus has been so filed, and, prior to the termination
of the offering of the Public Certificates, will also promptly advise each
Underwriter (i) when any amendment to the Registration Statement has become
effective or any revision of or supplement to the Prospectus has been so filed
(unless such amendment, revision or supplement
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does not relate to the Certificates), (ii) of any request by the Commission
for any amendment of the Registration Statement or the Prospectus or for
any additional information (unless such request for additional information
does not relate to the Certificates), (iii) of any written notification received
by the Depositor of the suspension of qualification of the Public Certificates
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution or
to the knowledge of the Depositor, the threatening of any proceeding for that
purpose. The Depositor will use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the withdrawal
thereof. Except as otherwise provided in Section 5(b) hereof, the Depositor will
not file prior to the termination of such offering any amendment to the
Registration Statement or any revision of or supplement to the Prospectus (other
than any such amendment, revision or supplement which does not relate to the
Certificates) which shall be disapproved by the Underwriters after reasonable
notice and review of such filing.
(b) If, at any time when a prospectus relating to the Public
Certificates is required to be delivered under the Act (i) any event occurs 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 a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made not misleading, or (ii) it shall be necessary to revise, amend or
supplement the Prospectus to comply with the Act or the rules and regulations of
the Commission thereunder, the Depositor promptly will notify each Underwriter
and will, upon the request of any Underwriter, or may, after consultation with
each Underwriter, prepare and file
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with the Commission a revision, amendment or supplement which will correct such
statement or omission or effect such compliance, and furnish without charge to
each Underwriter as many copies as such Underwriter may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance.
(c) The Depositor will furnish to each Underwriter and counsel to
the Underwriters, without charge, conformed copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus relating
to the Public Certificates is required under the Act, as many copies of the
Prospectus and any revisions or amendments thereof or supplements thereto as may
be reasonably requested.
(d) The Depositor will, as between itself and the Underwriters,
pay all expenses incidental to the performance of its obligations under this
Agreement, including without limitation (i) expenses of preparing, printing and
reproducing the Registration Statement, the Prospectus, the Pooling and
Servicing Agreement and the Certificates, (ii) the cost of delivering the
Underwritten Public Certificates to the Underwriters, insured to your reasonable
satisfaction, (iii) the fees charged by securities rating services for rating
the Certificates, (iv) the fees and expenses of the Trustee except for fees and
expenses of Trustee's counsel which will be borne by the Trustee and (v) all
other costs and expenses incidental to the performance by the Depositor of the
Depositor's obligations hereunder which are not otherwise specifically provided
for in this subsection. It is understood that, except as provided in this
paragraph (d) and in Section 9 hereof, each Underwriter will pay all of its own
expenses, including (i) the fees of any counsel to such Underwriter, (ii) any
transfer taxes on resale of any of the Certificates by it, (iii)
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any advertising expenses connected with any offers that such Underwriter may
make and (iv) any expenses for the qualification of the Certificates under "blue
sky" or state securities laws, including filing fees and the fee and
disbursements of counsel for such Underwriter in connection therewith and in
connection with the preparation of any Blue Sky Survey.
(e) So long as any Certificates are outstanding, upon request of
any Underwriter, the Depositor will, or will cause the Master Servicer to,
furnish to such Underwriter, as soon as available, a copy of (i) the annual
statement of compliance delivered by the Master Servicer to the Trustee under
the Pooling and Servicing Agreement, (ii) the annual independent public
accountants' servicing report furnished to the Trustee pursuant to the Pooling
and Servicing Agreement, (iii) each report of the Depositor regarding the
Certificates filed with the Commission under the Exchange Act or mailed to the
holders of the Certificates and (iv) from time to time, such other information
concerning the Certificates which may be furnished by the Depositor or the
Master Servicer without undue expense and without violation of applicable law.
(f) The Depositor will file a current report on Form 8-K for
purposes of filing any Computational Materials (as defined in the
Indemnification Agreement) furnished to the Depositor by an Underwriter prior to
the time of filing of the Prospectus as provided in Section 5(a) hereof and will
include therein all Computational Materials so furnished. In addition, the
Depositor will file all reports with respect to the Trust Fund required to be
filed under the Exchange Act pursuant to the request for No-Action granted to
the Depositor on February 3, 1994, when the same are required thereby to be so
filed.
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6. Conditions to the Obligations of Underwriters. The obligation
of each Underwriter to purchase the Underwritten Public Certificates to be
purchased by it as indicated in the related Pricing Letter shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Depositor contained herein as of the date hereof and as of the
Closing Date, to the accuracy of the statements of the Depositor made in any
officer's certificate pursuant to the provisions hereof, to the performance in
all material respects by the Depositor of its obligations hereunder and to the
following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted and be pending or shall have been threatened,
and the Prospectus shall have been filed or mailed for filing with the
Commission not later than required pursuant to the rules and regulations of the
Commission.
(b) The Depositor shall have furnished to the Underwriters a
certificate, dated the Closing Date, of the Depositor, signed by a vice
president of the Depositor, to the effect that the signer of such certificate
has carefully examined the Registration Statement, the Prospectus and this
Agreement and that:
(i) The representations and warranties of the Depositor herein
are true and correct in all material respects on and as of the Closing
Date with the same effect as if made on the Closing Date, and the
Depositor has complied with all agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
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(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted and are pending or, to his knowledge, have
been threatened as of the Closing Date; and
(iii) Nothing has come to the attention of such person that would
lead him to believe that the Prospectus (other than any Computational
Materials (as defined in the Indemnification Agreement) incorporated
therein by reference) contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) The Seller shall have furnished to the Underwriters a
certificate, dated the Closing Date, of the Seller, signed by a vice president
or an assistant vice president of the Seller, to the effect that (i) the signer
of such certificate has carefully examined the Prospectus and nothing has come
to the attention of such person that would lead him to believe that the
Prospectus contains any untrue statement of a material fact with respect to the
Seller or omits to state any material fact with respect to the Seller or the
Mortgage Loans necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (ii) the Seller
has complied with all agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date under this Agreement
and the Pooling and Servicing Agreement.
(d) The Depositor shall have furnished to you an opinion, dated
the Closing Date, of Brown & Wood LLP, special counsel to the Depositor, to the
effect that:
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(i) The Registration Statement and any amendments thereto have
become effective under the Act; to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement
has been issued and not withdrawn, 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 (other than 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 Act and the rules and
regulations thereunder;
(ii) To the best knowledge of such counsel, 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;
(iii) Assuming that this Agreement and the Pooling and Servicing
Agreement have each been duly authorized, executed and delivered by the
parties thereto, each constitutes a valid, legal and binding agreement
of the Depositor, and of the Seller in the case of the Pooling and
Servicing Agreement enforceable against the Depositor or the Seller in
accordance with its terms, subject, as to enforceability to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or
at law;
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(iv) Assuming that the Certificates have been duly and validly
authorized, executed and authenticated in the manner contemplated in the
Pooling and Servicing Agreement, when delivered and paid for by you as
provided in this Agreement, the Certificates will be validly issued and
outstanding and entitled to the benefits of the Pooling and Servicing
Agreement;
(v) The Certificates and the Pooling and Servicing Agreement
conform to the descriptions thereof contained in the Prospectus;
(vi) The statements in the Prospectus and the Prospectus
Supplement, as the case may be, under the headings "Material Federal
Income Tax Consequences," "ERISA Considerations" and "Legal Investment,"
to the extent that they constitute matters of New York or federal law or
legal conclusions with respect thereto, have been reviewed by such
counsel and are correct in all material respects;
(vii) The Certificates indicated under the heading
"Summary--Legal Investment" in the Prospectus Supplement to be "mortgage
related securities" will be mortgage related securities, as defined in
Section 3(a)(41) of the Exchange Act, so long as such Certificates are
rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization;
(viii) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended, and the
Trust Fund created by the Pooling and Servicing Agreement is not
required to be registered under the Investment Company Act of 1940, as
amended; and
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(ix) The Trust Fund as described in the Prospectus Supplement and
the Pooling and Servicing Agreement will qualify as a "real estate
mortgage investment conduit" ("REMIC") within the meaning of Section
860D of the Internal Revenue Code of 1986, as amended (the "Code"),
assuming: (i) an election is made to treat the Trust Fund as a REMIC,
(ii) compliance with the Pooling and Servicing Agreement and (iii)
compliance with changes in the law, including any amendments to the Code
or applicable Treasury regulations thereunder.
Such counsel shall also state that nothing has come to its
attention that would lead such counsel to believe that the Registration
Statement, at the time it became effective, 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 or that the
Prospectus, as of the date of the Prospectus Supplement, and on the Closing
Date, contained or 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; it being understood that such counsel need express no view as to (i)
financial and statistical information contained therein or (ii) any description
in the Prospectus of any third party providing credit enhancement to the
Certificates.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Pooling and Servicing Agreement. Such opinion may be qualified as an opinion
only on the laws of the State of New York and the federal law of the United
States. To the extent that such firm relies upon the opinion of other counsel in
rendering
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any portion of its opinion, the opinion of such other counsel shall be attached
to and delivered with the opinion of such firm that is delivered to you.
(e) The Depositor shall have furnished to the Underwriters an
opinion, dated the Closing Date, of counsel to the Depositor (who may be an
employee of the Depositor or of an affiliate of the Depositor), to the effect
that:
(i) The Depositor has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware and is duly qualified to do business in, and is in good
standing as a foreign corporation under the laws of, the State of
California;
(ii) The Certificates have been duly authorized and executed and,
assuming authentication and delivery in the manner contemplated in the
Pooling and Servicing Agreement, are validly issued and outstanding, and
upon delivery by the Depositor of the Certificates to be purchased by
the Underwriters and payment by the Underwriters of the purchase price
therefor in the manner contemplated by this Agreement, the Underwriters
will acquire such Certificates free and clear of any lien, pledge,
encumbrance or other security interest other than one created or granted
by any Underwriter;
(iii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Depositor;
(iv) This Agreement and the Indemnification Agreement have each
been duly authorized, executed and delivered by the Depositor;
(v) No consent, approval, authorization or order of any
California, Delaware or federal governmental agency or body or any
California, Delaware or federal court is
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required for the consummation by the Depositor of the transactions
contemplated by the terms of this Agreement, the Indemnification
Agreement or the Pooling and Servicing Agreement except such as may be
required under the "blue sky" or state securities laws of any
jurisdiction in connection with the offering, sale or acquisition of the
Certificates, any recordations of the assignment of the Mortgage Loans
to the Trustee (to the extent such recordations are required pursuant to
the Pooling and Servicing Agreement) that have not yet been completed
and such other approvals as have been obtained;
(vi) The sale of the Certificates to be purchased by the
Underwriters pursuant to this Agreement and the consummation of any of
the transactions contemplated by the terms of the Pooling and Servicing
Agreement, the Indemnification Agreement or this Agreement do not
conflict with or result in a breach or violation of any material term or
provision of, or constitute a default under, the certificate of
incorporation of the Depositor, or any indenture or other agreement or
instrument to which the Depositor is a party or by which it is bound, or
any California, Delaware or federal statute or regulation applicable to
the Depositor or an order of any California, Delaware or federal court,
regulatory body, administrative agency or governmental body having
jurisdiction over the Depositor; and
(vii) There are no legal or governmental actions, investigations
or proceedings pending to which the Depositor is a party, or, to the
best knowledge of such counsel, threatened against the Depositor, (A)
asserting the invalidity of this Agreement, the Pooling and Servicing
Agreement, the Indemnification Agreement or the Certificates, (B)
seeking to prevent the issuance of the Certificates or the consummation
of any of the
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transactions contemplated by this Agreement, the Pooling and Servicing
Agreement or the Indemnification Agreement, (C) which might materially
and adversely affect the performance by the Depositor of its obligations
under, or the validity or enforceability of, this Agreement, the Pooling
and Servicing Agreement, the Indemnification Agreement or the
Certificates or (D) seeking to affect adversely the Federal income tax
attributes of the Certificates as described in the Prospectus under the
heading "Material Federal Income Tax Consequences." For purposes of the
foregoing, such counsel may state that it has not regarded any legal or
governmental actions, investigations or proceedings to be "threatened"
unless the potential litigant or governmental authority has manifested
to the legal department of the Depositor a present intention to initiate
such proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Pooling and Servicing Agreement. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Depositor or its affiliates. Such opinion may
be qualified as an opinion only on the laws of the States of Delaware and
California and the federal law of the United States. To the extent that such
counsel relies upon the opinion of other counsel in rendering any portion of its
opinion, the opinion of such other counsel shall be attached to and delivered
with the opinion of such counsel that is delivered to the Underwriters.
(f) The Seller shall have furnished to the Underwriters an
opinion, dated the Closing Date, of counsel to the Seller (who may be an
employee of the Seller), to the effect that:
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(i) The Seller has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of its
incorporation (the "Incorporation State");
(ii) The Pooling and Servicing Agreement and the Indemnification
Agreement have each been duly authorized, executed and delivered by the
Seller;
(iii) No consent, approval, authorization or order of any
Incorporation State or federal court or governmental agency or body is
required for the consummation by the Seller of the transactions
contemplated by the terms of the Pooling and Servicing Agreement or the
Indemnification Agreement except any such as may be required under the
"blue sky" or state securities laws of any jurisdiction in connection
with the offering, sale or acquisition of the Certificates, any
recordations of the assignment of the Mortgage Loans evidenced by the
Certificates to the Trustee (to the extent such recordations are
required pursuant to the Pooling and Servicing Agreement) that have not
yet been completed and any approvals as have been obtained;
(iv) The consummation of any of the transactions contemplated by
the terms of the Pooling and Servicing Agreement or the Indemnification
Agreement do not conflict with or result in a breach or violation of any
material term or provision of, or constitute a default under, the
charter or by-laws of the Seller, or, to the best knowledge of such
counsel, any indenture or other agreement or instrument to which the
Seller is a party or by which it is bound, any Incorporation State or
federal statute or regulation applicable to the Seller or any order of
any Incorporation State or federal court, regulatory body,
administrative agency or governmental body having jurisdiction over the
Seller; and
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(v) There are no legal or governmental actions, investigations or
proceedings pending to which the Seller is a party, or, to the best
knowledge of such counsel, threatened against the Seller, (A) asserting
the invalidity of the Pooling and Servicing Agreement or the
Indemnification Agreement or (B) which might materially and adversely
affect the performance by the Seller of its obligations under, or the
validity or enforceability of, the Pooling and Servicing Agreement or
the Indemnification Agreement. For purposes of the foregoing, such
counsel may state that it has not regarded any legal or governmental
actions, investigations or proceedings to be "threatened" unless the
potential litigant or governmental authority has manifested to the legal
department of the Seller a present intention to initiate such
proceedings.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to the Pooling and Servicing
Agreement. Such opinion may assume the due authorization, execution and delivery
of the instruments and documents referred to therein by the parties thereto
other than the Seller. Such opinion may be qualified as an opinion only on the
laws of the Incorporation State and the federal law of the United States and,
with respect to the opinions set forth in paragraph (f)(ii) above, the laws of
the State of New York. To the extent that such counsel relies upon the opinion
of other counsel in rendering any portion of its opinion, the opinion of such
other counsel shall be attached to and delivered with the opinion of such
counsel that is delivered to the Underwriters.
(g) Each party providing credit enhancement to the Certificates
shall have furnished to the Underwriters an opinion, dated the Closing Date, of
its counsel, with respect to
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the Registration Statement and the Prospectus, and such other related matters,
in the form previously agreed to by such provider and the Underwriters.
(h) The Underwriters shall have received from their counsel such
opinion or opinions, dated the Closing Date, with respect to the issuance and
sale of the Public Certificates, the Registration Statement and the Prospectus,
and such other related matters as you may reasonably require.
(i) The Depositor's independent accountants, [ ]
and [ ], shall each have furnished to the Underwriters a letter
or letters addressed to the Underwriters and dated as of or prior to the date of
first use of the Prospectus Supplement in the form and reflecting the
performance of the procedures previously agreed to by the Depositor and the
Underwriters.
(j) Subsequent to the date hereof, there shall not have occurred
any change, or any development involving a prospective change, in or affecting
the business or properties of the Depositor which in your reasonable judgment
materially impairs the investment quality of the Certificates so as to make it
impractical or inadvisable to proceed with the public offering or the delivery
of the Certificates as contemplated by the Prospectus.
(k) The Public Certificates shall be rated not lower than the
required ratings set forth under the heading "Ratings" in the Prospectus
Supplement, such ratings shall not have been rescinded and no public
announcement shall have been made that any such required rating of the
Certificates has been placed under review (otherwise than for possible
upgrading).
(l) The Underwriters shall have received copies of any opinions
of counsel to the Depositor supplied to the rating organizations relating to
certain matters with respect to the
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Certificates. Any such opinions shall be dated the Closing Date and addressed to
the Underwriters or accompanied by reliance letters addressed to the
Underwriters.
(m) All Classes of Certificates being publicly offered by the
Underwriters or privately placed by the Purchaser shall have been issued and
paid for pursuant to the terms of this Agreement and the Purchase Agreement,
respectively.
(n) The Trustee shall have furnished to the Underwriters an
opinion dated the Closing Date, of counsel to the Trustee (who may be an
employee of the Trustee), to the effect that:
(i) The Trustee has full corporate power and authority to execute
and deliver the Pooling and Servicing Agreement and to perform its
obligations thereunder and to execute, countersign and deliver the
Certificates.
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Trustee.
(iii) The Pooling and Servicing Agreement is a legal, valid and
binding obligation of the Trustee, enforceable against the Trustee in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship and similar
laws affecting the rights of creditors generally, and subject, as to
enforceability, to general principles of equity, regardless of whether
such enforcement is considered in a proceeding at law or equity.
(iv) In the event that the Master Servicer defaults in its
obligation to make Advances pursuant to the Pooling and Servicing
Agreement, the Trustee is not, as of the date hereof, prohibited by any
provision of its articles of incorporation or by-laws from
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assuming, pursuant to the Pooling and Servicing Agreement, the
obligation to make such Advances.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to the Pooling and Servicing
Agreement. Such opinion may assume the due authorization, execution and delivery
of the instruments and documents referred to therein by the parties thereto
other than the Trustee or its affiliates. Such opinion may be qualified as an
opinion only on the laws of the State of New York and the federal law of the
United States. To the extent that such counsel relies upon the opinion of other
counsel in rendering any portion of its opinion, the opinion of such other
counsel shall be attached to and delivered with the opinion of such counsel that
is delivered to the Underwriters.
(o) The Depositor shall have furnished to the Underwriters such
further information, certificates and documents as the Underwriters may
reasonably have requested, and all proceedings in connection with the
transactions contemplated by this Agreement and all documents incident hereto
shall be in all material respects reasonably satisfactory in form and substance
to the Underwriters and their counsel.
(p) The Indemnification Agreement shall have been executed and
delivered.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, this Agreement and all obligations of an Underwriter hereunder may
be canceled at, or at any time prior to, the Closing Date by such Underwriter.
Notice of such cancellation shall be given to the Depositor in writing, or by
telephone or telegraph confirmed in writing.
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7. Termination. This Agreement shall be subject to termination in
your absolute discretion, by notice given to the Depositor prior to delivery of
and payment for the Underwritten Public Certificates, if prior to such time (i)
trading in securities generally on the New York Stock Exchange shall have been
suspended or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities, or (iii) there shall have occurred any material outbreak or
escalation of hostilities or other calamity or crisis the effect of which on the
financial markets is such as to make it, in your judgment after consultation
with the Depositor, impracticable to market the Public Certificates on the terms
specified in this Agreement.
8. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Depositor and its officers and of each Underwriter set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Depositor, and will
survive delivery of and payment for the Underwritten Public Certificates. The
provisions of Section 5(d) and Section 9 hereof shall survive the termination or
cancellation of this Agreement.
9. Reimbursement of Underwriter Expenses. If for any reason,
other than default by any Underwriter in its obligation to purchase the
Underwritten Public Certificates or termination by any Underwriter pursuant to
Section 7 hereof, the Underwritten Public Certificates are not delivered by or
on behalf of the Depositor as provided herein, the Depositor will reimburse each
Underwriter for all out-of-pocket expenses of such Underwriter, including
reasonable fees and disbursements of its counsel, reasonably incurred by such
Underwriter in
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making preparations for the purchase, sale and delivery of the Underwritten
Public Certificates, but the Depositor shall then be under no further liability
to any Underwriter with respect to the Underwritten Public Certificates, except
as provided in Section 5(d) hereof.
10. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and their
respective successors and assigns, and no other person will have any right or
obligation hereunder.
11. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
12. Miscellaneous. Time shall be of the essence of this
Agreement. This Agreement supersedes all prior or contemporaneous agreements and
understandings relating to the subject matter hereof, other than the
Indemnification Agreement. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated except by a writing signed by the
party against whom enforcement of such change, waiver, discharge or termination
is sought. This Agreement may be signed in any number of counterparts, each of
which shall be deemed an original, which taken together shall constitute one and
the same instrument.
13. Notices. All communications hereunder shall be in writing and
effective only on receipt and, if sent to an Underwriter, shall be delivered to
the address specified on the signature page hereof; or if sent to the Depositor,
shall be delivered to 155 North Lake Avenue, Pasadena, California 91101,
Attention: ________________.
* * *
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this Agreement and your acceptance shall represent a binding agreement
by and among the Depositor and each Underwriter on _________________, 1999
relating to IndyMac MBS, Inc. Mortgage Pass-Through Certificates Series 1999-__
issued by __________________.
Very truly yours,
INDYMAC MBS, INC.
By:___________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted.
__________________________________
(Underwriter)
By:________________________
Name:
Title:
Address:___________________
___________________
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EXHIBIT 1.2
INDYMAC MBS 1999-__
INDEMNIFICATION
AND
CONTRIBUTION AGREEMENT
AGREEMENT, dated ________________, 1999 (this "Agreement"), among
IndyMac MBS, Inc., a Delaware corporation (the "Depositor"), the Seller (as
defined below) and the Broker Dealers (as defined below).
WITNESSETH:
WHEREAS, the Depositor and one or more of the Broker Dealers are parties
to the Underwriting Agreement (defined below), providing for the sale by the
Depositor and the purchase, severally and not jointly, by such Broker Dealers of
the Public Certificates (defined below); and
WHEREAS, the Depositor and one or more of the Broker Dealers are parties
to a Purchase Agreement (defined below), providing for the sale by the Depositor
and the purchase, severally and not jointly, of the Private Certificates
(defined below); and
WHEREAS, as an inducement to the Broker Dealers to enter into the
Underwriting Agreement and the Purchase Agreement, the Depositor and the Broker
Dealers wish to provide for indemnification and contribution on the terms and
conditions hereinafter set forth; and
WHEREAS, the purchase price to be paid by the Depositor to the Seller
for the Mortgage Loans will be the proceeds of the sale by the Depositor to the
Broker Dealers of the Public Certificates and the Private Certificates and as an
inducement to the Broker Dealers to enter into the Underwriting Agreement and
the Purchase Agreement, the Seller agrees to perform certain obligations set
forth herein;
NOW, THEREFORE, in consideration of the foregoing and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
Definitions
1.1 Certain Defined Terms.
The following terms shall have the meanings set forth below,
unless the context clearly indicates otherwise:
Act: The Securities Act of 1933, as amended.
Agreement: This Indemnification and Contribution Agreement, as
the same may be amended in accordance with the terms hereof.
Base Prospectus: The prospectus dated _________________, 1999
as the same may be amended or supplemented, of the Depositor relating to the
offering from time to time of one or more series of mortgage pass-through
certificates.
Broker Dealer: Each of the signatories to this Agreement other
than the Depositor or the Seller.
Certificates: Mortgage Pass-Through Certificates, Series 1999-__
of IndyMac MBS, Inc.
Closing Date: On or about _________________, 1999.
Computational Materials: Computer generated tables and/or charts
displaying, with respect to any Class or Classes of Certificates, any of the
following: yield; average life; duration; expected maturity; interest rate
sensitivity; loss sensitivity; cash flow characteristics; background information
regarding the Mortgage Loans; the proposed structure; decrement tables; or
similar information (tabular or otherwise) of a statistical, mathematical,
tabular or computational nature.
Depositor: IndyMac MBS, Inc., a Delaware corporation and its
successors in interest.
Depositor Memorandum Information: All information contained or
incorporated in the Memorandum other than the Purchaser Information.
Depositor Prospectus Information: All information contained or
incorporated in the Prospectus other than the Senior Underwriter Information,
the Mezzanine Underwriter Information and the PO Underwriter Information.
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Depositor Registration Information: All information contained or
incorporated in the Registration Statement.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Form 8-K: The Current Report on Form 8-K, if any, filed by or on
behalf of the Depositor with respect to the Mortgage Loans and including any
Computational Materials furnished by one or more of the Broker Dealers.
Memorandum: The Confidential Private Placement Memorandum, if
any, dated the Closing Date, as the same may be amended or supplemented, of the
Depositor relating to the Related Private Certificates.
Mezzanine Certificates: The ________________________
Certificates.
Mezzanine Spread: The excess, if any, of (i) the purchase prices
paid by investors to the Mezzanine Underwriter for the Mezzanine Certificates
over (ii) the purchase price paid by the Mezzanine Underwriter to the Depositor
for the Mezzanine Certificates pursuant to the Underwriting Agreement.
Mezzanine Underwriter: The Broker Dealer which is purchasing the
Mezzanine Certificates pursuant to the Underwriting Agreement.
Mezzanine Underwriter Information: The only written information
furnished by or on behalf of the Mezzanine Underwriter to the Depositor
specifically for use in connection with the preparation of the Registration
Statement or the Prospectus, such information being (i) the information relating
to the Mezzanine Underwriter set forth in the Prospectus Supplement under the
caption "Method of Distribution" therein and (ii) any Computational Materials
prepared by the Mezzanine Underwriter, furnished to the Depositor and included
in the Form 8-K; provided, however, that such Computational Materials shall not
include any Seller Mortgage Loan Information or any errors in the mathematical
calculations reflected in such Computational Materials to the extent such errors
result from such Seller Mortgage Loan Information.
Offered Certificates: The Public Certificates.
PO Underwriter: The Broker Dealer, if any, which is purchasing
the Class PO Certificates, if any, pursuant to the Underwriting Agreement.
PO Spread: The excess, if any, of (i) the purchase prices paid by
investors to the PO Underwriter for the Class PO Certificates over (ii) the
purchase price paid by the PO Underwriter to the Depositor for the Class PO
Certificates pursuant to the Underwriting Agreement.
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<PAGE>
PO Underwriter Information: The only written information
furnished by or on behalf of the PO Underwriter to the Depositor specifically
for use in connection with the preparation of the Registration Statement or the
Prospectus, such information being (i) the information relating to the PO
Underwriter set forth in the Prospectus Supplement under the caption "Method of
Distribution" therein and (ii) any Computational Materials prepared by the PO
Underwriter, furnished to the Depositor and included in the Form 8-K; provided,
however, that such Computational Materials shall not include any Seller Mortgage
Loan Information or any errors in the mathematical calculations reflected in
such Computational Materials to the extent such errors result from such Seller
Mortgage Loan Information.
Private Certificates: The _________________ Certificates.
Prospectus: The Base Prospectus together with the Prospectus
Supplement.
Prospectus Supplement: The Prospectus Supplement dated the date
hereof, as the same may be amended or supplemented, of the Depositor relating to
the offering of the Public Certificates.
Public Certificates: The Senior Certificates and the Mezzanine
Certificates.
Purchase Agreement: The Purchase Agreement, if any, dated the
date hereof, between the Depositor and the Purchaser providing for the purchase
and sale of the Private Certificates, if any.
Purchase Spread: The excess, if any, of (i) the purchase prices
paid by investors to the Purchaser for the Private Certificates over (ii) the
purchase price paid by the Purchaser to the Depositor for the Private
Certificates pursuant to the Purchase Agreement.
Purchaser: The Broker Dealer, if any, which is purchasing the
Private Certificates, if any, pursuant to the Purchase Agreement.
Purchaser Information: The only written information furnished by
or on behalf of the Purchaser to the Depositor specifically for use in
connection with the preparation of the Memorandum, such information being the
information relating to the Purchaser set forth in the Memorandum under the
caption "Method of Placement."
Registration Statement: As defined in the Underwriting Agreement.
Retained Certificates: The __________________ Certificates.
Seller: IndyMac, Inc., a Delaware corporation and its successors
in interest.
Seller Mortgage Loan Information: Information relating to the
Mortgage Loans furnished by the Seller to the Senior Underwriter, Mezzanine
Underwriter, or PO Underwriter, as
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applicable, upon which the mathematical calculations reflected in the
Computational Materials of such Senior Underwriter, Mezzanine Underwriter or PO
Underwriter, as applicable, are based.
Senior Certificates: The _________________ Certificates.
Senior Spread: The excess, if any, of (i) the purchase prices
paid by investors to the Senior Underwriter for the Senior Certificates, other
than the Retained Certificates, over (ii) the purchase price paid by the Senior
Underwriter to the Depositor for such Senior Certificates pursuant to the
Underwriting Agreement.
Senior Underwriter: The Broker Dealer which is purchasing the
Senior Certificates, other than the Retained Certificates, pursuant to the
Underwriting Agreement.
Senior Underwriter Information: The only written information
furnished by or on behalf of the Senior Underwriter to the Depositor
specifically for use in connection with the preparation of the Registration
Statement or the Prospectus, such information being (i) the information relating
to the Senior Underwriter set forth in the Prospectus Supplement under the
caption "Method of Distribution" therein and (ii) any Computational Materials
prepared by the Senior Underwriter, furnished to the Depositor and included in
the Form 8-K; provided, however, that such Computational Materials shall not
include any Seller Mortgage Loan Information or any errors in the mathematical
calculations reflected in such Computational Materials to the extent such errors
result from such Seller Mortgage Loan Information.
Underwriting Agreement: The Underwriting Agreement, dated the
date hereof, among the Depositor, the Senior Underwriter, the PO Underwriter and
the Mezzanine Underwriter providing for the purchase and sale of the Public
Certificates, other than the Retained Certificates.
1.2 Other Terms.
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Underwriting Agreement or the Purchase
Agreement, as applicable.
1.3 Interpretive Principle.
A Broker Dealer may be acting in more than one capacity, e.g.,
the Senior Underwriter also may be the PO Underwriter. References herein to a
Broker Dealer acting in a particular capacity shall refer to such Broker Dealer
in such capacity only and shall not refer to other capacities, if any, being
served by such Broker Dealer.
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ARTICLE II
Representations and Warranties
2.1 Mutual Representation.
Each party hereto represents to the other parties hereto that:
(a) the execution, performance and delivery of this Agreement has been
duly authorized by such party;
(b) this Agreement has been duly executed and delivered by such party;
and
(c) this Agreement constitutes the legal and valid obligations of such
party.
2.2 Other Representations.
(a) The Depositor has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement; and
(b) The Seller has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
2.3 Computational Materials.
Each Broker Dealer which desires to furnish Computational
Materials to the Depositor shall furnish fifteen (15) copies thereof to Brown &
Wood LLP no later than 3:00 p.m. New York City time on the business day prior to
the day on which the Prospectus Supplement is being cleared for printing. In
addition, each Broker Dealer which has so furnished Computational Materials to
the Depositor hereby represents as to the materials it has furnished as follows:
(a) The Computational Materials so furnished by such Broker Dealer
include all Computational Materials prepared by such Broker Dealer that:
(i) are generated based on assumptions regarding the
payment priorities and characteristics of a Class of Certificates
that is actually issued and purchased by a Broker Dealer; and
(ii) are provided to prospective investors under the
following conditions prior to the time of filing of the
Prospectus pursuant to Rule 424(b):
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(A) in the case of each prospective investor that has
orally indicated to such Broker Dealer that it will
purchase all or a portion of the Class of Certificates to
which such Computational Materials relate, the
Computational Materials relating to such Class that are
sent to such prospective investor; and
(B) for any other prospective investor, all Computational
Materials that are sent to such prospective investor after
the structure for the Certificates is finalized;
provided, however, that the Computational Materials so furnished
need not include any Computational Materials that relate to
abandoned structures or that are furnished to prospective
investors prior to the time that the structure of the
Certificates is finalized where such investors have not indicated
to such Broker Dealer their intention to purchase the Class or
Classes of Certificates described in such Computational
Materials.
(b) The Computational Materials included in the Senior
Underwriter Information, the Mezzanine Underwriter Information or the PO
Underwriter Information, as applicable, pursuant to the definitions thereof do
not contain an untrue statement of a material fact or, when read in conjunction
with the Prospectus as an integral document, omit to state a material fact
necessary to make such statements, in light of the circumstances under which
they were made, not misleading; provided, however, that no representation is
made that the Prospectus (exclusive of such Computational Materials and the
Senior Underwriter Information, the Mezzanine Underwriter Information or the PO
Underwriter Information, as the case may be, provided by such Underwriter) does
not include any untrue statements of a material fact and does not omit to state
any material facts necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(c) The Computational Materials contain customary legends
regarding the assumptions on which they are based and the absence of assurances
or representations as to the actual rate or timing of principal payments or
prepayments on any of the Mortgage Loans or the performance characteristics of
the Certificates, and a statement to the effect that the Computational Materials
were prepared by the applicable Broker Dealer in reliance on information
regarding the Mortgage Loans furnished by the Issuer.
(d) Neither the Depositor nor any of its affiliates participated
in the preparation of the Computational Materials other than by supplying the
Seller Mortgage Loan Information to the Broker Dealer.
(e) At or prior to the time any Computational Materials are
furnished to the Depositor for filing on the Form 8-K, the Broker Dealer
furnishing such Computational Materials will provide to the Depositor and such
Broker Dealer a letter, in form and substance reasonably satisfactory to the
Depositor and such Broker Dealer, of a firm of independent public
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<PAGE>
accountants of national reputation to the effect that such accountants have
performed certain specified procedures with respect to such Computational
Materials and have found no exceptions, other than such exceptions as are
acceptable to the Depositor and the Broker Dealer. Fifty percent (50%) of the
costs and expenses of such letter will be paid by each of the Broker Dealer
obtaining the same and the Depositor.
ARTICLE III
Indemnification
3.1 Indemnification.
(a) The Depositor agrees to indemnify and hold harmless each
Broker Dealer and each person who controls a Broker Dealer within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
Act, the Exchange Act, or other federal or state statutory law or regulation, at
common law 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 or alleged untrue statement of a material fact contained in the
Depositor Memorandum Information, the Depositor Prospectus Information or the
Depositor Registration Information or in any revision or amendment thereof or
supplement thereto or arise out of or are based upon the omission or alleged
omission to state in the Depositor Registration Information, the Depositor
Prospectus Information or in any revision or amendment thereof or supplement
thereto a material fact required to be stated therein or the omission or alleged
omission to state a material fact in the Depositor Memorandum Information, the
Depositor Prospectus Information or the Depositor Registration Information or in
any revision or amendment thereof or supplement thereto 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 it or him in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Depositor shall not be liable to a particular Broker
Dealer or any person who controls such Broker Dealer to the extent that any
misstatement or alleged misstatement or omission or alleged omission was (i)
made in reliance upon and in conformity with the Senior Underwriter Information,
the PO Underwriter Information, the Mezzanine Underwriter Information or the
Purchaser Information, as applicable, and (ii) in the case of the Depositor
Prospectus Information, to the extent that such misstatement or omission was
corrected and such Broker Dealer did not deliver, at or prior to the written
confirmation of such sale, a copy of the Prospectus as then revised, amended or
supplemented in any case where such delivery is required by the Act or the
Exchange Act, if the Depositor has previously furnished copies thereof to the
Broker Dealers in accordance with the terms of the Underwriting Agreement or the
Purchase Agreement, as applicable. This indemnity agreement will be in addition
to any liability which the Depositor may otherwise have.
