<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registraton File No.: 333-82831
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 27, 2000)
$210,047,156
(APPROXIMATE)
INDYMAC MBS, INC.
DEPOSITOR
[GRAPHIC OMITTED]
SELLER AND MASTER SERVICER
RESIDENTIAL ASSET SECURITIZATION TRUST 2000-A8
ISSUER
DISTRIBUTIONS PAYABLE MONTHLY, BEGINNING NOVEMBER 27, 2000
--------------
The following classes of certificates are being offered pursuant to this
prospectus supplement and the accompanying prospectus:
<TABLE>
<CAPTION>
INITIAL CLASS PASS-THROUGH INITIAL CLASS PASS-THROUGH
CERTIFICATE BALANCE RATE CERTIFICATE BALANCE RATE
<S> <C> <C> <C> <C> <C>
Class A-1 $92,853,000 7.25% Class PO $ 1,056 N/A
Class A-1-A N/A 0.50% Class X N/A Variable
Class A-2 $71,000,000 7.75% Class A-R $ 100 7.75%
Class A-3 $14,600,000 7.00% Class B-1 $4,910,000 7.75%
Class A-3-A N/A 0.75% Class B-2 $3,735,000 7.75%
Class A-4 $19,200,000 7.75% Class B-3 $2,348,000 7.75%
Class A-5 $ 1,400,000 7.75%
</TABLE>
CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON PAGE
S-7 IN THIS
PROSPECTUS
SUPPLEMENT AND ON
PAGE 5 IN THE
PROSPECTUS.
The Class PO Certificates are principal only certificates, and the Class A-1-A,
Class A-3-A and 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 B-1, Class B-2 and Class B-3 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 primarily of a pool consisting of 30-year
conventional fixed-rate mortgage loans secured by first liens on one- to
four-family residential properties
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Salomon Smith Barney Inc. will offer the Class A Certificates to the public at
varying prices to be determined at the time of sale. PaineWebber Incorporated
will offer the Class B-1, Class B-2 and Class B-3 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 99.402% 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 either underwriter. They will be
transferred to the seller (or an affiliate) on or about October 30, 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. The offered certificates are not bank accounts and are
not insured by the FDIC or any other governmental entity.
SALOMON SMITH BARNEY PAINEWEBBER INCORPORATED
October 27, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
---------------------
PAGE
----
<S> <C>
Summary ................................. S-3
Risk Factors ............................ S-7
The Mortgage Pool ....................... S-12
Servicing of Mortgage Loans ............. S-23
Description of the Certificates ......... S-27
Yield, Prepayment and Maturity
Considerations ....................... S-41
Credit Enhancement ...................... S-52
Use of Proceeds ......................... S-53
Material Federal Income Tax
Consequences ......................... S-53
ERISA Considerations .................... S-55
Method of Distribution .................. S-57
Legal Matters ........................... S-57
Ratings ................................. S-57
Principal Balance Schedules ............. S-58
</TABLE>
<TABLE>
<CAPTION>
PROSPECTUS
----------
PAGE
----
<S> <C>
Important Notice About
Information in This Prospectus
and Each Accompanying
Prospectus Supplement ................ 3
Risk Factors ............................ 4
The Trust Fund .......................... 14
Use of Proceeds ......................... 25
The Depositor ........................... 25
Mortgage Loan Program ................... 25
Description of the Certificates ......... 28
Credit Enhancement ...................... 42
Yield and Prepayment
Considerations ....................... 46
The Pooling and Servicing
Agreement ............................ 47
Certain Legal Aspects of the
Mortgage Loans ....................... 62
Material Federal Income Tax
Consequences ......................... 69
State Tax Considerations ................ 94
ERISA Considerations .................... 94
Legal Investment ........................ 98
Method of Distribution .................. 99
Legal Matters ........................... 99
Financial Information ................... 100
Rating .................................. 100
Index to Defined Terms .................. 101
</TABLE>
S-2
<PAGE>
SUMMARY
o 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-A8 will issue sixteen classes of
certificates, thirteen 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 $213,463,312
as of October 1, 2000. The mortgage loans will consist primarily of 30-year
conventional fixed-rate mortgage loans secured by first liens on one-to
four-family residential properties.
The following chart lists certain characteristics of the classes of the offered
certificates. The classes of certificates listed below will not be offered
unless they are assigned the ratings indicated by Fitch, Inc. ("Fitch") and by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
<TABLE>
<CAPTION>
FITCH S&P
CLASS RATING RATING TYPE
----- ------ ------ ----
<S> <C> <C> <C>
Class A-1 AAA AAA Senior/Accretion
Directed/Planned Balance
Class A-1-A AAA AAA Senior/Notional
Amount/Interest
Only/Accretion Directed
Class A-2 AAA AAA Senior/Accretion
Directed/Scheduled Balance
Class A-3 AAA AAA Senior/Accretion Directed
Class A-3-A AAA AAA Senior/Notional
Amount/Interest
Only/Accretion Directed
Class A-4 AAA AAA Senior/Accrual
Class A-5 AAA AAA Senior/Accrual/Support
</TABLE>
<TABLE>
<CAPTION>
FITCH S&P
CLASS RATING RATING TYPE
----- ------ ------ ----
<S> <C> <C> <C>
Class PO AAA AAA Senior/Principal Only
Class X AAA AAA Senior/Notional
Amount/ Interest Only
Class A-R AAA AAA Senior/Residual
Class B-1 AA * Subordinate
Class B-2 A * Subordinate
Class B-3 BBB * Subordinate
</TABLE>
----------------------
* S&P was not asked to rate these certificates.
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 "Description of the Certificates-- General" and "--Book-Entry
Certificates," "Ratings" and "The Mortgage Pool" in this prospectus supplement
and "The Trust Fund--The Mortgage Loans--General" in the prospectus.
CUT-OFF DATE
October 1, 2000
CLOSING DATE
On or about October 30, 2000
DEPOSITOR
IndyMac MBS, Inc. is a limited purpose finance subsidiary of IndyMac Bank,
F.S.B. Its address is 155 North Lake Avenue, Pasadena, California, and its
telephone number is (800) 669-2300.
S-3
<PAGE>
SELLER AND MASTER SERVICER
IndyMac Bank, F.S.B.
TRUSTEE
The Bank of New York
DISTRIBUTION DATES
We will make distributions on the 25th day of each month. If the 25th day of a
month is not a business day, then we will make distributions the next business
day. The first distribution is scheduled for November 27, 2000.
INTEREST PAYMENTS
Interest will accrue at the rate specified on the cover page or described in
this prospectus supplement on each interest bearing class of certificates on
the basis of a 360-day year divided into twelve 30-day months. Interest will
accrue on each interest bearing class of certificates during the calendar month
before the month of the distribution date.
See "Description of the Certificates--
Interest" in this prospectus supplement.
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 0.125% 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 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 each class of certificates entitled to receive
payments of principal on the 25th day of each month as described in this
prospectus supplement beginning at page S-32.
See "Description of the Certificates--Principal" in this prospectus supplement.
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 October 1,
2000.
See "Description of the Certificates--Optional Termination" in this prospectus
supplement.
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;
S-4
<PAGE>
(2) to principal of 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 B-1 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" in this prospectus supplement.
CREDIT ENHANCEMENT
The issuance of senior certificates and subordinated certificates by the trust
is designed to increase the likelihood that senior certificateholders will
receive regular payments of interest and principal.
SUBORDINATION
The senior certificates will have a payment priority over the certificates that
are designated as subordinated certificates. Within the classes of subordinated
certificates offered by this prospectus supplement, the Class B-1 Certificates
will have a payment priority over the Class B-2 and Class B-3 Certificates, and
the Class B-2 Certificates will have a payment priority over the Class B-3
Certificates. The Class B-4, Class B-5, and Class B-6 Certificates, which are
not being offered to the public, are also subordinated to all of the other
certificates, in that order, with the Class B-6 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 realized on the mortgage loans 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
subordinated certificates.
See "Description of the Certificates--Allocation of Losses" and "Credit
Enhancement--Subordination" in this prospectus supplement.
S-5
<PAGE>
TAX STATUS
For federal income tax purposes, the trust will comprise two real estate
mortgage investment conduits: the Subsidiary REMIC and the Master REMIC. The
Subsidiary REMIC will hold the mortgage loans and will issue several classes of
uncertificated regular interests and a single uncertificated residual interest.
The Master REMIC will hold as assets the regular interests issued by the
Subsidiary REMIC and will issue the several classes of certificates, which,
other than the Class A-R Certificates, will represent regular interests in the
Master REMIC.
The Class A-R Certificates will represent ownership of both the residual
interest in the Master REMIC and the residual interest in the Subsidiary REMIC.
See "Material Federal Income Tax Consequences" in this prospectus supplement
and in the prospectus.
ERISA CONSIDERATIONS
The senior certificates (other than the Class PO, Class X and 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, or by an entity investing the assets of
an employee benefit plan, 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 B-1 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-2 and Class B-3 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 the prospectus.
S-6
<PAGE>
RISK FACTORS
o 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.
YOUR YIELD WILL BE AFFECTED Borrowers may, at their option, prepay their
BY HOW BORROWERS REPAY mortgage loans in whole or in part at any time.
THEIR MORTGAGE LOANS 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.
o 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.
o 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.
o If you purchase interest only certificates
and principal is repaid faster than you
anticipate, you may lose your initial
investment.
o Approximately 15.38% 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.
S-7
<PAGE>
YOUR YIELD WILL BE AFFECTED The timing of principal payments on the
BY HOW DISTRIBUTIONS ARE certificates will be affected by a number of
ALLOCATED TO THE factors, including:
CERTIFICATES
o the extent of prepayments on the mortgage
loans,
o how payments of principal are allocated
among the classes of certificates as
specified on page S-32,
o whether the master servicer exercises its
right, in its sole discretion, to terminate
the trust fund,
o the rate and timing of payment defaults and
losses on the mortgage loans, and
o 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 The certificates are not insured by any
MAY NOT BE SUFFICIENT TO financial guaranty insurance policy. The
PROTECT SENIOR CERTIFICATES subordination features are intended to enhance
FROM LOSSES 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.
