<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2000
REGISTRATION NO. 333-82831
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3
TO
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>
DELAWARE APPLIED FOR
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION 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>
=======================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates...... $3,000,000,000 100% $3,000,000,000 $792,014
=======================================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registratrion fee.
(2) Previously paid.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL 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 AUGUST 14, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 2000)
$
(APPROXIMATE)
INDYMAC MBS, INC.
DEPOSITOR
[NEW LOGO TO COME]
[SELLER AND MASTER SERVICER]
RESIDENTIAL ASSET SECURITIZATION TRUST 2000-
ISSUER
DISTRIBUTIONS PAYABLE MONTHLY, BEGINNING , 2000
-------------------
The following classes of certificates are being offered pursuant to this
prospectus supplement and the accompanying prospectus:
<TABLE>
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>
<TABLE>
<S> <C>
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 Class M, Class B-1 and Class B-2 certificates are
subordinated to the other classes of offered
certificates. Subordination provides a form of credit
enhancement for those classes of certificates.
The assets of the trust will consist of a pool of 30-year
conventional fixed-rate mortgage loans secured by first
liens on one- to four-family residential properties.
</TABLE>
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.
[Name of Underwriter] will offer the Class A Certificates to the public at
varying prices to be determined at the time of sale. [Name of Underwriter] will
offer the Class M, Class B-1 and Class B-2 Certificates to the public at varying
prices to be determined at the time of sale. The proceeds to the depositor from
the sale of the offered certificates are expected to be approximately % of
the principal balance of the offered certificates plus accrued interest,
before deducting expenses. The Class PO and Class X Certificates will not be
purchased by the Underwriters. They will be transferred to the seller on or
about , 2000 as partial consideration for the sale of the mortgage loans
to the depositor. See 'Method of Distribution.'
Neither the seller and master servicer nor the depositor is a, nor are
either of them affiliated with any, government agency, instrumentality or
government sponsored enterprise.
[NAME OF UNDERWRITER] [NAME OF UNDERWRITER]
, 2000
<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-40
Credit Enhancement............... S-47
Use of Proceeds.................. S-48
Material Federal Income Tax
Consequences................... S-49
ERISA Considerations............. S-50
Method of Distribution........... S-52
Legal Matters.................... S-53
Ratings.......................... S-53
<CAPTION>
PROSPECTUS PAGE
---------- ----
<S> <C>
Important Notice About Information
in This Prospectus and Each
Accompanying Prospectus
Supplement..................... 3
Risk Factors..................... 4
The Trust Fund................... 11
Use of Proceeds.................. 23
The Depositor.................... 24
Mortgage Loan Program............ 24
Description of the Certificates... 27
Credit Enhancement............... 42
Yield and Prepayment
Considerations................. 47
The Pooling and Servicing
Agreement...................... 48
Certain Legal Aspects of the
Mortgage Loans................. 65
Material Federal Income Tax
Consequences................... 73
State Tax Considerations......... 101
ERISA Considerations............. 101
Legal Investment................. 106
Method of Distribution........... 107
Legal Matters.................... 107
Financial Information............ 107
Rating........................... 108
</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 2000-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
, 2000. The mortgage loans will consist 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
, 2000
CLOSING DATE
On or about, 2000
DEPOSITOR
IndyMac MBS, Inc. is a limited purpose finance subsidiary of IndyMac
Intermediate Holdings, Inc. Its address is 155 North Lake Avenue, Pasadena,
California 91101, and its telephone number is (800) 669-2300.
SELLER AND MASTER SERVICER
[IndyMac Bank, F.S.B.]
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.'
When a borrower makes a full or partial prepayment on a mortgage loan, the
amount of interest which the borrower is required to pay may be less than the
amount of interest certificateholders would otherwise be entitled to receive
with respect to the mortgage loan. The master servicer is required to reduce its
servicing compensation to offset this shortfall but the reduction for any
distribution date is limited to an amount equal to the product of one-twelfth of
% times the pool balance as of the first day of the prior month. If the
aggregate amount of interest shortfalls resulting from prepayments exceeds the
amount of the reduction in the master servicer's servicing compensation, the
interest entitlement for each class of certificates will be reduced
proportionately by the amount of this excess.
See 'Servicing of the Mortgage Loans -- Servicing Compensation and Payment of
Expenses' and ' -- Adjustments to Servicing Compensation in Connection with
Certain Prepaid Mortgage Loans' in this prospectus supplement.
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-31.
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 ,
2000.
See 'Description of the Certificates -- Optional Termination.'
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.
S-4
<PAGE>
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 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 amounts will be allocated pro rata to each
class, even if
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
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;
Declines in the [California] residential real
estate market may reduce the values of properties
located in
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
[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.