(b) Each Broker Dealer severally agrees to indemnify and hold
harmless the Depositor, its officers who signed the Registration Statement or
any amendment thereof, its
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directors, and each person who controls the Depositor within the meaning of
either the Act or the Exchange Act, to the same extent as the foregoing
indemnities from the Depositor to each Broker Dealer; provided, however, that a
Broker Dealer will be liable in any such case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with (i) the Senior Underwriter
Information, in the case of the Senior Underwriter, (ii) the PO Underwriter
Information, in the case of the PO Underwriter, (iii) the Mezzanine Underwriter
Information, in the case of the Mezzanine Underwriter and (iv) the Purchaser
Information, in the case of the Purchaser; and provided, further, that any such
omission or alleged omission relating to the Computational Materials included in
the Senior Underwriter Information, the PO Underwriter Information or the
Mezzanine Underwriter Information, as the case may be, pursuant to the
definitions thereof shall be determined by reading such Computational Materials
in conjunction with the Prospectus as an integral document and in light of the
circumstances under which such statements in the Computational Materials and
Prospectus were made. This indemnity agreement will be in addition to any
liability which any Broker Dealer may otherwise have.
(c) The Senior Underwriter agrees to indemnify and hold harmless
each other Broker Dealer and each person who controls such a Broker Dealer
within the meaning of the Act or the Exchange Act, to the same extent as the
indemnities from the Depositor to each Broker Dealer in Section 3.1(a);
provided, however, that the Senior Underwriter will be liable in any such case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the Senior Underwriter Information; and provided, further, that any such
omission or alleged omission relating to the Computational Materials included in
the Senior Underwriter Information pursuant to the definition thereof shall be
determined by reading such Computational Materials in conjunction with the
Prospectus as an integral document and in light of the circumstances under which
such statements in the Computational Materials and Prospectus were made. This
indemnity agreement will be in addition to any liability which the Senior
Underwriter may otherwise have.
(d) The PO Underwriter agrees to indemnify and hold harmless each
other Broker Dealer and each person who controls such a Broker Dealer within the
meaning of the Act or the Exchange Act, to the same extent as the indemnities
from the Depositor to each Broker Dealer in Section 3.1(a); provided, however,
that the PO Underwriter will be liable in any such case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with the PO Underwriter
Information; and provided, further, that any such omission or alleged omission
relating to the Computational Materials included in the PO Underwriter
Information pursuant to the definition thereof shall be determined by reading
such Computational Materials in conjunction with the Prospectus as an integral
document and in light of the circumstances under which such statements in the
Computational Materials and Prospectus were made. This indemnity agreement will
be in addition to any liability which the PO Underwriter may otherwise have.
(e) The Mezzanine Underwriter agrees to indemnify and hold
harmless each other Broker Dealer and each person who controls such a Broker
Dealer within the meaning of
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the Act or the Exchange Act, to the same extent as the indemnities from the
Depositor to each Broker Dealer in Section 3.1(a); provided, however, that the
Mezzanine Underwriter will be liable in any such case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with the Mezzanine
Underwriter Information; and provided, further, that any such omission or
alleged omission relating to the Computational Materials included in the
Mezzanine Underwriter Information pursuant to the definition thereof shall be
determined by reading such Computational Materials in conjunction with the
Prospectus as an integral document and in light of the circumstances under which
such statements in the Computational Materials and Prospectus were made. This
indemnity agreement will be in addition to any liability which the Mezzanine
Underwriter may otherwise have.
(f) The Purchaser agrees to indemnify and hold harmless each
other Broker Dealer and each person who controls such a Broker Dealer within the
meaning of the Act or the Exchange Act to the same extent as the indemnities
from the Depositor to each Broker Dealer in Section 3.1(a); provided, however,
that the Purchaser will be liable in any such case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with the Purchaser Information. This
indemnity agreement will be in addition to any liability which the Purchaser may
otherwise have.
(g) Promptly after receipt by an indemnified party under this
Section 3.1 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 3.1, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 3.1. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party or parties shall have reasonably
concluded that there may be legal defenses available to it or them and/or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
elect separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall have
employed separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel for each of, and approved by, the Senior
Underwriter, the PO
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<PAGE>
Underwriter, the Mezzanine Underwriter or the Purchaser, as applicable, in the
case of paragraph (a) of this Section 3.1, representing the related indemnified
parties under such paragraph (a) who are parties to such action), (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party; and except that, if clause (i) or (iii) is applicable,
such liability shall only be in respect of the counsel referred to in such
clause (i) or (iii). No indemnifying party shall, without the consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
3.2 Contribution.
(a) If the indemnification provided for in Section 3.1 is
unavailable or insufficient to hold harmless an indemnified party under Section
3.1(a)-(f), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in Section 3.1 above in such proportion as is
appropriate to reflect the following: (A) in the case of any Broker Dealer which
did not furnish Computational Materials as provided in Section 2.3 hereof (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Depositor on the one hand and the Broker Dealers on the other from the
offering of the Offered Certificates or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Depositor on the one hand and the
Broker Dealers on the other in connection with the statements or omissions or
alleged statements or alleged omissions which resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable considerations;
or (B) in the case of any Broker Dealer which did so furnish Computational
Materials, (i) the relative benefits received by the Depositor on the one hand
and the Broker Dealers on the other from the offering of the Offered
Certificates and (ii) the relative fault of the Depositor on the one hand and
the Broker Dealers on the other in connection with the statements or omissions
or alleged statements or alleged omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Depositor on the one hand
and the Broker Dealers on the other shall be in such proportion so that the
Broker Dealers are responsible for an amount equal to the sum of the Senior
Spread, the PO Spread, the Mezzanine Spread and the Purchase Spread and the
Depositor is responsible for the balance. The relative benefits received by the
Senior Underwriter, the PO Underwriter, the Mezzanine Underwriter and the
Purchaser shall be the Senior Spread, in the case of the Senior Underwriter, the
PO Spread, in the case of the PO Underwriter, the Mezzanine Spread, in the case
of the Mezzanine Underwriter, and the Purchase Spread, in the case of the
Purchaser. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omissions or alleged omission to state a material fact relates to information
supplied by the Depositor or by the Broker Dealers and the parties'
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<PAGE>
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 3.2(a) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
Section 3.2(a). A Broker Dealer shall not be required to contribute any amount
in excess of (x) the Senior Spread, in the case of the Senior Underwriter, the
PO Spread, in the case of the PO Underwriter, the Mezzanine Spread, in the case
of the Mezzanine Underwriter, or the Purchase Spread, in the case of the
Purchaser over (y) the amount of any damages which the applicable Broker Dealer
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission; provided, however, that if the
statements or omissions or alleged statements or alleged omissions which
resulted in contribution were contained in or omitted from Computational
Materials filed on the Form 8-K, the preceding limitation on contribution shall
be inapplicable to the Broker Dealer which furnished such Computational
Materials. The obligation of any Broker Dealer to contribute under this Section
3.2 is several in proportion to the Senior Spread, the PO Spread, the Mezzanine
Spread and the Purchase Spread, respectively. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(b) Each Broker Dealer, severally and not jointly, agrees to
contribute to the losses, claims, damages or liabilities paid or incurred by any
other Broker Dealer to the extent such other Broker Dealer has paid or incurred
losses, claims, damages or liabilities in excess of the Senior Spread, in the
case of the Senior Underwriter, the PO Spread, in the case of the PO
Underwriter, the Mezzanine Spread, in the case of the Mezzanine Underwriter or
the Purchase Spread, in the case of the Purchaser but such contribution
obligation shall not exceed the product of such excess and a fraction the
numerator of which is the Senior Spread, the Mezzanine Spread, the PO Spread or
the Purchase Spread, as applicable, and the denominator of which is the sum of
the Senior Spread, the Mezzanine Spread, the PO Spread and the Purchase Spread;
provided, however, that if any Broker Dealer defaults in its obligation to any
other Broker Dealer hereunder, each non-defaulting Broker Dealer shall
contribute to the payment of the defaulted obligations in accordance with the
fraction set forth above; and provided, further that if a Broker Dealer is
required to contribute an amount in excess of the Senior Spread, the PO Spread,
the Mezzanine Spread or the Purchase Spread, as applicable, because such Broker
Dealer's Computational Materials resulted in the contribution, the other Broker
Dealers shall not be required to contribute in excess of the Senior Spread, the
PO Spread, the Mezzanine Spread or the Purchase Spread, as applicable.
3.3 Benefits.
The obligations of the Depositor under this Article III shall be
in addition to any liability which the Depositor may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
a Broker Dealer within the meaning of the Act; and the obligations of each
Broker Dealer under this Article III shall be in addition to any
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<PAGE>
liability which such Broker Dealer may otherwise have and shall have extended
upon the same terms and conditions, to the officers of the Depositor who signed
the Registration Statement or any amendment thereof, to its directors, and to
each person who controls the Depositor within the meaning of either the Act or
the Exchange Act.
3.4 Seller Obligation.
The Seller agrees with each Broker Dealer, for the sole and
exclusive benefit of such Broker Dealer and each person who controls a Broker
Dealer within the meaning of either the Act or the Exchange Act and not for the
benefit of any assignee thereof or any other person or persons dealing with such
Broker Dealer, to indemnify and hold harmless each Broker Dealer and each person
who controls a Broker Dealer within the meaning of either the Act or the
Exchange Act against any failure by the Depositor to perform any of its
obligations under this Agreement. The Seller agrees that there are no conditions
precedent to the obligations of the Seller hereunder other than written demand
to the Depositor to perform its obligations under this Agreement.
ARTICLE IV
Expenses
4.1 Other Expenses.
Any costs and expenses incurred in connection with the
qualification of any of the Offered Certificates under the "blue sky" or
securities laws of any state shall be paid by the Broker Dealer requesting such
action. Unless otherwise agreed to among the Broker Dealers, any advertising or
"tombstone" expenses shall be paid by the Broker Dealer incurring the same. Each
Broker Dealer shall be responsible for all other costs and expenses incurred by
it in connection with the purchase and sale of the Offered Certificates.
4.2 OID Calculations.
If a Broker Dealer fails to provide the Depositor with original
issue discount ("OID") calculations within five business days after the Closing
Date for any Certificates purchased by such Broker Dealer, such Broker Dealer
agrees to reimburse the Trust Fund for any penalties actually incurred by the
Trust Fund resulting from the failure of the Trust Fund to legend the
Certificates with OID information or for any delay in legending, as well as for
any other penalties actually imposed on the Trust Fund resulting from not having
the OID information or for having such information late.
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<PAGE>
ARTICLE V
General
5.1 Survival.
This Agreement and the obligations of the parties hereunder shall
survive the purchase and sale of the Offered Certificates and any termination of
the Underwriting Agreement and/or the Purchase Agreement.
5.2 Successors.
This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the officers, directors
and controlling persons referred to in Article III hereof and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
5.3 Applicable Law.
This Agreement will be governed by and construed in accordance
with the laws of the State of New York disregarding principles of conflict of
laws.
5.4 Miscellaneous.
Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated except by a writing signed by the party against
whom enforcement of such change, waiver, discharge or termination is sought.
This Agreement may be signed in any number of counterparts, each of which shall
be deemed an original, which taken together shall constitute one and the same
instrument.
5.5 Notices.
All communications hereunder shall be in writing and effective
only on receipt and, if sent to a Broker Dealer, shall be delivered to the
address specified on the signature page hereof; or if sent to the Depositor,
shall be delivered to 155 North Lake Avenue, Pasadena, California 91101,
Attention:
**********
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by
their duly authorized officers on the date first above written.
INDYMAC MBS, INC.
By:_____________________________
Name:
Title:
INDYMAC, INC.
By:_____________________________
Name:
Title:
Address: 155 North Lake Avenue, 8th Floor
Pasadena, California 91101
----------------------------------
(Underwriter/Purchaser)
By: ___________________________________
Name:
Title:
Address: ________________________
________________________
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<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
IndyMac MBS, Inc.
The undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the General Corporation Law of the
State of Delaware (the 'GCL'), does hereby certify as follows:
FIRST: The name of the corporation is IndyMac MBS, Inc. (the
'Corporation').
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Center Road, in the City of Wilmington, County of
New Castle. The name of the corporation's registered agent at such address
is Corporation Service Company.
THIRD: The nature of business or purposes to be conducted or promoted
by the Corporation is to engage solely in the following activities:
a. To acquire, own, hold, sell, transfer, pledge or otherwise
dispose of:
(1) interests in loan agreements, promissory notes or other
evidences of indebtedness (the 'Mortgage Loans') secured by
mortgages, deeds of trust, pledge agreements or other security
devices on single family (one- to four-family) residential properties
or shares issued by cooperative housing corporations ('Cooperatives')
and the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in such
Cooperative buildings;
(2) mortgage-backed securities insured and/or guaranteed as to
timely payment of interest and/or principal by the Government
National Mortgage Association, Federal National Mortgage Association
or Federal Home Loan Mortgage Corporation; and
(3) mortgage pass-through certificates and other collateralized
mortgage obligations issued by a financial institution or other
entity engaged generally in the business of mortgage lending, a
public agency or instrumentality of a state, local or federal
government, or a limited purpose corporation engaged in the business
of establishing trusts and acquiring and selling residential loans to
such trusts and selling beneficial interests in such trusts.
b. To act as settlor or depositor of trusts formed under a trust
agreement, pooling and servicing agreement or other agreement to issue
one or more series (any of which series may be issued in one or more
classes) of trust certificates ('Certificates') representing interests
in Mortgage Loans and/or to issue pursuant to an indenture or other
agreement one or more series (any of which series may be issued in one
or more classes) of bonds, notes or other evidences of indebtedness
('Debt Obligations') collateralized by Mortgage Loans and/or other
property and to enter into any other agreement in connection with the
authorization, issuance, sale and delivery of Certificates and/or Debt
Obligations ('Securities').
c. To hold, pledge, transfer or otherwise deal with Securities,
including Securities representing a senior interest in Loans ('Senior
Interests'), representing a subordinated interest in Loans
('Subordinated Interests') or a residual interest in Loans ('Residual
Interests').
d. To loan or invest or otherwise apply proceeds from Loans, funds
received in respect of Securities, Senior Interests, Subordinated
Interests or Residual Interests and any other income, as determined by
the Corporation's Board of Directors.
e. To engage in any lawful act or activity to exercise any powers
permitted to corporations organized under the GCL that are incidental to
and necessary or convenient for the accomplishment of the foregoing
purposes.
FOURTH: The total number of shares of all classes of capital stock
that the Corporation shall have authority to issue is 1,000 shares of
common stock, and the par value of such shares shall be $0.01 per share.
<PAGE>
FIFTH: The name and mailing address of the sole incorporator is as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
-------- -------------------
<S> <C>
Alastair Onglingswan................... c/o Brown & Wood LLP
One World Trade Center
New York, NY 10048
</TABLE>
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors shall have concurrent power with
the stockholders to make, alter, amend, change, add to or repeal the
bylaws of the Corporation.
(3) The number of directors of the Corporation shall initially
be three and thereafter shall be as from time to time fixed by, or in
the manner provided in, the bylaws of the Corporation. Election of
directors need not be by written ballot unless the bylaws so provide.
(4) At least one director of the Corporation will not be a
director, officer or employee of any direct or indirect parent of the
Corporation or of any affiliate of such parent, other than any
corporation or other entity that would commonly be considered to be a
bankruptcy-remote special purpose entity and whose business purposes
are limited in its charter to (w) acquiring, holding, or disposing of
financial assets in connection with securitizing or otherwise selling
or financing financial assets, (x) serving as depositor or other
intermediary in the chain of title to the financial assets in
connection with a transaction identified in clause (w), (y)
acquiring, holding, or disposing of mortgage or asset-backed
securities, or (z) engaging in any lawful activity to exercise any
powers permitted to corporations organized under the GCL that are
incidental to accomplishing any of the purposes identified in the
foregoing clauses (w), (x), or (y).
(5) In addition to the powers and authority hereinabove or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject nevertheless
to the provisions of the GCL, this Certificate of Incorporation and
the bylaws of the Corporation; provided, however, that no bylaw
hereafter adopted by the stockholders shall invalidate any prior act
of the directors that would have been valid if such bylaw had not
been adopted. The Corporation's Board of Directors will duly
authorize all of the Corporation's actions.
(6) The Corporation's funds and other assets will not be
commingled with those of any of its stockholders or of any direct or
indirect parent of the Corporation or of any affiliate of any such
parent.
(7) The Corporation will maintain separate corporate records and
books of account from those of any of its stockholders or of any
direct or indirect parent of the Corporation or of any affiliate of
any such parent.
EIGHTH: The Corporation shall not issue, assume or guarantee any debt
securities unless such issuance, assumption or guarantee will not result in
the downgrade or withdrawal of the rating then assigned to any outstanding
Securities then rated by such rating agency.
NINTH: A director of the Corporation shall not in the absence of fraud
be disqualified by his office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor in the absence
of fraud shall a director of the Corporation be liable to account to the
Corporation for any profit realized by him from or through any transaction
or contract of the Corporation by reason of the fact that he, or any firm
of which he is a member, or any corporation of which he is an officer,
director or stockholder, was interested in such transaction or contract if
such transaction or contract has been authorized, approved or ratified in
the manner provided in the GCL for authorization, approval or ratification
of transactions or
2
<PAGE>
contracts between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers or have a financial
interest.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of the Corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
the Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of the
GCL, order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors and/or on all the stockholders or class of stockholders of the
Corporation, as the case may be, and also on the Corporation.
ELEVENTH: No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article ELEVENTH by the
stockholders of the Corporation shall not adversely affect any right of
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
TWELFTH: Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation, for so long as any rated Securities remain
outstanding, shall not:
(i) engage in any business or activity other than those set forth
in Article THIRD;
(ii) dissolve or liquidate, in whole or in part; consolidate or
merge with or into any other entity or convey or transfer its properties
and assets substantially as an entirety to any entity, unless:
(A) the entity (if other than the Corporation) formed or
surviving the consolidation or merger or which acquires the
properties and assets of the Corporation, is organized and existing
under the laws of the State of Delaware, expressly assumes the due
and punctual payment of, and all obligations of the Corporation, and
has a Certificate of Incorporation containing provisions
substantially similar to the provisions of Articles THIRD, SEVENTH,
EIGHTH, TWELFTH and SIXTEENTH of this Certificate of Incorporation;
(B) immediately after giving effect to the transaction, no
default or event of default has occurred and is continuing under any
indebtedness of the Corporation or any agreements relating to such
indebtedness; and
(C) the Corporation receives written confirmation from each
rating agency then rating any outstanding Securities that such merger
or consolidation will not result in the downgrade or withdrawal of
the rating then assigned to any Securities then rated by such rating
agency; and
(iii) without the affirmative vote of 100% of the members of the
Board of Directors of the Corporation, institute proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition
seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Corporation or a substantial part of
its property, or make any assignment for the benefit of creditors, or
admit in writing its inability to pay its debts generally as they become
due, or dissolve, liquidate, consolidate, merge or sell all or
substantially all of the assets of the Corporation.
3
<PAGE>
THIRTEENTH: The Board of Directors, by the affirmative vote of a
majority of the whole Board, and irrespective of any personal interest of
its members, shall have authority to provide reasonable compensation of all
directors for services, ordinary or extraordinary, to the Corporation as
directors, officers or otherwise.
FOURTEENTH: Meetings of stockholders and directors may be held within
or without the State of Delaware, as the bylaws of the Corporation may
provide. The books and records of the Corporation may be kept (subject to
any provision contained in the GCL) outside the State of Delaware.
FIFTEENTH: Each person who is or was a director or officer of the
Corporation, and each person who serves or served at the request of the
Corporation as a director or officer (or its equivalent) of another
enterprise, shall be indemnified by the Corporation to the fullest extent
authorized by the GCL as it may be in effect from time to time, except as
to any action, suit or proceeding brought by or on behalf of a director or
officer without prior approval of the Board of Directors.
SIXTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provisions contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation; provided
that no such amendment of Articles THIRD, SEVENTH, EIGHTH, TWELFTH or
SIXTEENTH shall be effective without the Corporation having received
confirmation from each rating agency rating any outstanding Securities that
such amendment shall not result in the termination or lowering of the
rating of such Securities.
IN WITNESS WHEREOF, I the undersigned, being the sole incorporator
hereinbefore named, do hereby execute this Certificate of Incorporation this
8th day of June, 1999.
/s/ Alastair Onglingswan
................................
ALASTAIR ONGLINGSWAN
Sole Incorporator
4
<PAGE>
BYLAWS
OF
IndyMac MBS, Inc.
(a Delaware corporation)
ARTICLE I
Stockholders
SECTION 1. Annual Meetings. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. Special Meetings. Special meetings of stockholders for the
transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by stockholders holding together at
least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.
SECTION 3. Notice of Meetings. Written notice of all meetings of the
stockholders shall be mailed or delivered to each stockholder not less than 10
nor more than 60 days prior to the meeting. Notice of any special meeting shall
state in general terms the purpose or purposes for which the meeting is to be
held.
SECTION 4. Stockholder Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. Quorum. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of
<PAGE>
stockholders shall consist of the holders of record of a majority of the issued
and outstanding shares of the capital stock of the Corporation entitled to vote
at the meeting, present in person or by proxy. At all meetings of the
stockholders at which a quorum is present, all matters, except as otherwise
provided by law or the Certificate of Incorporation, shall be decided by the
vote of the holders of a majority of the shares entitled to vote thereat present
in person or by proxy. If there be no such quorum, the holders of a majority of
such shares so present or represented may adjourn the meeting from time to time,
without further notice, until a quorum shall have been obtained. When a quorum
is once present it is not broken by the subsequent withdrawal of any
stockholder.
SECTION 6. Organization. Meetings of stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the Vice
Chairman, if any, or if none or in the Vice Chairman's absence the President, if
any, or if none or in the President's absence a Vice President, or, if none of
the foregoing is present, by a chairman to be chosen by the stockholders
entitled to vote who are present in person or by proxy at the meeting. The
Secretary of the Corporation, or in the Secretary's absence an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present, the presiding officer of the meeting
shall appoint any person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote. (a) At each meeting of
stockholders, every stockholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such stockholder or by such
stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period), and, unless the Certificate of Incorporation provides otherwise,
shall have one vote for each share of stock entitled to vote registered in the
name of such stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these Bylaws. At all elections of directors the
voting may but need not be by ballot and a plurality of the votes cast there
shall elect. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Any action required or permitted to be taken at any
meeting of stockholders may, except as otherwise required by law or the
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of record of the issued and outstanding capital
stock of the Corporation having a majority of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, and the writing or writings are filed with the
permanent records of the Corporation. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
(c) Where a separate vote by a class or classes, present in
person or represented by proxy, shall constitute a quorum entitled to vote on
that matter, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, unless otherwise provided in the Corporation's Certificate of
Incorporation.
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SECTION 8. Inspectors. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each director
shall be at least 18 years of age. A director need not be a stockholder, a
citizen of the United States or a resident of the State of Delaware. The number
of directors constituting the entire Board shall initially be five, or such
other number as may be fixed from time to time by action of the stockholders or
Board of Directors, one of whom may be selected by the Board of Directors to be
its chairman. The use of the phrase "entire Board" herein refers to the total
number of directors which the Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal.
(c) Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise provided by
law, a majority of the entire Board shall constitute a quorum. A majority of the
directors present,
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whether or not a quorum is present, may adjourn a meeting from time to time to
another time and place without notice. The vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors may
be held at any place within or without the State of Delaware, as may from time
to time be fixed by resolution of the Board of Directors or as may be specified
in the notice of meeting.
SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board of Directors shall from time
to time by resolution determine. Notice need not be given of regular meetings of
the Board of Directors held at times and places fixed by resolution of the Board
of Directors.
SECTION 7. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, Chief Executive
Officer, President, or by a majority of the directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and time and
the purpose or purposes of each meeting of the Board of Directors, other than
regular meetings held at times and places fixed by resolution of the Board of
Directors, shall be given to each director by mailing the same at least two days
before the meeting, or by telegraphing or telephoning the same or by delivering
the same personally not later than the day before the day of the meeting.
SECTION 9. Organization. At all meetings of the Board of Directors, the
Chairman, if any, or if none or in the Chairman's absence or inability to act
the President, or in the President's absence or inability to act any Vice
President who is a member of the Board of Directors, or in such Vice President's
absence or inability to act a chairman chosen by the directors, shall preside.
The Secretary of the Corporation shall act as secretary at all meetings of the
Board of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as Secretary.
SECTION 10. Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Any or all of the directors may be removed, with or without cause,
by the holders of a majority of the shares of stock outstanding and entitled to
vote for the election of directors.
SECTION 11. Vacancies. Unless otherwise provided in these Bylaws,
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director,
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or at a special meeting of the stockholders, by the holders of shares entitled
to vote for the election of directors.
SECTION 12. Action by Written Consent; Telephonic Meetings. Any action
required or permitted to be taken at any meeting of the Board of Directors may
be taken without a meeting if all the directors consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors. Subject to applicable notice provisions, members of the Board of
Directors may participate in and hold meetings by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in such meeting shall be
deemed presence in person at such meeting, except where a person's participation
is for the express purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.
ARTICLE III
Committees
SECTION 1. Appointment. From time to time the Board of Directors by a
resolution adopted by a majority of the entire Board may appoint any committee
or committees for any purpose or purposes, to the extent lawful, which shall
have powers as shall be determined and specified by the Board of Directors in
the resolution of appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Acting by Written Consent; Telephonic Meetings. Any action
required or permitted to be taken at any meeting of any committee of the Board
of Directors may be taken without a meeting if all the members of the committee
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the committee. Subject to applicable notice
provisions, members of any committee of the Board of Directors may participate
in and hold meetings by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall be deemed presence in person
at such meeting, except where a person's participation is for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
SECTION 4. Terms; Termination. In the event any person shall cease to
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board of Directors.
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ARTICLE IV
Officers
SECTION 1. Election and Qualifications. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more Vice
Presidents (any one or more of whom may be given an additional designation of
rank or function), a Treasurer and such assistant secretaries, such assistant
treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these Bylaws and as may be assigned by the Board of Directors or the President.
Any two or more offices may be held by the same person except the offices of
President and Secretary.
SECTION 2. Term of Office and Remuneration. The term of office of all
officers shall be one year or until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the entire Board.
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the Board of
Directors and shall have such other powers and duties as may from time to time
be assigned by the Board of Directors.
SECTION 5. President and Chief Executive Officer. The President shall
be the chief executive officer of the Corporation and shall have such duties as
customarily pertain to that office. The President also shall be a director of
the Corporation. If, at any time and for any reason, the President's term of
office as a director of the Corporation terminates or is terminated, then his
term of office as President of the Corporation shall also be automatically
terminated. The President shall have general management and supervision of the
property, business and affairs of the Corporation and over its other officers;
may appoint and remove assistant officers and other agents and employees, other
than officers referred to in Section 1 of this Article IV; and may execute and
deliver in the name of the Corporation powers of attorney, contracts, bonds and
other obligations and instruments.
SECTION 6. Vice President. A Vice President may execute and deliver in
the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
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SECTION 7. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 8. Secretary. The Secretary shall in general have all the
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 9. Assistant Officers. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
SECTION 1. Location. The books and records of the Corporation may be
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the Bylaws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all other
corporate notices may be delivered personally or mailed to each stockholder at
the stockholder's address as it appears on the records of the Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of Record. (a)
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not be more
than 60 nor less than 10 days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date which date shall not be
more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be
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taken is delivered to the Corporation by delivery to its registered office in
this State, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by this chapter, the record date for
determining Stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the Stockholder entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
SECTION 1. Certificate; Signatures. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, or the President or
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue. The name of the holder of record of the shares represented thereby, with
the number of such shares and the date of issue, shall be entered on the books
of the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the
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Corporation may pay in cash the fair value of fractions of a share as of the
time when those entitled to receive such fractions are determined, or it may
issue scrip in registered or bearer form over the manual or facsimile signature
of an officer of the Corporation or of its agent, exchangeable as therein
provided for full shares, but such scrip shall not entitle the holder to any
rights of a stockholder except as therein provided.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates representing shares of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
Dividends
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE VIII
Ratification
Any transaction, questioned in any lawsuit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or stockholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified before or after
judgment, by the Board of Directors or by the stockholders, and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its stockholders and
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shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
ARTICLE IX
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall be the calendar year.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by these Bylaws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts
as may be authorized by the Board of Directors, the primary financial officer or
any person designated by said primary financial officer, whether or not an
employee of the Corporation, may authorize such bank accounts to be opened or
maintained in the name and on behalf of the Corporation as he or she may deem
necessary or appropriate, and payments from such bank accounts may be made upon
and according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any person
or persons, in the name and on behalf of the Corporation, to enter into or
execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
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SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board of Directors, from time to time, may confer like powers
upon any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
primary financial officer or other fiscal officer or any other officer to cause
to be prepared and furnished to stockholders entitled thereto any special
financial notice and/or financial statement, as the case may be, which may be
required by any provision of law.
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ARTICLE XIII
Amendments
The Board of Directors shall have power to adopt, amend or repeal
Bylaws. Bylaws adopted by the Board of Directors may be repealed or changed, and
new Bylaws made, by the stockholders, and the stockholders may prescribe that
any Bylaw made by them shall not be altered, amended or repealed by the Board of
Directors.
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IndyMac MBS, Inc.,
Depositor
[INDYMAC, INC.],
Seller and Master Servicer
and
[THE BANK OF NEW YORK],
Trustee
--------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of [ ]
--------------------------------------
RESIDENTIAL ASSET SECURITIZATION TRUST [ ]
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES [ ]
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES
Section 2.01. Conveyance of Mortgage Loans...........................................................1
Section 2.02. Acceptance by the Trustee of the Mortgage Loans........................................4
Section 2.03. Representations, Warranties and Covenants of the Seller and the Master
Servicer...............................................................................5
Section 2.04. Representations and Warranties of the Depositor as to the Mortgage Loans..............7
Section 2.05. Delivery of Opinion of Counsel in Connection with Substitutions and
Repurchases............................................................................8
Section 2.06. Execution and Delivery of Certificates.................................................8
Section 2.07. REMIC Matters..........................................................................8
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01. Master Servicer to Service Mortgage Loans..............................................1
Section 3.02. Subservicing; Enforcement of the Obligations of Servicers..............................2
Section 3.03. Successor Servicers....................................................................2
Section 3.04. Liability of the Master Servicer.......................................................3
Section 3.05. No Contractual Relationship Between Servicers and the Trustee..........................3
Section 3.06. Rights of the Depositor and the Trustee in Respect of the Master Servicer..............3
Section 3.07. Trustee to Act as Master Servicer......................................................4
Section 3.08. Collection of Mortgage Loan Payments; Servicing Accounts; Collection Account;
Certificate Account; Distribution Account..............................................4
Section 3.09. Collection of Taxes, Assessments and Similar Items; Escrow Accounts....................8
Section 3.10. Access to Certain Documentation and Information Regarding the Mortgage Loans...........8
Section 3.11. Permitted Withdrawals from the Certificate Account,and the Distribution
Account................................................................................9
Section 3.12. Maintenance of Hazard Insurance; Maintenance of Primary Insurance Policies............10
Section 3.13. Enforcement of Due-On-Sale Clauses; Assumption Agreements.............................12
Section 3.14. Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage
Loans.................................................................................13
Section 3.15. Trustee to Cooperate; Release of Mortgage Files.......................................16
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Section 3.16. Documents, Records and Funds in Possession of the Master Servicer to be Held
for the Trustee.......................................................................17
Section 3.17. Servicing Compensation................................................................18
Section 3.18. Annual Statement as to Compliance.....................................................18
Section 3.19. Annual Independent Public Accountants' Servicing Statement; Financial
Statements............................................................................19
Section 3.20. Errors and Omissions Insurance; Fidelity Bonds........................................19
ARTICLE IV
DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER
Section 4.01. Advances...............................................................................1
Section 4.02. Priorities of Distribution.............................................................1
Section 4.03. [Reserved].............................................................................4
Section 4.04. [Reserved].............................................................................4
Section 4.05. Allocation of Realized Losses..........................................................4
Section 4.06. Monthly Statements to Certificateholders...............................................5
Section 4.07. Determination of Pass-Through Rates for COFI Certificates..............................7
Section 4.08. Determination of Pass-Through Rates for LIBOR Certificates.............................9
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates.......................................................................1
Section 5.02. Certificate Register; Registration of Transfer and Exchange of Certificates............1
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates......................................6
Section 5.04. Persons Deemed Owners..................................................................6
Section 5.05. Access to List of Certificateholders' Names and Addresses..............................6
Section 5.06. Maintenance of Office or Agency........................................................7
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
Section 6.01. Respective Liabilities of the Depositor and the Master Servicer........................1
Section 6.02. Merger or Consolidation of the Depositor or the Master Servicer........................1
Section 6.03. Limitation on Liability of the Depositor, the Seller, the Master Servicer and
Others.................................................................................1
Section 6.04. Limitation on Resignation of the Master Servicer.......................................2
ARTICLE VII
DEFAULT
Section 7.01. Events of Default......................................................................1
Section 7.02. Trustee to Act; Appointment of Successor...............................................2
Section 7.03. Notification to Certificateholders.....................................................3
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ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of the Trustee..................................................................1
Section 8.02. Certain Matters Affecting the Trustee..................................................2
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans..................................3
Section 8.04. Trustee May Own Certificates...........................................................3
Section 8.05. Trustee's Fees and Expenses............................................................3
Section 8.06. Eligibility Requirements for the Trustee...............................................4
Section 8.07. Resignation and Removal of the Trustee.................................................4
Section 8.08. Successor Trustee......................................................................5
Section 8.09. Merger or Consolidation of the Trustee.................................................5
Section 8.10. Appointment of Co-Trustee or Separate Trustee..........................................5
Section 8.11. Tax Matters............................................................................7
Section 8.12. Periodic Filings.......................................................................9
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Liquidation or Purchase of all Mortgage Loans.........................1
Section 9.02. Final Distribution on the Certificates.................................................1
Section 9.03. Additional Termination Requirements....................................................2
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment..............................................................................1
Section 10.02. Recordation of Agreement; Counterparts.................................................2
Section 10.03. Governing Law..........................................................................2
Section 10.04. Intention of Parties...................................................................3
Section 10.05. Notices................................................................................3
Section 10.06. Severability of Provisions.............................................................4
Section 10.07. Assignment.............................................................................4
Section 10.08. Limitation on Rights of Certificateholders.............................................4
Section 10.09. Inspection and Audit Rights............................................................5
Section 10.10. Certificates Nonassessable and Fully Paid..............................................5
SCHEDULES
Schedule I: Mortgage Loan Schedule..............................................................S-I-1
Schedule II: Representations and Warranties of the Seller/Master Servicer.......................S-II-1
Schedule III: Representations and Warranties as to the Mortgage Loans...........................S-III-1
Schedule IV: [Reserved].........................................................................S-IV-1
EXHIBITS
Exhibit A: Form of Senior Certificate............................................................A-1
Exhibit B: Form of Subordinated Certificate......................................................B-1
</TABLE>
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<TABLE>
<S> <C> <C>
Exhibit C: Form of Residual Certificate..........................................................C-1
Exhibit D: Form of Notional Amount Certificate...................................................D-1
Exhibit E: Form of Reverse of Certificates.......................................................E-1
Exhibit F: [Reserved]............................................................................F-1
Exhibit G: Form of Initial Certification of Trustee..............................................G-1
Exhibit H: Form of Final Certification of Trustee................................................H-1
Exhibit I: Form of Transfer Affidavit............................................................I-1
Exhibit J: Form of Transferor Certificate........................................................J-1
Exhibit K: Form of Investment Letter (Non-Rule 144A).............................................K-1
Exhibit L Form of Rule 144A Letter..............................................................L-1
Exhibit M: Form of Request for Release (for Trustee).............................................M-1
Exhibit N: Form of Request for Release (Mortgage Loan Paid in Full,
Repurchased and Released)............................................................N-1
Exhibit O: [Reserved]............................................................................O-1
</TABLE>
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<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of [ ],
among [IndyMac MBS, Inc.], a Delaware corporation, as depositor (the
"Depositor"), [INDYMAC, INC. ("IndyMac")], a Delaware corporation, as seller
(in such capacity, the "Seller") and as master servicer (in such capacity, the
"Master Servicer"), and [THE BANK OF NEW YORK], a banking corporation organized
under the laws of the State of New York, as trustee (the "Trustee").