S-8
<PAGE>
Except as described below, realized losses are
allocated to the subordinated certificates in
the reverse order of their priority of payment,
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 of certificates 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 of certificates (other than the
notional amount and Class PO Certificates),
even if the principal balance of each
subordinated class has not been reduced to
zero. Among the subordinated certificates the
Class B-1 Certificates are the least
subordinated, that is, they have the highest
payment priority. Then come the Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6
Certificates, in that order.
See "Credit Enhancement--Subordination."
CERTIFICATES MAY NOT BE The offered certificates may not be an
APPROPRIATE FOR SOME appropriate investment for investors who do not
INVESTORS have sufficient resources or expertise to
evaluate the particular characteristics of each
applicable class of offered certificates. This
may be the case because, among other things:
o 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;
o 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
S-9
<PAGE>
investment if you require a distribution of
a particular amount of principal on a
specific date or an otherwise predictable
stream of distributions;
o 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
o A secondary market for the offered
certificates may not develop or provide
certificateholders with liquidity of
investment.
GEOGRAPHIC CONCENTRATION Approximately 44.40% of the mortgage loans
INCREASES RISK THAT expected to be in the trust on the cut-off date
CERTIFICATE YIELDS COULD BE are secured by property in California and
IMPAIRED approximately 19.25% of the mortgage loans
expected to be in the trust on the cut-off date
are secured by property in New York. 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,
o Economic conditions in California or New
York (which may or may not affect real
property values) may affect the ability of
borrowers to repay their loans on time;
o Declines in the California or New York
residential real estate market may reduce
the values of properties located in
California or New York, which would result
in an increase in the loan-to-value ratios;
and
o Any increase in the market value of
properties located in California or New York
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.
S-10
<PAGE>
YOU MAY HAVE DIFFICULTY No market for any of the certificates will
RESELLING CERTIFICATES exist before they are issued. Each underwriter
intends to make a secondary market in the
classes of certificates purchased by it, but no
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.
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-11
<PAGE>
THE MORTGAGE POOL
GENERAL
The depositor, IndyMac MBS, Inc., will purchase the 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 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 certain characteristics of the mortgage loans and, subject to the
limitations described below under "--Assignment of Mortgage Loans" and
"--Representations by Seller, Repurchases, etc.," the seller 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 affects the
interests of the certificateholders in that 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, etc." in the prospectus.
Under the pooling and servicing agreement, the depositor will assign all its
right, title and interest in and to those representations, warranties and
covenants (including the seller's repurchase obligation) to the trustee for the
benefit of the 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 or substitution obligations
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 $213,463,312, 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 of the mortgage loans provide for
payments due on the first day of each month (the "Due Date"). At origination,
substantially all of the mortgage loans had stated terms to maturity of 30
years. Scheduled monthly payments made by the mortgagors on the mortgage loans
(referred to as scheduled payments) either earlier or later than their
scheduled Due Dates will not affect the amortization schedule or the relative
application of the payments to principal
S-12
<PAGE>
and interest. Except for 79 mortgage loans representing approximately 15.38% of
the mortgage loans by cut-off date pool principal balance, the mortgagors may
prepay their mortgage loans at any time without penalty. Any prepayment
penalties received will not be distributed to certificateholders.
Each mortgage loan was originated on or after June 1, 1975.
The latest stated maturity date of any mortgage loan is December 1, 2030,
and the earliest stated maturity date of any mortgage loan is June 1, 2005.
As of the cut-off date, no mortgage loan was delinquent more than 30 days.
No mortgage loans are subject to a buydown agreement. No mortgage loan
provides for deferred interest or negative amortization.
No mortgage loan has a Loan-to-Value Ratio at origination of more than
97%. Each of the mortgage loans with a Loan-to-Value Ratio at origination of
greater than 80% will be 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 a specified
percentage times the sum of the remaining principal balance of the related
mortgage loan, the accrued interest on it and the related foreclosure expenses.
With respect to 7 mortgage loans, the lender (rather than the borrower)
acquired the primary mortgage guaranty insurance and charged the related
borrower an interest premium. 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
o 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
o 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.
"FICO Credit Scores" are obtained by many mortgage lenders in connection
with mortgage loan applications to help assess a borrower's credit-worthiness.
FICO Credit Scores are generated by models developed by a third party which
analyze data on consumers in order to establish patterns which are believed to
be indicative of the borrower's probability of default. The FICO Credit Score
is based on a borrower's historical credit data, including, among other things,
payment history, delinquencies on accounts, levels of outstanding indebtedness,
length of credit history, types of credit, and bankruptcy experience. FICO
Credit Scores range from approximately 250 to approximately 900, with higher
scores indicating an individual with a more favorable credit history compared
to an individual with a lower score. However, a FICO Credit Score purports only
to be a measurement of the relative degree of risk a borrower represents to a
lender, i.e., that a borrower with a higher score is statistically expected to
be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Credit Scores were developed to indicate
a level of default probability over a two-year period which does not correspond
to the life of a mortgage loan. Furthermore, FICO Credit Scores were not
developed specifically for use in connection with mortgage loans, but for
consumer loans in general. Therefore, a FICO Credit Score does not take into
consideration the effect of mortgage loan characteristics (which may differ
from consumer loan characteristics) on the probability of repayment by the
borrower. There can be no assurance that a FICO Credit Score will be an
accurate predictor of the likely risk or quality of the related mortgage loan.
S-13
<PAGE>
The following information sets forth in tabular format information, as of
the cut-off date, as to the mortgage loans in the mortgage pool. 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%.
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING POOL
------------------ --------- ----------- ----------
<S> <C> <C> <C>
8.001-- 8.250 ......... 22 $ 7,868,040 3.69%
8.251-- 8.500 ......... 73 25,868,366 12.12
8.501-- 8.750 ......... 92 34,582,624 16.20
8.751-- 9.000 ......... 136 52,314,788 24.51
9.001-- 9.250 ......... 91 33,023,000 15.47
9.251-- 9.500 ......... 69 24,598,966 11.52
9.501-- 9.750 ......... 36 13,381,263 6.27
9.751--10.000 ......... 23 9,384,318 4.40
10.001--10.250 ......... 9 2,980,942 1.40
10.251--10.500 ......... 7 2,589,750 1.21
10.501--10.750 ......... 7 3,058,907 1.43
10.751--11.000 ......... 3 1,250,171 0.59
11.001--11.250 ......... 3 1,623,500 0.76
11.501--11.750 ......... 3 776,542 0.36
11.751--12.000 ......... 1 24,586 0.01
12.501--12.750 ......... 1 45,299 0.02
13.501--13.750 ......... 1 86,136 0.04
14.001--14.250 ......... 1 6,114 0.00
--- ------------ ------
Total ................. 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) The lender acquired mortgage insurance mortgage loans are shown in the
preceding table at mortgage rates inclusive of the interest premium
charged by the related lenders. As of the cut-off date, the weighted
average mortgage rate of the mortgage loans without adjusting for the
interest premium is expected to be approximately 9.108% per annum. If the
mortgage rates for the lender acquired mortgage insurance loans are shown
net of the interest premium charged by the related lenders, the weighted
average mortgage rate of the mortgage loans is expected to be
approximately 9.105% per annum.
S-14
<PAGE>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
RANGE OF CURRENT MORTGAGE MORTGAGE BALANCE MORTGAGE
LOAN PRINCIPAL BALANCES LOANS OUTSTANDING POOL
-------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
$ 00--$ 50,000 ......... 17 $ 456,391 0.21%
$ 50,001--$ 100,000 ......... 6 431,484 0.20
$ 100,001--$ 150,000 ......... 7 795,857 0.37
$ 150,001--$ 200,000 ......... 3 542,400 0.25
$ 200,001--$ 250,000 ......... 2 459,000 0.22
$ 250,001--$ 300,000 ......... 173 47,750,630 22.37
$ 300,001--$ 350,000 ......... 134 43,330,119 20.30
$ 350,001--$ 400,000 ......... 104 39,179,495 18.35
$ 400,001--$ 450,000 ......... 43 18,267,129 8.56
$ 450,001--$ 500,000 ......... 28 13,422,957 6.29
$ 500,001--$ 550,000 ......... 12 6,311,100 2.96
$ 550,001--$ 600,000 ......... 10 5,784,592 2.71
$ 600,001--$ 650,000 ......... 12 7,574,560 3.55
$ 650,001--$ 700,000 ......... 2 1,353,500 0.63
$ 700,001--$ 750,000 ......... 5 3,657,250 1.71
$ 750,001--$ 800,000 ......... 4 3,150,000 1.48
$ 800,001--$ 850,000 ......... 1 845,000 0.40
$ 850,001--$ 900,000 ......... 2 1,735,780 0.81
$ 950,001--$1,000,000 ......... 5 4,915,495 2.30
$1,050,001--$1,100,000 ......... 1 1,099,487 0.52
$1,100,001--$1,150,000 ......... 1 1,107,250 0.52
Over $1,500,000................. 6 11,293,836 5.29
--- ------------ ------
Total ......................... 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) As of the Cut-off Date, the average current mortgage loan principal
balance is expected to be approximately $369,314.
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
ORIGINAL LOAN-TO-VALUE RATIOS (%) LOANS OUTSTANDING POOL
----------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Up to 60.00 ..................... 38 $ 16,842,618 7.89%
60.01-- 65.00 ..................... 13 9,830,732 4.61
65.01-- 70.00 ..................... 42 22,291,707 10.44
70.01-- 75.00 ..................... 50 19,978,994 9.36
75.01-- 80.00 ..................... 213 73,148,687 34.27
80.01-- 85.00 ..................... 23 7,098,096 3.33
85.01-- 90.00 ..................... 155 51,344,343 24.04
90.01-- 95.00 ..................... 41 12,105,932 5.67
95.01--100.00 ..................... 3 822,203 0.39
--- ------------ ------
Total ............................ 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) The weighted average original Loan-to-Value Ratio of the mortgage loans
is expected to be approximately 78.70%.