[BALLOON LOANS MAY AFFECT A BORROWER'S [With respect to approximately % of the mortgage
ABILITY TO REPAY ITS LOAN] loans (by aggregate principal balance as of the
cut-off date), borrowers make monthly payments of
principal that are less than sufficient to amortize
those mortgage loans by their maturity. These loans
are commonly called 'balloon loans'. As a result of
these lower monthly payments, a borrower generally
will be required to pay a large remaining principal
balance upon the maturity of the balloon loan. The
ability of a borrower to make such a payment may
depend on its ability to obtain refinancing of the
balance due on the mortgage loan. In addition, an
increase in prevailing market interest rates over
the loan rate on the mortgage loan at origination
may reduce the borrower's ability to obtain
refinancing and to pay the principal balance of the
mortgage loan at its maturity. The weighted average
remaining term to maturity of the balloon loans in
the mortgage pool is months.]
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.
</TABLE>
S-9
<PAGE>
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 Bank, F.S.B. ('IndyMac Bank')] pursuant to a pooling
and servicing agreement dated as of the cut-off date among [IndyMac Bank], 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 Bank 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 Bank, 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. A maximum of 5% of the
mortgage loans (by cut-off-date pool principal balance) may deviate from the
mortgage loan characteristics described in this prospectus supplement. 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
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<PAGE>
their scheduled Due Dates will not affect the amortization schedule or the
relative application of 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(1)
<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>
---------
(1) The mortgage loans for which the lender directly acquired mortgage insurance
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 Ratio..........................................
No Doc............................................
--- ------- ------
Total......................................... $ 100.00%
--- ------- ------
--- ------- ------
</TABLE>
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<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<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>
---------
(1) The weighted average original Loan-to-Value Ratio of the mortgage loans is
expected to be approximately %.
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<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.
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<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(1)
<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>
---------
(1) Based upon representations of the related mortgagors at the time of
origination.
S-16
<PAGE>
REMAINING TERMS TO MATURITY(1)
<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>
---------
(1) 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.
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 2000- , 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 days after the
closing date. Assignments of the mortgage loans to the trustee (or 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
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<PAGE>
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 Bank operates a conduit program established by IndyMac, Inc. (the
entity whose assets were transferred to IndyMac Bank as described herein under
'Servicing of the Mortgage Loans -- The Master Servicer') in April 1993 to
purchase conventional conforming and non-conforming mortgage loans on one- to
four-family residential properties. Conventional mortgage loans are loans that
are not insured by the FHA or partially guaranteed by the VA. Conforming
mortgage loans are loans that qualify for sale to Fannie Mae and Freddie Mac,
whereas non-conforming mortgage loans are loans that do not so qualify. While
IndyMac Bank engages in a limited amount of second lien lending, most of the
mortgage loans it purchases are secured by first liens on the related mortgaged
properties.
Non-conforming loans purchased by IndyMac Bank pursuant to its underwriting
programs typically differ from conforming loans 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 and Ginnie Mae, the performance of loans made
S-18
<PAGE>
pursuant to these different underwriting standards may reflect higher
delinquency rates and/or credit losses.
IndyMac Bank purchases mortgage loans from, or provides funding for mortgage
loans originated by, banks, savings and loan associations, mortgage bankers
(which may or may not be affiliated with IndyMac Bank) and mortgage brokers
(each is referred to as a loan originator). Each loan originator 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 Bank approves
individual institutions as eligible loan originators after an evaluation of
criteria that include the loan originator's mortgage origination experience and
financial stability. In addition to purchasing mortgage loans from (or providing
funding to) loan originators, IndyMac Bank also engages in the direct
origination of mortgage loans.
IndyMac Bank currently operates two mortgage loan purchase programs as part
of its conduit operations:
1. Prior Approval Program. Under this program, IndyMac Bank performs a
full credit review and analysis of each mortgage loan to be purchased to
ensure compliance with its underwriting guidelines. Only after IndyMac Bank
issues an approval notice to a loan originator is a mortgage loan eligible
for purchase pursuant to this program. The majority of mortgage loans
currently being purchased by IndyMac Bank are originated under the Prior
Approval Program.
2. Preferred Delegated Underwriting Program. Under this program, loan
originators 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 Bank approval. The eligibility
requirements for participation in the Preferred Delegated Underwriting
Program vary based on the net worth of the loan originators with more
stringent requirements imposed on loan originators with a lower net worth.
Under the Preferred Delegated Underwriting Program, each eligible loan
originator is required to underwrite mortgage loans in compliance with
IndyMac Bank's underwriting guidelines, as the underwriting guidelines may
have been modified pursuant to commitments negotiated with that loan
originator. 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 loan originator's status as an
eligible loan originator, some types of mortgage loans are required to
receive an approval notice prior to purchase.
All mortgage loans purchased by IndyMac Bank must meet credit, appraisal and
underwriting standards acceptable to IndyMac Bank. 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.