WITNESSETH THAT
In consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby
conveyed to the Trustee in return for the Certificates. The Trust Fund for
federal income tax purposes will consist of a single REMIC. The Certificates
will represent the entire beneficial ownership interest in the Trust Fund. The
Regular Certificates will represent the "regular interests" in the Trust Fund
and the Residual Certificates will represent the single "residual interest" in
the Trust Fund. The "latest possible maturity date" for federal income tax
purposes of all interests created hereby will be the Latest Possible Maturity
Date.
The following table sets forth characteristics of the
Certificates, together with the minimum denominations and integral multiples in
excess thereof in which such Classes shall be issuable (except that one
Certificate of each Class of Certificates may be issued in a different amount
and, in addition, one Residual Certificate representing the Tax Matters Person
Certificate may be issued in a different amount):
1
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<TABLE>
<CAPTION>
==============================================================================================================
Class Pass-Through Minimum Integral
Certificate Rate Denomination Multiples
Balance in Excess
of Minimum
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1
- ---------------------------------------------------------------------------------------------------------------
Class A-2
- ---------------------------------------------------------------------------------------------------------------
Class A-3
- ---------------------------------------------------------------------------------------------------------------
Class PO (3)
- ---------------------------------------------------------------------------------------------------------------
Class X (1) (4) (2) (2)
- ---------------------------------------------------------------------------------------------------------------
Class A-R
- ---------------------------------------------------------------------------------------------------------------
Class B-1
- ---------------------------------------------------------------------------------------------------------------
Class B-2
- ---------------------------------------------------------------------------------------------------------------
Class B-3
- ---------------------------------------------------------------------------------------------------------------
Class B-4
- ---------------------------------------------------------------------------------------------------------------
Class B-5
- ---------------------------------------------------------------------------------------------------------------
Class B-6
==============================================================================================================
</TABLE>
- -------------------
(1) The Class X Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their respective Notional
Amounts (initially, $[ ])
(2) The minimum denomination is based on the Notional Amount.
(3) The Class PO Certificates will be Principal Only Certificates and will not
bear interest.
(4) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the
Adjusted Net Mortgage Rates of the Non-Discount Mortgage Loans over
(b) [ ]% per annum. The Pass-Through Rate for the Class X Certificates
for the first Distribution Date is approximately [ ]%.
2
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Set forth below are designations of Classes of Certificates to
the categories used herein:
<TABLE>
<S> <C>
Accretion Directed
Certificates ................................... None.
Accrual Certificates................................. None.
Book-Entry Certificates.............................. All Classes of Certificates other than the Physical
Certificates.
COFI Certificates.................................... None.
Component Certificates............................... None.
Components........................................... For purposes of calculating distributions of
principal and/or interest, the Component
Certificates, if any, will be comprised of multiple
payment components having the designations, Initial
Component Balances or Notional Amounts and
Pass-Through Rates set forth below:
Initial
Component
Designation Notional Amount Pass-Through Rate
----------- --------------- -----------------
N/A N/A N/A
Delay Certificates................................... All interest-bearing Classes of Certificates other
than the Non-Delay Certificates, if any.
ERISA-Restricted
Certificates.................................... Class PO, Class X Certificates, Residual
Certificates and Subordinated Certificates.
Floating Rate Certificates........................... None.
Inverse Floating Rate
Certificates.................................... None.
LIBOR Certificates................................... None.
Non-Delay Certificates............................... None.
Notional Amount Certificates......................... Class [ ] and Class X Certificates.
Offered Certificates................................. All Classes of Certificates other than the Private
Certificates.
</TABLE>
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<TABLE>
<S> <C>
Physical Certificates................................ Class A-R Certificates and Private Certificates.
Planned Principal Classes............................ None.
Primary Planned Principal
Classes......................................... None.
Principal Only Certificates.......................... Class PO Certificates.
Private Certificates................................. Class B-4, Class B-5 and Class B-6 Certificates.
Rating Agencies......................................
Regular Certificates................................. All Classes of Certificates other than the Class
A-R Certificates.
Residual Certificates................................ Class A-R Certificates.
Scheduled Principal Classes.......................... None.
Secondary Planned
Principal Classes............................... None.
Senior Certificates.................................. Class A-1, Class A-2, Class A-3, Class PO, Class X
and Class A-R Certificates.
Subordinated Certificates............................ Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Certificates.
Targeted Principal Classes........................... None.
</TABLE>
With respect to any of the foregoing designations as to which
the corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above as Rating Agencies shall be of no force or effect.
4
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
Accretion Directed Certificates: As specified in the
Preliminary Statement.
Accrual Amount: Not applicable.
Accrual Certificates: As specified in the Preliminary
Statement.
Accrual Termination Date: Not applicable.
Adjusted Mortgage Rate: As to each Mortgage Loan and at any
time, the per annum rate equal to the Mortgage Rate less the sum of the Master
Servicing Fee Rate and the related Servicing Fee Rate.
Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at
any time, the per annum rate equal to the Mortgage Rate less the related Expense
Rate. For purposes of determining whether any Substitute Mortgage Loan is a
Discount Mortgage Loan or a Non-Discount Mortgage Loan and for purposes of
calculating the applicable PO Percentage and applicable Non-PO Percentage, each
Substitute Mortgage Loan shall be deemed to have an Adjusted Net Mortgage Rate
equal to the Adjusted Net Mortgage Rate of the Deleted Mortgage Loan for which
it is substituted.
Advance: The payment required to be made by the Master
Servicer with respect to any Distribution Date pursuant to Section 4.01, the
amount of any such payment being equal to the aggregate of payments of principal
and interest (net of the Master Servicing Fee and the applicable Servicing Fee
and net of any net income in the case of any REO Property) on the Mortgage Loans
that were due on the related Due Date and not received as of the close of
business on the related Determination Date, less the aggregate amount of any
such delinquent payments that the Master Servicer has determined would
constitute a Nonrecoverable Advance if advanced.
Agreement: This Pooling and Servicing Agreement and all
amendments or supplements hereto.
Allocable Share: As to any Distribution Date and any Mortgage
Loan (i) with respect to the Class X Certificates, (a) the ratio that (x) the
excess, if any, of the Adjusted Net Mortgage Rate with respect to such Mortgage
Loan over the Required Coupon bears to (y) such Adjusted Net Mortgage Rate or
(b) if the Adjusted Net Mortgage Rate with respect to such Mortgage Loan does
not exceed the Required Coupon, zero, (ii) with respect to the Class PO
Certificates, zero and (iii) with respect to each other Class of Certificates
the product of (a) the lesser of (I) the ratio that the Required Coupon bears to
such Adjusted Net Mortgage Rate and (II) one, multiplied by (b) the ratio that
the amount calculated with respect to such Distribution Date for such Class
pursuant to clause (i) of the definition of Class Optimal Interest Distribution
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Amount (without giving effect to any reduction of such amount pursuant to
Section 4.02(d)) bears to the amount calculated with respect to such
Distribution Date for each Class of Certificates pursuant to clause (i) of the
definition of Class Optimal Interest Distribution Amount (without giving effect
to any reduction of such amount pursuant to Section 4.02(d)).
Amount Available for Senior Principal: As to any Distribution
Date Available Funds for such Distribution Date, reduced by the aggregate amount
distributable (or allocable to the Accrual Amount, if applicable) on such
Distribution Date in respect of interest on the Senior Certificates pursuant to
Section 4.02(a)(ii).
Amount Held for Future Distribution: As to any Distribution
Date, the aggregate amount held in the Certificate Account at the close of
business on the related Determination Date on account of (i) Principal
Prepayments and Liquidation Proceeds received in the month of such Distribution
Date and (ii) all Scheduled Payments due after the related Due Date.
Applicable Credit Support Percentage: As defined in Section
4.02(e).
Appraised Value: With respect to any Mortgage Loan, the
Appraised Value of the related Mortgaged Property shall be: (i) with respect to
a Mortgage Loan other than a Refinancing Mortgage Loan, the lesser of (a) the
value of the Mortgaged Property based upon the appraisal made at the time of the
origination of such Mortgage Loan and (b) the sales price of the Mortgaged
Property at the time of the origination of such Mortgage Loan; (ii) with respect
to a Refinancing Mortgage Loan, the value of the Mortgaged Property based upon
the appraisal made at the time of the origination of such Refinancing Mortgage
Loan.
Available Funds: As to any Distribution Date, the sum of (a)
the aggregate amount held in the Certificate Account at the close of business on
the related Determination Date net of the Amount Held for Future Distribution
and net of amounts permitted to be withdrawn from the Certificate Account
pursuant to clauses (i) - (viii), inclusive, of Section 3.11(a) and amounts
permitted to be withdrawn from the Distribution Account pursuant to clauses (i)
- - (iii), inclusive, of Section 3.11(b), (b) the amount of the related Advance,
(c) in connection with Defective Mortgage Loans, as applicable, the aggregate of
the Purchase Prices and Substitution Adjustment Amounts deposited on the related
Distribution Account Deposit Date and (d) any amount deposited on the related
Distribution Account Deposit Date pursuant to Section 3.12.
Bankruptcy Code: The United States Bankruptcy Reform Act of
1978, as amended.
Bankruptcy Coverage Termination Date: The point in time at
which the Bankruptcy Loss Coverage Amount is reduced to zero.
Bankruptcy Loss: With respect to any Mortgage Loan, a
Deficient Valuation or Debt Service Reduction; provided, however, that a
Bankruptcy Loss shall not be deemed a Bankruptcy Loss hereunder so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the related
Mortgage Loan and either (A) the related Mortgage Loan is not in default with
regard to payments due thereunder or (B) delinquent payments of principal and
interest under the related Mortgage Loan and any related escrow payments in
respect of such Mortgage Loan are being
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<PAGE>
advanced on a current basis by the Master Servicer, in either case without
giving effect to any Debt Service Reduction or Deficient Valuation.
Bankruptcy Loss Coverage Amount: As of any Determination Date,
the Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings assigned to the Classes of Certificates
rated by it.
Blanket Mortgage: The mortgage or mortgages encumbering the
Cooperative Property.
Book-Entry Certificates: As specified in the Preliminary
Statement.
Business Day: Any day other than (i) a Saturday or a Sunday,
or (ii) a day on which banking institutions in the City of New York, New York,
or the State of California or the city in which the Corporate Trust Office of
the Trustee is located are authorized or obligated by law or executive order to
be closed.
Certificate: Any one of the Certificates executed by the
Trustee in substantially the forms attached hereto as exhibits.
Certificate Account: The separate Eligible Account or Accounts
created and maintained by the Master Servicer pursuant to Section 3.08(e) with a
depository institution in the name of the Master Servicer for the benefit of the
Trustee on behalf of Certificateholders and designated "[IndyMac, Inc.]" in
trust for the registered holders of [IndyMac MBS, Inc.] Mortgage Pass-Through
Certificates Series [ ].
Certificate Balance: With respect to any Certificate at any
date, the maximum dollar amount of principal to which the Holder thereof is then
entitled hereunder, such amount being equal to the Denomination thereof (A)
minus the sum of (i) all distributions of principal previously made with respect
thereto and (ii) all Realized Losses allocated thereto and, in the case of any
Subordinated Certificates, all other reductions in Certificate Balance
previously allocated thereto pursuant to Section 4.05 and (B) in the case of any
Class of Accrual Certificates, increased by the Accrual Amount added to the
Class Certificate Balance of such Class prior to such date.
Certificate Owner: With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Book-Entry Certificate.
Certificate Register: The register maintained pursuant to
Section 5.02.
Certificateholder or Holder: The person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of giving any consent pursuant to this Agreement, any Certificate
registered in the name of the Depositor or any affiliate of the Depositor shall
be deemed not to be Outstanding and the Percentage Interest evidenced thereby
I-3
<PAGE>
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect such consent has been obtained;
provided, however, that if any such Person (including the Depositor) owns 100%
of the Percentage Interests evidenced by a Class of Certificates, such
Certificates shall be deemed to be Outstanding for purposes of any provision
hereof that requires the consent of the Holders of Certificates of a particular
Class as a condition to the taking of any action hereunder.
Class: All Certificates bearing the same class designation as
set forth in the Preliminary Statement.
Class Certificate Balance: With respect to any Class and as to
any date of determination, the aggregate of the Certificate Balances of all
Certificates of such Class as of such date.
Class Interest Shortfall: As to any Distribution Date and
Class, the amount by which the amount described in clause (i) of the definition
of Class Optimal Interest Distribution Amount for such Class exceeds the amount
of interest actually distributed on such Class on such Distribution Date
pursuant to such clause (i).
Class Optimal Interest Distribution Amount: With respect to
any Distribution Date and interest-bearing Class, the sum of (i) one month's
interest accrued during the related Interest Accrual Period at the Pass-Through
Rate for such Class, on the related Class Certificate Balance or Notional
Amount, as applicable, subject to reduction pursuant to Section 4.02(d), and
(ii) any Class Unpaid Interest Amounts for such Class.
Class PO Deferred Amount: As to any Distribution Date, the
aggregate of the applicable PO Percentage of each Realized Loss, other than any
Excess Loss, to be allocated to the Class PO Certificates on such Distribution
Date on or prior to the Senior Credit Support Depletion Date or previously
allocated to the Class PO Certificates and not yet paid to the Holders of the
Class PO Certificates.
Class Subordination Percentage: With respect to any
Distribution Date and each Class of Subordinated Certificates, the fraction
(expressed as a percentage) the numerator of which is the Class Certificate
Balance of such Class of Subordinated Certificates immediately prior to such
Distribution Date and the denominator of which is the aggregate of the Class
Certificate Balances of all Classes of Certificates immediately prior to such
Distribution Date.
Class Unpaid Interest Amounts: As to any Distribution Date and
Class of interest-bearing Certificates, the amount by which the aggregate Class
Interest Shortfalls for such Class on prior Distribution Dates exceeds the
amount distributed on such Class on prior Distribution Dates pursuant to clause
(ii) of the definition of Class Optimal Interest Distribution Amount.
Closing Date: [ ].
Code: The Internal Revenue Code of 1986, including any
successor or amendatory provisions.
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<PAGE>
COFI: The Monthly Weighted Average Cost of Funds Index for the
Eleventh District Savings Institutions published by the Federal Home Loan Bank
of San Francisco.
COFI Certificates: As specified in the Preliminary Statement.
Collection Account: The Eligible Account or Accounts
established and maintained by the Master Servicer in accordance with Section
3.08(c).
Component: As specified in the Preliminary Statement.
Component Balance: With respect to any Component and any
Distribution Date, the Initial Component Balance thereof on the Closing Date,
less all amounts applied in reduction of the principal balance of such Component
and Realized Losses allocated thereto on previous Distribution Dates.
Component Certificates: As specified in the Preliminary
Statement.
Cooperative Corporation: The entity that holds title (fee or
an acceptable leasehold estate) to the real property and improvements
constituting the Cooperative Property and which governs the Cooperative
Property, which Cooperative Corporation must qualify as a Cooperative Housing
Corporation under Section 216 of the Code.
Component Notional Amount: Not applicable.
Cooperative Loan: Any Mortgage Loan secured by Cooperative
Shares and a Proprietary Lease.
Cooperative Property: The real property and improvements owned
by the Cooperative Corporation, including the allocation of individual dwelling
units to the holders of the Cooperative Shares of the Cooperative Corporation.
Cooperative Shares: Shares issued by a Cooperative
Corporation.
Cooperative Unit: A single family dwelling located in a
Cooperative Property.
Corporate Trust Office: The designated office of the Trustee
in the State of New York at which at any particular time its corporate trust
business with respect to this Agreement shall be administered, which office at
the date of the execution of this Agreement is located at [101 Barclay Street,
12E, New York, New York 10286 (Attn: Mortgage-Backed Securities Group, [IndyMac
MBS, Inc.] Series [ ]), facsimile no. (212) 815-4135] and which is the address
to which notices to and correspondence with the Trustee should be directed.
Cut-off Date: [ ].
Cut-off Date Pool Principal Balance: $[ ].
Cut-off Date Principal Balance: As to any Mortgage Loan, the
Stated Principal Balance thereof as of the close of business on the Cut-off
Date.
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<PAGE>
Debt Service Reduction: With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code in the Scheduled Payment for such Mortgage Loan which became
final and non-appealable, except such a reduction resulting from a Deficient
Valuation or any reduction that results in a permanent forgiveness of principal.
Debt Service Reduction Mortgage Loan: Any Mortgage Loan that
became the subject of a Debt Service Reduction.
Defective Mortgage Loan: Any Mortgage Loan which is required
to be repurchased pursuant to Section 2.02 or 2.03.
Deficient Valuation: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
Scheduled Payment that results in a permanent forgiveness of principal, which
valuation or reduction results from an order of such court which is final and
non-appealable in a proceeding under the Bankruptcy Code.
Definitive Certificates: Any Certificate evidenced by a
Physical Certificate and any Certificate issued in lieu of a Book-Entry
Certificate pursuant to Section 5.02(e).
Delay Certificates: As specified in the Preliminary Statement.
Deleted Mortgage Loan: As defined in Section 2.03(c).
Delinquent: A Mortgage Loan is "Delinquent" if any regularly
scheduled monthly payment due thereon is not made by the close of business on
the day such monthly payment is due. A Mortgage Loan is "30 days Delinquent" if
such monthly payment has not been received by the close of business on the
corresponding day of the month immediately succeeding the month in which such
monthly payment was due. The determination of whether a Mortgage Loan is "60
days Delinquent", "90 days Delinquent", etc. shall be made in like manner.
Denomination: With respect to each Certificate, the amount set
forth on the face thereof as the "Initial Certificate Balance of this
Certificate" or the "Initial Notional Amount of this Certificate" or, if neither
of the foregoing, the Percentage Interest appearing on the face thereof.
Depositor: [IndyMac MBS, Inc.], a Delaware corporation, or its
successor in interest.
Depository: The initial Depository shall be The Depository
Trust Company, the nominee of which is CEDE & Co., as the registered Holder of
the Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
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<PAGE>
Depository Participant: A broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
Determination Date: As to any Distribution Date, the 18th day
of each month or if such 18th day is not a Business Day the next succeeding
Business Day; provided, however, that if such next succeeding Business Day is
less than two Business Days prior to the related Distribution Date, then the
Determination Date shall be the next Business Day preceding the 18th day of such
month.
Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net
Mortgage Rate that is less than the Required Coupon.
Distribution Account: The separate Eligible Account created
and maintained by the Trustee pursuant to Section 3.08(f) in the name of the
Trustee for the benefit of the Certificateholders and designated "[The Bank of
New York] in trust for registered holders of [IndyMac MBS, Inc.] Mortgage
Pass-Through Certificates, Series [ ]". Funds in the Distribution Account
shall be held in trust for the Certificateholders for the uses and purposes
set forth in this Agreement.
Distribution Account Deposit Date: As to any Distribution
Date, 12:30 p.m. Pacific time on the Business Day immediately preceding such
Distribution Date.
Distribution Date: The 25th day of each calendar month after
the initial issuance of the Certificates, or if such 25th day is not a Business
Day, the next succeeding Business Day, commencing in [ ].
Due Date: With respect to any Distribution Date, the first day
of the month in which the related Distribution Date occurs.
Duff & Phelps: Duff & Phelps Credit Rating Co., or any
successor thereto. If Duff & Phelps is designated as a Rating Agency in the
Preliminary Statement, for purposes of Section 10.05(b) the address for notices
to Duff & Phelps shall be Duff & Phelps Credit Rating Co., 55 E. Monroe Street,
38th Floor, Chicago, Illinois 60603, Attention: MBS Monitoring, or such other
address as Duff & Phelps may hereafter furnish to the Depositor and the Master
Servicer.
Eligible Account: Any of (i) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company, but only if Moody's is
not a Rating Agency) have the highest short-term ratings of each Rating Agency
at the time any amounts are held on deposit therein, or (ii) an account or
accounts in a depository institution or trust company in which such accounts are
insured by the FDIC or the SAIF (to the limits established by the FDIC or the
SAIF) and the uninsured deposits in which accounts are otherwise secured such
that, as evidenced by an Opinion of Counsel delivered to the Trustee and to each
Rating Agency, the Certificateholders have a claim with respect to the funds in
such account or a perfected first priority security interest against any
collateral (which shall be limited
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<PAGE>
to Permitted Investments) securing such funds that is superior to claims of any
other depositors or creditors of the depository institution or trust company in
which such account is maintained, or (iii) a trust account or accounts
maintained with the trust department of a federal or state chartered depository
institution or trust company, acting in its fiduciary capacity or (iv) any other
account acceptable to each Rating Agency. Eligible Accounts may bear interest,
and may include, if otherwise qualified under this definition, accounts
maintained with the Trustee.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA-Restricted Certificate: As specified in the Preliminary
Statement.
Escrow Account: The Eligible Account or Accounts established
and maintained pursuant to Section 3.09(a).
Event of Default: As defined in Section 7.01.
Excess Loss: The amount of any (i) Fraud Loss realized after
the Fraud Loss Coverage Termination Date, (ii) Special Hazard Loss realized
after the Special Hazard Coverage Termination Date or (iii) Bankruptcy Loss
realized after the Bankruptcy Coverage Termination Date.
Excess Proceeds: With respect to any Liquidated Mortgage Loan,
the amount, if any, by which the sum of any Liquidation Proceeds of such
Mortgage Loan received in the calendar month in which such Mortgage Loan became
a Liquidated Mortgage Loan, net of any amounts previously reimbursed to the
Master Servicer as Nonrecoverable Advance(s) with respect to such Mortgage Loan
pursuant to Section 3.11(a)(iii), exceeds (i) the unpaid principal balance of
such Liquidated Mortgage Loan as of the Due Date in the month in which such
Mortgage Loan became a Liquidated Mortgage Loan plus (ii) accrued interest at
the Mortgage Rate from the Due Date as to which interest was last paid or
advanced (and not reimbursed) to Certificateholders up to the Due Date
applicable to the Distribution Date immediately following the calendar month
during which such liquidation occurred.
Expense Fees: As to each Mortgage Loan, the sum of the related
Servicing Fee, Master Servicing Fee, and Trustee Fee.
Expense Rate: As to each Mortgage Loan, the sum of the related
Servicing Fee Rate, Master Servicing Fee Rate and Trustee Fee Rate.
FDIC: The Federal Deposit Insurance Corporation, or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
Fitch: Fitch IBCA, Inc., or any successor thereto. If Fitch is
designated as a Rating Agency in the Preliminary Statement, for purposes of
Section 10.05(b) the address for
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<PAGE>
notices to Fitch shall be Fitch IBCA, Inc., One State Street Plaza, New York,
New York 10004, Attention: Residential Mortgage Surveillance Group, or such
other address as Fitch may hereafter furnish to the Depositor and the Master
Servicer.
FNMA: The Federal National Mortgage Association, a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, or any successor thereto.
Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud
Loss has occurred.
Fraud Losses: Realized Losses on Mortgage Loans as to which a
loss is sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary Insurance Policy
because of such fraud, dishonesty or misrepresentation.
Fraud Loss Coverage Amount: As of the Closing Date, $[ ]
subject to reduction from time to time, by the amount of Fraud Losses allocated
to the Certificates. On each anniversary of the Cut-off Date, the Fraud Loss
Coverage Amount will be reduced as follows: (a) on the first, second, third and
fourth anniversaries of the Cut-off Date, to an amount equal to the lesser of
(i) 1% of the then current Pool Principal Balance and (ii) the excess of the
Fraud Loss Coverage Amount as of the preceding anniversary of the Cut-off Date
(or, in the case of the first such anniversary, as of the Cut-off Date) over the
cumulative amount of Fraud Losses allocated to the Certificates since such
preceding anniversary or the Cut-off Date, as the case may be, and (b) on the
fifth anniversary of the Cut-off Date, to zero.
Fraud Loss Coverage Termination Date: The point in time at
which the Fraud Loss Coverage Amount is reduced to zero.
Index: With respect to any Interest Accrual Period for the
COFI Certificates, the then applicable index used by the Trustee pursuant to
Section 4.07 to determine the applicable Pass-Through Rate for such Interest
Accrual Period for the COFI Certificates.
Indirect Participant: A broker, dealer, bank or other
financial institution or other Person that clears through or maintains a
custodial relationship with a Depository Participant.
Initial Bankruptcy Loss Coverage Amount: $[ ].
Initial Component Balance: As specified in the Preliminary
Statement.
Initial LIBOR Rate: Not applicable.
Insurance Policy: With respect to any Mortgage Loan included
in the Trust Fund, any insurance policy, including all riders and endorsements
thereto in effect, including any replacement policy or policies for any
Insurance Policies.
Insurance Proceeds: Proceeds paid by an insurer pursuant to
any Insurance Policy, in each case other than any amount included in such
Insurance Proceeds in respect of Insured Expenses.
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Insured Expenses: Expenses covered by an Insurance Policy or
any other insurance policy with respect to the Mortgage Loans.
Interest Accrual Period: With respect to each Class of Delay
Certificates and any Distribution Date, the calendar month prior to the month of
such Distribution Date. With respect to each Class of Non-Delay Certificates and
any Distribution Date, the one month period commencing on the 25th day of the
month preceding the month in which such Distribution Date occurs and ending on
the 24th day of the month in which such Distribution Date occurs.
Interest Determination Date: With respect to (a) any Interest
Accrual Period for any LIBOR Certificates and (b) any Interest Accrual Period
for the COFI Certificates for which the applicable Index is LIBOR, the second
Business Day prior to the first day of such Interest Accrual Period.
Last Scheduled Distribution Date: The Distribution Date in the
month immediately following the month of the latest scheduled maturity date for
any of the Mortgage Loans.
Latest Possible Maturity Date: The Distribution Date following
the third anniversary of the scheduled maturity date of the Mortgage Loan having
the latest scheduled maturity date as of the Cut-off Date.
LIBOR: The London interbank offered rate for one-month United
States dollar deposits calculated in the manner described in Section 4.08.
LIBOR Certificates: As specified in the Preliminary Statement.
Liquidated Mortgage Loan: With respect to any Distribution
Date, a defaulted Mortgage Loan (including any REO Property) which was
liquidated in the calendar month preceding the month of such Distribution Date
and as to which the Master Servicer has certified (in accordance with this
Agreement) that it has received all amounts it expects to receive in connection
with the liquidation of such Mortgage Loan including the final disposition of an
REO Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds,
received in connection with the partial or complete liquidation of defaulted
Mortgage Loans, whether through trustee's sale, foreclosure sale or otherwise or
amounts received in connection with any condemnation or partial release of a
Mortgaged Property and any other proceeds received in connection with an REO
Property, less the sum of related unreimbursed Master Servicing Fees, Servicing
Advances and Advances.
Loan-to-Value Ratio: With respect to any Mortgage Loan and as
to any date of determination, the fraction (expressed as a percentage) the
numerator of which is the principal balance of the related Mortgage Loan at such
date of determination and the denominator of which is the Appraised Value of the
related Mortgaged Property.
Lost Mortgage Note: Any Mortgage Note the original of which
was permanently lost or destroyed and has not been replaced.
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Maintenance: With respect to any Cooperative Unit, the rent
paid by the Mortgagor to the Cooperative Corporation pursuant to the Proprietary
Lease.
Majority in Interest: As to any Class of Regular Certificates,
the Holders of Certificates of such Class evidencing, in the aggregate, at least
51% of the Percentage Interests evidenced by all Certificates of such Class.
Master Servicer: [IndyMac, Inc.], a Delaware corporation, and
its successors and assigns, in its capacity as master servicer hereunder.
Master Servicer Advance Date: As to any Distribution Date,
12:30 p.m. Pacific time on the Business Day immediately preceding such
Distribution Date.
Master Servicing Fee: As to each Mortgage Loan and any
Distribution Date, an amount equal to one month's interest at the related Master
Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan or, in
the event of any payment of interest which accompanies a Principal Prepayment in
Full, interest at the Master Servicing Fee Rate on the Stated Principal Balance
of such Mortgage Loan for the period covered by such payment of interest,
subject to reduction as provided in Section 3.17.
Master Servicing Fee Rate: With respect to each Mortgage Loan,
[ ]% per annum.
Modified Mortgage Loan: Any Mortgage Loan which the Master
Servicer has modified pursuant to Section 3.14(c).
Monthly Statement: The statement delivered to the
Certificateholders pursuant to Section 4.06.
Moody's: Moody's Investors Service, Inc., or any successor
thereto. If Moody's is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to Moody's
shall be Moody's Investors Service, Inc., 99 Church Street, New York, New York
10007, Attention: Residential Pass-Through Monitoring, or such other address as
Moody's may hereafter furnish to the Depositor or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple or leasehold interest in real
property securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loans: Such of the mortgage loans transferred and
assigned to the Trustee pursuant to the provisions hereof as from time to time
are held as a part of the Trust Fund (including any REO Property), the mortgage
loans so held being identified in the Mortgage Loan Schedule, notwithstanding
foreclosure or other acquisition of title of the related Mortgaged Property.
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Mortgage Loan Schedule: The list of Mortgage Loans (as from
time to time amended by the Master Servicer to reflect the addition of
Substitute Mortgage Loans and the deletion of Deleted Mortgage Loans pursuant to
the provisions of this Agreement) transferred to the Trustee as part of the
Trust Fund and from time to time subject to this Agreement, attached hereto as
Schedule I, setting forth the following information with respect to each
Mortgage Loan:
(i) the loan number;
(ii) the Mortgagor's name and the street address of the
Mortgaged Property, including the zip code;
(iii) the maturity date;
(iv) the original principal balance;
(v) the Cut-off Date Principal Balance;
(vi) the first payment date of the Mortgage Loan;
(vii) the Scheduled Payment in effect as of the Cut-off Date;
(viii) the Loan-to-Value Ratio at origination;
(ix) a code indicating whether the residential dwelling at the
time of origination was represented to be owner-occupied;
(x) a code indicating whether the residential dwelling is
either (a) a detached single family dwelling, (b) a dwelling in a PUD,
(c) a condominium unit, (d) a two- to four-unit residential property,
or (e) a Cooperative Unit;
(xi) the Mortgage Rate;
(xii) the Servicing Fee Rate and the Master Servicing Fee Rate;
(xiii) the purpose for the Mortgage Loan; and
(xiv) the type of documentation program pursuant to which the
Mortgage Loan was originated.
Such schedule shall also set forth the total of the amounts described under (v)
above for all of the Mortgage Loans.
Mortgage Note: The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
Mortgage Rate: The annual rate of interest borne by a Mortgage
Note from time to time.
Mortgaged Property: The underlying property securing a
Mortgage Loan, which, with respect to a Cooperative Loan, is the related
Cooperative Shares and Proprietary Lease.
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<PAGE>
Mortgagor: The obligor(s) on a Mortgage Note.
Net Prepayment Interest Shortfalls: As to any Distribution
Date, the amount by which the aggregate of Prepayment Interest Shortfalls during
the related Prepayment Period exceeds an amount equal to the aggregate Master
Servicing Fee for such Distribution Date before reduction of the Master
Servicing Fee in respect of such Prepayment Interest Shortfalls.
Non-Delay Certificates: As specified in the Preliminary
Statement.
Non-Discount Mortgage Loan: Any Mortgage Loan with an Adjusted
Net Mortgage Rate that is greater than or equal to the Required Coupon.
Non-PO Formula Principal Amount: As to any Distribution Date,
the sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Distribution Date, (b) the
principal portion of the purchase price of each Mortgage Loan that was
repurchased by the Seller pursuant to this Agreement as of such Distribution
Date, (c) the Substitution Adjustment Amount in connection with any Deleted
Mortgage Loan received with respect to such Distribution Date, (d) any Insurance
Proceeds or Liquidation Proceeds allocable to recoveries of principal of
Mortgage Loans that are not yet Liquidated Mortgage Loans received during the
calendar month preceding the month of such Distribution Date, (e) with respect
to each Mortgage Loan that became a Liquidated Mortgage Loan during the calendar
month preceding the month of such Distribution Date, the amount of Liquidation
Proceeds allocable to principal received with respect to such Mortgage Loan, and
(f) all partial and full Principal Prepayments received during the related
Prepayment Period.
Non-PO Percentage: As to any Discount Mortgage Loan, a
fraction (expressed as a percentage) the numerator of which is the Adjusted Net
Mortgage Rate of such Discount Mortgage Loan and the denominator of which is the
Required Coupon. As to any Non-Discount Mortgage Loan, 100%.
Nonrecoverable Advance: Any portion of an Advance or Servicer
Advance previously made or proposed to be made by the Master Servicer or the
related Servicer, as the case may be, that, in the good faith judgment of the
Master Servicer or such Servicer, will not be ultimately recoverable by the
Master Servicer from the related Mortgagor, related Liquidation Proceeds or
otherwise.
Notice of Final Distribution: The notice to be provided
pursuant to Section 9.02 to the effect that final distribution on any of the
Certificates shall be made only upon presentation and surrender thereof.
Notional Amount: With respect to the Class X Certificates and
any Distribution Date, the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans as of the Due Date in the month preceding the month
of such Distribution Date. With respect to the Class [ ] Certificates and any
Distribution Date, the Class Certificate Balance of the Class [ ] Certificates.
Notional Amount Certificates: As specified in the Preliminary
Statement.
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Offered Certificates: As specified in the Preliminary
Statement.
Officer's Certificate: A certificate (i) signed by the
Chairman of the Board, the Vice Chairman of the Board, the President, a Managing
Director, a Vice President (however denominated), an Assistant Vice President,
the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii) if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be
counsel for the Depositor or the Master Servicer, including in-house counsel,
reasonably acceptable to the Trustee; provided, however, that with respect to
the interpretation or application of the REMIC Provisions, such counsel must (i)
in fact be independent of the Depositor and the Master Servicer, (ii) not have
any direct financial interest in the Depositor or the Master Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
Optional Termination: The termination of the trust created
hereunder in connection with the purchase of the Mortgage Loans pursuant to
Section 9.01(a).