S-15
<PAGE>
ORIGINAL TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING POOL
------------------- ----------- --------------- -----------
<S> <C> <C> <C>
240 ............... 1 $ 399,500 0.19%
359 ............... 1 34,970 0.02
360 ............... 576 213,028,842 99.79
--- ------------ ------
Total ............ 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) As of the Cut-off Date, the weighted average remaining term to maturity
of the mortgage loans is expected to be approximately 359 months.
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING POOL
----------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Arizona ............... 8 $ 4,798,152 2.25%
California ............ 247 94,769,734 44.40
Colorado .............. 12 4,770,053 2.23
Florida ............... 16 4,995,450 2.34
Georgia ............... 11 4,577,800 2.14
Massachusetts ......... 14 5,945,612 2.79
New Jersey ............ 35 11,518,729 5.40
New York .............. 120 41,101,366 19.25
Utah .................. 11 4,378,281 2.05
Virginia .............. 12 4,577,000 2.14
Other (1) ............. 92 32,031,135 15.01
--- ------------ ------
Total ................ 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) Other includes 23 other states with under 2% concentrations individually.
No more than approximately 1.21% of the mortgage loans will be secured by
Mortgaged Properties located in any one postal zip code area.
S-16
<PAGE>
MORTGAGORS' CREDIT SCORES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
CREDIT SCORES LOANS OUTSTANDING POOL
--------------------- ----------- --------------- -----------
<S> <C> <C> <C>
600--625 ............ 26 $ 9,740,600 4.56%
625--650 ............ 123 45,456,866 21.29
650--675 ............ 139 52,533,456 24.62
675--700 ............ 98 39,436,399 18.47
700--725 ............ 76 30,272,823 14.18
725--750 ............ 46 17,825,885 8.35
750--775 ............ 28 10,569,323 4.95
775--800 ............ 16 4,710,357 2.21
800--825 ............ 1 297,000 0.14
Unavailable ......... 25 2,620,603 1.23
--- ------------ ------
Total .............. 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) The weighted average credit score (where available) of the mortgage loans
is expected to be approximately 681.56.
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE LOAN
PROPERTY TYPE LOANS OUTSTANDING POOL
---------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Single Family .......................... 416 $156,698,853 73.41%
Planned Unit Development (PUD) ......... 64 24,172,932 11.32
Low-Rise Condo ......................... 11 3,948,741 1.85
2-4 Units .............................. 79 26,312,136 12.33
Co-op .................................. 2 562,500 0.26
Townhomes .............................. 3 1,019,750 0.48
Highrise Condo ......................... 3 748,400 0.35
--- ------------ ------
Total ................................. 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE LOAN
LOAN PURPOSE LOANS OUTSTANDING POOL
---------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Purchase ......................... 360 $119,850,776 56.15%
Refinance (Rate or Term) ......... 79 41,413,404 19.40
Refinance (cash-out) ............. 139 52,199,132 24.45
--- ------------ ------
Total ........................... 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
S-17
<PAGE>
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE LOAN
OCCUPANCY TYPE LOANS OUTSTANDING POOL
---------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Primary Home ......... 527 $197,070,769 92.32%
Second Home .......... 5 2,341,440 1.10
Investor ............. 46 14,051,103 6.58
--- ------------ ------
Total ............... 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
----------
(1) Based upon representations of the related Mortgagors at the time of
origination
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE LOAN
TYPE OF PROGRAM LOANS OUTSTANDING POOL
-------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Full/Alternative ......... 151 $ 52,928,185 24.79%
No Ratio ................. 86 33,413,754 15.65
Reduced .................. 250 95,600,275 44.79
No Doc ................... 91 31,521,098 14.77
--- ------------ ------
Total ................... 578 $213,463,312 100.00%
=== ============ ======
</TABLE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the pooling and servicing agreement, the depositor on the
closing date will sell, transfer, assign, set over and otherwise convey without
recourse to the trustee in trust for the benefit of the certificateholders all
right, title and interest of the depositor in each mortgage loan and all right,
title and interest in all other assets included in Residential Asset
Securitization Trust 2000-A8, including all principal and interest received on
or with respect to the mortgage loans, exclusive of any 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 30% of the mortgage loans, the depositor may deliver all
or a portion of each related mortgage file to the trustee not later than five
business 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 trustee's interest
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
S-18
<PAGE>
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 substitution will not disqualify
either 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,
o 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")),
o have a mortgage rate not lower than, and not more than 1% per annum
higher than, that of the deleted mortgage loan,
o have a Loan-to-Value Ratio not higher than that of the deleted mortgage
loan,
o have a remaining term to maturity not greater than (and not more than one
year less than) that of the deleted mortgage loan, and
o 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 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:
S-19
<PAGE>
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 underwrite 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 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
S-20
<PAGE>
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 Mae 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.
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.
S-21
<PAGE>
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.
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<PAGE>
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 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 other
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 99.94% 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, Inc. commenced master servicing conventional mortgage loans
during April 1993 and commenced servicing conventional mortgage loans during
August 1998. In connection with the acquisition of SGV Bancorp, the master
servicing and servicing operations of the former IndyMac, Inc. were contributed
to IndyMac Bank, resulting in IndyMac Bank performing the master servicing and
servicing operations previously performed by IndyMac, Inc.
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
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<PAGE>
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 recently began directly servicing
mortgage loans, 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 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 September 30, 2000 on approximately
$11.1 billion, $12.3 billion, $16.9 billion, $13.8 billion and $15.4 billion,
respectively, in outstanding principal balance of conventional mortgage loans
master serviced or serviced by IndyMac Bank. The table does not include loans
that were part of First Federal's portfolio prior to its acquisition by IndyMac
Bancorp:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------------------- SEPTEMBER 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 94,137 100,482
Delinquent Mortgage Loans and Pending
Foreclosures at Period End(1):
30-59 days ...................... 2.30% 2.39% 2.40% 2.74% 2.48% 2.46%
60-89 days ...................... 0.42% 0.52% 0.54% 0.65% 0.47% 0.59%
90-119 days ..................... 0.15% 0.30% 0.40% 0.40% 0.30% 0.15%
120-149 days ..................... 0.23% 0.51% 0.55% 0.33% 0.25% 0.18%
------ ------ ------ ------- ------ -------
Total Delinquencies ............. 3.10% 3.72% 3.89% 4.12% 3.50% 3.38%
====== ====== ====== ======= ====== =======
Foreclosures Pending ................ 0.30% 0.65% 0.56% 0.64% 1.20% 1.21%
------ ------ ------ ------- ------ -------
Total Delinquencies and
Foreclosures Pending ............ 3.40% 4.37% 4.45% 4.76% 4.70% 4.59%
====== ====== ====== ======= ====== =======
</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.
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<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE STATED AMOUNT
NET LOSSES OF SECURITIES ISSUED
(MILLIONS) (MILLIONS) LOSS RATIO(1)
------------ --------------------- --------------
<S> <C> <C> <C>
As of December 31, 1995 .......... $ 0.75 $ 10,860.12 0.01%
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 September 30, 2000 ......... $ 56.14 $ 27,771.85 0.20%
</TABLE>
----------
(1) Loss Ratio represents cumulative net losses as a percentage of the
aggregate amount of securities issued.
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 continue
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 are payable out of the interest payments on each mortgage
loan. The expense fees will vary from mortgage loan to mortgage loan. The rate
at which the expense fees accrue (referred to as the expense fee rate) is
expected to range from 0.301% to 0.841% 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 0.305%. The expense fees
consist of (a) master servicing compensation in the amount of 0.041% per annum
of the Stated Principal Balance of each Mortgage Loan, (b) servicing
compensation that is expected to range from 0.250% to 0.790% 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 servicing compensation is subject to adjustment with respect to
prepaid mortgage loans, as described herein under "--Adjustment to Servicing
Compensation in Connection with Certain Prepaid Mortgage Loans." The master
servicer will also be entitled to receive late payment fees, prepayment
penalties, assumption fees 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
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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 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
o 0.125% multiplied by
o one-twelfth multiplied by
o 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
o 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, if the 18th is not a business day, the next business day
after the 18th of the month)
minus
o the total of
o the master servicing fee for the related period and
o the applicable servicing fee for the related period
plus
o 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 such 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
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<PAGE>
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 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 any 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.
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 summaries
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. When particular provisions or terms used in the pooling and
servicing agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference. The certificates represent
obligations of the trust only and do not represent an interest in or obligation
of IndyMac MBS, Inc., IndyMac Bank, F.S.B. or any of their affiliates.
The Mortgage Pass-Through Certificates, Series 2000-H will consist of the
Class A-1, Class A-1-A, Class A-2, Class A-3, Class A-3-A, Class A-4, Class
A-5, Class PO, Class X and Class A-R Certificates, all of which are referred to
as senior certificates, and the Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates, all of which are referred to as
subordinated certificates. Only the classes of certificates listed on the cover
page are offered by this prospectus supplement. The Class B-4, Class B-5 and
Class B-6 Certificates are not offered by this prospectus supplement. Their
Class Certificate Balances are expected to be approximately $1,494,000,
$641,000 and $1,281,154, respectively. 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 under "--Interest" below. The pass-through rate for each
of the Class B-4, Class B-5 and Class B-6 Certificates will be 7.75%. The
initial Class Certificate Balances may vary in the aggregate by plus or minus
5%.
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<PAGE>
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
o all amounts previously distributed to holders of certificates of the
class as payments of principal,
o the amount of Realized Losses (including Excess Losses) allocated to the
class and
o 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"
and in the case of the Class A-4 and Class A-5 Certificates, increased by
o all interest accrued and added to their respective Class Certificate
Balances prior to that Distribution Date.