In the process of underwriting mortgage loans, IndyMac Bank may use its
'electronic Mortgage Information and Transaction System' (or 'e-MITS'), a
proprietary, internet-based, point-of-sale automated underwriting and risk-based
pricing system to underwrtie and price the mortgage loans. This system uses
proprietary credit and risk analysis information generated from statistical
analysis of IndyMac Bank's historical database of over 300,000 loans to
determine the economic levels at which a given loan should be approved. The
system also incorporates
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<PAGE>
information from models provided by credit rating agencies. e-MITS analyzes over
forty data elements relating to the mortgagor and the mortgaged property before
rendering an approval and a risk-based price. As with IndyMac Bank's traditional
underwriting process, this approval is subject to full and complete data
verification. Loans approved by e-MITS comply with IndyMac Bank's underwriting
guidelines. As is the case with loans that are not underwritten through e-MITS,
exceptions to standard underwriting guidelines are permitted where compensating
factors are present or in the context of negotiated bulk purchases.
IndyMac Bank'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 $650,000, up to 85% for mortgage loans with original principal
balances of up to $750,000 and up to 80% for mortgage loans with original
principal balances of up to $1,500,000. IndyMac Bank 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 95%, and
the maximum 'cash out' amount permitted is based in part on the Loan-to-Value
Ratio of the related mortgage loan. IndyMac Bank generally does not purchase
cash-out refinance mortgage loans with original principal balances in excess of
$3,000,000.
IndyMac Bank's underwriting standards for mortgage loans secured by investor
properties generally allow Loan-to-Value Ratios at origination of up to 95% for
mortgage loans with original principal balances up to $300,000. IndyMac Bank'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 Bank generally requires a primary mortgage guarantee insurance
policy that conforms to the guidelines of Fannie May and Freddie Mac. 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 Bank 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 Bank 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.
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<PAGE>
IndyMac Bank purchases loans which have been originated under one of four
documentation programs: the Full/Alternate Documentation Program, the Reduced
Documentation Program, the No Ratio Program and the No Doc 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.
Under the Reduced Documentation Program and the No Ratio Program, more
emphasis is placed on the prospective borrower's credit score and on the value
and adequacy of the mortgaged property as collateral and other assets of the
prospective borrower than on income underwriting. The Reduced Documentation
Program requires prospective borrowers to provide information regarding their
assets and income. Information regarding assets is verified through written
communications. Information regarding income is not verified. The No Ratio
Program requires prospective borrowers to provide information regarding their
assets, which is then verified through written communications. The No Ratio
Program does not require prospective borrowers to provide information regarding
their income.
Under the No Doc Program, emphasis is placed on the credit score of the
prospective borrower and on the value and adequacy of the mortgaged property as
collateral, rather than on the income and the assets of the prospective
borrower. Prospective borrowers are not required to provide information
regarding their assets or income under the No Doc Program. Mortgage loans
underwritten under each of the Reduced Documentation Program, the No Ratio
Program and the No Doc Program are generally limited to borrowers with credit
histories that demonstrate an established ability to repay indebtedness in a
timely fashion.
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 Bank will act as master servicer. The principal executive offices of
the master servicer are located at 155 North Lake Avenue, Pasadena, California
91101. IndyMac Bank is a wholly-owned subsidiary of IndyMac Intermediate
Holdings, Inc., which is a wholly-owned subsidiary of IndyMac Bancorp, Inc.
Effective July 1, 2000, IndyMac Mortgage Holdings, Inc. ('Holdings')
acquired SGV Bancorp, the holding company of First Federal Savings and Loan
Association of San Gabriel Valley ('First Federal'). In connection with that
acquisition, IndyMac, Inc., the wholly-owned mortgage banking subsidiary of
Holdings, was merged with and into SGV Bancorp and SGV Bancorp contributed
substantially all of its assets and liabilities (including the servicing
platform and all of the related servicing operations of the former IndyMac,
Inc., together with
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<PAGE>
substantially all of its personnel) to First Federal. Also in connection with
the acquisition, Holdings changed its name to IndyMac Bancorp, Inc.; SGV Bancorp
changed its name to IndyMac Intermediate Holdings, Inc. and First Federal
changed its name to IndyMac Bank, F.S.B.
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 may perform its servicing obligations
under the pooling and servicing agreement through one or more
subservicers selected by the master servicer. Notwithstanding any subservicing
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.
During the first half of 1998, the former IndyMac, Inc. acquired the assets
of a servicing platform (i.e., servicing business operations but not mortgage
loans) from First of America Loan Services, Inc. in order to provide IndyMac,
Inc. with direct servicing capabilities with respect to mortgage loans. Prior to
that time, IndyMac, Inc. had master servicing capabilities but no direct
servicing capabilities. In connection with the acquisition of SGV Bancorp, the
servicing platform of First of America Loan Services, Inc. was contributed to
IndyMac Bank. As of the closing date, it is expected that IndyMac Bank will
directly service approximately % of the mortgage loans (by principal balance
as of the cut-off date). With respect to the other mortgage loans in the
mortgage pool, as of the closing date, it is expected that IndyMac will perform
its servicing obligations under the pooling and servicing agreement through one
or more subservicers.