Original Applicable Credit Support Percentage: With respect to
each of the following Classes of Subordinated Certificates, the corresponding
percentage described below, as of the Closing Date:
<TABLE>
<S> <C>
Class B-1 %
Class B-2 %
Class B-3 %
Class B-4 %
Class B-5 %
Class B-6 %
</TABLE>
Original Mortgage Loan: The Mortgage Loan refinanced in
connection with the origination of a Refinancing Mortgage Loan.
Original Subordinated Principal Balance: The aggregate of the
Class Certificate Balances of the Subordinated Certificates as of the Closing
Date.
OTS: The Office of Thrift Supervision.
Outside Reference Date: As to any Interest Accrual Period for
the COFI Certificates, the close of business on the tenth day thereof.
Outstanding: With respect to the Certificates as of any date
of determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or
delivered to the Trustee for cancellation; and
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<PAGE>
(ii) Certificates in exchange for which or in lieu of which
other Certificates have been executed and delivered by the Trustee
pursuant to this Agreement.
Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan
with a Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.
Ownership Interest: As to any Residual Certificate, any
ownership interest in such Certificate including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial.
Pass-Through Rate: For any interest-bearing Class of
Certificates, the per annum rate set forth or calculated in the manner described
in the Preliminary Statement.
Percentage Interest: As to any Certificate, the percentage
interest evidenced thereby in distributions required to be made on the related
Class, such percentage interest being set forth on the face thereof or equal to
the percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.
Permitted Investments: At any time, any one or more of the
following obligations and securities:
(i) obligations of the United States or any agency thereof,
provided that such obligations are backed by the full faith and credit
of the United States;
(ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the
highest long-term debt rating of each Rating Agency, or such lower
rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Certificates by the Rating Agencies, as
evidenced by a signed writing delivered by each Rating Agency;
(iii) commercial or finance company paper which is then
receiving the highest commercial or finance company paper rating of
each Rating Agency, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the
Certificates by the Rating Agencies, as evidenced by a signed writing
delivered by each Rating Agency;
(iv) certificates of deposit, demand or time deposits, or
bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any
state thereof and subject to supervision and examination by federal
and/or state banking authorities, provided that the commercial paper
and/or long-term unsecured debt obligations of such depository
institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company,
but only if Moody's is not a Rating Agency) are then rated one of the
two highest long-term and the highest short-term ratings of each Rating
Agency for such securities, or such lower
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<PAGE>
ratings as will not result in the downgrading or withdrawal of the
ratings then assigned to the Certificates by the Rating Agencies, as
evidenced by a signed writing delivered by each Rating Agency;
(v) demand or time deposits or certificates of deposit issued
by any bank or trust company or savings institution to the extent that
such deposits are fully insured by the FDIC;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation acceptable to the Rating
Agencies at the time of the issuance of such agreements, as evidenced
by a signed writing delivered by each Rating Agency;
(vii) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into
with a depository institution or trust company (acting as principal)
described in clause (iv) above;
(viii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of [ ]% of the face
amount thereof) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any
state thereof which, at the time of such investment, have one of the
two highest ratings of each Rating Agency (except if the Rating Agency
is Moody's such rating shall be the highest commercial paper rating of
Moody's for any such securities), or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to
the Certificates by the Rating Agencies, as evidenced by a signed
writing delivered by each Rating Agency;
(ix) units of a taxable money-market portfolio having the
highest rating assigned by each Rating Agency (except (i) if Fitch or
Duff & Phelps is a Rating Agency and has not rated the portfolio, the
highest rating assigned by Moody's and (ii) if S&P is a Rating Agency,
"AAAm-G" by S&P) and restricted to obligations issued or guaranteed by
the United States of America or entities whose obligations are backed
by the full faith and credit of the United States of America and
repurchase agreements collateralized by such obligations; and
(x) such other investments bearing interest or sold at a
discount acceptable to each Rating Agency as will not result in the
downgrading or withdrawal of the ratings then assigned to the
Certificates by the Rating Agencies, as evidenced by a signed writing
delivered by each Rating Agency;
provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.
Permitted Transferee: Any person other than (i) the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (ii) a foreign government,
International Organization or any agency or instrumentality of either of the
foregoing, (iii) an organization (except certain farmers' cooperatives described
in section 521 of the Code) which is exempt from tax imposed by Chapter 1 of the
Code (including the tax
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<PAGE>
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(1) of the Code) with respect to
any Residual Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust whose income from sources
without the United States is includible in gross income for federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States unless such Person has furnished the transferor and the
Trustee with a duly completed Internal Revenue Service Form 4224, and (vi) any
other Person so designated by the Depositor based upon an Opinion of Counsel
that the Transfer of an Ownership Interest in a Residual Certificate to such
Person may cause the REMIC hereunder to fail to qualify as a REMIC at any time
that the Certificates are outstanding. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in section 7701
of the Code or successor provisions. A corporation will not be treated as an
instrumentality of the United States or of any State or political subdivision
thereof for these purposes if all of its activities are subject to tax and, with
the exception of the Federal Home Loan Mortgage Corporation, a majority of its
board of directors is not selected by such government unit.
Person: Any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization or government, or any agency or political
subdivision thereof.
Physical Certificates: As specified in the Preliminary
Statement.
Planned Balance: Not applicable.
Planned Principal Classes: As specified in the Preliminary
Statement.
PO Formula Principal Amount: As to any Distribution Date, the
sum of the applicable PO Percentage of (a) the principal portion of each
Scheduled Payment (without giving effect, prior to the Bankruptcy Coverage
Termination Date, to any reductions thereof caused by any Debt Service
Reductions or Deficient Valuations) due on each Mortgage Loan on the related Due
Date, (b) the Stated Principal Balance of each Mortgage Loan that was
repurchased by the Seller or the Master Servicer pursuant to this Agreement as
of such Distribution Date, (c) the Substitution Adjustment Amount in connection
with any Deleted Mortgage Loan received with respect to such Distribution Date,
(d) any Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans received
during the calendar month preceding the month of such Distribution Date, (e)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the amount of
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan during the calendar month preceding the month of such Distribution
Date with respect to such Mortgage Loan and (f) all partial and full Principal
Prepayments on Mortgage Loans received during the related Prepayment Period;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is sustained
with respect to a Discount Mortgage Loan that is not a Liquidated Mortgage Loan,
the PO Formula Principal Amount will be reduced on the related Distribution Date
by the applicable PO Percentage of the principal portion of such Bankruptcy
Loss.
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Pool Stated Principal Balance: As to any Distribution Date,
the aggregate of the Stated Principal Balances of the Mortgage Loans which were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
PO Percentage: As to any Discount Mortgage Loan, a fraction
(expressed as a percentage) the numerator of which is the excess of the Required
Coupon over the Adjusted Net Mortgage Rate of such Discount Mortgage Loan and
the denominator of which is the Required Coupon. As to any Non-Discount Mortgage
Loan, 0%.
Prepayment Interest Shortfall: As to any Distribution Date,
Mortgage Loan and Principal Prepayment, the amount, if any, by which one month's
interest at the related Mortgage Rate (net of the related Master Servicing Fee)
on such Principal Prepayment exceeds the amount of interest paid in connection
with such Principal Prepayment.
Prepayment Period: As to any Distribution Date, the calendar
month preceding the month of such Distribution Date.
Primary Insurance Policy: Each policy of primary mortgage
guaranty insurance or any replacement policy therefor with respect to any
Mortgage Loan.
Principal Only Certificates: As specified in the Preliminary
Statement.
Principal Prepayment: Any payment of principal on a Mortgage
Loan (including the Purchase Price of any Modified Mortgage Loan purchased
pursuant to Section 3.14(c)) that is received in advance of its scheduled Due
Date and is not accompanied by an amount representing scheduled interest due on
any date or dates in any month or months subsequent to the month of prepayment.
Partial Principal Prepayments shall be applied by the Master Servicer in
accordance with the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by
a Mortgagor or made pursuant to Section 3.14(c) of the entire principal balance
of a Mortgage Loan.
Private Certificates: As specified in the Preliminary
Statement.
Pro Rata Share: As to any Distribution Date, the Subordinated
Principal Distribution Amount and any Class of Subordinated Certificates, the
portion of the Subordinated Principal Distribution Amount allocable to such
Class, equal to the product of the Subordinated Principal Distribution Amount on
such Distribution Date and a fraction, the numerator of which is the related
Class Certificate Balance thereof and the denominator of which is the aggregate
of the Class Certificate Balances of the Subordinated Certificates.
Proprietary Lease: With respect to any Cooperative Unit, a
lease or occupancy agreement between a Cooperative Corporation and a holder of
related Cooperative Shares.
Prospectus Supplement: The Prospectus Supplement dated
[ ] relating to the Offered Certificates.
PUD: Planned Unit Development.
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<PAGE>
Purchase Price: With respect to any Modified Mortgage Loan or
any Mortgage Loan required to be purchased by the Seller pursuant to Section
2.02 or 2.03 or purchased at the option of the Master Servicer pursuant to
Section 3.14(b), an amount equal to the sum of (i) 100% of the unpaid principal
balance of the Mortgage Loan on the date of such purchase, and (ii) accrued
interest thereon at the applicable Mortgage Rate (or at the applicable Adjusted
Mortgage Rate if (x) the purchaser is the Master Servicer or (y) if the
purchaser is the Seller and the Seller is the Master Servicer) from the date
through which interest was last paid by the Mortgagor to the Due Date in the
month in which the Purchase Price is to be distributed to Certificateholders;
provided, however, that if such Mortgage Loan is a Modified Mortgage Loan, the
interest component of the Purchase Price shall be computed (i) on the basis of
the applicable Adjusted Mortgage Rate before giving effect to the related
modification and (ii) from the date to which interest was last paid to the date
on which such Modified Mortgage Loan is assigned to the Master Servicer pursuant
to Section 3.14(c).
Qualified Insurer: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as a
FNMA- or FHLMC-approved mortgage insurer or having a claims paying ability
rating of at least "AA" or equivalent rating by a nationally recognized
statistical rating organization. Any replacement insurer with respect to a
Mortgage Loan must have at least as high a claims paying ability rating as the
insurer it replaces had on the Closing Date.
Rating Agency: Each of the Rating Agencies specified in the
Preliminary Statement. If either such organization or a successor is no longer
in existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, as is designated by the
Depositor, notice of which designation shall be given to the Trustee. References
herein to a given rating or rating category of a Rating Agency shall mean such
rating category without giving effect to any modifiers.
Realized Loss: With respect to each Liquidated Mortgage Loan,
an amount (not less than zero or more than the Stated Principal Balance of the
Mortgage Loan) as of the date of such liquidation, equal to (i) the Stated
Principal Balance of the Liquidated Mortgage Loan as of the date of such
liquidation, plus (ii) interest at the Adjusted Net Mortgage Rate from the Due
Date as to which interest was last paid or advanced (and not reimbursed) to
Certificateholders up to the Due Date in the month in which Liquidation Proceeds
are required to be distributed on the Stated Principal Balance of such
Liquidated Mortgage Loan from time to time, minus (iii) the Liquidation
Proceeds, if any, received during the month in which such liquidation occurred,
to the extent applied as recoveries of interest at the Adjusted Net Mortgage
Rate and to principal of the Liquidated Mortgage Loan. With respect to each
Mortgage Loan which has become the subject of a Deficient Valuation, if the
principal amount due under the related Mortgage Note has been reduced, the
difference between the principal balance of the Mortgage Loan outstanding
immediately prior to such Deficient Valuation and the principal balance of the
Mortgage Loan as reduced by the Deficient Valuation. With respect to each
Mortgage Loan which has become the subject of a Debt Service Reduction and any
Distribution Date, the amount, if any, by which the principal portion of the
related Scheduled Payment has been reduced.
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Recognition Agreement: With respect to any Cooperative Loan,
an agreement between the Cooperative Corporation and the originator of such
Mortgage Loan which establishes the rights of such originator in the Cooperative
Property.
Record Date: With respect to any Distribution Date, the close
of business on the last Business Day of the month preceding the month in which
such applicable Distribution Date occurs.
Reference Bank: As defined in Section 4.08.
Refinancing Mortgage Loan: Any Mortgage Loan originated in
connection with the refinancing of an existing mortgage loan.
Regular Certificates: As specified in the Preliminary
Statement.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
Relief Act Reductions: With respect to any Distribution Date
and any Mortgage Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended calendar month as a
result of the application of the Relief Act, the amount, if any, by which (i)
interest collectible on such Mortgage Loan for the most recently ended calendar
month is less than (ii) interest accrued thereon for such month pursuant to the
Mortgage Note.
REMIC: A "real estate mortgage investment conduit" within the
meaning of section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final
regulation, revenue ruling, revenue procedure or other official announcement or
interpretation relating to REMICs and the REMIC Provisions issued after the
Closing Date.
REMIC Provisions: Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations promulgated thereunder, as the foregoing may be in
effect from time to time as well as provisions of applicable state laws.
REO Property: A Mortgaged Property acquired by the Trust Fund
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
Request for Release: The Request for Release submitted by the
Master Servicer to the Trustee, substantially in the form of Exhibits M and N,
as appropriate.
Required Coupon: [ ]% per annum.
Required Insurance Policy: With respect to any Mortgage Loan,
any insurance policy that is required to be maintained from time to time under
this Agreement.
Residual Certificates: As specified in the Preliminary
Statement.
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Responsible Officer: When used with respect to the Trustee,
any Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, any Trust Officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also to whom, with respect to a particular matter, such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
Restricted Classes: As defined in Section 4.02(e).
SAIF: The Savings Association Insurance Fund, or any successor
thereto.
S&P: Standard & Poor's, a division of The McGraw-Hill
Companies Inc. If S&P is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to S&P shall
be Standard & Poor's, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Depositor and the Master Servicer.
Scheduled Balances: Not applicable.
Scheduled Classes: As specified in the Preliminary Statement.
Scheduled Payment: The scheduled monthly payment on a Mortgage
Loan due on any Due Date allocable to principal and/or interest on such Mortgage
Loan which, unless otherwise specified herein, shall give effect to any related
Debt Service Reduction and any Deficient Valuation that affects the amount of
the monthly payment due on such Mortgage Loan.
Securities Act: The Securities Act of 1933, as amended.
Security Agreement: With respect to any Cooperative Loan, the
agreement between the owner of the related Cooperative Shares and the originator
of the related Mortgage Note, which defines the terms of the security interest
in such Cooperative Shares and the related Proprietary Lease.
Seller: [IndyMac, Inc.], a Delaware corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans to the
Depositor.
Seller/Servicer Guide: The Seller/Servicer Guide for [IndyMac,
Inc.]'s mortgage loan purchase and conduit servicing program and all amendments
and supplements thereto.
Senior Certificates: As specified in the Preliminary
Statement.
Senior Credit Support Depletion Date: The date on which the
Class Certificate Balance of each Class of Subordinated Certificates has been
reduced to zero.
Senior Depletion Date: The Distribution Date on which the
Class Certificate Balance of the Senior Certificates has been reduced to zero.
Senior Percentage: As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class
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of Senior Certificates (other than the Class PO Certificates) as of such date
and the denominator of which is the aggregate of the Class Certificate Balances
of all Classes of Certificates (other than the Class PO Certificates) as of such
date.
Senior Prepayment Percentage: As to any Distribution Date
during the five years beginning on the first Distribution Date, 100%. The Senior
Prepayment Percentage for any Distribution Date occurring on or after the fifth
anniversary of the first Distribution Date will, except as provided herein, be
as follows: for any Distribution Date in the first year thereafter, the Senior
Percentage plus 70% of the Subordinated Percentage for such Distribution Date;
for any Distribution Date in the second year thereafter, the Senior Percentage
plus 60% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the Subordinated Percentage for such Distribution Date; for any Distribution
Date in the fourth year thereafter, the Senior Percentage plus 20% of the
Subordinated Percentage for such Distribution Date; and for any Distribution
Date thereafter, the Senior Percentage for such Distribution Date (unless on any
of the foregoing Distribution Dates the Senior Percentage exceeds the initial
Senior Percentage, in which case such Senior Prepayment Percentage for such
Distribution Date will once again equal 100%). Notwithstanding the foregoing, no
decrease in the Senior Prepayment Percentage will occur if, as of the first
Distribution Date as to which any such decrease applies more than an average of
2% of the dollar amount of all monthly payments on the Mortgage Loans in the
Mortgage Pool, due in each of the preceding twelve months were delinquent 60
days or more (including for this purpose any such Mortgage Loans in foreclosure
and Mortgage Loans with respect to which the related Mortgaged Property has been
acquired by the Trust Fund) or (ii) cumulative Realized Losses with respect to
the Mortgage Loans in the Mortgage Pool, exceed (a) with respect to the
Distribution Date on the fifth anniversary of the first Distribution Date, 30%
of the Original Subordinated Principal Balance, (b) with respect to the
Distribution Date on the sixth anniversary of the first Distribution Date, 35%
of the Original Subordinated Principal Balance, (c) with respect to the
Distribution Date on the seventh anniversary of the first Distribution Date, 40%
of the Original Subordinated Principal Balance, (d) with respect to the
Distribution Date on the eighth anniversary of the first Distribution Date, 45%
of the Original Subordinated Principal Balance and (e) with respect to the
Distribution Date on the ninth anniversary of the first Distribution Date, 50%
of the Original Subordinated Principal Balance.
Senior Principal Distribution Amount: As to any Distribution
Date, the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage, or
(B) if an Excess Loss was sustained with respect to such Liquidated Mortgage
Loan during such prior calendar month, the Senior Percentage, of the applicable
Non-PO Percentage of the amount of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of the amounts
described in clause (f) of the definition of "Non-PO Formula Principal Amount"
for such Distribution Date; provided, however that if a Bankruptcy Loss that is
an Excess Loss is sustained with respect to a Mortgage Loan that is not a
Liquidated Mortgage Loan, the Senior Principal Distribution
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Amount will be reduced on the related Distribution Date by the Senior Percentage
of the applicable Non-PO Percentage of the principal portion of such Bankruptcy
Loss.
Servicer: Any person with which the Master Servicer has
entered into a Servicing Agreement for the servicing of all or a portion of the
Mortgage Loans pursuant to Section 3.02.
Servicer Advance: The meaning ascribed to such term in Section
3.08(d).
Servicing Account: The separate Eligible Account or Accounts
created and maintained pursuant to Section 3.08(b).
Servicing Advances: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in the performance by the Master
Servicer of its servicing obligations, including, but not limited to, the cost
of (i) (a) the preservation, restoration and protection of a Mortgaged Property,
(b) expenses reimbursable to the Master Servicer pursuant to Section 3.14 and
any enforcement or judicial proceedings, including foreclosures, (c) the
management and liquidation of any REO Property and (d) compliance with the
obligations under Section 3.12; and (ii) reasonable compensation to the Master
Servicer or its affiliates for acting as broker in connection with the sale of
foreclosed Mortgaged Properties and for performing certain default management
and other similar services (including, but not limited to, appraisal services)
in connection with the servicing of defaulted Mortgage Loans; provided, however,
that for purposes of this clause (ii), only costs and expenses incurred in
connection with the performance of activities generally considered to be outside
the scope of customary servicing or master servicing duties shall be treated as
Servicing Advances.
Servicing Agreement: The Seller/Servicer Contract as
contemplated by the Seller/Servicer Guide between the Master Servicer and any
Servicer relating to servicing and/or administration of certain Mortgage Loans
as provided in Section 3.02.
Servicing Fee: As to each Mortgage Loan and any Distribution
Date, an amount equal to one month's interest at the applicable Servicing Fee
Rate on the Stated Principal Balance of such Mortgage Loan.
Servicing Fee Rate: With respect to any Mortgage Loan, the per
annum rate set forth in the Mortgage Loan Schedule for such Mortgage Loan.
Servicing Officer: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and facsimile signature appear on a list of servicing officers
furnished to the Trustee by the Master Servicer on the Closing Date pursuant to
this Agreement, as such list may from time to time be amended.
Servicing Standard: That degree of skill and care exercised by
the Master Servicer with respect to mortgage loans comparable to the Mortgage
Loans serviced by the Master Servicer for itself or others.
Special Hazard Coverage Termination Date: The point in time at
which the Special Hazard Loss Coverage Amount is reduced to zero.
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Special Hazard Loss: Any Realized Loss suffered by a Mortgaged
Property on account of direct physical loss, but not including (i) any loss of a
type covered by a hazard insurance policy or a flood insurance policy required
to be maintained with respect to such Mortgaged Property pursuant to Section
3.10 to the extent of the amount of such loss covered thereby, or (ii) any loss
caused by or resulting from:
(a) normal wear and tear;
(b) fraud, conversion or other dishonest act on the part of
the Trustee, the Master Servicer or any of their agents or employees
(without regard to any portion of the loss not covered by any errors
and omissions policy);
(c) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues and then
only for the ensuing loss;
(d) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled or
uncontrolled, and whether such loss be direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or
aggravated by a peril covered by the definition of the term "Special
Hazard Loss";
(e) hostile or warlike action in time of peace and war,
including action in hindering, combating or defending against an
actual, impending or expected attack:
1. by any government or sovereign power, de jure or de
facto, or by any authority maintaining or using military,
naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power, authority
or forces;
(f) any weapon of war employing nuclear fission, fusion or
other radioactive force, whether in time of peace or war; or
(g) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering, combating
or defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any
government or public authority, or risks of contraband or illegal
transportation or trade.
Special Hazard Loss Coverage Amount: With respect to the first
Distribution Date, $[ ]. With respect to any Distribution Date after the
first Distribution Date, the lesser of (a) the greatest of (i) 1% of the
aggregate of the principal balances of the Mortgage Loans, (ii) twice the
principal balance of the largest Mortgage Loan and (iii) the aggregate of the
principal balances of all Mortgage Loans secured by Mortgaged Properties located
in the single California postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Coverage Amount as of the Closing Date less the amount, if any, of Special
Hazard Losses allocated to the Certificates since the Closing Date. All
principal balances for the purpose of this definition will be calculated as
of the first day of the
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calendar month preceding the month of such Distribution Date after giving effect
to Scheduled Payments on the Mortgage Loans then due, whether or not paid.
Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to
which a Special Hazard Loss has occurred.
Startup Day: The Closing Date.
Stated Principal Balance: As to any Mortgage Loan and Due
Date, the unpaid principal balance of such Mortgage Loan as of such Due Date as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any moratorium or similar
waiver or grace period) after giving effect to any previous partial Principal
Prepayments and Liquidation Proceeds allocable to principal (other than with
respect to any Liquidated Mortgage Loan) and to the payment of principal due on
such Due Date and irrespective of any delinquency in payment by the related
Mortgagor.
Subordinated Certificates: As specified in the Preliminary
Statement.
Subordinated Percentage: As to any Distribution, 100% minus
the Senior Percentage for such Distribution Date.
Subordinated Prepayment Percentage: As to any Distribution,
100% minus the Senior Prepayment Percentage for such Distribution Date.
Subordinated Principal Distribution Amount: With respect to
any Distribution Date, (A) the sum of (i) the Subordinated Percentage of the
applicable Non-PO Percentage of all amounts described in clauses (a) through (d)
of the definition of "Non-PO Formula Principal Amount", with respect to such
Mortgage Loans for such Distribution Date, (ii) with respect to each such
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan after
application of such amounts pursuant to clause (ii) of the definition of Senior
Principal Distribution Amount and (iii) the Subordinated Prepayment Percentage
of the applicable Non-PO Percentage of amounts described in clause (f) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date,
reduced by (B) the amount of any payments in respect of Class PO Deferred
Amounts to the Class PO Certificates on such Distribution Date. Any such payment
in respect of Class PO Deferred Amounts will be deducted first from the amounts
described in clauses (i) and (ii) above and then from clause (iii) above.
Subservicer: Any Person to which the Master Servicer has
contracted for the servicing of all or a portion of the Mortgage Loans pursuant
to Section 3.02.
Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a Deleted Mortgage Loan which must, on the date of such substitution,
as confirmed in a Request for Release, substantially in the form of Exhibit M,
(i) have a Stated Principal Balance, after deduction of the principal portion of
the Scheduled Payment due in the month of substitution, not in excess of, and
not more than 10% less than, the Stated Principal Balance of the Deleted
Mortgage Loan; (ii) be accruing interest (net of the related Servicing Fee) at a
rate no lower than
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and not more than 1% per annum higher than, that of the Deleted Mortgage Loan;
(iii) have a Loan-to-Value Ratio no higher than that of the Deleted Mortgage
Loan; (iv) have a remaining term to maturity no greater than (and not more than
one year less than that of) the Deleted Mortgage Loan; (v) not be a Cooperative
Loan unless the Deleted Mortgage Loan was a Cooperative Loan and (vi) comply
with each representation and warranty set forth in Section 2.03.
Substitution Adjustment Amount: The meaning ascribed to such
term pursuant to Section 2.03.
Targeted Balance: Not applicable.
Targeted Principal Classes: As specified in the Preliminary
Statement.
Tax Matters Person: The person designated as "tax matters
person" in the manner provided under Treasury regulation 'SS' 1.860F-4(d) and
temporary Treasury regulation 'SS' 301.6231(a)(7)-1T. Initially, the Tax Matters
Person shall be the Trustee.
Tax Matters Person Certificate: The Class A-R Certificate with
a Denomination of $0.05.
Transfer: Any direct or indirect transfer or sale of any
Ownership Interest in a Residual Certificate.
Trust Fund: The corpus of the trust created hereunder
consisting of (i) the Mortgage Loans and all interest and principal received on
or with respect thereto after the Cut-off Date, other than such amounts which
were due on the Mortgage Loans on or before the Cut-off Date; (ii) the
Certificate Account and the Distribution Account and all amounts deposited
therein pursuant to the applicable provisions of this Agreement; (iii) property
that secured a Mortgage Loan and has been acquired by foreclosure, deed-in-lieu
of foreclosure or otherwise; and (iv) all proceeds of the conversion, voluntary
or involuntary, of any of the foregoing.
Trustee: [The Bank of New York] and its successors and, if a
successor trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date, an amount equal to
[ ] of the Trustee Fee Rate multiplied by the Pool Stated Principal
Balance with respect to such Distribution Date.
Trustee Fee Rate: With respect to each Mortgage Loan, the per
annum rate agreed upon in writing on or prior to the Closing Date by the Trustee
and the Depositor.
Voting Rights: The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. As of any date of
determination, (a) 1% of all Voting Rights shall be allocated to each Class of
Notional Amount Certificates, if any (such Voting Rights to be allocated among
the holders of Certificates of each such Class in accordance with their
respective Percentage Interests), and (b) the remaining Voting Rights (or 100%
of the Voting Rights if there is no Class of Notional Amount Certificates) shall
be allocated among Holders of
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the remaining Classes of Certificates in proportion to the Certificate Balances
of their respective Certificates on such date.
Withdrawal Date: The [ ] day of each month, or if such day
is not a Business Day, the next preceding Business Day.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
Section 2.01. Conveyance of Mortgage Loans.
(a) The Seller, concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the
Depositor, without recourse, all the right, title and interest of the Seller in
and to the Mortgage Loans, including all interest and principal received or
receivable by the Seller on or with respect to the Mortgage Loans after the
Cut-off Date and all interest and principal payments on the Mortgage Loans
received prior to the Cut-off Date in respect of installments of interest and
principal due thereafter, but not including payments of principal and interest
due and payable on the Mortgage Loans on or before the Cut-off Date. On or prior
to the Closing Date, the Seller shall deliver to the Depositor or, at the
Depositor's direction, to the Trustee or other designee of the Depositor, the
Mortgage File for each Mortgage Loan listed in the Mortgage Loan Schedule. Such
delivery of the Mortgage Files shall be made against payment by the Depositor of
the purchase price, previously agreed to by the Seller and Depositor, for the
Mortgage Loans. With respect to any Mortgage Loan that does not have a first
payment date on or before the Due Date in the month of the first Distribution
Date, the Seller shall deposit into the Distribution Account on the first
Distribution Account Deposit Date an amount equal to one month's interest at the
related Adjusted Net Mortgage Rate on the Cut-off Date Principal Balance of such
Mortgage Loan. If the Seller shall fail to deposit such amount by the first
Distribution Account Deposit Date, the Trustee shall deposit such amount.
(b) The Depositor, concurrently with the execution and
delivery hereof, hereby sells, transfers, assigns, sets over and otherwise
conveys to the Trustee for the benefit of the Certificateholders, without
recourse, all the right, title and interest of the Depositor in and to the Trust
Fund, together with the Depositor's right to require the Seller to cure any
breach of a representation or warranty made herein by the Seller or to
repurchase or substitute for any affected Mortgage Loan in accordance herewith.
(c) In connection with the transfer and assignment set forth
in clause (b) above, the Depositor has delivered or caused to be delivered to
the Trustee for the benefit of the Certificateholders the following documents or
instruments with respect to each Mortgage Loan so assigned:
(i) (A) the original Mortgage Note, endorsed by
manual or facsimile signature in blank in the following form:
"Pay to the order of _________________ without recourse", with
all intervening endorsements showing a complete chain of
endorsement from the originator to the Person endorsing the
Mortgage Note (each such endorsement being sufficient to
transfer all right, title and interest of the party so
endorsing, as noteholder or assignee thereof, in and to that
Mortgage Note); or
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(B) with respect to any Lost Mortgage Note,
a lost note affidavit from the Seller stating that the
original Mortgage Note was lost or destroyed, together with a
copy of such Mortgage Note;
(ii) except as provided below, the original recorded Mortgage
or a copy of such Mortgage certified by the Seller (or, in the case of a
Mortgage for which the related Mortgaged Property is located in the Commonwealth
of Puerto Rico, a copy of such Mortgage certified by the applicable notary) as
being a true and complete copy of the Mortgage;
(iii) a duly executed assignment of the Mortgage (which may be
included in a blanket assignment or assignments), together with, except as
provided below, all interim recorded assignments of such mortgage (each such
assignment, when duly and validly completed, to be in recordable form and
sufficient to effect the assignment of and transfer to the assignee thereof,
under the Mortgage to which the assignment relates); provided that, if the
related Mortgage has not been returned from the applicable public recording
office, such assignment of the Mortgage may exclude the information to be
provided by the recording office; provided, further that such assignment of
Mortgage need not be delivered in the case of a Mortgage for which the related
Mortgage Property is located in the Commonwealth of Puerto Rico.
(iv) the original or copies of each assumption, modification,
written assurance or substitution agreement, if any;
(v) except as provided below, the original or duplicate
original lender's title policy and all riders thereto; and
(vi) in the case of a Cooperative Loan, the originals of the
following documents or instruments:
(A) The Cooperative Shares, together with a stock power
in blank;
(B) The executed Security Agreement;
(C) The executed Proprietary Lease;
(D) The executed Recognition Agreement;
(E) The executed assignment of Recognition Agreement;
(F) The executed UCC-1 financing statement with evidence
of recording thereon which have been filed in all places required to perfect the
Seller's interest in the Cooperative Shares and the Proprietary Lease; and
(G) Executed UCC-3 financing statements or other
appropriate UCC financing statements required by state law, evidencing a
complete and unbroken line from the mortgagee to the Trustee with evidence of
recording thereon (or in a form suitable for recordation).
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In the event that in connection with any Mortgage Loan the
Depositor cannot deliver (a) the original recorded Mortgage, (b) all interim
recorded assignments or (c) the lender's title policy (together with all riders
thereto) satisfying the requirements of clause (ii), (iii) or (v) above,
respectively, concurrently with the execution and delivery hereof because such
document or documents have not been returned from the applicable public
recording office in the case of clause (ii) or (iii) above, or because the title
policy has not been delivered to either the Master Servicer or the Depositor by
the applicable title insurer in the case of clause (v) above, the Depositor
shall promptly deliver to the Trustee, in the case of clause (ii) or (iii)
above, such original Mortgage or such interim assignment, as the case may be,
with evidence of recording indicated thereon upon receipt thereof from the
public recording office, or a copy thereof, certified, if appropriate, by the
relevant recording office, but in no event shall any such delivery of the
original Mortgage Loan and each such interim assignment or a copy thereof,
certified, if appropriate, by the relevant recording office, be made later than
one year following the Closing Date, or, in the case of clause (v) above, later
than 120 days following the Closing Date; provided, however, that in the event
the Depositor is unable to deliver by such date each Mortgage and each such
interim assignment by reason of the fact that any such documents have not been
returned by the appropriate recording office, or, in the case of each such
interim assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee as promptly as possible upon receipt thereof and, in any event, within
720 days following the Closing Date. The Depositor shall forward or cause to be
forwarded to the Trustee (a) from time to time additional original documents
evidencing an assumption or modification of a Mortgage Loan and (b) any other
documents required to be delivered by the Depositor or the Master Servicer to
the Trustee. In the event that the original Mortgage is not delivered and in
connection with the payment in full of the related Mortgage Loan the public
recording office requires the presentation of a "lost instruments affidavit and
indemnity" or any equivalent document, because only a copy of the Mortgage can
be delivered with the instrument of satisfaction or reconveyance, the Master
Servicer shall execute and deliver or cause to be executed and delivered such a
document to the public recording office. In the case where a public recording
office retains the original recorded Mortgage or in the case where a Mortgage is
lost after recordation in a public recording office, the Seller shall deliver to
the Trustee a copy of such Mortgage certified by such public recording office to
be a true and complete copy of the original recorded Mortgage.
As promptly as practicable subsequent to such transfer and
assignment, and in any event, within thirty (30) days thereafter, the Trustee
shall (i) affix the Trustee's name to each assignment of Mortgage, as the
assignee thereof, (ii) cause such assignment to be in proper form for recording
in the appropriate public office for real property records within thirty (30)
days after receipt thereof and (iii) cause to be delivered for recording in the
appropriate public office for real property records the assignments of the
Mortgages to the Trustee, except that, with respect to any assignment of a
Mortgage as to which the Trustee has not received the information required to
prepare such assignment in recordable form, the Trustee's obligation to do so
and to deliver the same for such recording shall be as soon as practicable after
receipt of such information and in any event within thirty (30) days after the
receipt thereof, and the Trustee need not cause to be recorded any assignment
which relates to a Mortgage Loan (a) the Mortgaged Property and Mortgage File
relating to which are located in California or (b) in any other jurisdiction
(including Puerto Rico) under the laws of which, as evidenced by an Opinion of
Counsel delivered by the Seller (at the Seller's expense) to the Trustee, the
recordation of such
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assignment is not necessary to protect the Trustee's and the Certificateholders'
interest in the related Mortgage Loan.
In the case of Mortgage Loans that have been prepaid in full
as of the Closing Date, the Depositor, in lieu of delivering the above documents
to the Trustee, will deposit in the Certificate Account the portion of such
payment that is required to be deposited in the Certificate Account pursuant to
Section 3.08.
(d) The Seller intends to treat the transfer of the Mortgage
Loans to the Depositor as a sale for all tax, accounting and regulatory
purposes.
Section 2.02. Acceptance by the Trustee of the Mortgage Loans.
The Trustee acknowledges receipt of the documents identified
in the Initial Certification in the form annexed hereto as Exhibit G and
declares that it holds and will hold such documents and the other documents
delivered to it constituting the Mortgage Files, and that it holds or will hold
such other assets as are included in the Trust Fund, in trust for the exclusive
use and benefit of all present and future Certificateholders. The Trustee
acknowledges that it will maintain possession of the Mortgage Notes in the State
of California, unless otherwise permitted by the Rating Agencies.