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 classes of notional amount certificates do not have principal
balances and are not entitled to any distributions in respect of principal of
the mortgage loans.
The senior certificates will have an initial aggregate principal balance
of approximately $199,054,157 and will evidence in the aggregate an initial
beneficial ownership interest of approximately 93.25% in the trust fund. The
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
Certificates will each evidence in the aggregate an initial beneficial
ownership interest of approximately 2.30%, 1.75%, 1.10%, 0.70%, 0.30% and
0.60%, respectively, in the trust fund.
The Class PO, Class X, Class A-R, Class B-4, Class B-5 and Class B-6
Certificates will be issued in fully registered certificated form. All of the
remaining classes of certificates 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.
NOTIONAL AMOUNT CERTIFICATES
The Class A-1-A and Class A-3-A Certificates are Notional Amount
Certificates. The Notional Amount of the Class A-1-A Certificates for any
Distribution Date will be equal to the Class Certificate Balance of the Class
A-1 Certificates immediately prior to that Distribution Date. The initial
Notional Amount of the Class A-1-A Certificates is expected to be approximately
$92,853,000 (subject to the permitted variance described herein). The Notional
Amount of the Class A-3-A Certificates for any Distribution Date will be equal
to the Class Certificate Balance of the Class A-3 Certificates immediately
prior to that Distribution Date. The initial Notional Amount of the Class A-3-A
Certificates is expected to be approximately $14,600,000 (subject to the
permitted variance described herein).
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 such Distribution Date. The initial
notional amount of the Class X Certificates will be equal to the aggregate of
the Stated Principal Balances of the Non-Discount mortgage loans as of the
cut-off date and is expected to be approximately $212,098,090.
SEPARATE REMIC STRUCTURE
For federal income tax purposes, the trust fund will include two
segregated asset pools, each of which will be treated as a separate REMIC. The
assets of the Subsidiary REMIC will generally consist of the mortgage loans.
The assets of the Master REMIC will generally consist of uncertificated regular
interests issued by the Subsidiary REMIC, which in the aggregate will
correspond to the certificates.
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<PAGE>
BOOK-ENTRY CERTIFICATES
The offered certificates (other than the Class PO, Class X and Class A-R
Certificates) will be issued as book-entry certificates. Each class of
book-entry certificates will be issued as 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 ("DTC"). 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 or original notional 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 in that
class 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
certificate account or the Distribution 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 November 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 a Notional Amount
Certificate and who has so notified the trustee in writing in accordance with
the pooling and servicing agreement, by wire
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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 on the senior certificates based on the
Available Funds for such Distribution Date, and distributions on the
subordinated certificates will be based on any remaining Available Funds for
such Distribution Date after giving effect to distributions on all classes of
senior certificates and payments in respect of Class PO Deferred Amounts, and
will be made in the following order of priority:
o to interest on each interest bearing class of senior certificates
(except that with respect to the Class A-4 and Class A-5 Certificates, on
and prior to their respective Accrual Termination Dates, interest will be
added to the Class Certificate Balances of the Class A-4 and Class A-5
Certificates);
o 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;
o 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
o to interest on and then principal of each class of subordinated
certificates, in the order of their numerical class designations,
beginning with the Class B-1 Certificates, in each case subject to the
limitations set forth under "Description of the Certificates--Principal."
"Available Funds" for any Distribution Date and the mortgage loans will
equal the sum of:
o 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;
o 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 procedures 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);
o all partial or full prepayments with respect to mortgage loans received
during the related Prepayment Period; and
o 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 below or described on the cover page of this prospectus
supplement.
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The pass-through rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the adjusted net
mortgage rates of the Non-Discount mortgage loans, weighted on the basis of
their Stated Principal Balances, over (b) 7.75% per annum. The pass-through
rate for the Class X Certificates for the first Distribution Date is expected
to be approximately 1.060% per annum. The adjusted 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
(or in the case of the Class A-4 and Class A-5 Certificates, have such interest
added to their respective Class Certificate Balances until the applicable
Accrual Termination Date) 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 or accreted 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 that Distribution Date. With respect to any Distribution Date,
the "Net Interest Shortfall" is equal to
o any net prepayment interest shortfalls for that Distribution Date and
o 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.
Net Interest Shortfalls on any Distribution Date will be allocated pro
rata among all interest-bearing classes of certificates, based on the amount of
interest each such class of certificates would otherwise be entitled to receive
or accrete on such Distribution Date before taking into account any reduction
in such amounts from such Net Interest Shortfalls.
A "Relief Act Reduction" is a reduction in the amount of the monthly
interest payment on a mortgage loan pursuant to the Soldiers' and Sailors'
Civil Relief Act of 1940. See "Certain Legal Aspects of the Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act" in the prospectus. With respect
to any Distribution Date, the net prepayment interest shortfall is the amount
by which the aggregate of prepayment interest shortfalls experienced by the
mortgage loans during 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 Servicing Compensation in Connection with Certain 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 or accrete on that
Distribution Date.
The Class A-4 and Class A-5 Certificates are accrual certificates.
Interest will accrue on the Class A-4 and Class A-5 Certificates during each
interest accrual period at a per annum rate of 7.75%. However, this interest
will not be distributed on the Class A-4 or Class A-5 Certificates until the
applicable "Accrual Termination Date" which is the earlier of:
o the date on which the Class Certificate Balances of each class of
subordinated certificates has been reduced to zero and
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o in the case of the Class A-4 Certificates, the distribution date on
which the Class Certificate Balances of the Class A-1, Class A-2 and
Class A-3 Certificates have been reduced to zero and
o in the case of the Class A-5 Certificates, the distribution date on
which the Class Certificate Balance of the Class A-2 Certificates has
been reduced to zero.
This accrued and unpaid interest will be added to the Class Certificate
Balances of these classes of certificates on the related Distribution Date.
Accrued interest to be distributed or added to principal, as the case may
be, on any Distribution Date will be calculated, in the case of each interest
bearing class of certificates, on the basis of the related Class Certificate
Balance or Notional Amount, as applicable, immediately prior to such
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 or accretion
of the interest entitlement on the certificates, interest will be distributed
or accreted on each class of certificates of equal priority based on the amount
of interest it would otherwise have been entitled to receive or accrete 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 or accrete on the next Distribution Date. A shortfall could occur,
for example, if losses realized on the mortgage loans were exceptionally high
or were concentrated in a particular month. Any unpaid interest amount so
carried forward will not bear interest.
PRINCIPAL
General. All payments and other amounts received in respect of principal
of the mortgage loans will be allocated between the Class PO Certificates, on
the one hand, and the senior certificates (other than the notional amount and
Class PO Certificates) and the subordinated certificates, on the other hand, in
each case based on the applicable PO Percentage and the applicable Non-PO
Percentage, respectively, of those amounts.
The Non-PO Percentage with respect to any mortgage loan with a net
mortgage rate less than 7.75% (each a "Discount mortgage loan") will be equal
to the adjusted net mortgage rate divided by 7.75%. The Non-PO Percentage with
respect to any mortgage loan with an adjusted net mortgage rate equal to or
greater than 7.75% (each a "Non-Discount mortgage loan") will be 100%. The PO
Percentage with respect to any Discount mortgage loan will be equal to (7.75%
minus the adjusted net mortgage rate) divided by 7.75%. 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,
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(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 on the
mortgage loans received during the related Prepayment Period.
Class A-5 Accrual Amount. On each Distribution Date up to and including
the Accrual Termination Date for the Class A-5 Certificates, the amount of
accrued interest on the Class A-5 Certificates added to its Class Certificate
Balance (this is sometimes referred to as the "Class A-5 Accrual Amount") will
be distributed as principal to the Class A-2 Certificates, without regard to
its Scheduled Balance, until its Class Certificate Balance is reduced to zero
and thereafter to the Class A-5 Certificates, until its Class Certificate
Balance is reduced to zero.
Class A-4 Accrual Amount. On each Distribution Date up to and including
the Accrual Termination Date for the Class A-4 Certificates, the amount of
accrued interest on the Class A-4 Certificates added to its Class Certificate
Balance (this is sometimes referred to as the "Class A-4 Accrual Amount") will
be distributed as principal sequentially in the following order:
1. to the Class A-3 Certificates, until its Class Certificate Balance is
reduced to zero;
2. to the Class A-1 Certificates, without regard to its Planned Balance,
until its Class Certificate Balance is reduced to zero;
3. to the Class A-2 Certificates, without regard to its Scheduled Balance,
until its Class Certificate Balance is reduced to zero; and
4. to the Class A-4 Certificates, until its Class Certificate Balance is
reduced to zero.
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:
(1) to the Class A-R Certificates, until its Class Certificate Balance is
reduced to zero;
(2) to the Class A-1 Certificates, in an amount up to the amount
necessary to reduce its Class Certificate Balance to its Planned
Balance for such Distribution Date;
(3) to the Class A-2 Certificates, in an amount up to the amount
necessary to reduce its Class Certificate Balance to its Scheduled
Balance for such Distribution Date;
(4) to the Class A-5 Certificates, until its Class Certificate Balance is
reduced to zero;
(5) to the Class A-2 Certificates, without regard to its Scheduled
Balance, until its Class Certificate Balance is reduced to zero;
(6) to the Class A-1 Certificates, without regard to its Planned Balance,
until its Class Certificate is reduced to zero; and
(7) sequentially, to the Class A-3 and Class A-4 Certificates, in that
order, until their respective Class Certificate Balances are reduced
to zero.
Notwithstanding the payment priorities listed above, 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 to the classes
of senior certificates (other than the notional amount and Class PO
Certificates), pro rata and without regard to any planned balances, in
accordance with their respective Class Certificate Balances immediately before
that Distribution Date.
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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 for any Distribution Date, the prior calendar
month.