If the servicing of any mortgage loan were to be transferred from a
subservicer to IndyMac, or if any other servicing transfer were to occur, there
may be an increase in delinquencies and defaults due to misapplied or lost
payments, data input errors, system incompatibilities or otherwise. Although any
increase in delinquencies is expected to be temporary, there can be no assurance
as to the duration or severity of any disruption in servicing the applicable
mortgage loans as a result of any servicing transfer.
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
IndyMac Bank commenced master servicing conventional mortgage loans during
April 1993 and commenced servicing conventional mortgage loans during August
1998. The delinquency, foreclosure and loss percentages set forth in the tables
below may be affected by the size and relative lack of seasoning of the master
servicing and servicing portfolio. Delinquencies, foreclosures and losses
generally are expected to occur more frequently after the first full year of the
life of mortgage loans. Accordingly, because a large number of mortgage loans
serviced by the master servicer have been recently originated, the current level
of delinquencies, foreclosures and losses may not be representative of the
levels which may be experienced over the lives of such mortgage loans. If the
volume of IndyMac Bank's new loan originations and acquisitions does not
continue to grow at the rate experienced in recent years, the levels of
delinquencies, foreclosures and losses as percentages of the portfolio could
rise significantly above the rates indicated in the tables.
In addition, because IndyMac Bank only began directly servicing mortgage
loans in 1998, the foreclosure, delinquency and loss experience set forth below
may not be indicative of IndyMac Bank's foreclosure, delinquency and loss
experience for future periods. Accordingly, the information presented in the
tables below (which includes mortgage loans with underwriting, payment and other
characteristics which differ from those of the Mortgage Loans) should not be
considered as a basis for assessing the likelihood, amount or severity of
delinquency or losses
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on the Mortgage Loans, and no assurances can be given that the foreclosure,
delinquency and loss experience presented in these tables will be indicative of
such experience on the Mortgage Loans in the future.
The following table summarizes the delinquency and foreclosure experience,
respectively, as of December 31, 1995, December 31, 1996, December 31, 1997,
December 31, 1998, December 31, 1999, and June 30, 2000 on approximately $11.1
billion, $12.3 billion, $16.9 billion, $13.8 billion and $16.0 billion,
respectively, in outstanding principal balance of conventional mortgage loans
master serviced or serviced by IndyMac Bank (does not include loans that were
part of First Federal's portfolio prior to its acquisition by IndyMac Bancorp):
<TABLE>
<CAPTION>
AT DECEMBER 31, AS OF
------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Number of
Conventional Mortgage
Loans in Portfolio...... 53,101 68,209 80,572 112,207 94,137 107,767
Delinquent Mortgage Loans
and Pending Foreclosures
at Period End(1):
30-59 days............ 2.30% 2.39% 2.40% 2.74% 2.48% 2.11%
60-89 days............ 0.42% 0.52% 0.54% 0.65% 0.47% 0.50%
90-119 days........... % % % % % %
120-149 days.......... % % % % % %
------ ------ ------ ------- ------ -------
Total
Delinquencies.. 3.10% 3.72% 3.89% 4.12% 3.50% 2.92%
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
Foreclosures Pending...... 0.30% 0.65% 0.56% 0.64% 1.20% 1.48%
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
Total Delinquencies and
Foreclosures Pending.... 3.40% 4.37% 4.45% 4.76% 4.70% 4.40%
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
</TABLE>
---------
(1) As a percentage of the total number of loans master serviced.
The following table summarizes the loss experience on the dates indicated of
all mortgage loans originated or acquired by IndyMac Bank (other than subprime
mortgage loans), serviced or master serviced by the master servicer and
securitized by the depositor or by CWMBS, Inc. (does not include loans that were
part of First Federal's portfolio prior to its acquisition by IndyMac Bancorp)
IndyMac Bank does not write off mortgage loans of the type covered by the
registration statement of which this prospectus supplement forms a part until
the loans are sold in a foreclosure sale or are otherwise disposed of (such as
by a deed in lieu of foreclosure) in accordance with its guidelines for
servicing delinquent mortgage loans.
<TABLE>
<CAPTION>
CUMULATIVE STATED
CUMULATIVE NET AMOUNT OF SECURITIES
LOSSES (MILLIONS) ISSUED (MILLIONS) LOSS RATIO(1)
----------------- ----------------- -------------
<S> <C> <C> <C>
As of December 31, 1995.................