The Trustee agrees to execute and deliver on the Closing Date
to the Depositor, the Master Servicer and the Seller an Initial Certification in
the form annexed hereto as Exhibit G. Based on its review and examination, and
only as to the documents identified in such Initial Certification, the Trustee
acknowledges that such documents appear regular on their face and relate to such
Mortgage Loan. The Trustee shall be under no duty or obligation to inspect,
review or examine said documents, instruments, certificates or other papers to
determine that the same are genuine, enforceable or appropriate for the
represented purpose or that they have actually been recorded in the real estate
records or that they are other than what they purport to be on their face.
Not later than 90 days after the Closing Date, the Trustee
shall deliver to the Depositor, the Master Servicer and the Seller a Final
Certification in the form annexed hereto as Exhibit H, with any applicable
exceptions noted thereon.
If, in the course of such review, the Trustee finds any
document constituting a part of a Mortgage File which does not meet the
requirements of Section 2.01, the Trustee shall list such as an exception in the
Final Certification; provided, however, that the Trustee shall not make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) any assignment is in recordable
form or is sufficient to effect the assignment of and transfer to the assignee
thereof under the mortgage to which the assignment relates. The Seller shall
promptly correct or cure such defect within 90 days from the date it was so
notified of such defect and, if the Seller does not correct or cure such defect
within such period, the Seller shall either (a) substitute for the related
Mortgage Loan a Substitute Mortgage Loan, which substitution shall be
accomplished in the manner and subject to the conditions set forth in Section
2.03, or (b) purchase such Mortgage Loan from the Trustee within 90 days from
the date the Seller was notified of such defect in writing at the Purchase Price
of such Mortgage Loan;
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provided, however, that in no event shall such substitution or purchase occur
more than 540 days from the Closing Date, except that if the substitution or
purchase of a Mortgage Loan pursuant to this provision is required by reason of
a delay in delivery of any documents by the appropriate recording office, and
there is a dispute between either the Master Servicer or the Seller and the
Trustee over the location or status of the recorded document, then such
substitution or purchase shall occur within 720 days from the Closing Date. The
Trustee shall deliver written notice to each Rating Agency within 270 days from
the Closing Date indicating each Mortgage Loan (a) which has not been returned
by the appropriate recording office or (b) as to which there is a dispute as to
location or status of such Mortgage Loan. Such notice shall be delivered every
90 days thereafter until the related Mortgage Loan is returned to the Trustee.
Any such substitution pursuant to (a) above or purchase pursuant to (b) above
shall not be effected prior to the delivery to the Trustee of the Opinion of
Counsel required by Section 2.05, if any, and any substitution pursuant to (a)
above shall not be effected prior to the additional delivery to the Trustee of a
Request for Release substantially in the form of Exhibit N. No substitution is
permitted to be made in any calendar month after the Determination Date for such
month. The Purchase Price for any such Mortgage Loan shall be deposited by the
Seller in the Certificate Account on or prior to the Distribution Account
Deposit Date for the Distribution Date in the month following the month of
repurchase and, upon receipt of such deposit and certification with respect
thereto in the form of Exhibit N hereto, the Trustee shall release the related
Mortgage File to the Seller and shall execute and deliver at the Seller's
request such instruments of transfer or assignment prepared by the Seller, in
each case without recourse, as shall be necessary to vest in the Seller, or a
designee, the Trustee's interest in any Mortgage Loan released pursuant hereto.
The Trustee shall retain possession and custody of each
Mortgage File in accordance with and subject to the terms and conditions set
forth herein. The Master Servicer shall promptly deliver to the Trustee, upon
the execution or receipt thereof, the originals of such other documents or
instruments constituting the Mortgage File as come into the possession of the
Master Servicer from time to time.
It is understood and agreed that the obligation of the Seller
to substitute for or to purchase any Mortgage Loan which does not meet the
requirements of Section 2.01 shall constitute the sole remedy respecting such
defect available to the Trustee, the Depositor and any Certificateholder against
the Seller.
Section 2.03. Representations, Warranties and Covenants of the
Seller and the Master Servicer.
(a) [IndyMac MBS], in its capacities as Seller and Master
Servicer, hereby makes the representations and warranties set forth in Schedule
II hereto, and by this reference incorporated herein, to the Depositor and the
Trustee, as of the Closing Date, or if so specified therein, as of the Cut-off
Date.
(b) The Seller, in its capacity as Seller, hereby makes the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
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(c) Upon discovery by any of the parties hereto of a breach of
a representation or warranty made pursuant to Section 2.03(b) that materially
and adversely affects the interests of the Certificateholders in any Mortgage
Loan, the party discovering such breach shall give prompt notice thereof to the
other parties. The Seller hereby covenants that within 90 days of the earlier of
its discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.03(b) which materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
it shall cure such breach in all material respects, and if such breach is not so
cured, shall, (i) if such 90 day period expires prior to the second anniversary
of the Closing Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Trust Fund and substitute in its place a Substitute Mortgage Loan, in the
manner and subject to the conditions set forth in this Section 2.03; or (ii)
repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at the
Purchase Price in the manner set forth below; provided, however, that any such
substitution pursuant to (i) above shall not be effected prior to the delivery
to the Trustee of the Opinion of Counsel required by Section 2.05, if any, and a
Request for Release substantially in the form of Exhibit N, and the Mortgage
File for any such Substitute Mortgage Loan; and provided, further, that,
anything to the contrary herein notwithstanding, Seller shall have no obligation
to cure any such breach or to repurchase or substitute for such affected
Mortgage Loan if the substance of such breach constitutes fraud in the
origination of such affected Mortgage Loan and the Seller, at the time of such
origination and on the Closing Date, did not have actual knowledge of such
fraud. The Seller shall promptly reimburse the Master Servicer and the Trustee
for any expenses reasonably incurred by the Master Servicer or the Trustee in
respect of enforcing the remedies for such breach.
With respect to any Substitute Mortgage Loan or Loans, the
Seller shall deliver to the Trustee for the benefit of the Certificateholders
the Mortgage Note, the Mortgage, the related assignment of the Mortgage, and
such other documents and agreements as are required by Section 2.01, with the
Mortgage Note endorsed and the Mortgage assigned as required by Section 2.01. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan.
The Master Servicer shall amend the Mortgage Loan Schedule for
the benefit of the Certificateholders to reflect the removal of such Deleted
Mortgage Loan and the substitution of the Substitute Mortgage Loan or Loans and
the Master Servicer shall deliver the amended Mortgage Loan Schedule to the
Trustee. Upon such substitution, the Substitute Mortgage Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Seller shall be
deemed to have made with respect to such Substitute Mortgage Loan or Loans, as
of the date of substitution, the representations and warranties made pursuant to
Section 2.03(b) with respect to such Mortgage Loan. Upon any such substitution
and the deposit to the Certificate Account of the amount required to be
deposited therein in connection with such substitution as described in the
following paragraph, the Trustee shall release the Mortgage File held for the
benefit of the Certificateholders relating to such Deleted Mortgage Loan to the
Seller and shall execute and deliver at the Seller's direction such instruments
of transfer or assignment prepared by the Seller,
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in each case without recourse, as shall be necessary to vest title in the
Seller, or its designee, the Trustee's interest in any Deleted Mortgage Loan
substituted for pursuant to this Section 2.03.
For any month in which the Seller substitutes one or more
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (if any) by which the aggregate principal
balance of all such Substitute Mortgage Loans as of the date of substitution is
less than the aggregate Stated Principal Balance of all such Deleted Mortgage
Loans (after application of the scheduled principal portion of the monthly
payments due in the month of substitution). The amount of such shortage (the
"Substitution Adjustment Amount") plus an amount equal to the aggregate of any
unreimbursed Advances and Servicer Advances with respect to such Deleted
Mortgage Loans shall be deposited into the Certificate Account by the Seller on
or before the Distribution Account Deposit Date for the Distribution Date in the
month succeeding the calendar month during which the related Mortgage Loan
became required to be purchased or replaced hereunder.
In the event that the Seller shall have repurchased a Mortgage
Loan, the Purchase Price therefor shall be deposited in the Certificate Account
pursuant to Section 3.08 on or before the Distribution Account Deposit Date for
the Distribution Date in the month following the month during which the Seller
became obligated hereunder to repurchase or replace such Mortgage Loan and upon
such deposit of the Purchase Price, the delivery of the Opinion of Counsel
required by Section 2.05 and receipt of a Request for Release in the form of
Exhibit N hereto, the Trustee shall release the related Mortgage File held for
the benefit of the Certificateholders to such Person, and the Trustee shall
execute and deliver at such Person's direction such instruments of transfer or
assignment prepared by such Person, in each case without recourse, as shall be
necessary to transfer title from the Trustee. It is understood and agreed that
the obligation under this Agreement of any Person to cure, repurchase or replace
any Mortgage Loan as to which a breach has occurred and is continuing shall
constitute the sole remedy against such Persons respecting such breach available
to Certificateholders, the Depositor or the Trustee on their behalf.
The representations and warranties made pursuant to this
Section 2.03 shall survive delivery of the respective Mortgage Files to the
Trustee for the benefit of the Certificateholders.
Section 2.04. Representations and Warranties of the Depositor as to
the Mortgage Loans.
The Depositor hereby represents and warrants to the Trustee
with respect to each Mortgage Loan as of the date hereof or such other date set
forth herein that as of the Closing Date, and following the transfer of the
Mortgage Loans to it by the Seller, the Depositor had good title to the Mortgage
Loans and the Mortgage Notes were subject to no offsets, defenses or
counterclaims.
The Depositor hereby assigns, transfers and conveys to the
Trustee all of its rights with respect to the Mortgage Loans including, without
limitation, the representations and warranties of the Seller made pursuant to
Section 2.03(b), together with all rights of the Depositor to require the Seller
to cure any breach thereof or to repurchase or substitute for any affected
Mortgage Loan in accordance with this Agreement.
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It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trustee.
Section 2.05. Delivery of Opinion of Counsel in Connection with
Substitutions and Repurchases.
(a) Notwithstanding any contrary provision of this Agreement,
no substitution pursuant to Section 2.02 or 2.03 shall be made more than 90 days
after the Closing Date unless the Seller delivers to the Trustee an Opinion of
Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Date, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively or (ii)
cause the REMIC hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding.
(b) Upon discovery by the Depositor, the Seller, the Master
Servicer, or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the Seller, at the Seller's
option, to either (i) substitute, if the conditions in Section 2.03(c) with
respect to substitutions are satisfied, a Substitute Mortgage Loan for the
affected Mortgage Loan, or (ii) repurchase the affected Mortgage Loan within 90
days of such discovery in the same manner as it would a Mortgage Loan for a
breach of representation or warranty made pursuant to Section 2.03. The Trustee
shall reconvey to the Seller the Mortgage Loan to be released pursuant hereto in
the same manner, and on the same terms and conditions, as it would a Mortgage
Loan repurchased for breach of a representation or warranty contained in Section
2.03.
Section 2.06. Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of
the Trust Fund and, concurrently with such transfer and assignment, has executed
and delivered to or upon the order of the Depositor, the Certificates in
authorized denominations evidencing directly or indirectly the entire ownership
of the Trust Fund. The Trustee agrees to hold the Trust Fund and exercise the
rights referred to above for the benefit of all present and future Holders of
the Certificates and to perform the duties set forth in this Agreement to the
best of its ability, to the end that the interests of the Holders of the
Certificates may be adequately and effectively protected.
Section 2.07. REMIC Matters.
The Preliminary Statement sets forth the designations and
"latest possible maturity date" for federal income tax purposes of all interests
created hereby. The "Startup Day" for purposes of the REMIC Provisions shall be
the Closing Date. The "tax matters person" with respect to the REMIC hereunder
shall be the Trustee and the Trustee shall hold the Tax Matters Person
Certificate. The REMIC's fiscal year shall be the calendar year.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. Master Servicer to Service Mortgage Loans.
For and on behalf of the Certificateholders, the Master
Servicer shall service and administer the Mortgage Loans in accordance with the
terms of this Agreement and the Servicing Standard. In connection with such
servicing and administration, the Master Servicer shall have full power and
authority, acting alone and/or through Servicers as provided in Section 3.02, to
do or cause to be done any and all things that it may deem necessary or
desirable in connection with such servicing and administration, including but
not limited to, the power and authority, subject to the terms hereof, (i) to
execute and deliver, on behalf of the Certificateholders and the Trustee,
customary consents or waivers and other instruments and documents, (ii) to
consent to transfers of any Mortgaged Property and assumptions of the Mortgage
Notes and related Mortgages (but only in the manner provided in this Agreement),
(iii) to collect any Insurance Proceeds and other Liquidation Proceeds, and (iv)
to effectuate foreclosure or other conversion of the ownership of the Mortgaged
Property securing any Mortgage Loan. The Master Servicer shall not make or
permit any modification, waiver or amendment of any term of any Mortgage Loan
which would cause the REMIC to fail to qualify as a REMIC or result in the
imposition of any tax under Section 860F(a) or Section 860G(d) of the Code.
Without limiting the generality of the foregoing, the Master Servicer, in its
own name or in the name of any Servicer or the Depositor and the Trustee, is
hereby authorized and empowered by the Depositor and the Trustee, when the
Master Servicer or the Servicer, as the case may be, believes it appropriate in
its reasonable judgment, to execute and deliver, on behalf of the Trustee, the
Depositor, the Certificateholders or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Mortgage Loans, and with
respect to the Mortgaged Properties held for the benefit of the
Certificateholders. The Master Servicer shall prepare and deliver to the
Depositor and/or the Trustee such documents requiring execution and delivery by
either or both of them as are necessary or appropriate to enable the Master
Servicer to service and administer the Mortgage Loans to the extent that the
Master Servicer is not permitted to execute and deliver such documents pursuant
to the preceding sentence. Upon receipt of such documents, the Depositor and/or
the Trustee shall execute such documents and deliver them to the Master
Servicer.
In accordance with and to the extent of the Servicing
Standard, the Master Servicer shall advance or cause to be advanced funds as
necessary for the purpose of effecting the payment of taxes and assessments on
the Mortgaged Properties, which advances shall be reimbursable in the first
instance from related collections from the Mortgagors pursuant to Section 3.09,
and further as provided in Section 3.11. The costs incurred by the Master
Servicer, if any, in effecting the timely payments of taxes and assessments on
the Mortgaged Properties and related insurance premiums shall not, for the
purpose of calculating monthly distributions to the Certificateholders, be added
to the Stated Principal Balances of the related Mortgage Loans, notwithstanding
that the terms of such Mortgage Loans so permit.
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Section 3.02. Subservicing; Enforcement of the Obligations of
Servicers.
(a) The Master Servicer may arrange for the subservicing of
any Mortgage Loan by a Servicer pursuant to a Servicing Agreement; provided,
however, that such subservicing arrangement and the terms of the related
subservicing agreement must provide for the servicing of such Mortgage Loans in
a manner consistent with the servicing arrangements contemplated hereunder. Each
Servicer of a Mortgage Loan shall be entitled to receive and retain, as provided
in the related Servicing Agreement and in Section 3.17, the related Servicing
Fee from payments of interest received on such Mortgage Loan after payment of
all amounts required to be remitted to the Master Servicer in respect of such
Mortgage Loan. Unless the context otherwise requires, references in this
Agreement to actions taken or to be taken by the Master Servicer in servicing
the Mortgage Loans include actions taken or to be taken by a Servicer on behalf
of the Master Servicer. Each Servicing Agreement will be based upon such terms
and conditions as are generally required or permitted by the Seller/Servicer
Guide and are not inconsistent with this Agreement and as the Master Servicer
and the Servicer have agreed. With the approval of the Master Servicer, a
Servicer may delegate its servicing obligations to third-party servicers, but
such Servicer will remain obligated under the related Servicing Agreement. The
Master Servicer and Servicer may enter into amendments to the related Servicing
Agreement or a different form of Servicing Agreement; provided, however, that
any such amendments or different forms shall be consistent with and not violate
the provisions of either this Agreement or the Seller/Servicer Guide in a manner
which would materially and adversely affect the interests of the
Certificateholders.
(b) For purposes of this Agreement, the Master Servicer shall
be deemed to have received any collections, recoveries or payments with respect
to the Mortgage Loans that are received by a Servicer regardless of whether such
payments are remitted by the Servicer to the Master Servicer.
(c) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall use
its best reasonable efforts to enforce the obligations of each Servicer under
the related Servicing Agreement, to the extent that the non-performance of any
such obligation would have material and adverse effect on a Mortgage Loan. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, and shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement to the
extent, if any, that such recovery exceeds all amounts due in respect of the
related Mortgage Loan or (ii) from a specific recovery of costs, expenses or
attorneys fees against the party against whom such enforcement is directed.
Section 3.03. Successor Servicers.
The Master Servicer shall be entitled to terminate any
Servicing Agreement that may exist in accordance with the terms and conditions
of such Servicing Agreement and without any limitation by virtue of this
Agreement; provided, however, that in the event of termination of any Servicing
Agreement by the Master Servicer or the Servicer, the Master Servicer shall
either
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act as servicer of the related Mortgage Loan or enter into a Servicing
Agreement with a successor Servicer which will be bound by the terms of the
related Servicing Agreement. If the Master Servicer or any affiliate of the
Master Servicer acts as servicer, it will not assume liability for the
representations and warranties of the Servicer which it replaces. If the Master
Servicer enters into a Servicing Agreement with a successor Servicer, the Master
Servicer shall use reasonable efforts to have the successor Servicer assume
liability for the representations and warranties made by the terminated Servicer
in respect of the related Mortgage Loans and, in the event of any such
assumption by the successor Servicer, the Master Servicer may, in the exercise
of its business judgment, release the terminated Servicer from liability for
such representations and warranties.
Section 3.04. Liability of the Master Servicer.
Notwithstanding any Servicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer or a Servicer or references to actions taken through a Servicer or
otherwise, the Master Servicer shall remain obligated and liable to the Trustee
and Certificateholders for the servicing and administering of the Mortgage Loans
in accordance with the provisions of Section 3.01 without diminution of such
obligation or liability by virtue of such Servicing Agreements or arrangements
or by virtue of indemnification from the Servicer and to the same extent and
under the same terms and conditions as if the Master Servicer alone were
servicing and administering the Mortgage Loans. The Master Servicer shall be
entitled to enter into any agreement with a Servicer or Seller for
indemnification of the Master Servicer and nothing contained in this Agreement
shall be deemed to limit or modify such indemnification.
Section 3.05. No Contractual Relationship Between Servicers and the
Trustee.
Any Servicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Servicer in
its capacity as such and not as an originator shall be deemed to be between the
Servicer and the Master Servicer alone and the Trustee and Certificateholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Servicer in its capacity
as such except as set forth in Section 3.07.
Section 3.06. Rights of the Depositor and the Trustee in Respect of
the Master Servicer.
The Depositor may, but is not obligated to, enforce the
obligations of the Master Servicer hereunder and may, but is not obligated to,
perform, or cause a designee to perform, any defaulted obligation of the Master
Servicer hereunder and in connection with any such defaulted obligation to
exercise the related rights of the Master Servicer hereunder; provided that the
Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of such performance by the Depositor or its designee. Neither the Trustee
nor the Depositor shall have any responsibility or liability for any action or
failure to act by the Master Servicer nor shall the Trustee or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.
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Section 3.07. Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no
longer be the Master Servicer hereunder (including by reason of an Event of
Default), the Trustee or its successor shall thereupon assume all of the rights
and obligations of the Master Servicer hereunder arising thereafter (except that
the Trustee shall not be (i) liable for losses of the Master Servicer pursuant
to Section 3.12 or any acts or omissions of the predecessor Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate repurchases or substitutions of
Mortgage Loans hereunder, including but not limited to repurchases or
substitutions pursuant to Section 2.02 or 2.03, (iv) responsible for expenses of
the Master Servicer pursuant to Section 2.03 or (v) deemed to have made any
representations and warranties of the Master Servicer hereunder. Any such
assumption shall be subject to Section 7.02. If the Master Servicer shall for
any reason no longer be the Master Servicer (including by reason of any Event of
Default), the Trustee or its successor shall succeed to any rights and
obligations of the Master Servicer under each Servicing Agreement. The Trustee
or the successor servicer for the Trustee shall be deemed to have assumed all of
the Master Servicer's interest therein and to have replaced the Master Servicer
as a party to any Servicing Agreement entered into by the Master Servicer as
contemplated by Section 3.02 to the same extent as if the Servicing Agreement
had been assigned to the assuming party except that the Master Servicer shall
not be relieved of any liability or obligations under any such Servicing
Agreement.
The Master Servicer shall, upon request of the Trustee, but at
the expense of the Master Servicer, deliver to the assuming party all documents
and records relating to each Servicing Agreement or substitute servicing
agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected or held by it and otherwise use its best efforts
to effect the orderly and efficient transfer of the substitute Servicing
Agreement to the assuming party.
Section 3.08. Collection of Mortgage Loan Payments; Servicing
Accounts; Collection Account; Certificate Account;
Distribution Account.
(a) In accordance with and to the extent of the Servicing
Standard, the Master Servicer shall make reasonable efforts in accordance with
the customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Mortgage
Loans to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Required Insurance Policy. Consistent
with the foregoing, the Master Servicer may in its discretion (i) waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan and (ii) extend the due dates for payments due
on a Mortgage Note for a period not greater than 125 days; provided, however,
that the Master Servicer cannot extend the maturity of any such Mortgage Loan
past the date on which the final payment is due on the latest maturing Mortgage
Loan as of the Cut-off Date. In the event of any such arrangement, the Master
Servicer shall make Advances on the related Mortgage Loan in accordance with the
provisions of Section 4.01 during the scheduled period in accordance with the
amortization schedule of such Mortgage Loan without modification thereof by
reason of such arrangements. The Master Servicer shall not be required to
institute or join in litigation with respect to collection of any payment
(whether under a Mortgage, Mortgage Note or otherwise or against any public or
governmental authority with respect to a taking or condemnation) if it
reasonably believes that
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enforcing the provision of the Mortgage or other instrument pursuant to which
such payment is required is prohibited by applicable law.
(b) In those cases where a Servicer is servicing Mortgage
Loans pursuant to a Servicing Agreement, the Master Servicer shall cause the
Servicer, pursuant to the Servicing Agreement, to establish and maintain one or
more Servicing Accounts, each of which shall be an Eligible Account. The
Servicer will be required under its Servicing Agreement to deposit into the
Servicing Account on a daily basis no later than the Business Day following
receipt, all proceeds of Mortgage Loans received by the Servicer, less its
Servicing Fees and unreimbursed Servicer Advances and expenses, to the extent
permitted by the Servicing Agreement. The Servicer shall not be required to
deposit in the Servicing Account payments or collections in the nature of
prepayment charges or late charges.
(c) The Master Servicer shall establish and maintain a
Collection Account into which the Master Servicer shall deposit or cause to be
deposited on or before each Withdrawal Date payments, collections and Servicer
Advances remitted by Servicers in respect of the Mortgage Loans.
(d) On or before the Withdrawal Date in each calendar month,
the Master Servicer shall cause the Servicer, pursuant to the Servicing
Agreement, to remit to the Master Servicer for deposit in the Collection Account
all funds held in the Servicing Account with respect to each Mortgage Loan
serviced by such Servicer that are required to be remitted to the Master
Servicer. The Servicer will also be required, pursuant to the Servicing
Agreement, to advance on or before each such Withdrawal Date amounts equal to
any Scheduled Payments (net of its Servicing Fees with respect thereto) not
received on any Mortgage Loans by the Servicer (such amount, a "Servicer
Advance"). The Servicer's obligation to advance with respect to each Mortgage
Loan will continue up to and including the first day of the month following the
date on which the related Mortgaged Property is sold at a foreclosure sale or is
acquired by the Trust Fund by deed in lieu of foreclosure or otherwise. All such
Servicer Advances received by the Master Servicer shall be deposited promptly by
it in the Collection Account or the Certificate Account, as appropriate.
Within five Business Days after the receipt by a Servicer of a
Principal Prepayment in Full or any Liquidation Proceeds or Insurance Proceeds
(not required to be applied to the restoration or repair of the related
Mortgaged Property), the Master Servicer shall cause such Servicer, pursuant to
the related Servicing Agreement, to remit such amounts to the Master Servicer
for deposit in the Collection Account.
(e) The Master Servicer shall establish and maintain a
Certificate Account into which the Master Servicer shall deposit or cause to be
deposited on a daily basis within one Business Day of receipt, except as
otherwise specifically provided herein, the following payments and collections
remitted by Servicers or received by it in respect of Mortgage Loans subsequent
to the Cut-off Date (other than in respect of principal and interest due on the
Mortgage Loans on or before the Cut-off Date) and the following amounts required
to be deposited hereunder:
(i) all payments on account of principal on the
Mortgage Loans, including Principal Prepayments and the principal component of
any Servicer Advance;
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(ii) all payments on account of interest on the
Mortgage Loans, net of the sum of the related Master Servicing Fee and related
Servicing Fee, and the interest component of any Servicer Advance;
(iii) all Insurance Proceeds and Liquidation Proceeds
(net of any related expenses of the related Servicer), other than proceeds to be
applied to the restoration or repair of the Mortgaged Property or released to
the Mortgagor in accordance with the Master Servicer's normal servicing
procedures;
(iv) any amount required to be deposited by the
Master Servicer pursuant to Section 3.08(g) in connection with any losses on
Permitted Investments;
(v) any amounts required to be deposited by the
Master Servicer pursuant to Sections 3.12 and 3.14;
(vi) all Purchase Prices from the Master Servicer or
Seller and all Substitution Adjustment Amounts;
(vii) all Advances made by the Master Servicer
pursuant to Section 4.01; and
(viii) any other amounts required to be deposited
hereunder.
In addition, with respect to any Mortgage Loan that is subject
to a buydown agreement, on each Due Date for such Mortgage Loan, in addition to
the monthly payment remitted by the Mortgagor, the Master Servicer shall cause
funds to be deposited into the Certificate Account in an amount required to
cause an amount of interest to be paid with respect to such Mortgage Loan equal
to the amount of interest that has accrued on such Mortgage Loan from the
preceding Due Date at the Mortgage Rate net of the Master Servicing Fee on such
date.
The foregoing requirements for remittance by the Master
Servicer shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of prepayment
penalties, late payment charges or assumption fees, if collected, need not be
remitted by the Master Servicer. In the event that the Master Servicer shall
remit any amount not required to be remitted, it may at any time withdraw or
direct the institution maintaining the Certificate Account to withdraw such
amount from the Certificate Account, any provision herein to the contrary
notwithstanding. Such withdrawal or direction may be accomplished by delivering
written notice thereof to the Trustee or such other institution maintaining the
Certificate Account which describes the amounts deposited in error in the
Certificate Account. The Master Servicer shall maintain adequate records with
respect to all withdrawals made pursuant to this Section 3.08. All funds
deposited in the Certificate Account shall be held in trust for the
Certificateholders until withdrawn in accordance with Section 3.11.
(f) The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:
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(i) the aggregate amount remitted by the Master
Servicer to the Trustee pursuant to Section 3.11(a);
(ii) any amount deposited by the Master Servicer
pursuant to Section 3.08(g) in connection with any losses on Permitted
Investments; and
(iii) any other amounts deposited hereunder which are
required to be deposited in the Distribution Account.
In the event that the Master Servicer shall remit any amount
not required to be remitted, it may at any time direct the Trustee to withdraw
such amount from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.11. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Master Servicer.
(g) Each institution at which the Certificate Account or the
Distribution Account is maintained shall invest the funds therein as directed in
writing by the Master Servicer in Permitted Investments, which shall mature not
later than (i) in the case of the Certificate Account, the second Business Day
next preceding the related Distribution Account Deposit Date (except that if
such Permitted Investment is an obligation of the institution that maintains
such account, then such Permitted Investment shall mature not later than the
Business Day next preceding such Distribution Account Deposit Date) and (ii) in
the case of the Distribution Account, the Business Day next preceding the
Distribution Date (except that if such Permitted Investment is an obligation of
the institution that maintains such account, then such Permitted Investment
shall mature not later than such Distribution Date) and, in each case, shall not
be sold or disposed of prior to its maturity. All such Permitted Investments
shall be made in the name of the Trustee, for the benefit of the
Certificateholders. All income and gain (net of any losses) realized from any
such investment of funds on deposit in the Certificate Account or the
Distribution Account shall be for the benefit of the Master Servicer as
servicing compensation and shall be remitted to it monthly as provided herein.
The amount of any realized losses in the Certificate Account or the Distribution
Account incurred in any such account in respect of any such investments shall
promptly be deposited by the Master Servicer in the Certificate Account or paid
to the Trustee for deposit into the Distribution Account, as applicable.
(h) The Master Servicer shall give notice to the Trustee, the
Seller, each Rating Agency and the Depositor of any proposed change of the
location of the Certificate Account not later than 30 days and not more than 45
days prior to any change thereof. The Trustee shall give notice to the Master
Servicer, the Seller, each Rating Agency and the Depositor of any proposed
change of the location of the Distribution Account not later than 30 days and
not more than 45 days prior to any change thereof.
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Section 3.09. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(a) To the extent required by the related Mortgage Note and
not violative of current law, the Master Servicer shall cause each Servicer to
establish and maintain one or more accounts (each, an "Escrow Account") and
deposit and retain therein all collections from the Mortgagors (or advances by
the Servicer) for the payment of taxes, assessments, hazard insurance premiums
or comparable items for the account of the Mortgagors. Nothing herein shall
require the Master Servicer or any Servicer to compel a Mortgagor to establish
an Escrow Account in violation of applicable law.
(b) Withdrawals of amounts so collected from the Escrow
Accounts may be made only to effect timely payment of taxes, assessments, hazard
insurance premiums, condominium or PUD association dues, or comparable items, to
reimburse the Master Servicer or the related Servicer out of related collections
for any payments made pursuant to Sections 3.12 (with respect to taxes and
assessments and insurance premiums) and 3.13 (with respect to hazard insurance),
to refund to any Mortgagors any sums determined to be overages, to pay interest,
if required by law or the terms of the related Mortgage or Mortgage Note, to
Mortgagors on balances in the Escrow Account or to clear and terminate the
Escrow Account at the termination of this Agreement in accordance with Section
9.01. The Escrow Accounts shall not be a part of the Trust Fund.
(c) The Master Servicer shall advance any payments referred to
in Section 3.09(a) that are not timely paid by the Mortgagors or advanced by the
Servicers on the date when the tax, premium or other cost for which such payment
is intended is due, but the Master Servicer shall be required so to advance only
to the extent that such advances, in the good faith judgment of the Master
Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds,
Liquidation Proceeds or otherwise.
Section 3.10. Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall afford, or shall cause the Servicers
to afford, the Depositor and the Trustee reasonable access to all records and
documentation regarding the Mortgage Loans and all accounts, insurance
information and other matters relating to this Agreement, such access being
afforded without charge, but only upon reasonable request and during normal
business hours at the office designated by the Master Servicer.
Upon reasonable advance notice in writing, the Master Servicer
will provide, or will cause the Servicers to provide, to each Certificateholder
which is a savings and loan association, bank or insurance company certain
reports and reasonable access to information and documentation regarding the
Mortgage Loans sufficient to permit such Certificateholder to comply with
applicable regulations of the OTS or other regulatory authorities with respect
to investment in the Certificates; provided that the Master Servicer and any
Servicer shall be entitled to be reimbursed by each such Certificateholder for
actual expenses incurred by the Master Servicer or such Servicer in providing
such reports and access.
The Master Servicer shall provide to the OTS and the FDIC and
to comparable regulatory authorities supervising Holders of Subordinated
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation
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regarding the Mortgage Loans required by applicable regulations of the OTS and
the FDIC. Such access shall be afforded only upon reasonable and prior written
request and during normal business hours at the offices designated by the Master
Servicer. Unless prohibited by applicable laws or regulations, the Master
Servicer and any Servicer shall be entitled to be reimbursed by the related
Certificateholders for actual expenses incurred by the Master Servicer or such
Servicer in providing such access. Nothing in this Section 3.10 shall limit the
obligation of the Master Servicer to observe any applicable law prohibiting
disclosure of information regarding the Mortgagors and the failure of the Master
Servicer or any Servicer to provide access as provided in this Section 3.10 as a
result of such obligation shall not constitute a breach of this Section 3.10.
Section 3.11. Permitted Withdrawals from the Certificate Account,
and the Distribution Account.
(a) The Master Servicer may from time to time make withdrawals
from the Certificate Account for the following purposes:
(i) to pay to the Master Servicer or the related
Servicer (to the extent not previously retained), the servicing compensation to
which it is entitled pursuant to Section 3.17, and to pay to the Master
Servicer, as additional master servicing compensation, earnings on or investment
income with respect to funds in or credited to the Certificate Account;
(ii) to reimburse the Master Servicer or the related
Servicer for unreimbursed Advances or Servicer Advances made by it, such right
of reimbursement pursuant to this subclause (ii) being limited to amounts
received on the Mortgage Loan(s) in respect of which any such Advance or
Servicer Advance was made;
(iii) to reimburse the Master Servicer for any
Nonrecoverable Advance previously made;
(iv) to reimburse the Master Servicer for Insured
Expenses from the related Insurance Proceeds;
(v) to reimburse the Master Servicer for (a)
unreimbursed Servicing Advances, the Master Servicer's right to reimbursement
pursuant to this clause (a) with respect to any Mortgage Loan being limited to
amounts received on such Mortgage Loan(s) which represent late recoveries of the
payments for which such advances were made pursuant to Section 3.01 or Section
3.09 and (b) for unpaid Master Servicing Fees as provided in Section 3.14;
(vi) to pay to the purchaser, with respect to each
Mortgage Loan or property acquired in respect thereof that has been purchased
pursuant to Section 2.02, 2.03, 3.14(a), 3.14(b) or 3.14(c), all amounts
received thereon after the date of such purchase;
(vii) to reimburse the Seller, the Master Servicer or
the Depositor for expenses incurred by any of them and reimbursable pursuant to
Section 6.03;
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(viii) to withdraw any amount deposited in the
Certificate Account and not required to be deposited therein;
(ix) on or prior to the Distribution Account Deposit
Date, to withdraw an amount equal to the related Available Funds and the Trustee
Fee for such Distribution Date, to the extent on deposit, and remit such amount
to the Trustee for deposit in the Distribution Account; and
(x) to clear and terminate the Certificate Account
upon termination of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate
accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of
justifying any withdrawal from the Certificate Account pursuant to such
subclauses (i), (ii), (iv), (v) and (vi). Prior to making any withdrawal from
the Certificate Account pursuant to subclause (iii), the Master Servicer shall
deliver to the Trustee an Officer's Certificate of a Servicing Officer
indicating the amount of any previous Advance determined by the Master Servicer
to be a Nonrecoverable Advance and identifying the related Mortgage Loan(s) and
their respective portions of such Nonrecoverable Advance.
(b) The Trustee shall withdraw funds from the Distribution
Account for distributions to Certificateholders in the manner specified in this
Agreement (and to withhold from the amounts so withdrawn the amount of any taxes
that it is authorized to withhold pursuant to the last paragraph of Section
8.11). In addition, the Trustee may from time to time make withdrawals from the
Distribution Account for the following purposes:
(i) to pay to itself the Trustee Fee for the related
Distribution Date;
(ii) to pay to the Master Servicer as additional
servicing compensation earnings on or investment income with respect to funds in
the Distribution Account;
(iii) to withdraw and return to the Master Servicer
any amount deposited in the Distribution Account and not required to be
deposited therein; and
(iv) to clear and terminate the Distribution Account
upon termination of the Agreement pursuant to Section 9.01.