The "Senior Principal Distribution Amount" for any Distribution Date will
equal the sum of
o 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 that Distribution Date,
o for each mortgage loan that became a Liquidated mortgage loan during the
calendar month preceding the month of the Distribution Date, the lesser
of
o the Senior Percentage of the applicable Non-PO Percentage of the
Stated Principal Balance of the mortgage loan and
o either
o the Senior Prepayment Percentage of the applicable Non-PO
Percentage of the amount of the liquidation proceeds allocable to
principal received on the mortgage loan or
o 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
o the Senior Prepayment Percentage of the applicable Non-PO Percentage
of the amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for the Distribution Date;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is
sustained on a mortgage loan that is not a Liquidated mortgage loan, the Senior
Principal Distribution Amount will be reduced on the related Distribution Date
by the Senior Percentage of the applicable Non-PO Percentage of the principal
portion of the Bankruptcy Loss.
"Stated Principal Balance" means for any mortgage loan and Due Date, the
unpaid principal balance of the mortgage loan as of the Due Date, as specified
in its amortization schedule at the time (before any adjustment to the
amortization schedule for any moratorium or similar waiver or grace period),
after giving effect to any previous partial prepayments and liquidation
proceeds received and to the payment of principal due on the Due Date and
irrespective of any delinquency in payment by the related mortgagor. The pool
principal balance with respect to any Distribution Date equals the aggregate of
the Stated Principal Balances of the mortgage loans outstanding on the Due Date
in the month preceding the month of the Distribution Date.
The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each class of senior certificates (other than the Class
PO Certificates) immediately before the Distribution Date and the denominator
of which is the aggregate of the Class Certificate Balances of all classes of
certificates (other than the Class PO Certificates) immediately prior to such
Distribution Date. For any Distribution Date, the Subordinated Percentage for
the subordinated certificates will be calculated as the difference between 100%
and the Senior Percentage on such 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
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<PAGE>
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 on such
Distribution Date.
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 listed below are
satisfied:
o 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 Class Certificate Balance of the subordinated
certificates, does not equal or exceed 50%, and
o cumulative Realized Losses on the mortgage loans do not exceed
o for the Distribution Date on the fifth anniversary of the first
Distribution Date, 30% of the principal balances of the subordinated
certificates as of the cut-off date (the "original subordinate
principal balance"),
o for the Distribution Date on the sixth anniversary of the first
Distribution Date, 35% of the original subordinate principal balance,
o for the Distribution Date on the seventh anniversary of the first
Distribution Date, 40% of the original subordinate principal balance,
o for the Distribution Date on the eighth anniversary of the first
Distribution Date, 45% of the original subordinate principal balance,
and
o for the Distribution Date on the ninth anniversary of the first
Distribution Date, 50% of the original subordinate principal balance.
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 B-1 Certificates, until their respective Class
Certificate Balances are reduced to zero.
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<PAGE>
With respect to each class of subordinated certificates, if on any
Distribution Date the sum of the Class Subordination Percentages of the class
and all classes of subordinated certificates which have higher numerical class
designations than that class (the "Applicable Credit Support Percentage") is
less than the Applicable Credit Support Percentage for that 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:
Class B-1 .............. 6.75%
Class B-2 .............. 4.45%
Class B-3 .............. 2.70%
Class B-4 .............. 1.60%
Class B-5 .............. 0.90%
Class B-6 .............. 0.60%
The Subordinated Principal Distribution Amount for any Distribution Date
will equal
o the sum of
o 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,
o 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 portion 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
o 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
o 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.
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<PAGE>
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 that
Distribution Date and (y) the product of
o Available Funds remaining after distribution and accretion of interest
on the senior certificates and
o 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 and
accretion 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 PO Percentage of
o all monthly payments of principal due on each mortgage loan on the
related Due Date,
o 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,
o the Substitution Adjustment Amount in connection with any deleted
mortgage loan received for the Distribution Date,
o 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,
o 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
o all partial and full principal prepayments by borrowers on the mortgage
loans 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 PO Percentage of any Realized Loss,
including any Excess Loss, on a Discount mortgage loan will be allocated to the
Class PO Certificates until its 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
from Available Funds 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.
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<PAGE>
On each Distribution Date, the 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 or in the case of the Class A-4 and Class
A-5 Certificates, on the basis of the lesser of their respective Class
Certificate Balances on that date and their respective Class Certificate
Balances on the closing date.
On each Distribution Date, the Non-PO Percentage of Excess Losses on the
mortgage loans will be allocated pro rata among the classes of senior
certificates (other than the notional amount and Class PO Certificates), and
the subordinated certificates, based on their respective class certificate
balances immediately prior to such Distribution Date or in the case of the
Class A-4 and Class A-5 Certificates, on the basis of the lesser of their
respective Class Certificate Balances on that date and their respective Class
Certificate Balances on the closing date.
Because principal distributions are paid to some classes of certificates
(other than the Class PO Certificates) before other classes of certificates,
holders of the certificates that are entitled to receive principal later bear a
greater risk of being allocated Realized Losses on the mortgage loans than
holders of classes that are entitled to receive principal earlier.
In general, a "Realized Loss" means, for a Liquidated mortgage loan, the
amount by which the remaining unpaid principal balance of the mortgage loan
exceeds the amount of liquidation proceeds applied to the principal balance of
the related mortgage loan. "Excess Losses" are Special Hazard Losses in excess
of the Special Hazard Loss Coverage Amount, Bankruptcy Losses in excess of the
Bankruptcy Loss Coverage Amount and Fraud Losses in excess of the Fraud Loss
Coverage Amount. "Bankruptcy Losses" are losses that are incurred as a result
of Debt Service Reductions and Deficient Valuations. "Special Hazard Losses"
are Realized Losses in respect of Special Hazard mortgage loans. "Fraud Losses"
are losses sustained on a Liquidated mortgage loan by reason of a default
arising from fraud, dishonesty or misrepresentation. See "Credit
Enhancement--Subordination" in the prospectus and in this prospectus
supplement.
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" in the prospectus and in this prospectus
supplement.
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:
o the mortgage pool consists of two mortgage loans with the following
characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
ADJUSTED NET TO MATURITY TO MATURITY LOAN AGE
PRINCIPAL BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
------------------- ------------------ ------------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$ 1,365,221.05 8.1250000000% 7.7440000000% 360 360 0
$212,098,090.53 9.1141473966% 8.8099495038% 360 359 1
</TABLE>
o the mortgage loans prepay at the specified constant percentages of the
prepayment assumption,
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o no defaults in the payment by mortgagors of principal of and interest on
the mortgage loans are experienced,
o 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,
o prepayments are allocated as described in this prospectus supplement
without giving effect to loss and delinquency tests,
o 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,
o 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,
o 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," or under "Description of the Certificates,"
o interest accrues on each interest bearing class of certificates at the
applicable pass-through rate set forth or described on the cover page
hereof and as described in this prospectus supplement,
o distributions in respect of the certificates are received in cash on the
25th day of each month commencing in the calendar month following the
closing date,
o the closing date of the sale of the certificates is October 30, 2000,
o the seller is not required to repurchase or substitute for any mortgage
loan,
o the master servicer does not exercise the option to repurchase the
mortgage loans described under "--Optional Purchase of Defaulted Loans"
and "--Optional Termination,"
o the Planned Balances are as set forth in the applicable Principal
Balance Schedules and
o 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 the prepayment assumption, 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
represents an assumed rate of prepayment each month of the then outstanding
principal balance of a pool of new mortgage loans. A 100% prepayment assumption
assumes a Constant Prepayment Rate ("CPR") of 6.0% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 1.1666666667% (precisely (14/12)%)
per annum in the second through twelfth months. Beginning in the thirteenth
month and in each month thereafter during the life of the mortgage loans, a
100% prepayment assumption assumes a CPR of 20% per annum each month. The
prepayment assumption does not purport to be a historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate or prepayment of any pool of mortgage loans, including the
mortgage loans. There is no assurance that prepayments will occur at any
prepayment assumption 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
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<PAGE>
Stated Principal Balance of the mortgage loan plus accrued interest on it at
the applicable mortgage rate from the date through which interest was last paid
by the related mortgagor or advanced (and not reimbursed) to the first day of
the month in which the amount is to be distributed.
OPTIONAL TERMINATION
The master servicer will have the right to repurchase all remaining
mortgage loans and foreclosed or otherwise repossessed properties in the
mortgage pool and thereby effect early retirement of the certificates, subject
to the pool principal balance of the mortgage loans and foreclosed or otherwise
repossessed properties at the time of repurchase being less than 10% of the
cut-off date pool principal balance. If the master servicer exercises the
option, the purchase price distributed with respect to each certificate will be
100% of its then outstanding principal balance plus any Class PO Deferred
Amounts in the case of the Class PO Certificates and, in the case of an
interest bearing certificate, any unpaid accrued interest thereon at the
applicable pass-through rate, in each case subject to reduction as provided in
the pooling and servicing agreement if the purchase price is based in part on
the appraised value of any foreclosed or otherwise repossessed properties and
the appraised value is less than the Stated Principal Balance of the related
mortgage loans. Distributions on the certificates in respect of any optional
termination will first be paid to the senior certificates and then to the
subordinated certificates. The proceeds from any optional termination
distribution may not be sufficient to distribute the full amount to which each
class of certificates is entitled if the purchase price is based in part on the
appraised value of any foreclosed or otherwise repossessed property and the
appraised value is less than the Stated Principal Balance of the related
mortgage loan.
THE TRUSTEE
The Bank of New York will be the trustee under the pooling and servicing
agreement. The depositor and the master servicer may maintain other banking
relationships in the ordinary course of business with The Bank of New York.
Offered certificates may be surrendered at the Corporate Trust Office of the
trustee located at 101 Barclay Street, 12E, New York, New York 10286,
Attention: Corporate Trust Administration or at any other address the trustee
designates from time to time.
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" in the prospectus and in this prospectus supplement. Each Class
A-R Certificate will contain a legend describing the foregoing restrictions.