As of December 31, 1996................. $ 1.43 $12,923.32 0.01%
As of December 31, 1997................. $18.03 $15,925.04 0.11%
As of December 31, 1998................. $39.98 $23,890.80 0.17%
As of December 31, 1999................. $51.05 $26,719.61 0.19%
As of June 30, 2000..................... $57.48 $27,771.85 0.21%
</TABLE>
---------
(1) Loss Ratio represents cumulative net losses as a percentage of the aggregate
amount of securities issues.
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Historically, a variety of factors, including the appreciation of real
estate values, has 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. For example, a general deterioration of the real estate market in
regions where the mortgaged properties are located may result 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 collateral 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.
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 be % per annum
of the Stated Principal Balance of 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 of the Stated Principal Balance of each 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) a master servicing
compensation in the amount of % per annum of the Stated Principal Balance of
each mortgage loan, (b) servicing compensation that is expected to range from
% to % per annum of the Stated Principal Balance of each mortgage loan and
(c) fees payable to the trustee in respect of its activities as trustee under
the pooling and servicing agreement. In cases where a mortgage loan is being
directly serviced by the master servicer, the master servicer will be entitled
to the master servicing fee and the servicing fee. In cases where a mortgage
loan is being directly serviced by a subservicer, the subservicer will be
entitled to the servicing fee and the master servicer will only be entitled to
the master servicing fee. 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 Servicing
Fee in Connection with Certain Prepaid Mortgage Loans.' The master 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 certificate
account and the distribution account. The adjusted net mortgage rate of a
mortgage loan is the mortgage loan's mortgage rate (net of the interest premium
charged by the related lenders for any lender acquired primary mortgage
insurance) minus the related expense fee rate.
ADJUSTMENT TO SERVICING COMPENSATION 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. To offset any interest shortfall to
certificateholders as a result of any prepayments, the
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<PAGE>
master servicer will be required to reduce its servicing compensation, but the
reduction for any Distribution Date will be limited to an amount equal to the
product of
% multiplied by
one-twelfth multiplied by
the pool balance as of the first day of the prior month.
If shortfalls in interest as a result of prepayments in any month exceed the
reduction in the amount of the servicing compensation for such month, the amount
of interest available to be distributed to certificateholders will be reduced by
the amount of the excess.]
ADVANCES
Except as described below, the master servicer will be required to advance
prior to each Distribution Date from its own funds or amounts received with
respect to the mortgage loans that do not constitute Available Funds for this
Distribution Date, an amount (referred to as an 'advance') equal to
all of the payments of principal and interest on the mortgage loans due but
delinquent as of the Determination Date (which will be the 18th of the
month or the next business day after the 18th day of the month)
minus
the master servicing fee for the related period
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.
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 certificate
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
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.
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 the mortgage loan
from the trust fund immediately following the 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
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<PAGE>
on the mortgage loan made by the master servicer. The master servicer will
deposit the purchase price in the certificate 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.
DEFAULT MANAGEMENT SERVICES
In connection with the servicing of defaulted mortgage loans, the master
servicer may perform certain default management and other similar services
(including, but not limited to, appraisal services) and may act as a broker in
the sale of mortgaged properties related to those mortgage loans. The master
servicer will be entitled to reasonable compensation for providing those
services.
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.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the pooling and servicing
agreement. The following sections of this prospectus supplement are a summary of
the material terms of the certificates and the pooling and servicing agreement
pursuant to which the certificates will be issued. They do not purport to be
complete, however, and are subject to, and are qualified in their entirety by
reference to, the provisions of the pooling and servicing agreement. The
certificates represent obligations of the trust only and do not represent an
interest in or obligation of IndyMac MBS, Inc., IndyMac Bank, F.S.B. or any of
their affiliates.
The Mortgage Pass-Through Certificates, Series 2000- 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 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.
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<PAGE>
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.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of certificates among participants of DTC, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or before the closing date, the master servicer will establish an account
(the 'Distribution Account'), which will be maintained with the Trustee in trust
for the benefit of the certificateholders. 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 the Distribution Account. Funds credited to the Distribution
Account or 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.
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 2000 (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
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<PAGE>
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
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-
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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 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.
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<PAGE>
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,
(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;
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<PAGE>
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
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
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<PAGE>
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 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.
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<PAGE>
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.
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
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<PAGE>
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
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,
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<PAGE>
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 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.
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<PAGE>
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:
<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,
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<PAGE>
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 , 2000,
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
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.
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<PAGE>
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.
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.
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<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 % of the mortgage loans, the depositor may
deliver all or a portion of each related Mortgage File to the trustee not later
than days after the closing date. 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-42
<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 PO............. % % % % %
</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
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<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 one or more of the Underwriters 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-44
<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-46
<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-47
<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
We expect the proceeds to the depositor from the sale of the offered
certificates to be approximately % of the aggregate principal balance of the
offered certificates plus accrued interest, before deducting issuance expenses
payable by the depositor.