Section 3.12. Maintenance of Hazard Insurance; Maintenance of
Primary Insurance Policies.
(a) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. To the extent it may do so without breaching the related Servicing
Agreement, the Master Servicer shall replace any Servicer that does not cause
such insurance, to the extent it is available, to be maintained. Any
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amounts collected by the Master Servicer under any such policies (other than the
amounts to be applied to the restoration or repair of the related Mortgaged
Property or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Certificate
Account or the related Servicing Account, as applicable. Any cost incurred by
the Master Servicer or any Servicer in maintaining any such insurance shall not,
for the purpose of calculating monthly distributions to the Certificateholders
or remittances to the Trustee for their benefit, be added to the principal
balance of the Mortgage Loan, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs shall be recoverable by the Master Servicer out of
late payments by the related Mortgagor or out of Liquidation Proceeds to the
extent permitted by Section 3.11. It is understood and agreed that no earthquake
or other additional insurance is to be required of any Mortgagor or maintained
on property acquired in respect of a Mortgage other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Mortgaged Property is located at the
time of origination of the Mortgage Loan in a federally designated special flood
hazard area and such area is participating in the national flood insurance
program, the Master Servicer shall cause flood insurance to be maintained with
respect to such Mortgage Loan. Such flood insurance shall be in an amount equal
to the least of (i) the original principal balance of the related Mortgage Loan,
(ii) the replacement value of the improvements which are part of such Mortgaged
Property, and (iii) the maximum amount of such insurance available for the
related Mortgaged Property under the national flood insurance program.
In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on all of the Mortgage
Loans, it shall conclusively be deemed to have satisfied its obligations as set
forth in the first sentence of this Section 3.12, it being understood and agreed
that such policy may contain a deductible clause on terms substantially
equivalent to those commercially available and maintained by comparable
servicers. If such policy contains a deductible clause, the Master Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with the first sentence of this Section
3.12, and there shall have been a loss that would have been covered by such
policy, deposit in the Certificate Account the amount not otherwise payable
under the blanket policy because of such deductible clause. In connection with
its activities as Master Servicer of the Mortgage Loans, the Master Servicer
agrees to present, on behalf of itself, the Depositor, and the Trustee for the
benefit of the Certificateholders, claims under any such blanket policy.
(b) The Master Servicer shall not take, or permit any Servicer
to take, any action which would result in non-coverage under any applicable
Primary Insurance Policy of any loss which, but for the actions of the Master
Servicer or any Servicer, would have been covered thereunder. The Master
Servicer shall not cancel or refuse to renew any such Primary Insurance Policy
that is in effect at the date of the initial issuance of the Certificates and is
required to be kept in force hereunder unless the replacement Primary Insurance
Policy for such canceled or non-renewed policy is maintained with a Qualified
Insurer. The Master Servicer shall not be required to maintain any Primary
Insurance Policy (i) with respect to any Mortgage Loan with a Loan-to-Value
Ratio less than or equal to 80% as of any date of determination or, based on a
new appraisal, the principal balance of such Mortgage Loan represents 80% or
less of the new Appraised Value or (ii) if maintaining such Primary Insurance
Policy is prohibited by applicable law. The Master Servicer agrees, to the
extent permitted by applicable law, to effect the timely
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payment of the premiums on each Primary Insurance Policy, and such costs not
otherwise recoverable shall be recoverable by the Master Servicer from the
related liquidation proceeds.
In connection with its activities as Master Servicer of the
Mortgage Loans, the Master Servicer agrees to present, or cause the related
Servicer to present, on behalf of itself, the Trustee and the
Certificateholders, claims to the insurer under any Primary Insurance Policies
and, in this regard, to take such reasonable action in accordance with the
Servicing Standard as shall be necessary to permit recovery under any Primary
Insurance Policies respecting defaulted Mortgage Loans. Any amounts collected by
a Servicer or the Master Servicer under any Primary Insurance Policies shall be
deposited in the Servicing Account, the Collection Account or the Certificate
Account, as applicable.
Section 3.13. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
(a) Except as otherwise provided in this Section 3.13, when
any property subject to a Mortgage has been conveyed by the Mortgagor, the
Master Servicer or the related Servicer shall, to the extent that it has
knowledge of such conveyance and in accordance with the Servicing Standard,
enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to
the extent permitted under applicable law and governmental regulations, but only
to the extent that such enforcement will not adversely affect or jeopardize
coverage under any Required Insurance Policy. Notwithstanding the foregoing,
neither the Master Servicer nor the related Servicer is required to exercise
such rights with respect to a Mortgage Loan if the Person to whom the related
Mortgaged Property has been conveyed or is proposed to be conveyed satisfies the
terms and conditions contained in the Mortgage Note and Mortgage related thereto
and the consent of the mortgagee under such Mortgage Note or Mortgage is not
otherwise so required under such Mortgage Note or Mortgage as a condition to
such transfer. In the event that (i) the Master Servicer or the related Servicer
is prohibited by law from enforcing any such due-on-sale clause, (ii) coverage
under any Required Insurance Policy would be adversely affected, (iii) the
Mortgage Note does not include a due-on-sale clause or (iv) nonenforcement is
otherwise permitted hereunder, the Master Servicer is authorized, subject to
Section 3.13(b), to take or enter into an assumption and modification agreement
from or with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon, provided that the Mortgage Loan shall continue to be covered (if so
covered before the Master Servicer enters such agreement) by the applicable
Required Insurance Policies. The Master Servicer, subject to Section 3.13(b), is
also authorized with the prior approval of the insurers under any Required
Insurance Policies to enter into a substitution of liability agreement with such
Person, pursuant to which the original Mortgagor is released from liability and
such Person is substituted as Mortgagor and becomes liable under the Mortgage
Note. Notwithstanding the foregoing, the Master Servicer shall not be deemed to
be in default under this Section 3.13 by reason of any transfer or assumption
which the Master Servicer reasonably believes it is restricted by law from
preventing, for any reason whatsoever.
(b) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3.13(a), in any case in
which a Mortgaged Property has been conveyed to a Person by a Mortgagor, and
such Person is to enter into an assumption agreement or modification agreement
or supplement to the Mortgage Note or Mortgage that requires the signature of
the Trustee, or if an instrument of release signed by the Trustee is required
releasing
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the Mortgagor from liability on the Mortgage Loan, the Master Servicer
shall prepare and deliver or cause to be prepared and delivered to the Trustee
for signature and shall direct, in writing, the Trustee to execute the
assumption agreement with the Person to whom the Mortgaged Property is to be
conveyed and such modification agreement or supplement to the Mortgage Note or
Mortgage or other instruments as are reasonable or necessary to carry out the
terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Master Servicer in accordance with
its underwriting standards as then in effect. Together with each such
substitution, assumption or other agreement or instrument delivered to the
Trustee for execution by it, the Master Servicer shall deliver an Officer's
Certificate signed by a Servicing Officer stating that the requirements of this
subsection have been met in connection therewith. The Master Servicer shall
notify, or cause the related Servicer to notify, the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which in the
case of the original shall be added to the related Mortgage File and shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. Any fee
collected by the Master Servicer or any Servicer for entering into an assumption
or substitution of liability agreement will be retained by the Master Servicer
as additional master servicing compensation.
Section 3.14. Realization Upon Defaulted Mortgage Loans; Repurchase
of Certain Mortgage Loans.
(a) The Master Servicer shall use reasonable efforts in
accordance with the Servicing Standard to foreclose upon or otherwise comparably
convert the ownership of Mortgaged Properties in respect of which the related
Mortgage Loans come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Master Servicer shall follow the
Servicing Standard and shall follow the requirements of the insurer under any
Required Insurance Policy; provided, however, that the Servicer may enter into,
and shall give the Rating Agencies notice of, a special servicing agreement with
an unaffiliated holder of 100% Percentage Interest of one or more Classes of
Subordinated Certificates or a holder of a class of securities representing
interests in one or more Classes of Subordinated Certificates and provided,
further, that entering into such special servicing agreement shall not result in
the downgrading or withdrawal of the respective ratings when assigned to the
Certificates. Any such agreement may contain provisions whereby such holder may
instruct the Servicer to commence or delay foreclosure proceedings with respect
to delinquent Mortgage Loans and will contain provisions for the deposit of cash
by the holder that would be available for distribution to Certificateholders if
Liquidation Proceeds are less than they otherwise may have been had the Servicer
acted in accordance with its normal procedures. Notwithstanding the foregoing,
the Master Servicer shall not be required to expend its own funds in connection
with any foreclosure or towards the restoration of any property unless it shall
determine (i) that such restoration and/or foreclosure will increase the
proceeds of liquidation of the Mortgage Loan after reimbursement to itself of
such expenses and (ii) that such expenses will be recoverable to it through
Liquidation Proceeds (respecting which it shall have priority for purposes of
withdrawals from the Certificate
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Account). The Master Servicer shall be responsible for all other costs and
expenses incurred by it in any such proceedings; provided, however, that it
shall be entitled to reimbursement thereof from the liquidation proceeds with
respect to the related Mortgaged Property, as provided in the definition of
Liquidation Proceeds. If the Master Servicer has knowledge that a Mortgaged
Property which the Master Servicer is contemplating acquiring in foreclosure or
by deed in lieu of foreclosure is located within a 1 mile radius of any site
listed in the Expenditure Plan for the Hazardous Substance Clean Up Bond Act of
1984 or other site with environmental or hazardous waste risks known to the
Master Servicer, the Master Servicer will, prior to acquiring the Mortgaged
Property, consider such risks and only take action in accordance with its
established environmental review procedures.
With respect to any REO Property, the deed or certificate of
sale shall be taken in the name of the Trustee for the benefit of the
Certificateholders, or its nominee, on behalf of the Certificateholders. The
Trustee's name shall be placed on the title to such REO Property solely as the
Trustee hereunder and not in its individual capacity. The Master Servicer shall
ensure that the title to such REO Property references the Pooling and Servicing
Agreement and the Trustee's capacity hereunder. Pursuant to its efforts to sell
such REO Property, the Master Servicer shall either itself or through an agent
selected by the Master Servicer protect and conserve such REO Property in
accordance with the Servicing Standard and may, incident to its conservation and
protection of the interests of the Certificateholders, rent the same, or any
part thereof, as the Master Servicer deems to be in the best interest of the
Certificateholders for the period prior to the sale of such REO Property. The
Master Servicer shall prepare for and deliver to the Trustee a statement with
respect to each REO Property that has been rented showing the aggregate rental
income received and all expenses incurred in connection with the management and
maintenance of such REO Property at such times as is necessary to enable the
Trustee to comply with the reporting requirements of the REMIC Provisions. The
net monthly rental income, if any, from such REO Property shall be deposited in
the Certificate Account no later than the close of business on each
Determination Date. The Master Servicer shall perform the tax reporting and
withholding required by Sections 1445 and 6050J of the Code with respect to
foreclosures and abandonments, the tax reporting required by Section 6050H of
the Code with respect to the receipt of mortgage interest from individuals and,
if required by Section 6050P of the Code with respect to the cancellation of
indebtedness by certain financial entities, by preparing such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.
In the event that the Trust Fund acquires any Mortgaged
Property as aforesaid or otherwise in connection with a default or imminent
default on a Mortgage Loan, the Master Servicer shall dispose of such Mortgaged
Property prior to three years after its acquisition by the Trust Fund unless the
Trustee shall have been supplied with an Opinion of Counsel to the effect that
the holding by the Trust Fund of such Mortgaged Property subsequent to such
three-year period will not result in the imposition of taxes on "prohibited
transactions" on the REMIC as defined in section 860F of the Code or cause the
REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding, in which case the Trust Fund may continue to hold such Mortgaged
Property (subject to any conditions contained in such Opinion of Counsel).
Notwithstanding any other provision of this Agreement, no Mortgaged Property
acquired by the Trust Fund shall be rented (or allowed to continue to be rented)
or otherwise used for the production of income by or on behalf of the Trust Fund
in such a manner or pursuant to any
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terms that would (i) cause such Mortgaged Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
(ii) subject the REMIC to the imposition of any federal, state or local income
taxes on the income earned from such Mortgaged Property under Section 860G(c) of
the Code or otherwise, unless the Master Servicer has agreed to indemnify and
hold harmless the Trust Fund with respect to the imposition of any such taxes.
The decision of the Master Servicer to foreclose on a
defaulted Mortgage Loan shall be subject to a determination by the Master
Servicer that the proceeds of such foreclosure would exceed the costs and
expenses of bringing such a proceeding. The income earned from the management of
any REO Properties, net of reimbursement to the Master Servicer for expenses
incurred (including any property or other taxes) in connection with such
management and net of unreimbursed Master Servicing Fees, Servicing Fees,
Advances, Servicer Advances and Servicing Advances, shall be applied to the
payment of principal of and interest on the related defaulted Mortgage Loans
(with interest accruing as though such Mortgage Loans were still current and
adjustments, if applicable, to the Mortgage Rate were being made in accordance
with the terms of the Mortgage Note) and all such income shall be deemed, for
all purposes in this Agreement, to be payments on account of principal and
interest on the related Mortgage Notes and shall be deposited into the
Certificate Account. To the extent the net income received during any calendar
month is in excess of the amount attributable to amortizing principal and
accrued interest at the related Mortgage Rate on the related Mortgage Loan for
such calendar month, such excess shall be considered to be a partial prepayment
of principal of the related Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well
as any income from an REO Property, will be applied in the following order of
priority: first, to reimburse the Master Servicer or the related Servicer for
any related unreimbursed Servicing Advances, Master Servicing Fees and Servicing
Fees, as applicable; second, to reimburse the Master Servicer or the related
Servicer for any unreimbursed Advances or Servicer Advances, as applicable, and
to reimburse the Certificate Account for any Nonrecoverable Advances (or
portions thereof) that were previously withdrawn by the Master Servicer pursuant
to Section 3.11(a)(iii) that related to such Mortgage Loan; third, to accrued
and unpaid interest (to the extent no Advance or Servicer Advance has been made
for such amount or any such Advance or Servicer Advance has been reimbursed) on
the Mortgage Loan or related REO Property, at the Adjusted Net Mortgage Rate to
the Due Date occurring in the month in which such amounts are required to be
distributed; and fourth, as a recovery of principal of the Mortgage Loan. Excess
Proceeds, if any, from the liquidation of a Liquidated Mortgage Loan will be
retained by the Master Servicer as additional servicing compensation pursuant to
Section 3.17.
(b) The Master Servicer, in its sole discretion, shall have
the right to purchase for its own account from the Trust Fund any Mortgage Loan
which is 91 days or more delinquent at a price equal to the Purchase Price. The
Purchase Price for any Mortgage Loan purchased hereunder shall be deposited in
the Certificate Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit N hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
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all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.
(c) The Master Servicer may agree to a modification of any
Mortgage Loan (the "Relevant Mortgage Loan") upon the request of the related
Mortgagor, provided that the modification is in lieu of a refinancing and the
Mortgage Rate on the Relevant Mortgage Loan, as modified, is approximately a
prevailing market rate for newly-originated mortgage loans having similar terms
and (ii) the Master Servicer purchases the Relevant Mortgage Loan from the Trust
Fund as described below. Effective immediately after such modification, and, in
any event, on the same Business Day on which the modification occurs, all right,
title and interest of the Trustee in and to the Modified Mortgage Loan shall
automatically be deemed transferred and assigned to the Master Servicer and all
benefits and burdens of ownership thereof, including without limitation the
right to accrued interest thereon from and including the date of modification
and the risk of default thereon, shall pass to the Master Servicer. The Master
Servicer shall promptly deliver to the Trustee a certification of a Servicing
Officer to the effect that all requirements of the first paragraph of this
subsection (c) have been satisfied with respect to such Modified Mortgage Loan.
The Master Servicer shall deposit the Purchase Price for any
Modified Mortgage Loan in the Certificate Account pursuant to Section 3.08(e)
within one Business Day after the purchase of such Modified Mortgage Loan. Upon
receipt by the Trustee of written notification of any such deposit signed by a
Servicing Officer, the Trustee shall release to the Master Servicer the related
Mortgage File and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
Master Servicer any Modified Mortgage Loan previously transferred and assigned
pursuant hereto.
The Master Servicer covenants and agrees to indemnify the
REMIC against any and all liability for any "prohibited transaction" taxes and
any related interest, additions and penalties imposed on the REMIC established
hereunder as a result of any modification of a Mortgage Loan effected pursuant
to this subsection (c), any holding of a Modified Mortgage Loan by the REMIC or
any purchase of a Modified Mortgage Loan by the Master Servicer (but such
obligation shall not prevent the Master Servicer or any other appropriate Person
from contesting any such tax in appropriate proceedings and shall not prevent
the Master Servicer from withholding payment of such tax, if permitted by law,
pending the outcome of such proceedings). The Master Servicer shall have no
right of reimbursement for any amount paid pursuant to the foregoing
indemnification, except to the extent that the amount of any tax, interest and
penalties, together with interest thereon, is refunded to the REMIC or the
Master Servicer.
Section 3.15. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt
by the Master Servicer of a notification that payment in full will be escrowed
in a manner customary for such purposes, the Master Servicer will immediately
notify the Trustee by delivering, or causing to be delivered, a "Request for
Release" substantially in the form of Exhibit N. Upon receipt of such request,
the Trustee shall promptly release the related Mortgage File to the Master
Servicer, and
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the Trustee shall at the Master Servicer's direction execute and deliver to the
Master Servicer the request for reconveyance, deed of reconveyance or release or
satisfaction of mortgage or such instrument releasing the lien of the Mortgage
in each case provided by the Master Servicer, together with the Mortgage Note
with written evidence of cancellation thereon. Expenses incurred in connection
with any instrument of satisfaction or deed of reconveyance shall be chargeable
to the related Mortgagor. From time to time and as shall be appropriate for the
servicing or foreclosure of any Mortgage Loan, including for such purpose
collection under any policy of flood insurance, any fidelity bond or errors or
omissions policy, or for the purposes of effecting a partial release of any
Mortgaged Property from the lien of the Mortgage or the making of any
corrections to the Mortgage Note or the Mortgage or any of the other documents
included in the Mortgage File, the Trustee shall, upon delivery to the Trustee
of a Request for Release in the form of Exhibit M signed by a Servicing Officer,
release the Mortgage File to the Master Servicer or, at the Master Servicer's
direction, to the related Servicer. Subject to the further limitations set forth
below, the Master Servicer shall cause the Mortgage File or documents so
released to be returned to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan is liquidated and the
proceeds thereof are deposited in the Certificate Account, in which case the
Master Servicer shall deliver to the Trustee a Request for Release in the form
of Exhibit N, signed by a Servicing Officer.
If the Master Servicer at any time seeks to initiate a
foreclosure proceeding in respect of any Mortgaged Property as authorized by
this Agreement, the Master Servicer shall deliver or cause to be delivered to
the Trustee, for signature, as appropriate, any court pleadings, requests for
trustee's sale or other documents necessary to effectuate such foreclosure or
any legal action brought to obtain judgment against the Mortgagor on the
Mortgage Note or the Mortgage or to obtain a deficiency judgment or to enforce
any other remedies or rights provided by the Mortgage Note or the Mortgage or
otherwise available at law or in equity.
Section 3.16. Documents, Records and Funds in Possession of the
Master Servicer to be Held for the Trustee.
The Master Servicer shall account fully to the Trustee for any
funds received by the Master Servicer or which otherwise are collected by the
Master Servicer as Liquidation Proceeds or Insurance Proceeds in respect of any
Mortgage Loan. All Mortgage Files and funds collected or held by, or under the
control of, the Master Servicer in respect of any Mortgage Loans, whether from
the collection of principal and interest payments or from Liquidation Proceeds,
including but not limited to, any funds on deposit in the Certificate Account,
shall be held by the Master Servicer for and on behalf of the Trustee and shall
be and remain the sole and exclusive property of the Trustee, subject to the
applicable provisions of this Agreement. The Master Servicer also agrees that it
shall not create, incur or subject any Mortgage File or any funds that are
deposited in the Certificate Account, Distribution Account or any Escrow Account
or Servicing Account, or any funds that otherwise are or may become due or
payable to the Trustee for the benefit of the Certificateholders, to any claim,
lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Mortgage Loan, except, however, that the Master Servicer shall be entitled to
set off against and deduct from any such funds any amounts that are properly due
and payable to the Master Servicer under this Agreement.
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Section 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master
Servicer shall be entitled out of each payment of interest on a Mortgage Loan
(or portion thereof) included in the Trust Fund to retain or withdraw from the
Certificate Account an amount equal to the Master Servicing Fee for such
Distribution Date.
Additional master servicing compensation in the form of Excess
Proceeds, prepayment penalties, assumption fees, late payment charges and all
income and gain net of any losses realized from Permitted Investments shall be
retained by the Master Servicer to the extent not required to be deposited in
the Certificate Account pursuant to Section 3.08. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder (including payment of any premiums for hazard insurance and
any Primary Insurance Policy and maintenance of the other forms of insurance
coverage required by this Agreement) and shall not be entitled to reimbursement
therefor except as specifically provided in this Agreement.
As compensation for its activities under its Servicing
Agreement, each Servicer shall be entitled to retain out of each payment of
interest on a Mortgage Loan (or portion thereof) included in the Trust Fund an
amount equal to interest at the applicable Servicing Fee Rate on the Stated
Principal Balance of the related Mortgage Loan for the period covered by such
interest payment.
Additional servicing compensation in the form of prepayment
penalties, assumption fees and late payment charges shall be retained by the
Servicers to the extent not required to be deposited in the Servicing Accounts
pursuant to the related Servicing Agreement. Each Servicer shall be required to
pay all expenses incurred by it in connection with its servicing activities
under its Servicing Agreement (including payment of any premium for hazard
insurance and any Primary Insurance Policy and maintenance of the other forms of
insurance coverage required by this Agreement and its Servicing Agreement) and
shall not be entitled to reimbursement therefor except as specifically provided
in its Servicing Agreement and not inconsistent with this Agreement.
In the event of any Prepayment Interest Shortfall, the
aggregate Master Servicing Fee for such Distribution Date shall be reduced (but
not below zero) by an amount equal to such Prepayment Interest Shortfall.
Section 3.18. Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the
Trustee on or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its 1999 fiscal year, an Officer's Certificate stating, as
to the signer thereof, that (i) a review of the activities of the Master
Servicer during the preceding calendar year and of the performance of the Master
Servicer under this Agreement has been made under such officer's supervision,
(ii) to the best of such officer's knowledge, based on such review, the Master
Servicer has fulfilled all its obligations under this Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and (iii) to the best of such officer's knowledge, each Servicer has
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fulfilled all its obligations under its Servicing Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each Rating
Agency.
Section 3.19. Annual Independent Public Accountants' Servicing
Statement; Financial Statements.
On or before 120 days after the end of the Master Servicer's
fiscal year, commencing with its [ ] fiscal year, the Master Servicer at its
expense shall cause a nationally or regionally recognized firm of independent
public accountants (who may also render other services to the Servicer, the
Seller or any affiliate thereof) which is a member of the American Institute of
Certified Public Accountants to furnish a statement to the Trustee and the
Depositor to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements substantially similar
to this Agreement (such statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby) and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FNMA and FHLMC, such servicing has been conducted in
compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FNMA and FHLMC (rendered within one year of such statement) of independent
public accountants with respect to the related Subservicer. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon request
at the Master Servicer's expense, provided that such statement is delivered by
the Master Servicer to the Trustee.
Section 3.20. Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall obtain and maintain in force, and
shall cause each Servicer to obtain and maintain in force, (a) a policy or
policies of insurance covering errors and omissions in the performance of its
obligations as Master Servicer hereunder or as Servicer under its Servicing
Agreement, as the case may be, and (b) a fidelity bond in respect of its
officers, employees and agents. Each such policy or policies and bond shall,
together, comply with the requirements from time to time of FNMA or FHLMC for
persons performing servicing for mortgage loans purchased by FNMA or FHLMC. In
the event that any such policy or bond ceases to be in effect, the Master
Servicer shall obtain a comparable replacement policy or bond from an insurer or
issuer meeting the requirements set forth above as of the date of such
replacement.
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ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE MASTER SERVICER
Section 4.01. Advances.
The Master Servicer shall determine on or before each Master
Servicer Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, either (i)
deposit into the Certificate Account an amount equal to the Advance or (ii) make
an appropriate entry in its records relating to the Certificate Account that any
Amount Held for Future Distribution has been used by the Master Servicer in
discharge of its obligation to make any such Advance. Any funds so applied shall
be replaced by the Master Servicer by deposit in the Certificate Account no
later than the close of business on the next Master Servicer Advance Date. The
Master Servicer shall be entitled to be reimbursed from the Certificate Account
for all Advances of its own funds made pursuant to this Section 4.01 as provided
in Section 3.11. The obligation to make Advances with respect to any Mortgage
Loan shall continue if such Mortgage Loan has been foreclosed or otherwise
terminated and the related Mortgaged Property has not been liquidated. The
Master Servicer shall inform the Trustee of the amount of the Advance to be made
on each Master Servicer Advance Date no later than the second Business Day
before the related Distribution Date.
The Master Servicer shall deliver to the Trustee on the
related Master Servicer Advance Date an Officer's Certificate of a Servicing
Officer indicating the amount of any proposed Advance determined by the Master
Servicer to be a Nonrecoverable Advance.
Section 4.02. Priorities of Distribution.
(a) The Trustee shall withdraw such Available Funds from the
Distribution Account and apply such funds to distributions on the specified
Classes of Senior Certificates in the following order and priority and, in each
case, to the extent of such funds remaining:
(i) to each interest-bearing Class of Senior
Certificates, an amount allocable to interest equal to the
related Class Optimal Interest Distribution Amount, any
shortfall being allocated pro rata among such Classes in
proportion to the amount of the Class Optimal Interest
Distribution Amount that would have been distributed in the
absence of such shortfall;
(ii) to each Class of Senior Certificates
concurrently as follows:
(x) to the Class PO Certificates an amount
allocable to principal equal to the PO Formula
Principal Amount, up to the outstanding Class
Certificate Balance of the Class PO Certificates;
(y) on each Distribution Date prior to the
Senior Credit Support Depletion Date, the related
Non-PO Formula Principal Amount, up to the
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amount of the applicable Senior Principal
Distribution Amount for such Distribution Date, will
be distributed as principal as follows:
(1) to the Class A-R
Certificates, until the Class
Certificate Balance thereof has been
reduced to zero; and
(2) concurrently, to the Class
A-1 and Class A-3 Certificates, pro
rata, until the respective Class
Certificate Balances thereof have been
reduced to zero;
(iii) to the Class PO Certificates an amount
allocable to principal equal to the PO Formula Principal Amount, up to the
outstanding Class Certificate Balance of the Class PO Certificates;
(iv) to each Class of Subordinated Certificates,
subject to paragraph (e) below, in the following order of priority:
(A) to the Class B-1 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date;
(B) to the Class B-1 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero;
(C) to the Class B-2 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date;
(D) to the Class B-2 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero;
(E) to the Class B-3 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date;
(F) to the Class B-3 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero;
(G) to the Class B-4 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date;
(H) to the Class B-4 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero;
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<PAGE>
(I) to the Class B-5 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date;
(J) to the Class B-5 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero;
(K) to the Class B-6 Certificates, an amount
allocable to interest equal to the Class Optimal Interest Distribution Amount
for such Class for such Distribution Date; and
(L) to the Class B-6 Certificates, an amount
allocable to principal equal to its Pro Rata Share for such Distribution Date
until the Class Certificate Balance thereof is reduced to zero; and
(v) to the Class A-R Certificates, any remaining
Available Funds.
On any Distribution Date, amounts distributed in respect of
Class PO Deferred Amounts will not reduce the Class Certificate Balance of the
related Class PO Certificates.
On any Distribution Date, to the extent the Amount Available
for Senior Principal is insufficient to make the full distribution required to
be made pursuant to clause (iii)(x) above, (A) the amount distributable on the
Class PO Certificates in respect of principal shall be equal to the product of
(1) the Amount Available for Senior Principal and (2) a fraction, the numerator
of which is the PO Formula Principal Amount and the denominator of which is the
sum of the PO Formula Principal Amount and the Senior Principal Distribution
Amount and (B) the amount distributable on the Senior Certificates, other than
the Class PO Certificates, in respect of principal shall be equal to the product
of (1) the Amount Available for Senior Principal and (2) a fraction, the
numerator of which is the Senior Principal Distribution Amount and the
denominator of which is the sum of the Senior Principal Distribution Amount and
the PO Formula Principal Amount.
(b) [Reserved];
(c) On each Distribution Date on or after the Senior Credit
Support Depletion Date, notwithstanding the allocation and priority set forth in
Section 4.02(a)(iii)(y), the portion of Available Funds available to be
distributed as principal of the Senior Certificates (other than the Class PO
Certificates) shall be distributed concurrently, as principal, on such Classes,
pro rata, on the basis of their respective Class Certificate Balances, until the
Class Certificate Balances thereof are reduced to zero.
(d) On each Distribution Date, the amount referred to in
clause (i) of the definition of Class Optimal Interest Distribution Amount for
each Class of Certificates for such Distribution Date shall be reduced by (i)
the related Class' pro rata share of Net Prepayment Interest Shortfalls based on
such Class' Optimal Interest Distribution Amount for such Distribution Date
without taking into account such Net Prepayment Interest Shortfalls and (ii) the
related Class' Allocable Share of (A) after the Special Hazard Coverage
Termination Date,
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with respect to each Mortgage Loan that became a Special Hazard Mortgage Loan
during the calendar month preceding the month of such Distribution Date, the
excess of one month's interest at the related Adjusted Net Mortgage Rate on the
Stated Principal Balance of such Mortgage Loan as of the Due Date in such month
over the amount of Liquidation Proceeds applied as interest on such Mortgage
Loan with respect to such month, (B) after the Bankruptcy Coverage Termination
Date, with respect to each Mortgage Loan that became subject to a Bankruptcy
Loss during the calendar month preceding the month of such Distribution Date,
the interest portion of the related Debt Service Reduction or Deficient
Valuation, (C) each Relief Act Reduction incurred during the calendar month
preceding the month of such Distribution Date and (D) after the Fraud Coverage
Termination Date, with respect to each Mortgage Loan that became a Fraud Loan
during the calendar month preceding the month of such Distribution Date, the
excess of one month's interest at the related Adjusted Net Mortgage Rate on the
Stated Principal Balance of such Mortgage Loan as of the Due Date in such month
over the amount of Liquidation Proceeds applied as interest on such Mortgage
Loan with respect to such month.
(e) Notwithstanding the priority and allocation contained in
Section 4.02(a), if, with respect to any Class of Subordinated Certificates, on
any Distribution Date the sum of the related Class Subordination Percentages of
such Class and of all Classes of Subordinated Certificates which have a higher
numerical Class designation than such Class (the "Applicable Credit Support
Percentage") is less than the Original Applicable Credit Support Percentage for
such Class, no distribution of Principal Prepayments will be made to any such
Classes (the "Restricted Classes") and the amount of such Principal Prepayments
otherwise distributable to the Restricted Classes shall be distributed to the
Classes of Subordinated Certificates having lower numerical Class designations
than such Class, pro rata, based on their respective Class Certificate Balances
immediately prior to such Distribution Date and shall be distributed in the
sequential order set forth in Section 4.02(a)(vi).
Section 4.03. [Reserved]
Section 4.04. [Reserved]
Section 4.05. Allocation of Realized Losses.
(a) On or prior to each Determination Date, the Trustee shall
determine the total amount of Realized Losses, including Excess Losses, with
respect to the related Distribution Date.
Realized Losses with respect to any Distribution Date shall be
allocated as follows:
(i) the applicable PO Percentage of any Realized
Loss, including any Excess Loss, shall be allocated to the Class PO Certificates
until the Class Certificate Balance thereof is reduced to zero; and
(ii) (A) the applicable Non-PO Percentage of any
Realized Loss (other than an Excess Loss) shall be allocated first, to the
Subordinated Certificates in reverse order of their respective numerical Class
designations, until the respective Class Certificate Balance of each such Class
is reduced to zero and second, to the Senior Certificates (other than the Class
PO
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<PAGE>
and Class X Certificates), pro rata, on the basis of their respective Class
Certificate Balances, in each case immediately prior to the related Distribution
Date, until the respective Class Certificate Balance of each such Class is
reduced to zero;
(B) the applicable Non-PO Percentage of any
Excess Losses on the Mortgage Loans shall be allocated to the Classes of Senior
Certificates (other than the Class PO and Class X Certificates) and the
Subordinated Certificates then outstanding, pro rata, on the basis of their
respective Class Certificate Balances in each case until the respective Class
Certificate Balances thereof have been reduced to zero.
(b) The Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation shall
be reduced on each Distribution Date by the amount, if any, by which the
aggregate of the Class Certificate Balances of all outstanding Classes of
Certificates exceeds the Pool Stated Principal Balance for the following
Distribution Date.
(c) Any Realized Loss allocated to a Class of Certificates or
any reduction in the Class Certificate Balance of a Class of Certificates
pursuant to Section 4.05(b) shall be allocated among the Certificates of such
Class in proportion to their respective Certificate Balances.
(d) Any allocation of Realized Losses to a Certificate or to
any Component or any reduction in the Certificate Balance of a Certificate
pursuant to Section 4.05(b) shall be accomplished by reducing the Certificate
Balance or Component Balance thereof, as applicable, immediately following the
distributions made on the related Distribution Date in accordance with the
definition of "Certificate Balance" or "Component Balance," as the case may be.
Section 4.06. Monthly Statements to Certificateholders.
(a) Not later than each Distribution Date, the Trustee shall
prepare and cause to be forwarded by first class mail to each Certificateholder,
the Master Servicer, the Depositor and each Rating Agency a statement setting
forth with respect to the related distribution:
(i) the amount thereof allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments and Liquidation Proceeds included therein;
(ii) the amount thereof allocable to interest, any
Class Unpaid Interest Shortfall included in such distribution
and any remaining Class Unpaid Interest Shortfall after giving
effect to such distribution;
(iii) if the distribution to the Holders of such
Class of Certificates is less than the full amount that would
be distributable to such Holders if there were sufficient
funds available therefor, the amount of the shortfall and the
allocation thereof as between principal and interest;
(iv) the Class Certificate Balance of each Class of
Certificates after giving effect to the distribution of
principal on such Distribution Date;
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<PAGE>
(v) the Pool Stated Principal Balance for the
following Distribution Date;
(vi) the Senior Percentage and Subordinated
Percentage for the following Distribution Date;
(vii) the amount of the Master Servicing Fees and
Servicing Fees paid to or retained by the Master Servicer and
the Servicers (with respect to the Servicers, in the
aggregate) with respect to such Distribution Date;
(viii) the Pass-Through Rate for each such Class of
Certificates with respect to such Distribution Date;
(ix) the amount of Advances included in the
distribution on such Distribution Date and the aggregate
amount of Advances outstanding as of the close of business on
such Distribution Date;
(x) the number and aggregate principal amounts of
Mortgage Loans (A) delinquent (exclusive of Mortgage Loans in
foreclosure) (1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90
days and (4) 91 or more days and (B) in foreclosure and
delinquent (1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90
days and (4) 91 or more days, as of the close of business on
the last day of the calendar month preceding such Distribution
Date;
(xi) for each of the preceding 12 calendar months, or
all calendar months since the Cut-off Date, whichever is less,
the aggregate dollar amount of the Scheduled Payments (A) due
on all Outstanding Mortgage Loans on each of the Due Dates in
each such month and (B) delinquent 60 days or more on each of
the Due Dates in each such month;
(xii) with respect to any Mortgage Loan that became
an REO Property during the preceding calendar month, the loan
number and Stated Principal Balance of such Mortgage Loan as
of the close of business on the Determination Date preceding
such Distribution Date and the date of acquisition thereof;
(xiii) the total number and principal balance of any
REO Properties (and market value, if available) as of the
close of business on the Determination Date preceding such
Distribution Date;
(xiv) the Senior Prepayment Percentage for the
following Distribution Date;
(xv) the aggregate amount of Realized Losses incurred
during the preceding calendar month and aggregate Realized
Losses through such Distribution Date; and
(xvi) the Special Hazard Loss Coverage Amount, the
Fraud Loss Coverage Amount and the Bankruptcy Loss Coverage
Amount, in each case as of the related Determination Date.