S-40
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of each interest bearing class of
certificates will be lower than the yield otherwise produced by the applicable
rate at which interest is passed through to the holders and the purchase price
of the certificates because monthly distributions will not be payable to the
holders until the 25th 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. Any Net Interest Shortfall Amount allocated to the Class
A-4 or Class A-5 Certificates will reduce the Class A-4 or Class A-5 Accrual
Amounts thereby reducing the amount of funds available for distribution of
principal on the classes of certificates entitled to receive those amounts. 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 on the mortgage loans will
be borne by all classes of senior certificates (other than the Notional Amount
Certificates) and the subordinated certificates in the manner set forth in this
prospectus supplement under "Description of the Certificates--Allocation of
Losses." 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.
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. Except for certain of the mortgage loans which have
prepayment penalties if the related mortgagor prepays such mortgage loan during
a period ranging from one year to five years after origination, the mortgage
loans may be prepaid by the mortgagors at any time without a prepayment
penalty. Because certain of the mortgage loans contain prepayment penalties,
the rate of principal prepayments may be less than the rate of principal
payments for mortgage loans that did not have prepayment penalties. The
mortgage loans are subject to the "due-on-sale" provisions included therein.
However, the master servicer may choose not to accelerate a mortgage loan upon
the conveyance of the related mortgaged property if the master servicer would
make a similar decision with respect to a comparable mortgage loan held for its
own account. See "The Mortgage Pool" in this prospectus supplement.
S-41
<PAGE>
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 remaining terms of the mortgage loans. This
includes any optional purchase by the master servicer of 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 on the mortgage loans 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 30% of the
mortgage loans, the depositor may deliver all or a portion of each related
mortgage file to the trustee not later than five business 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
distributions of principal prepayments. 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 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.
S-42
<PAGE>
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 the prepayment assumption. 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 class of certificates when the
reinvestment rates are considered.
SENSITIVITY OF THE CLASS A-1-A, CLASS A-3-A AND CLASS X CERTIFICATES
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS
A-1-A, CLASS A-3-A AND CLASS X CERTIFICATES WILL BE SENSITIVE TO THE RATE OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF ALL OF THE MORTGAGE LOANS, IN THE
CASE OF THE CLASS A-1-A AND CLASS A-3-A CERTIFICATES, AND THE NON-DISCOUNT
MORTGAGE LOANS (PARTICULARLY THOSE WITH HIGH ADJUSTED NET MORTGAGE RATES) IN
THE CASE OF THE CLASS X CERTIFICATES. THE MORTGAGE LOANS GENERALLY CAN BE
PREPAID AT ANY TIME. ON THE BASIS OF THE STRUCTURING ASSUMPTIONS DESCRIBED
UNDER THIS HEADING, THE YIELD TO MATURITY ON THE CLASS A-1-A, CLASS A-3-A AND
CLASS X CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT
A CONSTANT RATE OF APPROXIMATELY 181%, 206% AND 189%, RESPECTIVELY, OF THE
PREPAYMENT ASSUMPTION. IF THE ACTUAL PREPAYMENT RATE OF ALL OF THE MORTGAGE
LOANS, IN THE CASE OF THE CLASS A-1-A AND CLASS A-3-A CERTIFICATES, AND THE
NON-DISCOUNT MORTGAGE LOANS, IN THE CASE OF THE CLASS X CERTIFICATES, WERE TO
EXCEED THE FOREGOING LEVELS FOR AS LITTLE AS ONE MONTH WHILE EQUALING THE
LEVELS FOR THE REMAINING MONTHS, THE INVESTORS IN THE CLASS A-1-A, CLASS A-3-A
AND 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 adjusted net mortgage rates of the Non-Discount
mortgage loans. The Non-Discount mortgage loans will have higher adjusted 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
prices of the Class A-1-A, Class A-3-A and Class X Certificates (expressed as
percentages of their respective initial Notional Amounts) are as follows:
CLASS PRICE*
----- ------
Class A-1-A ............... 1.00%
Class A-3-A ............... 2.00%
Class X ................... 2.50%
----------
* The prices do not include accrued interest. Accrued interest has been
added to the prices in calculating the yields in the following table
S-43
<PAGE>
SENSITIVITY OF THE CLASS A-1-A, CLASS A-3-A AND
CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------------------------------------
CLASS 0% 50% 100% 150% 200%
----- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Class A-1-A ......... 51.2% 24.4% 23.8% 11.6% (7.2)%
Class A-3-A ......... 17.2% 17.2% 17.1% 11.8% 1.6%
Class X ............. 43.9% 33.2% 21.9% 10.0% (2.7)%
</TABLE>
It is unlikely that the mortgage loans, including the Non-Discount
mortgage loans, will have the precise characteristics described in this
prospectus supplement or that the mortgage loans, including the Non-Discount
mortgage loans, will prepay at the same rate until maturity or prepay at the
same rate or time. As a result of these factors, the pre-tax yields on the
Notional Amount Certificates are likely to differ from those shown in the table
above, even if all of the mortgage loans or the Non-Discount mortgage loans, as
applicable, prepay at the indicated percentages of the prepayment assumption.
No representation is made as to the actual rate of principal payments on the
mortgage loans, including the Non-Discount mortgage loans, for any period or
over the life of the Class A-1-A, Class A-3-A and Class X Certificates or as to
the yield on the Class A-1-A, Class A-3-A and 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 A-1-A, Class A-3-A and 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 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 adjusted 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
their initial Class Certificate Balance) is as follows:
CLASS PRICE
----- -----
Class PO ................. 65.00%
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
------------------------------------------------------------
CLASS 0% 50% 100% 150% 200%
----- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Class PO ......... 2.2% 6.2% 11.4% 16.9% 22.5%
</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
S-44
<PAGE>
of these factors, the pre-tax yields on the Principal Only Certificates is
likely to differ from those shown in the table above, even if all of the
Discount mortgage loans prepay at the indicated percentages of the prepayment
assumption. 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 Securities and Exchange Commission in a report on Form
8-K. The tables and materials were prepared by one 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 "Yield, Prepayment and
Maturity Considerations--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 such
rate of principal payments, the priority sequence of distributions of principal
of the classes of certificates and the distribution of principal of the Class
A-1 and Class A-2 Certificates in accordance with their respective Principal
Balance Schedules herein. In particular, if the amount available for
distribution as principal of the senior certificates (other than the Class PO
Certificates) on any Distribution Date exceeds the amount required to reduce
the principal balance of the Class A-1 and Class A-2 Certificates to their
respective planned balance or scheduled balance, as applicable, as set forth in
the Principal Balance Schedules that excess principal will be distributed on
the Class A-5 Certificates on that Distribution Date. On the other hand, if the
amount available for distribution of principal of the senior certificates
(other than the Class PO Certificates) on any Distribution Date is less than
the amount that is required to reduce the Class A-1 and Class A-2 Certificates
to their respective planned balance or scheduled balance, as applicable, no
principal will be distributed on the Class A-5 Certificates on that
Distribution Date. Accordingly, the rate of principal payments on the mortgage
loans is expected to have a greater effect, in certain prepayment scenarios, on
the weighted average life of the Class A-5 Certificates than on the respective
weighted average lives of the Class A-1 and Class A-2 Certificates. See
"Description of the Certificates--Principal" herein.
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
S-45
<PAGE>
of how the weighted average lives of the classes of offered certificates may be
affected at various constant percentages of the prepayment assumption, see the
Decrement Tables under the next heading.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances or Notional Amounts 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 the prepayment assumption
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 characteristics described in this
prospectus supplement or all of the mortgage loans will prepay at the constant
percentages of the prepayment assumption 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 the prepayment assumption, 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.
S-46
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 AND CLASS A-1-A+ CLASS A-2
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------------------- ---------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
-------------------------- --------- -------- -------- -------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial .................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 25, 2001 ......... 99 83 83 83 83 100 100 80 61 40
October 25, 2002 ......... 97 66 66 66 47 100 92 48 10 0
October 25, 2003 ......... 95 51 51 36 7 99 85 25 0 0
October 25, 2004 ......... 93 37 37 9 0 99 79 10 0 0
October 25, 2005 ......... 91 24 24 0 0 99 75 0 0 0
October 25, 2006 ......... 89 12 12 0 0 99 71 0 0 0
October 25, 2007 ......... 87 1 0 0 0 99 69 0 0 0
October 25, 2008 ......... 82 0 0 0 0 98 54 0 0 0
October 25, 2009 ......... 76 0 0 0 0 98 37 0 0 0
October 25, 2010 ......... 69 0 0 0 0 98 21 0 0 0
October 25, 2011 ......... 62 0 0 0 0 97 6 0 0 0
October 25, 2012 ......... 54 0 0 0 0 97 0 0 0 0
October 25, 2013 ......... 46 0 0 0 0 97 0 0 0 0
October 25, 2014 ......... 36 0 0 0 0 96 0 0 0 0
October 25, 2015 ......... 26 0 0 0 0 96 0 0 0 0
October 25, 2016 ......... 15 0 0 0 0 95 0 0 0 0
October 25, 2017 ......... 4 0 0 0 0 95 0 0 0 0
October 25, 2018 ......... 0 0 0 0 0 82 0 0 0 0
October 25, 2019 ......... 0 0 0 0 0 63 0 0 0 0
October 25, 2020 ......... 0 0 0 0 0 42 0 0 0 0
October 25, 2021 ......... 0 0 0 0 0 20 0 0 0 0
October 25, 2022 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2023 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2024 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2029 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2030 ......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)** ............ 11.7 3.3 3.3 2.4 1.9 19.2 7.4 2.2 1.2 0.9
</TABLE>
----------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
+ In the case of the Class A-1-A Certificates, the table indicates the
percentage of its initial Notional Amount.