The depositor will apply the net proceeds of the sale of the certificates
against the purchase price of the mortgage loans.
S-48
<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-49
<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.
Proposed Treasury regulations issued on February 4, 2000 (the 'New Proposed
Regulations') would modify the requirements of the safe harbor relating to
transfers of noneconomic residual interests. Under the New Proposed Regulations,
a transfer of a noneconomic residual interest will not qualify under the safe
harbor unless, in addition to satisfaction of the conditions currently
specified, the present value of the anticipated tax liabilities associated with
holding the residual interest does not exceed the present value of the sum of
(i) any consideration given to the transferee to acquire the interest, (ii) the
expected future distributions on the interest, and (iii) any anticipated tax,
savings associated with holding the interest as the REMIC generates loses. For
purposes of this calculation, the present value generally is calculated using a
discount rate equal to the applicable federal rate. The New Proposed Regulations
indicate that the effective date for the modification to the safe harbor could
be as early as February 4, 2000.
In addition, President Clinton's Fiscal Year 2001 Budget Proposal contains a
provision under which a REMIC itself would be secondarily liable for the tax
liability of its residual interest. It is unknown whether this provision will be
included in any bill introduced to Congress this year, or if introduced, whether
it will be enacted. If the proposal were enacted in its present form, it would
be effective for REMICs formed after the date of enactment. Prospective
investors are urged to consult their own tax advisors regarding the tax
consequences of the New Proposed Regulations and the Fiscal Year 2001 Budget
Proposal.
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
S-50
<PAGE>
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.
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:
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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.
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.
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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.
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.
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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.
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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 AUGUST 14, 2000
PROSPECTUS
INDYMAC MBS, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
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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.
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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.
, 2000
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TABLE OF CONTENTS
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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........................ 11
The Mortgage Loans -- General..... 12
Agency Securities................. 15
Private Mortgage-Backed
Securities...................... 21
Substitution of Mortgage Assets... 22
Available Information............. 23
Incorporation of Certain Documents
by Reference.................... 23
Use of Proceeds....................... 23
The Depositor......................... 24
Mortgage Loan Program................. 24
Underwriting Process.............. 24
Qualifications of Sellers......... 25
Representations by Sellers;
Repurchases..................... 25
Description of the Certificates....... 27
General........................... 28
Distributions on Certificates..... 30
Advances.......................... 32
Reports to Certificateholders..... 32
Categories of Classes of
Certificates.................... 34
Indices Applicable to Floating
Rate and Inverse Floating Rate
Classes......................... 36
Book-Entry Certificates........... 40
Credit Enhancement.................... 42
General........................... 42
Subordination..................... 42
Mortgage Pool Insurance
Policies........................ 43
Special Hazard Insurance
Policies........................ 44
Bankruptcy Bonds.................. 45
Reserve Fund...................... 45
Cross Support..................... 46
Insurance Policies, Surety Bonds
and Guaranties.................. 46
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Over-Collateralization............ 47
Yield and Prepayment Considerations... 47
The Pooling and Servicing Agreement... 48
Assignment of Mortgage Assets..... 48
Payments on Mortgage Assets;
Deposits to Certificate
Account......................... 50
Collection Procedures............. 53
Hazard Insurance.................. 54
Realization Upon Defaulted
Mortgage Loans.................. 55
Servicing and Other Compensation
and Payment of Expenses......... 59
Evidence as to Compliance......... 60
List of Certificateholders........ 60
Certain Matters Regarding the
Master Servicer and the
Depositor....................... 60
Events of Default................. 61
Rights Upon Event of Default...... 62
Amendment......................... 63
Termination; Optional
Termination..................... 64
The Trustee....................... 64
Certain Legal Aspects of the Mortgage
Loans............................... 65
General........................... 65
Foreclosure and Repossession...... 66
Rights of Redemption.............. 68
Anti-Deficiency Legislation and
Other Limitations on Lenders.... 69
Environmental Risks............... 70
Due-on-Sale Clauses............... 71
Prepayment Charges................ 71
Applicability of Usury Laws....... 71
Soldiers' and Sailors' Civil
Relief Act...................... 72
Material Federal Income Tax
Consequences........................ 73
General........................... 73
Non-REMIC Certificates............ 73
REMIC Certificates................ 82
Prohibited Transactions and Other
Taxes........................... 97
Liquidation and Termination....... 98
Administrative Matters............ 98
Tax-Exempt Investors.............. 98
Non-U.S. Persons.................. 98
Tax-Related Restrictions on
Transfers of Residual
Certificates.................... 99
State Tax Considerations.............. 101
ERISA Considerations.................. 101
Legal Investment...................... 106
Method of Distribution................ 107
Legal Matters......................... 107
Financial Information................. 107
Rating................................ 108
Index to Defined Terms................ 109
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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 23.