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<PAGE>
(b) The Trustee's responsibility for disbursing the above
information to the Certificateholders is limited to the availability, timeliness
and accuracy of the information derived from the Master Servicer.
(c) Within a reasonable period of time after the end of each
calendar year, the Trustee shall cause to be furnished to each Person who at any
time during the calendar year was a Certificateholder, a statement containing
the information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this
Section 4.06 aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.
Section 4.07. Determination of Pass-Through Rates for COFI
Certificates.
The Pass-Through Rate for each Class of COFI Certificates for
each Interest Accrual Period after the initial Interest Accrual Period shall be
determined by the Trustee as provided below on the basis of the Index and the
applicable formulae appearing in footnotes corresponding to the COFI
Certificates in (1) to the table relating to the Certificates in the Preliminary
Statement.
Except as provided below, with respect to each Interest
Accrual Period following the initial Interest Accrual Period, the Trustee shall
not later than two Business Days following the publication of the applicable
Index determine the Pass-Through Rate at which interest shall accrue in respect
of the COFI Certificates during the related Interest Accrual Period.
Except as provided below, the Index to be used in determining
the respective Pass-Through Rates for the COFI Certificates for a particular
Interest Accrual Period shall be COFI for the second calendar month preceding
such Interest Accrual Period. If at the Outside Reference Date for any Interest
Accrual Period, COFI for the second calendar month preceding such Interest
Accrual Period has not been published, the Trustee shall use COFI for the third
calendar month preceding such Interest Accrual Period. If COFI for neither the
second nor third calendar months preceding any Interest Accrual Period has been
published on or before the related Outside Reference Date, the Index for such
Interest Accrual Period and for all subsequent Interest Accrual Periods shall be
the National Cost of Funds Index for the third calendar month preceding such
Interest Accrual Period (or the fourth preceding calendar month if such National
Cost of Funds Index for the third preceding calendar month has not been
published by such Outside Reference Date). In the event that the National Cost
of Funds Index for neither the third nor fourth calendar months preceding an
Interest Accrual Period has been published on or before the related Outside
Reference Date, then for such Interest Accrual Period and for each succeeding
Interest Accrual Period, the Index shall be LIBOR, determined in the manner set
forth below.
On each Interest Determination Date so long as the COFI
Certificates are outstanding and the applicable Index therefor is LIBOR, the
Trustee shall either (i) request each Reference Bank to inform the Trustee of
the quotation offered by its principal London office for making one-month United
States dollar deposits in leading banks in the London interbank market, as of
11:00 a.m. (London time) on such Interest Determination Date or (ii) in lieu of
making any such request, rely on such Reference Bank quotations that appear at
such time on the
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Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association Inc. Code of Standard Wording, Assumptions and Provisions for Swaps,
1986 Edition), to the extent available.
With respect to any Interest Accrual Period for which the
applicable Index is LIBOR, LIBOR for such Interest Accrual Period will be
established by the Trustee on the related Interest Determination Date as
follows:
(a) If on any Interest Determination Date two or more
Reference Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations (rounding
such arithmetic mean upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any Interest Determination Date only one or none of
the Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum which the
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 1/32%) of the one-month United States
dollar lending rates that New York City banks selected by the Trustee are
quoting, on the relevant Interest Determination Date, to the principal London
offices of at least two of the Reference Banks to which such quotations are, in
the opinion of the Trustee, being so made, or (ii) in the event that the Trustee
can determine no such arithmetic mean, the lowest one-month United States dollar
lending rate which New York City banks selected by the Trustee are quoting on
such Interest Determination Date to leading European banks.
From such time as the applicable Index becomes LIBOR until all
of the COFI Certificates are paid in full, the Trustee will at all times retain
at least four Reference Banks for the purposes of determining LIBOR with respect
to each Interest Determination Date. The Master Servicer initially shall
designate the Reference Banks. Each "Reference Bank" shall be a leading bank
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market, shall not control, be controlled by, or be under common control with,
the Trustee and shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if the
Master Servicer should terminate its appointment as Reference Bank, the Trustee
shall promptly appoint or cause to be appointed another Reference Bank. The
Trustee shall have no liability or responsibility to any Person for (i) the
selection of any Reference Bank for purposes of determining LIBOR or (ii) any
inability to retain at least four Reference Banks which is caused by
circumstances beyond its reasonable control.
In determining LIBOR and any Pass-Through Rate for the COFI
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) its inability, following a
good-faith reasonable effort, to obtain such quotations from the Reference Banks
or the New York City banks or to determine such arithmetic mean, all as provided
for in this Section 4.07.
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The establishment of LIBOR and each Pass-Through Rate for the
COFI Certificates by the Trustee shall (in the absence of manifest error) be
final, conclusive and binding upon each Holder of a Certificate and the Trustee.
Section 4.08. Determination of Pass-Through Rates for LIBOR
Certificates.
On each Interest Determination Date so long as the LIBOR
Certificates are outstanding, the Trustee shall either (i) request each
Reference Bank to inform the Trustee of the quotation offered by its principal
London office for making one-month United States dollar deposits to leading
banks in the London interbank market, as of 11:00 a.m. (London time) on such
Interest Determination Date or (ii) in lieu of making any such request, rely on
such Reference Bank quotations that appear at such time on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association Inc. Code of
Standard Wording, Assumptions and provisions for Swaps, 1986 Edition), to the
extent available.
LIBOR for the next Interest Accrual Period will be established
by the Trustee on each Interest Determination Date as follows:
(a) If on any Interest Determination Date two or more
Reference Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations (rounding
such arithmetic mean upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any Interest Determination Date only one or none of
the Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum which the
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 1/32%) of the one-month United States
dollar lending rates that New York City banks selected by the Trustee are
quoting, on the relevant Interest Determination Date, to the principal London
offices of at least two of the Reference Banks to which such quotations are, in
the opinion of the Trustee, being so made, or (ii) in the event that the Trustee
can determine no such arithmetic mean, the lowest one-month United States dollar
lending rate which New York City banks selected by the Trustee are quoting on
such Interest Determination Date to leading European banks.
(c) If on any Interest Determination Date the trustee is
required but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be LIBOR as determined on the
preceding Interest Determination Date, or, in the case of the first Interest
Determination Date, the Initial LIBOR Rate.
Until all of the LIBOR Certificates are paid in full, the
Trustee will at all times retain at least four Reference Banks for the purpose
of determining LIBOR with respect to each Interest Determination Date. The
Master Servicer initially shall designate the Reference Banks. Each "Reference
Bank" shall be a leading bank engaged in transactions in Eurodollar deposits in
the international Eurocurrency market, shall not control, be controlled by, or
be under common control with, the Trustee and shall have an established place of
business in London. If any such Reference Bank should be unwilling or unable to
act as such or if the Master Servicer should
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terminate its appointment as Reference Bank, the Trustee shall promptly appoint
or cause to be appointed another Reference Bank. The Trustee shall have no
liability or responsibility to any Person for (i) the selection of any Reference
Bank for purposes of determining LIBOR or (ii) any inability to retain at least
four Reference Banks which is caused by circumstances beyond its reasonable
control.
The Pass-Through Rate for each Class of LIBOR Certificates for
each Interest Accrual Period shall be determined by the Trustee on each Interest
Determination Date so long as the LIBOR Certificates are outstanding on the
basis of LIBOR and the respective formulae appearing in footnotes corresponding
to the LIBOR Certificates in the table relating to the Certificates in the
Preliminary Statement.
In determining LIBOR, any Pass-Through Rate for the LIBOR
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) its inability, following a
good-faith reasonable effort, to obtain such quotations from the Reference Banks
or the New York City banks or to determine such arithmetic mean, all as provided
for in this Section 4.08.
The establishment of LIBOR and each Pass-Through Rate for the
LIBOR Certificates by the Trustee shall (in the absence of manifest error) be
final, conclusive and binding upon each Holder of a Certificate and the Trustee.
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ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates.
The Certificates shall be substantially in the forms attached
hereto as exhibits. The Certificates shall be issuable in registered form, in
the minimum denominations, integral multiples in excess thereof (except that one
Certificate in each Class may be issued in a different amount which must be in
excess of the applicable minimum denomination) and aggregate denominations per
Class set forth in the Preliminary Statement.
Subject to Section 9.02 respecting the final distribution on
the Certificates, on each Distribution Date the Trustee shall make distributions
to each Certificateholder of record on the preceding Record Date either (x) by
wire transfer in immediately available funds to the account of such holder at a
bank or other entity having appropriate facilities therefor, if (i) such Holder
has so notified the Trustee at least five Business Days prior to the related
Record Date and (ii) such Holder shall hold (A) a Notional Amount Certificate,
(B) 100% of the Class Certificate Balance of any Class of Certificates or (C)
Certificates of any Class with aggregate principal Denominations of not less
than $1,000,000 or (y) by check mailed by first class mail to such
Certificateholder at the address of such holder appearing in the Certificate
Register.
The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
such signatures were affixed, authorized to sign on behalf of the Trustee shall
bind the Trustee, notwithstanding that such individuals or any of them have
ceased to be so authorized prior to the countersignature and delivery of any
such Certificates or did not hold such offices at the date of such Certificate.
No Certificate shall be entitled to any benefit under this Agreement, or be
valid for any purpose, unless countersigned by the Trustee by manual signature,
and such countersignature upon any Certificate shall be conclusive evidence, and
the only evidence, that such Certificate has been duly executed and delivered
hereunder. All Certificates shall be dated the date of their countersignature.
On the Closing Date, the Trustee shall countersign the Certificates to be issued
at the direction of the Depositor, or any affiliate thereof.
The Depositor shall provide, or cause to be provided, to the
Trustee on a continuous basis, an adequate inventory of Certificates to
facilitate transfers.
Section 5.02. Certificate Register; Registration of Transfer and
Exchange of Certificates.
(a) The Trustee shall maintain, or cause to be maintained in
accordance with the provisions of Section 5.06, a Certificate Register for the
Trust Fund in which, subject to the provisions of subsections (b) and (c) below
and to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon surrender for registration of transfer of
any Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.
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At the option of a Certificateholder, Certificates may be
exchanged for other Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest upon surrender of the
Certificates to be exchanged at the office or agency of the Trustee. Whenever
any Certificates are so surrendered for exchange, the Trustee shall execute,
authenticate, and deliver the Certificates which the Certificateholder making
the exchange is entitled to receive. Every Certificate presented or surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
holder thereof or his attorney duly authorized in writing.
No service charge to the Certificateholders shall be made for
any registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.
All Certificates surrendered for registration of transfer or
exchange shall be cancelled and subsequently destroyed by the Trustee in
accordance with the Trustee's customary procedures.
(b) No transfer of a Private Certificate shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance with the Securities
Act and such laws, the Certificateholder desiring to effect such transfer and
such Certificateholder's prospective transferee shall each certify to the
Trustee in writing the facts surrounding the transfer in substantially the form
set forth in Exhibit J (the "Transferor Certificate") and (i) deliver a letter
in substantially the form of either Exhibit K (the "Investment Letter") or
Exhibit L (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Private Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Mortgage Loans and such other information as shall
be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A. The Trustee and the Master Servicer shall cooperate with the Depositor in
providing the Rule 144A information referenced in the preceding sentence,
including providing to the Depositor such information regarding the
Certificates, the Mortgage Loans and other matters regarding the Trust Fund as
the Depositor shall reasonably request to meet its obligation under the
preceding sentence. Each Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and the
Depositor, the Seller and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
No transfer of an ERISA-Restricted Certificate shall be made
unless the Trustee shall have received either (i) a representation from the
transferee of such Certificate acceptable to and in form and substance
satisfactory to the Trustee (in the event such Certificate is a Private
Certificate or a Residual Certificate, such requirement is satisfied only by the
Trustee's receipt of
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a representation letter from the transferee substantially in the form of Exhibit
K or Exhibit L), to the effect that such transferee is not an employee benefit
plan or arrangement subject to Section 406 of ERISA or a plan subject to Section
4975 of the Code, nor a person acting on behalf of any such plan or arrangement
nor using the assets of any such plan or arrangement to effect such transfer, or
(ii) if the purchaser is an insurance company, a representation that the
purchaser is an insurance company which is purchasing such Certificates with
funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE
95-60")) and that the purchase and holding of such Certificates are covered
under PTCE 95-60 or (iii) in the case of any such ERISA-Restricted Certificate
presented for registration in the name of an employee benefit plan subject to
ERISA, or a plan or arrangement subject to Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan or any other person acting on behalf of any such plan or arrangement or
using such plan's or arrangement's assets, an Opinion of Counsel satisfactory to
the Trustee, which Opinion of Counsel shall not be an expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that the
purchase or holding of such ERISA-Restricted Certificate will not result in the
assets of the Trust Fund being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject the
Trustee to any obligation in addition to those expressly undertaken in this
Agreement or to any liability. For purposes of the preceding sentence, with
respect to an ERISA-Restricted Certificate that is not a Private Certificate or
a Residual Certificate, in the event the representation letter referred to in
the preceding sentence is not furnished, such representation shall be deemed to
have been made to the Trustee by the transferee's (including an initial
acquiror's) acceptance of the ERISA-Restricted Certificates. Notwithstanding
anything else to the contrary herein, any purported transfer of an
ERISA-Restricted Certificate to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the delivery to the Trustee of an Opinion of
Counsel satisfactory to the Trustee as described above shall be void and of no
effect.
To the extent permitted under applicable law (including, but
not limited to, ERISA), the Trustee shall be under no liability to any Person
for any registration of transfer of any ERISA-Restricted Certificate that is in
fact not permitted by this Section 5.02(b) or for making any payments due on
such Certificate to the Holder thereof or taking any other action with respect
to such Holder under the provisions of this Agreement so long as the transfer
was registered by the Trustee in accordance with the foregoing requirements.
(c) Each Person who has or who acquires any Ownership Interest
in a Residual Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions,
and the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall be a Permitted
Transferee and shall promptly notify the Trustee of any change
or impending change in its status as a Permitted Transferee.
(ii) No Ownership Interest in a Residual Certificate
may be registered on the Closing Date or thereafter
transferred, and the Trustee shall not register the Transfer
of any Residual Certificate unless, in addition to the
certificates required to be delivered to the Trustee under
subparagraph (b) above, the Trustee shall
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have been furnished with an affidavit (a "Transfer
Affidavit") of the initial owner or the proposed transferee
in the form attached hereto as Exhibit I.
(iii) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall agree (A) to obtain a
Transfer Affidavit from any other Person to whom such Person
attempts to Transfer its Ownership Interest in a Residual
Certificate, (B) to obtain a Transfer Affidavit from any
Person for whom such Person is acting as nominee, trustee or
agent in connection with any Transfer of a Residual
Certificate and (C) not to Transfer its Ownership Interest in
a Residual Certificate or to cause the Transfer of an
Ownership Interest in a Residual Certificate to any other
Person if it has actual knowledge that such Person is not a
Permitted Transferee.
(iv) Any attempted or purported Transfer of any
Ownership Interest in a Residual Certificate in violation of
the provisions of this Section 5.02(c) shall be absolutely
null and void and shall vest no rights in the purported
Transferee. If any purported transferee shall become a Holder
of a Residual Certificate in violation of the provisions of
this Section 5.02(c), then the last preceding Permitted
Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such
Residual Certificate. The Trustee shall be under no liability
to any Person for any registration of Transfer of a Residual
Certificate that is in fact not permitted by Section 5.02(b)
and this Section 5.02(c) or for making any payments due on
such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of
this Agreement so long as the Transfer was registered after
receipt of the related Transfer Affidavit, Transferor
Certificate and either the Rule 144A Letter or the Investment
Letter. The Trustee shall be entitled but not obligated to
recover from any Holder of a Residual Certificate that was in
fact not a Permitted Transferee at the time it became a Holder
or, at such subsequent time as it became other than a
Permitted Transferee, all payments made on such Residual
Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and delivered by the
Trustee to the last preceding Permitted Transferee of such
Certificate.
(v) The Depositor shall use its best efforts to make
available, upon receipt of written request from the Trustee,
all information necessary to compute any tax imposed under
Section 860E(e) of the Code as a result of a Transfer of an
Ownership Interest in a Residual Certificate to any Holder who
is not a Permitted Transferee.
The restrictions on Transfers of a Residual Certificate set
forth in this Section 5.02(c) shall cease to apply (and the applicable portions
of the legend on a Residual Certificate may be deleted) with respect to
Transfers occurring after delivery to the Trustee of an Opinion of Counsel,
which Opinion of Counsel shall not be an expense of the Trust Fund, the Trustee,
the Seller or the Master Servicer, to the effect that the elimination of such
restrictions will not cause the REMIC hereunder to fail to qualify as a REMIC at
any time that the Certificates are outstanding or result in the imposition of
any tax on the Trust Fund, a Certificateholder or another Person. Each Person
holding or acquiring any Ownership Interest in a Residual
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Certificate hereby consents to any amendment of this Agreement which, based on
an Opinion of Counsel furnished to the Trustee, is reasonably necessary (a) to
ensure that the record ownership of, or any beneficial interest in, a Residual
Certificate is not transferred, directly or indirectly, to a Person that is not
a Permitted Transferee and (b) to provide for a means to compel the Transfer of
a Residual Certificate which is held by a Person that is not a Permitted
Transferee to a Holder that is a Permitted Transferee.
(d) The preparation and delivery of all certificates and
opinions referred to above in this Section 5.02 in connection with transfer
shall be at the expense of the parties to such transfers.
(e) Except as provided below, the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of the Certificates may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Book-Entry Certificates; (iii)
ownership and transfers of registration of the Book-Entry Certificates on the
books of the Depository shall be governed by applicable rules established by the
Depository; (iv) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (v) the Trustee shall
deal with the Depository, Depository Participants and indirect participating
firms as representatives of the Certificate Owners of the Book-Entry
Certificates for purposes of exercising the rights of holders under this
Agreement, and requests and directions for and votes of such representatives
shall not be deemed to be inconsistent if they are made with respect to
different Certificate Owners; and (vi) the Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository with respect
to its Depository Participants and furnished by the Depository Participants with
respect to indirect participating firms and persons shown on the books of such
indirect participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
If (x) (i) the Depository or the Depositor advises the Trustee
in writing that the Depository is no longer willing or able to properly
discharge its responsibilities as Depository, and (ii) the Trustee or the
Depositor is unable to locate a qualified successor, (y) the Depositor at its
option advises the Trustee in writing that it elects to terminate the book-entry
system through the Depository or (z) after the occurrence of an Event of
Default, Certificate Owners representing at least 51% of the Certificate Balance
of the Book-Entry Certificates together advise the Trustee and the Depository
through the Depository Participants in writing that the continuation of a
book-entry system through the Depository is no longer in the best interests of
the Certificate Owners, the Trustee shall notify all Certificate Owners, through
the Depository, of the occurrence of any such event and of the availability of
definitive, fully-registered Certificates (the "Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of the
related Class of Certificates by the Depository, accompanied by the instructions
from the Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee shall
be liable for any delay in delivery of
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such instruction and each may conclusively rely on, and shall be protected in
relying on, such instructions. The Master Servicer shall provide the Trustee
with an adequate inventory of certificates to facilitate the issuance and
transfer of Definitive Certificates. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or to be
performed by the Depository shall be deemed to be imposed upon and performed by
the Trustee, to the extent applicable with respect to such Definitive
Certificates and the Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder; provided that the Trustee shall
not by virtue of its assumption of such obligations become liable to any party
for any act or failure to act of the Depository.
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the
Trustee, or the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there is delivered to the
Master Servicer and the Trustee such security or indemnity as may be required by
them to hold each of them harmless, then, in the absence of notice to the
Trustee that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute, countersign and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like Class, tenor and Percentage Interest. In connection with the issuance of
any new Certificate under this Section 5.03, the Trustee may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith. Any replacement Certificate issued
pursuant to this Section 5.03 shall constitute complete and indefeasible
evidence of ownership, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
Section 5.04. Persons Deemed Owners.
The Master Servicer, the Trustee and any agent of the Master
Servicer or the Trustee may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions as provided in this Agreement and for all other purposes
whatsoever, and neither the Master Servicer, the Trustee nor any agent of the
Master Servicer or the Trustee shall be affected by any notice to the contrary.
Section 5.05. Access to List of Certificateholders' Names and
Addresses.
If three or more Certificateholders (a) request such
information in writing from the Trustee, (b) state that such Certificateholders
desire to communicate with other Certificateholders with respect to their rights
under this Agreement or under the Certificates, and (c) provide a copy of the
communication which such Certificateholders propose to transmit, or if the
Depositor or Master Servicer shall request such information in writing from the
Trustee, then the Trustee shall, within ten Business Days after the receipt of
such request, provide the Depositor, the Master Servicer or such
Certificateholders at such recipients' expense the most recent list of the
Certificateholders of such Trust Fund held by the Trustee, if any. The Depositor
and every Certificateholder, by receiving and holding a Certificate, agree that
the Trustee shall not be held accountable by reason of the disclosure of any
such information as to the list of the Certificateholders hereunder, regardless
of the source from which such information was derived.
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Section 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its
expense an office or offices or agency or agencies in New York City where
Certificates may be surrendered for registration of transfer or exchange. The
Trustee initially designates its Corporate Trust Office for such purposes. The
Trustee will give prompt written notice to the Certificateholders of any change
in such location of any such office or agency.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
Section 6.01. Respective Liabilities of the Depositor and the
Master Servicer.
The Depositor and the Master Servicer shall each be liable in
accordance herewith only to the extent of the obligations specifically and
respectively imposed upon and undertaken by them herein.
Section 6.02. Merger or Consolidation of the Depositor or the
Master Servicer.
The Depositor and the Master Servicer will each keep in full
effect its existence, rights and franchises as a corporation under the laws of
the United States or under the laws of one of the states thereof and will each
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, or any of the
Mortgage Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Master Servicer may
be merged or consolidated, or any Person resulting from any merger or
consolidation to which the Depositor or the Master Servicer shall be a party, or
any person succeeding to the business of the Depositor or the Master Servicer,
shall be the successor of the Depositor or the Master Servicer, as the case may
be, hereunder, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.
Section 6.03. Limitation on Liability of the Depositor, the Seller,
the Master Servicer and Others.
None of the Depositor, the Seller, the Master Servicer or any
of the directors, officers, employees or agents of the Depositor, the Seller or
the Master Servicer shall be under any liability to the Certificateholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Seller, the Master Servicer
or any such Person against any breach of representations or warranties made by
it herein or protect the Depositor, the Seller, the Master Servicer or any such
Person from any liability which would otherwise be imposed by reasons of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Seller, the Master Servicer and any director, officer, employee or agent of
the Depositor, the Seller or the Master Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Depositor, the Seller, the Master
Servicer and any director, officer, employee or agent of the Depositor, the
Seller or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense related to
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any specific Mortgage Loan or Mortgage Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties hereunder or by
reason of reckless disregard of obligations and duties hereunder. None of the
Depositor, the Seller or the Master Servicer shall be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
respective duties hereunder and which in its opinion may involve it in any
expense or liability; provided, however, that any of the Depositor, the Seller
or the Master Servicer may in its discretion undertake any such action that it
may deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties hereto and interests of the Trustee and the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Seller and the Master
Servicer shall be entitled to be reimbursed therefor out of the Certificate
Account.
Section 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (a) upon appointment of a successor servicer
and receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination under clause
(b) permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.
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ARTICLE VII
DEFAULT
Section 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to deposit in
the Certificate Account or remit to the Trustee any payment
required to be made under the terms of this Agreement, which
failure shall continue unremedied for five days after the date
upon which written notice of such failure shall have been
given to the Master Servicer by the Trustee or the Depositor
or to the Master Servicer and the Trustee by the Holders of
Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates; or
(ii) any failure by the Master Servicer to observe or
perform in any material respect any other of the covenants or
agreements on the part of the Master Servicer contained in
this Agreement that materially affects the rights of
Certificateholders, which failure shall continue unremedied
for a period of 60 days after the date on which written notice
of such failure shall have been given to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer and
the Trustee by the Holders of Certificates evidencing not less
than 25% of the Voting Rights evidenced by the Certificates;
or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for
the appointment of a receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 consecutive days;
or
(iv) the Master Servicer shall consent to the
appointment of a receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or
all or substantially all of the property of the Master
Servicer; or
(v) the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of, or commence a voluntary case
under, any applicable insolvency or reorganization statute,
make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations.
If an Event of Default described in clauses (i) to (v) of this
Section 7.01 shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Trustee may, or at the
direction of the Holders of Certificates evidencing not less than 66 2/3% of the
Voting Rights evidenced by the Certificates, the Trustee shall by notice in
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writing to the Master Servicer (with a copy to each Rating Agency), terminate
all of the rights and obligations of the Master Servicer under this Agreement
and in and to the Mortgage Loans and the proceeds thereof, other than its rights
as a Certificateholder hereunder. On and after the receipt by the Master
Servicer of such written notice, all authority and power of the Master Servicer
hereunder, whether with respect to the Mortgage Loans or otherwise, shall pass
to and be vested in the Trustee. The Trustee shall make any Advance which the
Master Servicer failed to make subject to Section 3.04, whether or not the
obligations of the Master Servicer have been terminated pursuant to this
Section. The Trustee is hereby authorized and empowered to execute and deliver,
on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. Unless expressly
provided in such written notice, no such termination shall affect any obligation
of the Master Servicer to pay amounts owed pursuant to Article VIII. The Master
Servicer agrees to cooperate with the Trustee in effecting the termination of
the Master Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Trustee of all cash amounts which shall at the
time be credited to the Certificate Account, or thereafter be received with
respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the
Master Servicer hereunder, the Master Servicer shall be entitled to receive, out
of any late collection of a Scheduled Payment on a Mortgage Loan which was due
prior to the notice terminating such Master Servicer's rights and obligations as
Master Servicer hereunder and received after such notice, that portion thereof
to which such Master Servicer would have been entitled pursuant to Sections
3.11(a)(i) through (viii), and any other amounts payable to such Master Servicer
hereunder the entitlement to which arose prior to the termination of its
activities hereunder.
Section 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01, the Trustee shall, subject to and to the
extent provided in Section 3.07, be the successor to the Master Servicer in its
capacity as master servicer under this Agreement and the transactions set forth
or provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof and applicable law including the obligation to make Advances
pursuant to Section 4.01. As compensation therefor, the Trustee shall be
entitled to all funds relating to the Mortgage Loans that the Master Servicer
would have been entitled to charge to the Certificate Account or Distribution
Account if the Master Servicer had continued to act hereunder. Notwithstanding
the foregoing, if the Trustee has become the successor to the Master Servicer in
accordance with Section 7.01, the Trustee may, if it shall be unwilling to so
act, or shall, if it is prohibited by applicable law from making Advances
pursuant to Section 4.01 or if it is otherwise unable to so act, appoint, or
petition a court of competent jurisdiction to appoint, any established mortgage
loan servicing institution the appointment of which does not adversely affect
the then current rating of the Certificates, by each Rating Agency, as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Any successor to the Master Servicer shall be an institution which is a FNMA and
FHLMC approved seller/servicer in good standing, which has a net worth of at
least $15,000,000, which is willing to service the Mortgage Loans and which
executes and
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delivers to the Depositor and the Trustee an agreement accepting such delegation
and assignment, containing an assumption by such Person of the rights, powers,
duties, responsibilities, obligations and liabilities of the Master Servicer
(other than liabilities of the Master Servicer under Section 6.03 incurred prior
to termination of the Master Servicer under Section 7.01), with like effect as
if originally named as a party to this Agreement; provided that each Rating
Agency acknowledges that its rating of the Certificates in effect immediately
prior to such assignment and delegation will not be qualified or reduced as a
result of such assignment and delegation. Pending appointment of a successor to
the Master Servicer hereunder, the Trustee, unless the Trustee is prohibited by
law from so acting, shall, subject to Section 3.07, act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
Trustee may make such arrangements for the compensation of such successor out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of the Master Servicing
Fee permitted the Master Servicer hereunder. The Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. Neither the Trustee nor any other successor
master servicer shall be deemed to be in default hereunder by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof or any failure to perform, or any delay in performing, any
duties or responsibilities hereunder, in either case caused by the failure of
the Master Servicer to deliver or provide, or any delay in delivering or
providing, any cash, information, documents or records to it.
Any successor to the Master Servicer as master servicer shall
give notice to the Mortgagors of such change of servicer and shall, during the
term of its service as master servicer, maintain in force the policy or policies
that the Master Servicer is required to maintain pursuant to Section 6.05.
Section 7.03. Notification to Certificateholders.
(a) Upon any termination of or appointment of a successor to
the Master Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders and to each Rating Agency.
(b) Within 60 days after the occurrence of any Event of
Default, the Trustee shall transmit by mail to all Certificateholders notice of
each such Event of Default hereunder known to the Trustee, unless such Event of
Default shall have been cured or waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of the Trustee.
The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform such duties and only such duties as are specifically set
forth in this Agreement. In case an Event of Default has occurred and remains
uncured, the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that the Trustee shall
not be responsible for the accuracy or content of any such resolution,
certificate, statement, opinion, report, document, order or other instrument.
No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct; provided, however, that:
(i) unless an Event of Default known to the Trustee
shall have occurred and be continuing, the duties and
obligations of the Trustee shall be determined solely by the
express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement,
no implied covenants or obligations shall be read into this
Agreement against the Trustee and the Trustee may conclusively
rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Agreement which it believed in good faith
to be genuine and to have been duly executed by the proper
authorities respecting any matters arising hereunder;
(ii) the Trustee shall not be liable for an error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be
finally proven that the Trustee was negligent in ascertaining
the pertinent facts; and
(iii) the Trustee shall not be liable with respect to
any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of Holders of
Certificates evidencing not less than 25% of the Voting Rights
of Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee under this Agreement.
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Section 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee may request and rely upon and shall
be protected in acting or refraining from acting upon any
resolution, Officers' Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties and
the Trustee shall have no responsibility to ascertain or
confirm the genuineness of any signature of any such party or
parties;
(ii) the Trustee may consult with counsel, financial
advisers or accountants and the advice of any such counsel,
financial advisers or accountants and any Opinion of Counsel
shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of
Counsel;
(iii) the Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by
it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement;
(iv) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing so to do
by Holders of Certificates evidencing not less than 25% of the
Voting Rights allocated to each Class of Certificates;
(v) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents, accountants or attorneys;
(vi) the Trustee shall not be required to risk or
expend its own funds or otherwise incur any financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers hereunder if it shall
have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is
not assured to it;
(vii) the Trustee shall not be liable for any loss on
any investment of funds pursuant to this Agreement (other than
as issuer of the investment security);
(viii) the Trustee shall not be deemed to have
knowledge of an Event of Default until a Responsible Officer
of the Trustee shall have received written notice thereof; and
(ix) the Trustee shall be under no obligation to
exercise any of the trusts, rights or powers vested in it by
this Agreement or to institute, conduct or defend any
litigation hereunder or in relation hereto at the request,
order or
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direction of any of the Certificateholders, pursuant
to the provisions of this Agreement, unless such
Certificateholders shall have offered to the Trustee
reasonable security or indemnity satisfactory to the Trustee
against the costs, expenses and liabilities which may be
incurred therein or thereby.
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates shall be
taken as the statements of the Depositor or the Seller, as the case may be, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and countersignature of the Certificates. The Trustee
shall not be accountable for the use or application by the Depositor or the
Master Servicer of any funds paid to the Depositor or the Master Servicer in
respect of the Mortgage Loans or deposited in or withdrawn from the Certificate
Account by the Depositor or the Master Servicer.
Section 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates with the same rights as it would have if it
were not the Trustee.
Section 8.05. Trustee's Fees and Expenses.
The Trustee, as compensation for its activities hereunder,
shall be entitled to withdraw from the Distribution Account on each Distribution
Date an amount equal to the Trustee Fee for such Distribution Date. The Trustee
and any director, officer, employee or agent of the Trustee shall be indemnified
by the Master Servicer and held harmless against any loss, liability or expense
(including reasonable attorney's fees) (i) incurred in connection with any claim
or legal action relating to (a) this Agreement, (b) the Certificates, or (c) the
performance of any of the Trustee's duties hereunder, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of any of the Trustee's duties hereunder or
incurred by reason of any action of the Trustee taken at the direction of the
Certificateholders and (ii) resulting from any error in any tax or information
return prepared by the Master Servicer. Such indemnity shall survive the
termination of this Agreement or the resignation or removal of the Trustee
hereunder. Without limiting the foregoing, the Master Servicer covenants and
agrees, except as otherwise agreed upon in writing by the Depositor and the
Trustee, and except for any such expense, disbursement or advance as may arise
from the Trustee's negligence, bad faith or willful misconduct, to pay or
reimburse the Trustee, for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement with respect to (A) the reasonable compensation and the expenses and
disbursements of its counsel not associated with the closing of the issuance of
the Certificates, (B) the reasonable compensation, expenses and disbursements of
any accountant, engineer or appraiser that is not regularly employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates. Except as otherwise provided herein, the
Trustee shall not be entitled to payment or reimbursement for any
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routine ongoing expenses incurred by the Trustee in the ordinary course of its
duties as Trustee, Registrar, Tax Matters Person or Paying Agent hereunder or
for any other expenses.
Section 8.06. Eligibility Requirements for the Trustee.
The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of a state or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, subject
to supervision or examination by federal or state authority and with a credit
rating which would not cause either of the Rating Agencies to reduce their
respective then current ratings of the Certificates (or having provided such
security from time to time as is sufficient to avoid such reduction) as
evidenced in writing by each Rating Agency. If such corporation or association
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 8.06 the combined capital and surplus of such
corporation or association shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.07. The entity serving as
Trustee may have normal banking and trust relationships with the Depositor and
its affiliates or the Master Servicer and its affiliates; provided, however,
that such entity cannot be an affiliate of the Seller, the Depositor or the
Master Servicer other than the Trustee in its role as successor to the Master
Servicer.
Section 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the
trusts hereby created by giving written notice of resignation to the Depositor,
the Master Servicer and each Rating Agency not less than 60 days before the date
specified in such notice, when, subject to Section 8.08, such resignation is to
take effect, and acceptance by a successor trustee in accordance with Section
8.08 meeting the qualifications set forth in Section 8.06. If no successor
trustee meeting such qualifications shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice or
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request thereto by the Depositor, or if at any time the Trustee shall
become incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Master Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate, one copy of which shall be delivered to the Trustee, one copy to the
Master Servicer and one copy to the successor trustee.