S-47
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-3 AND CLASS A-3-A + CLASS A-4
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
-------------------------------------------- -----------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
-------------------------- -------- -------- -------- -------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial .................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 25, 2001 ......... 89 89 89 89 89 108 108 108 108 108
October 25, 2002 ......... 78 78 78 78 78 117 117 117 117 117
October 25, 2003 ......... 66 66 66 66 66 126 126 126 126 126
October 25, 2004 ......... 52 52 52 52 0 136 136 136 136 96
October 25, 2005 ......... 38 38 38 0 0 147 147 147 131 28
October 25, 2006 ......... 22 22 22 0 0 159 159 159 77 0
October 25, 2007 ......... 6 6 5 0 0 172 172 172 42 0
October 25, 2008 ......... 0 0 0 0 0 186 186 134 23 0
October 25, 2009 ......... 0 0 0 0 0 200 200 104 14 0
October 25, 2010 ......... 0 0 0 0 0 217 217 82 10 0
October 25, 2011 ......... 0 0 0 0 0 234 234 64 7 0
October 25, 2012 ......... 0 0 0 0 0 253 242 50 4 0
October 25, 2013 ......... 0 0 0 0 0 273 213 39 3 0
October 25, 2014 ......... 0 0 0 0 0 295 186 31 2 0
October 25, 2015 ......... 0 0 0 0 0 319 163 24 1 0
October 25, 2016 ......... 0 0 0 0 0 344 142 18 1 0
October 25, 2017 ......... 0 0 0 0 0 372 123 14 1 0
October 25, 2018 ......... 0 0 0 0 0 402 106 11 0 0
October 25, 2019 ......... 0 0 0 0 0 434 91 8 0 0
October 25, 2020 ......... 0 0 0 0 0 469 77 6 0 0
October 25, 2021 ......... 0 0 0 0 0 506 65 5 0 0
October 25, 2022 ......... 0 0 0 0 0 540 54 3 0 0
October 25, 2023 ......... 0 0 0 0 0 518 44 3 0 0
October 25, 2024 ......... 0 0 0 0 0 461 35 2 0 0
October 25, 2025 ......... 0 0 0 0 0 400 28 1 0 0
October 25, 2026 ......... 0 0 0 0 0 332 21 1 0 0
October 25, 2027 ......... 0 0 0 0 0 258 14 1 0 0
October 25, 2028 ......... 0 0 0 0 0 177 9 0 0 0
October 25, 2029 ......... 0 0 0 0 0 89 4 0 0 0
October 25, 2030 ......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)** ............ 4.0 4.0 4.0 3.4 2.8 26.7 18.2 11.0 6.7 4.5
</TABLE>
----------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
+ In the case of the Class A-3-A Certificates, the table indicates the
percentage of its initial Notional Amount outstanding.
S-48
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-R
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
---------------------------------------------- --------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
-------------------------- --------- --------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial .................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 25, 2001 ......... 108 108 108 0 0 0 0 0 0 0
October 25, 2002 ......... 117 117 117 0 0 0 0 0 0 0
October 25, 2003 ......... 126 126 126 0 0 0 0 0 0 0
October 25, 2004 ......... 136 136 136 0 0 0 0 0 0 0
October 25, 2005 ......... 147 147 147 0 0 0 0 0 0 0
October 25, 2006 ......... 159 159 0 0 0 0 0 0 0 0
October 25, 2007 ......... 172 172 0 0 0 0 0 0 0 0
October 25, 2008 ......... 186 186 0 0 0 0 0 0 0 0
October 25, 2009 ......... 200 200 0 0 0 0 0 0 0 0
October 25, 2010 ......... 217 217 0 0 0 0 0 0 0 0
October 25, 2011 ......... 234 234 0 0 0 0 0 0 0 0
October 25, 2012 ......... 253 0 0 0 0 0 0 0 0 0
October 25, 2013 ......... 273 0 0 0 0 0 0 0 0 0
October 25, 2014 ......... 295 0 0 0 0 0 0 0 0 0
October 25, 2015 ......... 319 0 0 0 0 0 0 0 0 0
October 25, 2016 ......... 344 0 0 0 0 0 0 0 0 0
October 25, 2017 ......... 372 0 0 0 0 0 0 0 0 0
October 25, 2018 ......... 402 0 0 0 0 0 0 0 0 0
October 25, 2019 ......... 434 0 0 0 0 0 0 0 0 0
October 25, 2020 ......... 469 0 0 0 0 0 0 0 0 0
October 25, 2021 ......... 506 0 0 0 0 0 0 0 0 0
October 25, 2022 ......... 395 0 0 0 0 0 0 0 0 0
October 25, 2023 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2024 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2029 ......... 0 0 0 0 0 0 0 0 0 0
October 25, 2030 ......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)** ............ 22.2 11.7 5.4 0.1 0.1 0.1 0.1 0.1 0.1 0.1
</TABLE>
----------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-49
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS PO CLASS B-1, CLASS B-2 AND CLASS B-3
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------------------------- -----------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
-------------------------- --------- -------- -------- -------- -------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial .................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 25, 2001 ......... 99 93 87 80 74 99 99 99 99 99
October 25, 2002 ......... 98 83 69 56 44 99 99 99 99 99
October 25, 2003 ......... 97 74 55 39 26 98 98 98 98 98
October 25, 2004 ......... 96 66 43 27 16 97 97 97 97 97
October 25, 2005 ......... 95 59 34 19 9 96 96 96 96 96
October 25, 2006 ......... 94 52 27 13 5 95 92 89 85 79
October 25, 2007 ......... 93 46 21 9 3 94 87 80 73 47
October 25, 2008 ......... 91 41 17 6 2 92 81 69 58 28
October 25, 2009 ......... 90 36 13 4 1 91 73 57 43 16
October 25, 2010 ......... 88 32 10 3 1 90 65 45 30 10
October 25, 2011 ......... 86 28 8 2 0 88 57 35 20 6
October 25, 2012 ......... 84 25 6 1 0 86 50 28 14 3
October 25, 2013 ......... 82 22 5 1 0 84 44 22 10 2
October 25, 2014 ......... 80 19 4 1 0 82 39 17 7 1
October 25, 2015 ......... 77 17 3 0 0 79 34 13 4 1
October 25, 2016 ......... 74 14 2 0 0 77 29 10 3 0
October 25, 2017 ......... 71 12 2 0 0 74 26 8 2 0
October 25, 2018 ......... 68 11 1 0 0 71 22 6 1 0
October 25, 2019 ......... 65 9 1 0 0 67 19 5 1 0
October 25, 2020 ......... 61 8 1 0 0 64 16 3 1 0
October 25, 2021 ......... 57 6 1 0 0 59 13 3 0 0
October 25, 2022 ......... 52 5 0 0 0 55 11 2 0 0
October 25, 2023 ......... 47 4 0 0 0 50 9 1 0 0
October 25, 2024 ......... 42 4 0 0 0 44 7 1 0 0
October 25, 2025 ......... 37 3 0 0 0 39 6 1 0 0
October 25, 2026 ......... 30 2 0 0 0 32 4 0 0 0
October 25, 2027 ......... 24 1 0 0 0 25 3 0 0 0
October 25, 2028 ......... 16 1 0 0 0 17 2 0 0 0
October 25, 2029 ......... 9 0 0 0 0 9 1 0 0 0
October 25, 2030 ......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)** ............ 20.6 8.3 4.6 3.1 2.3 21.0 13.3 10.3 8.9 7.3
</TABLE>
----------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-50
<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each class of offered
certificates is the Distribution Date in January 2031, which is the
Distribution Date in the month following the 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" in this prospectus
supplement.
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 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 other classes of
subordinated certificates is intended to preserve the availability of the
subordination provided by the other classes.
S-51
<PAGE>
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 B-1
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.
The subordinated certificates will provide limited protection to the
classes of certificates of higher relative priority against
o Special Hazard Losses in an initial amount expected to be up to
approximately $4,900,000 (the "Special Hazard Loss Coverage Amount"),
o Bankruptcy Losses in an initial amount expected to be up to
approximately $165,318 (the "Bankruptcy Loss Coverage Amount") and
o Fraud Losses in an initial amount expected to be up to approximately
$4,269,266 (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:
o 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, or
o the greatest of
o 1% of the aggregate of the principal balances of the mortgage loans,
o twice the principal balance of the largest mortgage loan and
o 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 before the month in which the
Distribution Date occurs 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:
S-52
<PAGE>
o 1% of the then current pool principal balance
and
o the excess of:
o the Fraud Loss Coverage Amount as of the preceding anniversary of the
cut-off date over
o 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 (other than the Class X and Class PO Certificates) to be
approximately 99.402% 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 these classes of
certificates against the purchase price of the mortgage loans.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the trust fund will include two
segregated asset pools, with respect to which elections will be made to treat
each as a separate REMIC. One REMIC (the "Subsidiary REMIC") will issue several
uncertificated subclasses of nonvoting interests ("Subsidiary REMIC Regular
Interests"), which will be designated as the regular interests in the
Subsidiary REMIC. The assets of the Subsidiary REMIC will consist of the
mortgage loans and all other property in the trust fund except for the property
in the trust fund allocated to the second REMIC (the "Master REMIC"). The
Master REMIC will issue the Regular Certificates, which will be designated as
the regular interests in the Master REMIC. The Class A-R Certificates will
represent the beneficial ownership of the residual interest in the Subsidiary
REMIC and the residual interest in
S-53
<PAGE>
the Master REMIC. The assets of the Master REMIC will consist of the Subsidiary
REMIC Regular Interests. Aggregate distributions on the Subsidiary REMIC
Regular Interests will equal the aggregate distributions on the Regular
Certificates issued by the Master REMIC. See "Description of the
Certificates--Separate REMIC Structure" herein.
The Regular Certificates will be treated as debt instruments issued by the
Master 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 Class A-4 and Class A-5 Certificates will be treated as
having OID in an amount equal to the excess of (1) the sum of all payments on
the Class A-4 or Class A-5 Certificates, as applicable, determined under the
applicable prepayment assumption over (2) the price at which the Class A-4 or
Class A-5, as applicable, Certificates are issued. 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 100% of the prepayment assumption. No
representation is made as to whether the mortgage loans will prepay at the
foregoing rate or any other rate. See "Yield and Prepayment 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 each 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.
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.
S-54
<PAGE>
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 each 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.