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RISK FACTORS
You should carefully consider the following information since it identifies
significant risks associated with an investment in the certificates.
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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 certain representations and
warranties made by it in
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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, the financial
condition of the borrower, and tax laws. Losses on
these loans that are not otherwise covered by a
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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 Liquidation expenses of defaulted loans generally
Expenses May Adversely Affect You do not vary directly with the outstanding principal
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
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.
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Consumer Protection Laws May Adversely State laws generally regulate interest rates and
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 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
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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
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
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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 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
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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 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.
</TABLE>
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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
---------
* 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
(relative to the related pool principal balance) 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. 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 July 9, 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 Intermediate Holdings, 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 discussion below under
'Underwriting Process' contains a general description of underwriting standards
that are applicable to most sellers. A description of the underwriting
guidelines that are applied by the seller or sellers in a particular transaction
will be set forth in the related prospectus supplement.
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. Most lenders offer a number of
different underwriting programs. Some programs place more emphasis on a
borrower's credit standing and repayment ability while others emphasize the
value and adequacy of the mortgaged property as collateral. The most
comprehensive of the programs emphasize both.
In general, where a loan is subject to full underwriting review, 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
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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 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 event a lender underwrites mortgage loans under programs less
restrictive than the one described above, a description of those programs will
be set forth in the related prospectus supplement.
Certain of the types of mortgage loans that may be included in a trust fund
may be 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 mortgage loans
of the type contained in the related mortgage pool and must maintain
satisfactory facilities to originate 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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<PAGE>
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 directly 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 inversely 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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<PAGE>
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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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 and pursuant to the
authority granted to the master in the pooling and servicing agreement, 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 180
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 a current mortgage loan limit of $200,000, 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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As of the date hereof, the maximum guarantees that may be issued by the VA
under a VA Mortgage Loan are generally (a) as to mortgage loans with an original
principal amount of $45,000 or less, 50% of such mortgage loan, (b) as to
mortgage loans with an original principal amount of greater than $45,000, but
not more than $56,250, $22,500; (c) as to mortgage loans with an original
principal amount of more than $56,250, but not more than $144,000, the lesser of
$36,000 or 40% of the mortgage loan, and (d) as to mortgage loans with an
original principal amount of more than $144,000 (for an owner-occupied,
single-family home or condominium unit), the lesser of $50,750 or 25% of the
mortgage loan. 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
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has determined that all recoverable liquidation proceeds and insurance proceeds
have been received (a 'Liquidated Mortgage'), and in connection with the
restoration of mortgaged 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 Audit
Guide for Audits of HUD Approved Nonsupervised Mortgagees, 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
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upon appointment of a successor servicer and receipt by the trustee of a
letter from each rating agency rating the related transaction that such a
resignation and appointment will not result in a downgrading of the rating
of any of the certificates of the related series, or
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.
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
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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 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.
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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;
(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, 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
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received an opinion of counsel to the effect that the amendment will not cause
the trust fund to fail to qualify as a REMIC.
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 servicer 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. If more than ten percent (by
principal balance) of the mortgage loans in the trust fund for any series are
located in a single state, the prospectus, as supplemented by the related
prospectus supplement, will disclose all material legal matters relating to the
mortgage loans in that state.
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. Mortgages are used
in New York instead of deeds of trust. 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
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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.
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 sometimes not contested by any
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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 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.
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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 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, such as New York, 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 New York, the borrower may not redeem the
property after a foreclosure 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
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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 and New York, 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, such as New York, 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
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(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 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
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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 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 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
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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 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. In
particular, the New Withholding Regulations replace the current IRS Form W-8,
Form 4224 and Form 1001 with various revised IRS Forms W-8 and provide that the
current Form W-8, Form 4224 and Form 1001 will be invalid after December 31,
2000. Therefore, the holder of Notes will be required to file the appropriate
revised Form W-8 before December 31, 2000. The New Withholding Regulations
generally will be effective for payments made after December 31, 2000, 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
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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.
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
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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.
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
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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
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
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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 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
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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 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
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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 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
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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 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
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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.
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
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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.
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
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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 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,
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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. 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.
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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 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
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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.'
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.
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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 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
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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.
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.
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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 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
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' -- 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 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
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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.
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.
Proposed Treasury regulations issued on February 4, 2000 (the 'New Proposed
Regulations') would modify the safe harbor under which transfers of noneconomic
residual interests are treated as not disregarded for federal income tax
purposes. Under the New Proposed Regulations, a transfer of a noneconomic
residual interest will not qualify under this safe harbor unless the present
value of the anticipated tax liabilities associated with holding the residual
interest does not exceed the sum of the present value of the sum of (i) any
consideration given to the transferee to acquire the interest, (ii) future
distributions on the interest, and (iii) any anticipated tax savings associated
with holding the interest as the REMIC generates losses. For purposes of this
calculation, the present value generally is calculated using a discount rate
equal
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to applicable federal rate. The New Proposed Regulations have a proposed
effective date of February 4, 2000.