The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or
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<PAGE>
instruments, in triplicate, signed by such Holders or their attorneys-in-fact
duly authorized, one complete set of which shall be delivered by the successor
Trustee to the Master Servicer, one complete set to the Trustee so removed and
one complete set to the successor so appointed. Notice of any removal of the
Trustee shall be given to each Rating Agency by the successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.07 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.08.
Section 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee and the Master Servicer an instrument accepting such appointment
hereunder and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The Depositor, the Master Servicer and the predecessor
trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully and certainly vesting and confirming
in the successor trustee all such rights, powers, duties, and obligations.
No successor trustee shall accept appointment as provided in
this Section 8.08 unless at the time of such acceptance such successor trustee
shall be eligible under the provisions of Section 8.06 and its appointment shall
not adversely affect the then current rating of the Certificates.
Upon acceptance of appointment by a successor trustee as
provided in this Section 8.08, the Depositor shall mail notice of the succession
of such trustee hereunder to all Holders of Certificates. If the Depositor fails
to mail such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Depositor.
Section 8.09. Merger or Consolidation of the Trustee.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 8.06 without the execution or filing of
any paper or further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust
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Fund or property securing any Mortgage Note may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee to act as co-trustee or co-trustees jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust Fund or any part thereof, whichever
is applicable, and, subject to the other provisions of this Section 8.10, such
powers, duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. If the Master Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request to do so, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) To the extent necessary to effectuate the
purposes of this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee, except for
the obligation of the Trustee under this Agreement to advance
funds on behalf of the Master Servicer, shall be conferred or
imposed upon and exercised or performed by the Trustee and
such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in
such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to the
Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the
holding of title to the applicable Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally
liable by reason of any act or omission of any other trustee
hereunder and such appointment shall not, and shall not be
deemed to, constitute any such separate trustee or co-trustee
as agent of the Trustee;
(iii) The Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee;
and
(iv) The Master Servicer, and not the Trustee, shall
be liable for the payment of reasonable compensation,
reimbursement and indemnification to any such separate trustee
or co-trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the separate trustees and
co-trustees, when and as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
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Agreement and the conditions of this Article VIII. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee and a copy thereof given to the Master Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 8.11. Tax Matters.
It is intended that the assets with respect to which the REMIC
election pertaining to the Trust Fund is to be made, as set forth in the
Preliminary Statement, shall constitute, and that the conduct of matters
relating to such assets shall be such as to qualify such assets as, a "real
estate mortgage investment conduit" as defined in and in accordance with the
REMIC Provisions. In furtherance of such intention, the Trustee covenants and
agrees that it shall act as agent (and the Trustee is hereby appointed to act as
agent) on behalf of the REMIC and that in such capacity it shall: (a) prepare
and file, or cause to be prepared and filed, in a timely manner, a U.S. Real
Estate Mortgage Investment Conduit Income Tax Return (Form 1066 or any successor
form adopted by the Internal Revenue Service) and prepare and file or cause to
be prepared and filed with the Internal Revenue Service and applicable state or
local tax authorities income tax or information returns for each taxable year
with respect to the REMIC, containing such information and at the times and in
the manner as may be required by the Code or state or local tax laws,
regulations, or rules, and furnish or cause to be furnished to
Certificateholders the schedules, statements or information at such times and in
such manner as may be required thereby; (b) within thirty days of the Closing
Date, furnish or cause to be furnished to the Internal Revenue Service, on Forms
8811 or as otherwise may be required by the Code, the name, title, address, and
telephone number of the person that the holders of the Certificates may contact
for tax information relating thereto, together with such additional information
as may be required by such Form, and update such information at the time or
times in the manner required by the Code; (c) make or cause to be made an
election that such assets be treated as a REMIC on the federal tax return for
its first taxable year (and, if necessary, under applicable state law); (d)
prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders and to the Internal Revenue Service and, if necessary, state
tax authorities, all information returns and reports as and when required to be
provided to them in accordance with the REMIC Provisions, including without
limitation, the calculation of any original issue discount using the Prepayment
Assumption; (e) provide information necessary for the computation of tax imposed
on the transfer of a Residual Certificate to a Person that is not a Permitted
Transferee, or an agent (including a broker, nominee or other middleman) of a
Non-Permitted Transferee, or a pass-through entity in which a Non-Permitted
Transferee is the record holder of an interest (the reasonable cost of computing
and furnishing such information may be charged to the Person liable for such
tax); (f) to the extent that they are under its control, conduct matters
relating to
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such assets at all times that any Certificates are outstanding so as to maintain
the status as a REMIC under the REMIC Provisions; (g) not knowingly or
intentionally take any action or omit to take any action that would cause the
termination of the REMIC's status; (h) pay, from the sources specified in the
last paragraph of this Section 8.11, the amount of any federal or state tax,
including prohibited transaction taxes as described below, imposed on the REMIC
prior to its termination when and as the same shall be due and payable (but such
obligation shall not prevent the Trustee or any other appropriate Person from
contesting any such tax in appropriate proceedings and shall not prevent the
Trustee from withholding payment of such tax, if permitted by law, pending the
outcome of such proceedings); (i) ensure that federal, state or local income tax
or information returns shall be signed by the Trustee or such other person as
may be required to sign such returns by the Code or state or local laws,
regulations or rules; (j) maintain records relating to the REMIC, including but
not limited to the income, expenses, assets and liabilities thereof and the fair
market value and adjusted basis of the assets determined at such intervals as
may be required by the Code, as may be necessary to prepare the foregoing
returns, schedules, statements or information; and (k) as and when necessary and
appropriate, represent the REMIC in any administrative or judicial proceedings
relating to an examination or audit by any governmental taxing authority,
request an administrative adjustment as to any taxable year of the REMIC, enter
into settlement agreements with any governmental taxing agency, extend any
statute of limitations relating to any tax item of the REMIC, and otherwise act
on behalf of the REMIC in relation to any tax matter or controversy involving
it.
In order to enable the Trustee to perform its duties as set
forth herein, the Depositor shall provide, or cause to be provided, to the
Trustee within ten (10) days after the Closing Date all information or data that
the Trustee requests in writing and determines to be relevant for tax purposes
to the valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee promptly upon written request therefor any such additional
information or data that the Trustee may, from time to time, reasonably request
in order to enable the Trustee to perform its duties as set forth herein. The
Depositor hereby indemnifies the Trustee for any losses, liabilities, damages,
claims or expenses of the Trustee arising from any errors or miscalculations of
the Trustee that result from any failure of the Depositor to provide, or to
cause to be provided, accurate information or data to the Trustee on a timely
basis.
In the event that any tax is imposed on "prohibited
transactions" of the REMIC as defined in Section 860F(a)(2) of the Code, on the
"net income from foreclosure property" of the REMIC as defined in Section
860G(c) of the Code, on any contribution to the REMIC after the Startup Day
pursuant to Section 860G(d) of the Code, or any other tax is imposed, including,
without limitation, any minimum tax imposed upon the REMIC pursuant to Sections
23153 and 24874 of the California Revenue and Taxation Code, if not paid as
otherwise provided for herein, such tax shall be paid by (i) the Trustee, if any
such other tax arises out of or results from a breach by the Trustee of any of
its obligations under this Agreement, (ii) the Master Servicer or the Seller, in
the case of any such minimum tax, if such tax arises out of or results from a
breach by the Master Servicer or Seller of any of their obligations under this
Agreement or (iii) the Seller, if any such tax arises out of or results from the
Seller's obligation to repurchase a Mortgage Loan pursuant to Section 2.02 or
2.03 or (iv) in all other cases, or in the event that the Trustee, the Master
Servicer or the Seller fails to honor its obligations under the preceding
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clauses (i), (ii) or (iii), any such tax will be paid with amounts otherwise to
be distributed to the Certificateholders, as provided in Section 3.11(b).
Section 8.12. Periodic Filings.
Pursuant to written instructions from the Depositor, the
Trustee shall prepare, execute and file all periodic reports required under the
Securities Exchange Act of 1934 in conformity with the terms of the relief
granted to issuers similar to the Trust Fund. In connection with the preparation
and filing of such periodic reports, the Depositor and the Master Servicer shall
timely provide to the Trustee all material information available to them which
is required to be included in such reports and not known to them to be in the
possession of the Trustee and such other information as the Trustee reasonably
may request from either of them and otherwise reasonably shall cooperate with
the Trustee. The Trustee shall have no liability with respect to any failure to
properly prepare or file such periodic reports resulting from or relating to the
Trustee's inability or failure to obtain any information not resulting from its
own negligence or willful misconduct.
VIII-9
<PAGE>
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Liquidation or Purchase of all
Mortgage Loans.
Subject to Section 9.03, the obligations and responsibilities
of the Depositor, the Master Servicer and the Trustee created hereby with
respect to the Trust Fund shall terminate upon the earlier of (a) the purchase
by the Master Servicer of all Mortgage Loans (and REO Properties) remaining in
the Trust Fund at the price equal to the sum of (i) 100% of the Stated Principal
Balance of each Mortgage Loan (other than in respect of REO Property) plus one
month's accrued interest thereon at the applicable Adjusted Mortgage Rate and
(ii) the lesser of (x) the appraised value of any REO Property as determined by
the higher of two appraisals completed by two independent appraisers selected by
the Master Servicer at the expense of the Master Servicer and (y) the Stated
Principal Balance of each Mortgage Loan related to any REO Property, in each
case plus accrued and unpaid interest thereon at the applicable Adjusted
Mortgage Rate and (b) the later of (i) the maturity or other liquidation (or any
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund and the disposition of all REO Property and (ii) the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
this Agreement. In no event shall the trusts created hereby continue beyond the
earlier of (i) the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James's, living on the date hereof and (ii) the Latest Possible
Maturity Date. The right to purchase all Mortgage Loans and REO Properties
pursuant to clause (a) above shall be conditioned upon the Pool Stated Principal
Balance, at the time of any such repurchase, aggregating less than ten percent
of the Cut-off Date Pool Principal Balance.
Section 9.02. Final Distribution on the Certificates.
If on any Determination Date, the Master Servicer determines
that there are no Outstanding Mortgage Loans and no other funds or assets in the
Trust Fund other than the funds in the Certificate Account, the Master Servicer
shall direct the Trustee promptly to send a final distribution notice to each
Certificateholder. If the Master Servicer elects to terminate the Trust Fund
pursuant to clause (a) of Section 9.01, at least 20 days prior to the date
notice is to be mailed to the affected Certificateholders the Master Servicer
shall notify the Depositor and the Trustee of the date the Master Servicer
intends to terminate the Trust Fund and of the applicable repurchase price of
the Mortgage Loans and REO Properties.
Notice of any termination of the Trust Fund, specifying the
Distribution Date on which Certificateholders may surrender their Certificates
for payment of the final distribution and cancellation, shall be given promptly
by the Trustee by letter to Certificateholders mailed not earlier than the 15th
day and not later than the 10th day of the month next preceding the month of
such final distribution. Any such notice shall specify (a) the Distribution Date
upon which final distribution on the Certificates will be made upon presentation
and surrender of Certificates at the office therein designated, (b) the amount
of such final distribution, (c) the location of the office or agency at which
such presentation and surrender must be made, and (d) that the Record Date
otherwise applicable to such Distribution Date is not applicable, distributions
being made only upon presentation and surrender of the Certificates at the
office therein specified. The
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Master Servicer will give such notice to each Rating Agency at the time such
notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the
Trustee shall cause to be distributed to the Certificateholders of each Class,
in each case on the final Distribution Date and in the order set forth in
Section 4.02, in the case of the Certificateholders, in proportion to their
respective Percentage Interests, with respect to Certificateholders of the same
Class, an amount equal to (i) as to each Class of Regular Certificates, the
Certificate Balance thereof plus accrued interest thereon (or on their Notional
Amount, if applicable) and (ii) as to the Residual Certificates, the amount, if
any, which remains on deposit in the Distribution Account (other than the
amounts retained to meet claims) after application pursuant to clause (i) above.
In the event that any affected Certificateholders shall not
surrender Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice all the applicable
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain a part of the Trust Fund. If within one year after the
second notice all Certificates shall not have been surrendered for cancellation,
the Class A-R Certificateholders shall be entitled to all unclaimed funds and
other assets of the Trust Fund which remain subject hereto.
Section 9.03. Additional Termination Requirements.
(a) In the event the Master Servicer exercises its purchase
option as provided in Section 9.01, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Trustee has
been supplied with an Opinion of Counsel, at the expense of the Master Servicer,
to the effect that the failure to comply with the requirements of this Section
9.03 will not (i) result in the imposition of taxes on "prohibited transactions"
on the REMIC as defined in Section 860F of the Code, or (ii) cause the REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding:
(1) Within 90 days prior to the final
Distribution Date set forth in the notice given by the Master
Servicer under Section 9.02, the Master Servicer shall prepare
and the Trustee, at the expense of the "tax matters person",
shall adopt a plan of complete liquidation within the meaning
of Section 860F(a)(4) of the Code which, as evidenced by an
Opinion of Counsel (which opinion shall not be an expense of
the Trustee, the Tax Matters Person or the Trust Fund), meets
the requirements of a qualified liquidation; and
(2) Within 90 days after the time of
adoption of such a plan of complete liquidation, the Trustee
shall sell all of the assets of the Trust Fund to the Master
Servicer for cash in accordance with Section 9.01.
(b) The Trustee as agent for the REMIC hereby agrees to adopt
and sign such a plan of complete liquidation upon the written request of the
Master Servicer, and the receipt of
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the Opinion of Counsel referred to in Section 9.03(a)(1) and to take such other
action in connection therewith as may be reasonably requested by the Master
Servicer.
(c) By their acceptance of the Certificates, the Holders
thereof hereby authorize the Master Servicer to prepare and the Trustee to adopt
and sign a plan of complete liquidation.
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ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment.
This Agreement may be amended from time to time by the
Depositor, the Master Servicer and the Trustee without the consent of any of the
Certificateholders (i) to cure any ambiguity or mistake, (ii) to correct any
defective provision herein or to supplement any provision herein which may be
inconsistent with any other provision herein, (iii) to add to the duties of the
Depositor, the Seller or the Master Servicer, (iv) to add any other provisions
with respect to matters or questions arising hereunder or (v) to modify, alter,
amend, add to or rescind any of the terms or provisions contained in this
Agreement; provided that any action pursuant to clauses (iv) or (v) above shall
not, as evidenced by an Opinion of Counsel (which Opinion of Counsel shall not
be an expense of the Trustee or the Trust Fund), adversely affect in any
material respect the interests of any Certificateholder; provided, however, that
no such Opinion of Counsel shall be required if the Person requesting the
amendment obtains a letter from each Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Certificates; it being understood and agreed that any such
letter in and of itself will not represent a determination as to the materiality
of any such amendment and will represent a determination only as to the credit
issues affecting any such rating.
The Trustee, the Depositor and the Master Servicer also may at
any time and from time to time amend this Agreement without the consent of the
Certificateholders to modify, eliminate or add to any of its provisions to such
extent as shall be necessary or helpful to (i) maintain the qualification of the
REMIC as a REMIC under the Code, (ii) avoid or minimize the risk of the
imposition of any tax on the REMIC pursuant to the Code that would be a claim at
any time prior to the final redemption of the Certificates or (iii) comply with
any other requirements of the Code, provided that the Trustee has been provided
an Opinion of Counsel, which opinion shall be an expense of the party requesting
such opinion but in any case shall not be an expense of the Trustee or the Trust
Fund, to the effect that such action is necessary or helpful to, as applicable,
(i) maintain such qualification, (ii) avoid or minimize the risk of the
imposition of such a tax or (iii) comply with any such requirements of the Code.
This Agreement may also be amended from time to time by the
Depositor, the Master Servicer and the Trustee with the consent of the Holders
of a Majority in Interest of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66%, or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding.
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Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, which opinion shall not be an expense
of the Trustee or the Trust Fund, to the effect that such amendment will not
cause the imposition of any tax on the REMIC or the Certificateholders or cause
the REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding.
Promptly after the execution of any amendment to this
Agreement requiring the consent of Certificateholders, the Trustee shall furnish
written notification of the substance or a copy of such amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter
into an amendment without receiving an Opinion of Counsel (which Opinion shall
not be an expense of the Trustee or the Trust Fund), satisfactory to the Trustee
that (i) such amendment is permitted and is not prohibited by this Agreement and
that all requirements for amending this Agreement have been complied with; and
(ii) either (A) the amendment does not adversely affect in any material respect
the interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 10.01.
Section 10.02. Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at its expense, but only
upon direction by the Trustee accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
Section 10.03. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND THE
CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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<PAGE>
Section 10.04. Intention of Parties.
It is the express intent of the parties hereto that the
conveyance (i) of the Mortgage Loans by the Seller to the Depositor and (ii) of
the Trust Fund by the Depositor to the Trustee each be, and be construed as, an
absolute sale thereof. It is, further, not the intention of the parties that
such conveyances be deemed a pledge thereof. However, in the event that,
notwithstanding the intent of the parties, such assets are held to be the
property of the Seller or Depositor, as the case may be, or if for any other
reason this Agreement is held or deemed to create a security interest in either
such assets, then (i) this Agreement shall be deemed to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyances provided for in this Agreement shall be deemed to be an
assignment and a grant (i) by the Seller to the Depositor or (ii) by the
Depositor to the Trustee, for the benefit of the Certificateholders, of a
security interest in all of the assets transferred, whether now owned or
hereafter acquired.
The Seller and the Depositor for the benefit of the
Certificateholders shall, to the extent consistent with this Agreement, take
such actions as may be necessary to ensure that, if this Agreement were deemed
to create a security interest in the Trust Fund, such security interest would be
deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of the Agreement. The
Depositor shall arrange for filing any Uniform Commercial Code continuation
statements in connection with any security interest granted or assigned to the
Trustee for the benefit of the Certificateholders.
Section 10.05. Notices.
(a) The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee and the appointment of any successor;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.03; and
5. The final payment to Certificateholders.
In addition, the Trustee shall promptly furnish to each Rating
Agency copies of the following:
1. Each report to Certificateholders described in
Section 4.06;
2. Each annual statement as to compliance described
in Section 3.16;
3. Each annual independent public accountants'
servicing report described in Section 3.17; and
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4. Any notice of a purchase of a Mortgage Loan
pursuant to Section 2.02, 2.03 or 3.11.
(b) All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when delivered to (a) in the
case of the Depositor, [IndyMac MBS, Inc.], 155 North Lake Avenue, Pasadena,
California 91101, Attention: David A. Spector, (b) in the case of the Master
Servicer, [IndyMac, Inc.], 155 North Lake Avenue, Pasadena, California 91101,
Attention: Secondary Marketing or such other address as may be hereafter
furnished to the Depositor and the Trustee by the Master Servicer in writing,
(c) in the case of the Trustee, [The Bank of New York], 101 Barclay Street, 12E,
New York, New York 10286, Attention: Mortgage-Backed Securities Group Series
[ ], or such other address as the Trustee may hereafter furnish to the Depositor
or Master Servicer, and (d) in the case of each of the Rating Agencies, the
address specified therefor in the definition corresponding to the name of such
Rating Agency. Notices to Certificateholders shall be deemed given when mailed,
first class postage prepaid, to their respective addresses appearing in the
Certificate Register.
Section 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
Section 10.07. Assignment.
Notwithstanding anything to the contrary contained herein,
except as provided in Section 6.02, this Agreement may not be assigned by the
Master Servicer without the prior written consent of the Trustee and Depositor.
Section 10.08. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the trust created hereby, nor entitle
such Certificateholder's legal representative or heirs to claim an accounting or
to take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
provided herein) or in any manner otherwise control the operation and management
of the Trust Fund, or the obligations of the parties hereto, nor shall anything
herein set forth or contained in the terms of the Certificates be construed so
as to constitute the Certificateholders from time to time as partners or members
of an association; nor shall any Certificateholder be under any liability to any
third party by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to institute any suit,
action or proceeding in equity or at law upon
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or under or with respect to this Agreement, unless such Holder previously shall
have given to the Trustee a written notice of an Event of Default and of the
continuance thereof, as herein provided, and unless the Holders of Certificates
evidencing not less than 25% of the Voting Rights evidenced by the Certificates
shall also have made written request to the Trustee to institute such action,
suit or proceeding in its own name as Trustee hereunder and shall have offered
to the Trustee such reasonable indemnity as it may require against the costs,
expenses, and liabilities to be incurred therein or thereby, and the Trustee,
for 60 days after its receipt of such notice, request and offer of indemnity
shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder or to enforce any right under this Agreement, except in
the manner herein provided and for the common benefit of all Certificateholders.
For the protection and enforcement of the provisions of this Section 10.08, each
and every Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
Section 10.09. Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice,
it will permit and will cause each Subservicer to permit any representative of
the Depositor or the Trustee during the Master Servicer's normal business hours,
to examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such representative
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested. Any out-of-pocket expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 10.09
shall be borne by the party requesting such inspection; all other such expenses
shall be borne by the Master Servicer or the related Subservicer.
Section 10.10. Certificates Nonassessable and Fully Paid.
It is the intention of the Depositor that Certificateholders
shall not be personally liable for obligations of the Trust Fund, that the
interests in the Trust Fund represented by the Certificates shall be
nonassessable for any reason whatsoever, and that the Certificates, upon due
authentication thereof by the Trustee pursuant to this Agreement, are and shall
be deemed fully paid.
* * * * * *
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IN WITNESS WHEREOF, the Depositor, the Trustee, the Seller and
the Master Servicer have caused their names to be signed hereto by their
respective officers thereunto duly authorized as of the day and year first above
written.
[IndyMac MBS, Inc.],
as Depositor
By:_____________________________________
Name:
Title:
[THE BANK OF NEW YORK],
as Trustee
By:_____________________________________
Name:
Title:
[INDYMAC, INC.],
as Seller and Master Servicer
By:_____________________________________
Name:
Title:
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SCHEDULE I
Mortgage Loan Schedule
[Delivered at Closing to Trustee]
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<PAGE>
SCHEDULE II
[IndyMac MBS, Inc.]
Mortgage Pass-Through Certificates
Series [ ]
Representations and Warranties of the Seller/Master Servicer
[IndyMac, Inc. ("IndyMac")] hereby makes the representations
and warranties set forth in this Schedule II to the Depositor and the Trustee,
as of the Closing Date, or if so specified herein, as of the Cut-off Date.
Capitalized terms used but not otherwise defined in this Schedule II shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among [IndyMac], as seller and master servicer, [IndyMac MBS, Inc.], as
depositor, and [The Bank of New York], as trustee.
(1) [IndyMac], is duly organized as a Delaware
corporation and is validly existing and in good standing under the laws
of the State of Delaware and is duly authorized and qualified to
transact any and all business contemplated by the Pooling and Servicing
Agreement to be conducted by [IndyMac] in any state in which a
Mortgaged Property is located or is otherwise not required under
applicable law to effect such qualification and, in any event, is in
compliance with the doing business laws of any such state, to the
extent necessary to ensure its ability to enforce each Mortgage Loan,
to service the Mortgage Loans in accordance with the terms of the
Pooling and Servicing Agreement and to perform any of its other
obligations under the Pooling and Servicing Agreement in accordance
with the terms thereof.
(2) [IndyMac] has the full corporate power and
authority to sell and service each Mortgage Loan, and to execute,
deliver and perform, and to enter into and consummate the transactions
contemplated by the Pooling and Servicing Agreement and has duly
authorized by all necessary corporate action on the part of [IndyMac]
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties
thereto, constitutes a legal, valid and binding obligation of
[IndyMac], enforceable against [IndyMac] in accordance with its terms,
except that (a) the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(3) The execution and delivery of the Pooling and
Servicing Agreement by [IndyMac] , the sale and servicing of the
Mortgage Loans by [IndyMac] under the Pooling and Servicing Agreement,
the consummation of any other of the transactions contemplated by the
Pooling and Servicing Agreement, and the fulfillment of
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<PAGE>
or compliance with the terms thereof are in the ordinary course of
business of [IndyMac] and will not (A) result in a material breach of
any term or provision of the charter or by-laws of [IndyMac] or (B)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of
any other material agreement or instrument to which [IndyMac] is a
party or by which it may be bound, or (C) constitute a material
violation of any statute, order or regulation applicable to [IndyMac]
of any court, regulatory body, administrative agency or governmental
body having jurisdiction over [IndyMac MBS]; and [IndyMac] is not in
breach or violation of any material indenture or other material
agreement or instrument, or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation
may materially impair [IndyMac's] ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of
[IndyMac's] knowledge, threatened against [IndyMac] that would prohibit
the execution or delivery of, or performance under, the Pooling and
Servicing Agreement by [IndyMac].
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<PAGE>
SCHEDULE III
[IndyMac MBS, Inc.]
Mortgage Pass-Through Certificates
Series [ ]
Representations and Warranties as to the Mortgage Loans
[IndyMac, Inc. ("IndyMac")] hereby makes the representations
and warranties set forth in this Schedule III to the Depositor and the Trustee,
as of the Closing Date, or if so specified herein, as of the Cut-off Date or
date of origination of the Mortgage Loan. Capitalized terms used but not
otherwise defined in this Schedule III shall have the meanings ascribed thereto
in the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
relating to the above-referenced Series, among [IndyMac], as seller and master
servicer, [IndyMac MBS], as depositor, and [The Bank of New York], as trustee.
(1) The information set forth on Schedule I to the
Pooling and Servicing Agreement with respect to each Mortgage Loan is
true and correct in all material respects as of the Closing Date.
(2) As of the Closing Date, all regularly scheduled
monthly payments due with respect to each Mortgage Loan up to and
including the Due Date immediately prior to the Cut-off Date have been
made; and as of the Cut-off Date, no Mortgage Loan had a regularly
scheduled monthly payment that was 60 or more days Delinquent during
the twelve months prior to the Cut-off Date.
(3) With respect to any Mortgage Loan that is not a
Cooperative Loan, each Mortgage is a valid and enforceable first lien
on the Mortgaged Property subject only to (a) the lien of nondelinquent
current real property taxes and assessments and liens or interests
arising under or as a result of any federal, state or local law,
regulation or ordinance relating to hazardous wastes or hazardous
substances and, if the related Mortgaged Property is a unit in a
condominium project or planned unit development, any lien for common
charges permitted by statute or homeowner association fees, (b)
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being generally
acceptable to mortgage lending institutions in the area wherein the
related Mortgaged Property is located or specifically reflected in the
appraisal made in connection with the origination of the related
Mortgage Loan, and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of
the security intended to be provided by such Mortgage.
(4) Immediately prior to the assignment of the
Mortgage Loans to the Depositor, the Seller had good title to, and was
the sole owner of, each Mortgage Loan free and clear of any pledge,
lien, encumbrance or security interest and had full right and
authority, subject to no interest or participation of, or agreement
with, any other party, to sell and assign the same pursuant to the
Pooling and Servicing Agreement.
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<PAGE>
(5) As of the date of origination of each Mortgage
Loan, there was no delinquent tax or assessment lien against the
related Mortgaged Property.
(6) There is no valid offset, defense or counterclaim
to any Mortgage Note or Mortgage, including the obligation of the
Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(7) There are no mechanics' liens or claims for work,
labor or material affecting any Mortgaged Property which are or may be
a lien prior to, or equal with, the lien of such Mortgage, except those
which are insured against by the title insurance policy referred to in
item (11) below.
(8) To the best of the Seller's knowledge, no
Mortgaged Property has been materially damaged by water, fire,
earthquake, windstorm, flood, tornado or similar casualty (excluding
casualty from the presence of hazardous wastes or hazardous substances,
as to which the Seller makes no representation) so as to affect
adversely the value of the related Mortgaged Property as security for
such Mortgage Loan.
(9) Each Mortgage Loan at origination complied in all
material respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity, real estate
settlement procedures, truth-in-lending and disclosure laws or any
noncompliance does not have a material adverse effect on the value of
the related Mortgage Loan.
(10) As of the Closing Date, the Seller has not
modified the Mortgage in any material respect (except that a Mortgage
Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and which has been delivered to the
Trustee); satisfied, cancelled or subordinated such Mortgage in whole
or in part; released the related Mortgaged Property in whole or in part
from the lien of such Mortgage; or executed any instrument of release,
cancellation, modification or satisfaction with respect thereto.
(11) A lender's policy of title insurance together
with a condominium endorsement and extended coverage endorsement, if
applicable, in an amount at least equal to the Cut-off Date Stated
Principal Balance of each such Mortgage Loan or a commitment (binder)
to issue the same was effective on the date of the origination of each
Mortgage Loan, each such policy is valid and remains in full force and
effect.
(12) Each Mortgage Loan was originated (within the
meaning of Section 3(a)(41) of the Securities Exchange Act of 1934, as
amended) by an entity that satisfied at the time of origination the
requirements of Section 3(a)(41) of the Securities Exchange Act of
1934, as amended.
(13) To the best of the Seller's knowledge, all of
the improvements which were included for the purpose of determining the
Appraised Value of the Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the
S-III-2
<PAGE>
Mortgaged Property, unless such failure to be wholly within such
boundaries and restriction lines or such encroachment, as the case may
be, does not have a material effect on the value of such Mortgaged
Property.
(14) To the best of the Seller's knowledge, as of the
date of origination of each Mortgage Loan, no improvement located on or
being part of the Mortgaged Property is in violation of any applicable
zoning law or regulation unless such violation would not have a
material adverse effect on the value of the related Mortgaged Property.
To the best of the Seller's knowledge, all inspections, licenses and
certificates required to be made or issued with respect to all occupied
portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including but not limited to certificates of
occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property.
(15) The Mortgage Note and the related Mortgage are
genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms and under
applicable law.
(16) The proceeds of the Mortgage Loan have been
fully disbursed and there is no requirement for future advances
thereunder.
(17) The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security, including, (i) in the case of
a Mortgage designated as a deed of trust, by trustee's sale, and (ii)
otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a
deed of trust, a trustee, duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by the Certificateholders to the trustee under the deed of
trust, except in connection with a trustee's sale after default by the
Mortgagor.
(19) At the Cut-off Date, the improvements upon each
Mortgaged Property are covered by a valid and existing hazard insurance
policy with a generally acceptable carrier that provides for fire and
extended coverage and coverage for such other hazards as are
customarily required by institutional single family mortgage lenders in
the area where the Mortgaged Property is located, and the Seller has
received no notice that any premiums due and payable thereon have not
been paid; the Mortgage obligates the Mortgagor thereunder to maintain
all such insurance including flood insurance at the Mortgagor's cost
and expense. Anything to the contrary in this item (19)
notwithstanding, no breach of this item (19) shall be deemed to give
rise to any obligation of the Seller to repurchase or substitute for
such affected Mortgage Loan or Loans so long as the Master Servicer
maintains a blanket policy pursuant to the second paragraph of Section
3.12(a) of the Pooling and Servicing Agreement.
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<PAGE>
(20) If at the time of origination of each Mortgage
Loan, the related Mortgaged Property was in an area then identified in
the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form
meeting the then-current requirements of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property
with a generally acceptable carrier.
(21) To the best of the Seller's knowledge, there is
no proceeding pending or threatened for the total or partial
condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring.
(22) To the best of the Seller's knowledge, there is
no material event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a material
non-monetary default, breach, violation or event of acceleration under
the Mortgage or the related Mortgage Note; and the Seller has not
waived any material non-monetary default, breach, violation or event of
acceleration.
(23) Each Mortgage File contains an appraisal of the
related Mortgaged Property in a form acceptable to FNMA or FHLMC.
(24) Any leasehold estate securing a Mortgage Loan
has a stated term at least as long as the term of the related Mortgage
Loan.
(25) Each Mortgage Loan was selected from among the
outstanding fixed-rate one- to four-family mortgage loans in the
Seller's portfolio at the Closing Date as to which the representations
and warranties made with respect to the Mortgage Loans set forth in
this Schedule III can be made. No such selection was made in a manner
intended to adversely affect the interests of the Certificateholders.
(26) No more than [ ]% of the Mortgage Loans (by
aggregate Stated Principal Balance of the Mortgage Loans) are
Cooperative Loans.
(27) Each Cooperative Loan is secured by a valid,
subsisting and enforceable perfected first lien and security interest
in the related Mortgaged Property, subject only to (i) the rights of
the Cooperative Corporation to collect Maintenance and assessments from
the Mortgagor, (ii) the lien of the Blanket Mortgage, if any, on the
Cooperative Property and of real property taxes, water and sewer
charges, rents and assessments on the Cooperative Property not yet due
and payable, and (iii) other matters to which like Cooperative Units
are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Security
Agreement or the use, enjoyment, value or marketability of the
Cooperative Unit. Each original UCC financing statement, continuation
statement or other governmental filing or recordation necessary to
create or preserve the perfection and priority of the first priority
lien and security interest in the Cooperative Shares and Proprietary
Lease has been timely and properly made. Any security agreement,
chattel mortgage or equivalent document related to the Cooperative Loan
and delivered to the Sponsor or its designee establishes in the Seller
a valid and subsisting perfected first lien on and security interest in
the property described therein, and the Seller has full right to sell
and assign the same.
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<PAGE>
(28) Each Cooperative Corporation qualifies as a
"cooperative housing corporation" as defined in Section 216 of the Code.
S-III-5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BROWN & WOOD LLP]
July 14, 1999
IndyMac MBS, Inc.
155 North Lake Avenue
Pasadena, California 91101
Re: IndyMac MBS, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for IndyMac MBS, Inc., a Delaware corporation (the
'Company'), in connection with the preparation and filing of a registration
statement on Form S-3 (the 'Registration Statement') under the Securities Act of
1933, as amended (the '1933 Act'), relating to Mortgage Pass-Through
Certificates (the 'Certificates'), issuable in series (each, a 'Series'). As set
forth in the Registration Statement, each Series of Certificates will be issued
under and pursuant to the conditions of a separate pooling and servicing
agreement (each, a 'Pooling and Servicing Agreement') among the Company, a
trustee, and a master servicer to be identified in the prospectus supplement for
the Series of Certificates (the 'Trustee' and the 'Master Servicer' for the
Series, respectively.)
We have examined copies of the Company's Certificate of Incorporation and
Bylaws, the form of Pooling and Servicing Agreement, the forms of Certificates
included in the Pooling and Servicing Agreement, the Prospectus, 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 a Pooling and Servicing Agreement for a Series of Certificates
has been duly authorized by all necessary action on the part of the Company
and has been duly executed and delivered by the Company, the Master
Servicer, the Trustee, and any other party to it for the Series, the
Pooling and Servicing Agreement will constitute a valid and binding
agreement of the Company, enforceable in accordance with its terms, except
as its enforcement 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 Certificates has been duly authorized by all
necessary action on the part of the Company (subject to its terms being
otherwise in compliance with applicable law at the time), duly executed and
countersigned by the Trustee for the Series in accordance with the terms of
the related Pooling and Servicing Agreement, and issued and delivered
against payment for it as contemplated in the Registration Statement, the
Series of Certificates will be validly issued, fully paid, and
nonassessable, and its holders will be entitled to the benefits of the
related Pooling and Servicing Agreement.
3. The opinion in the Prospectus under the caption 'Material Federal
Income Tax Consequences' is hereby confirmed.
In rendering these opinions, we express no opinion as to the laws of any
jurisdiction other than the laws of the State of New York, the corporate laws of
the State of Delaware, and the federal laws of the United States of America.
<PAGE>
We hereby consent to the use of our name in the Prospectus under the
captions 'Material Federal Income Tax Consequences' and 'Legal Matters,' and to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ BROWN & WOOD LLP
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