In addition, President Clinton's Fiscal Year 2001 Budget Proposal contains a
provision under which a REMIC would be secondarily liable for the tax liability
of its residual interest. The proposal states that it would be effective for
REMICs created after the date of enactment. It is unknown whether it will be
enacted. Prospective investors in REMIC residual interests should consult their
tax advisors regarding the New Proposed Regulations and the Fiscal Year 2001
Budget Proposals.
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 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
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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 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
102
<PAGE>
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.
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.
103
<PAGE>
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;
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
104
<PAGE>
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 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.
105
<PAGE>
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 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
106
<PAGE>
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 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.
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.
107
<PAGE>
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........................ 78
Agency Securities............... 11
Amortizable Bond Premium
Regulations................... 75
Applicable Amount............... 95
ARM Loans....................... 78
Asset Conservation Act.......... 70
CERCLA.......................... 70
Certificate Account............. 50
Class Certificate Balance....... 30
Code............................ 26, 73
Contingent Regulations.......... 84
Contributions Tax............... 97
Deferred Interest............... 80
Eleventh District............... 38
excess inclusion................ 96
excess servicing................ 77
FHLBSF.......................... 38
Garn-St Germain Act............. 71
Insured Expenses................ 51
Legislative History............. 79
Liquidated Mortgage............. 60
Loan-to-Value Ratio............. 14
Master REMIC.................... 83
Mortgage Assets................. 11
National Cost of Funds Index.... 39
New Proposed Regulation......... 100
New Withholding Regulations..... 82
Non-U.S. Person................. 81
OID............................. 73
OID Regulations................. 78
OTS............................. 39
Parties in Interest............. 102
Payment Lag Certificates........ 91
Phantom income.................. 93
Plans........................... 102
pre-issuance accrued interest... 91
Prepayment Assumption........... 79
Private Mortgage-Backed
Securities.................... 11
Prohibited Transactions Tax..... 97
PTE 83-1........................ 107
RCRA............................ 70
Regular Certificateholders...... 84
Regular Certificates............ 82
Relief Act...................... 72
Resource Conservation and
Recovery Act.................. 70
REMIC Certificates.............. 82
REMICs.......................... 26
Residual Certificateholder...... 92
Residual Certificates........... 82
Restricted Group................ 105
Single Family Certificates...... 102
SMMEA........................... 106
Stripped ARM obligations........ 80
Stripped Bond Certificates...... 77
Stripped Coupon Certificates.... 77
Subsidiary REMIC................ 83
Super-Premium Certificates...... 85
Title V......................... 71
U.S. Person..................... 81
Underwriter Exemptions.......... 104
</TABLE>
109
<PAGE>
RESIDENTIAL ASSET SECURITIZATION TRUST 2000-
ISSUER
INDYMAC MBS, INC.
DEPOSITOR
[NEW LOGO TO COME
SELLER AND MASTER SERVICER]
$
(APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-
------------------------
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 2000- 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 2000- Mortgage Pass-Through Certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the Series 2000- Mortgage Pass-Through Certificates will be required to
deliver a prospectus supplement and prospectus until , 2000.
, 2000
<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>
<CAPTION>
<S> <C>
SEC Registration Fee........................................ 792,014
Printing and Engraving...................................... 25,000
Legal Fees and Expenses..................................... 45,000
Trustee Fees and Expenses................................... 20,000
Rating Agency Fees.......................................... 150,000
Miscellaneous............................................... 5,000
----------
Total................................................... $1,037,014
----------
----------
</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
$200,000,000 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.
<TABLE>
<CAPTION>
<C> <S>
*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).
</TABLE>
---------
* Previously filed.
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-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the 'Calculation of Registration
Fee' table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change 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 Amendment to the
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 August, 2000.
INDYMAC MBS, INC.
By: /S/ S. BLAIR ABERNATHY
..................................
S. BLAIR ABERNATHY
CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ S. BLAIR ABERNATHY Chairman of the Board, August 14, 2000
......................................... President and Director
S. BLAIR ABERNATHY (principal executive officer)
/s/ CARMELLA L. GRAHN Executive Vice President and Chief August 14, 2000
......................................... Financial Officer (principal
CARMELLA L. GRAHN financial and accounting officer)
/s/ MARIANNE CHURNEY Senior Vice President, General August 14, 2000
......................................... Counsel, Secretary and Director
MARIANNE CHURNEY
* Director August 14, 2000
.........................................
JEFFREY P. GROGIN
By /S/ S. BLAIR ABERNATHY
.........................................
ATTORNEY-IN-FACT
</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>
---------
* Previously filed.