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
Transfers of Residual Certificates--Noneconomic Residual Certificates,"
"Material Federal Income Tax Consequences--b. Residual Certificates--Mark to
Market Rules," "--Excess Inclusions" and "Material Federal Income Tax
Consequences--Tax Related Restrictions on Transfers of Residual
Certificates--Foreign Investors" in the prospectus. Additionally, for
information regarding Prohibited Transactions and Treatment of Realized Losses,
see "Material Federal Income Tax Consequences--Prohibited Transactions and
Other Taxes" and "--REMIC Certificates--a. Regular Certificates--Treatment of
Realized Losses" in the prospectus.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit or other plan or arrangement (such as
an individual retirement plan or Keogh plan) that is subject to the Employee
Retirement Income Security Act of 1974, as amended, or to Section 4975 of the
Code (a "Plan") that proposes to cause the Plan to acquire any of the offered
certificates is encouraged to consult with its counsel with respect to the
potential consequences of the Plan's acquisition and ownership of the
certificates under ERISA and Section 4975 of the Code. See "ERISA
Considerations" in the prospectus. Section 406 of ERISA prohibits "parties in
interest" with respect to an employee benefit plan subject to ERISA from
engaging in various different types of transactions involving the Plan and its
assets unless a statutory, regulatory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes excise taxes on prohibited
transactions involving "disqualified persons" and Plans described under that
Section. ERISA authorizes the imposition of civil penalties for prohibited
transactions involving Plans not subject to the requirements of Section 4975 of
the Code.
Some employee benefit plans, including governmental plans and some church
plans, are not subject to ERISA's requirements. Accordingly, assets of those
plans may be invested in the offered certificates without regard to the ERISA
considerations described in this prospectus supplement and in the prospectus,
subject to the provisions of other applicable federal and state law. Any of
those plans that is qualified and exempt from taxation under Sections 401(a)
and 501(a) of the Code may nonetheless be subject to the prohibited transaction
rules set forth in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the offered certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the mortgage loans.
S-55
<PAGE>
The U.S. Department of Labor has granted an individual administrative
exemption to Salomon Smith Barney Inc. (Prohibited Transaction Exemption 89-89,
as amended, Exemption Application No. D-6446, 54 Fed. Reg. 42589 (1989)) (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 senior certificates (other than the Class PO, Class X
and 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 B-1, CLASS B-2, CLASS B-3 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 B-1, CLASS B-2,
CLASS B-3 OR CLASS A-R CERTIFICATES. CONSEQUENTLY, TRANSFERS OF THE CLASS B-1,
B-2, CLASS B-3 AND CLASS A-R CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE
UNLESS THE TRUSTEE RECEIVES:
o 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;
o 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
o 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 B-1, CLASS B-2 OR CLASS B-3 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.
The Department of Labor has proposed amendments to the Exemption that, if
finalized in the form proposed, would generally be effective as of August 23,
2000. Among other changes, the proposed amendments would permit Plans to
purchase certificates that are rated in any of the four highest ratings
categories, and that are subordinated to other certificates issued by the
Trust. This amendment, if adopted in the form proposed, would permit the Class
B-1, Class B-2 and Class B-3 Certificates to be purchased by Plans, assuming
all other conditions of the Exemption were met. It is not certain if these
proposed amendments will be finalized, or whether they will be finalized in the
form in which they were proposed.
S-56
<PAGE>
Prospective Plan investors are encouraged to consult with their legal
advisors concerning the impact of ERISA and the Code, the applicability of the
Exemption 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, Salomon Smith Barney Inc. (the "Senior
Certificate Underwriter") and PaineWebber Incorporated (the "Subordinated
Certificate Underwriter" and, together with the Senior Certificate Underwriter,
the "Underwriters"), the Depositor has agreed to sell to the Senior Certificate
Underwriter the senior certificates, other than the Class PO and Class X
Certificates (the "Underwritten Senior Certificates"), and to the Subordinated
Certificate Underwriter the Class B-1, Class B-2 and Class B-3 Certificates
(the "Underwritten Subordinated Certificates"). Distribution of the
Underwritten Senior Certificates will be made by the Senior Certificate
Underwriter and distribution of the Underwritten Subordinated Certificates will
be made by the Subordinated Certificate Underwriter, 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 Senior
Certificates and Underwritten Subordinated Certificates, the underwriters may
be deemed to have received compensation from the depositor in the form of
underwriting discounts.
The Senior Certificate Underwriter intends to make a secondary market in
the Underwritten Senior Certificates and the Subordinated Certificate
Underwriter intends to make a secondary market in the Underwritten Subordinated
Certificates, but neither underwriter has any obligation to do so. There can be
no assurance that a secondary market for the offered certificates will develop,
or, if it does develop, that it will continue or that it will provide
certificateholders with a sufficient level of liquidity of investment.
The depositor has agreed to indemnify the underwriters against, or make
contributions to the underwriters with respect to, liabilities, customarily
indemnified against, including liabilities under the Securities Act of 1933, as
amended.
The Class PO and Class X Certificates may be offered by the seller (or an
affiliate) or the depositor from time to time directly or through underwriters
or agents 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. Stroock & Stroock & Lavan 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 AAA by Fitch, Inc. ("Fitch"). It is a condition to the issuance of the
senior certificates that they be rated AAA by Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("S&P"). It is a condition to the issuance of
the Class B-1, Class B-2 and Class B-3 Certificates that they be rated at least
AA, A, and BBB, respectively, by Fitch.
S-57
<PAGE>
The ratings assigned by S&P to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
certificateholders under the agreements pursuant to which the certificates are
issued. S&P's ratings take into consideration the credit quality of the
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.
The ratings assigned by Fitch 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.
Fitch'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. Fitch's ratings do not address the effect on the certificates' yield
attributable to prepayments or recoveries on the underlying mortgage loans.
Further the ratings on the Class X Certificates do not address whether
investors will recoup their initial investment. The rating assigned by Fitch to
the Class PO Certificates only addresses the return of its Class Certificate
Balance. The rating assigned by Fitch 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.
PRINCIPAL BALANCE SCHEDULES
The model used to prepare the Principal Balance Schedules for the Class
A-1 Certificates is the constant prepayment rate ("CPR"), which is based on an
assumed constant annual rate of prepayment each month of the then outstanding
principal balance of a pool of mortgage loans. CPR 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. For example, 7% CPR
assumes prepayment rates of 7% per annum of the then unpaid principal balance
of the pool of mortgage loans. 0% CPR assumes no prepayments. The model used to
prepare the Principal Balance Schedules for the Class A-2 Certificates is the
Prepayment Assumption described in this prospectus supplement under
"Description of the Certificates--Structuring Assumptions." There is no
assurance that prepayments on the mortgage loans will occur at either rate
described above or at any other constant rate.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
SCHEDULES REFERENCE RELATED CLASSES PREPAYMENT ASSUMPTION RANGE AND RATES
--------------------- ---------------------------------------- --------------------------------------
<S> <C> <C>
Planned Balance Class A-1 and Class A-1-A Certificates Between 7% CPR and 16% CPR
Scheduled Balance Class A-2 Certificates 100% of the Prepayment Assumption
</TABLE>
There is no assurance that the principal balance of the classes listed
above will conform on any Distribution Date to the balance specified for such
classes for that Distribution Date in the Principal Balance Schedules herein,
or that distributions of principal on these classes will end on the respective
Distribution Dates specified therein. Because any excess of the amount
available for distribution of principal of these classes for any Distribution
Date over the amount necessary to reduce the principal balance of these classes
to their respective planned balance or scheduled balance, as applicable, will
be distributed, the ability to so reduce the principal balance of these classes
will not be enhanced by
S-58
<PAGE>
the averaging of high and low principal payments as might be the case if any
such excess amounts were held for future application and not distributed
monthly. In addition, even if prepayments remain within the range or at the
rate specified above, the amount available for distribution of principal of
these classes on any Distribution Date may be insufficient to reduce these
classes to their respective planned balance or scheduled balance, as
applicable, if prepayments do not occur at a constant percentage of the
applicable prepayment assumption. Moreover, because of the diverse remaining
terms to maturity of the mortgage loans, these classes may not be reduced to
their respective planned balance or scheduled balance, as applicable, even if
prepayments occur at the constant rates specified above.
S-59
<PAGE>
The Planned Balance ("PAC") schedules are shown below.
<TABLE>
<CAPTION>
PAC SCHEDULE
FOR CLASS A-1 CLASS A-2
AND CLASS A-1-A CERTIFICATES
DISTRIBUTION DATE CERTIFICATES SCHEDULE
------------------------ ----------------- --------------
<S> <C> <C>
October 25, 2000 ....... $92,853,000.00 $ 71,000,000.00
November 25, 2000 ...... 91,459,582.52 70,960,673.29
December 25, 2000 ...... 90,074,399.72 70,699,863.73
January 25, 2001 ....... 88,697,501.88 70,219,917.48
February 25, 2001 ...... 87,328,839.59 69,523,834.39
March 25, 2001 ......... 85,968,363.75 68,615,266.64
April 25, 2001 ......... 84,616,025.56 67,498,514.23
May 25, 2001 ........... 83,271,776.51 66,178,517.11
June 25, 2001 .......... 81,935,568.41 64,660,844.00
July 25, 2001 .......... 80,607,353.34 62,951,677.87
August 25, 2001 ........ 79,287,083.69 61,057,798.08
September 25, 2001 ..... 77,974,712.15 58,986,559.21
October 25, 2001 ....... 76,670,191.68 56,745,866.57
November 25, 2001 ...... 75,373,475.55 54,562,417.61
December 25, 2001 ...... 74,084,517.31 52,436,475.88
January 25, 2002 ....... 72,803,270.80 50,366,872.38
February 25, 2002 ...... 71,529,690.12 48,352,460.38
March 25, 2002 ......... 70,263,729.70 46,392,114.98
April 25, 2002 ......... 69,005,344.21 44,484,732.69
May 25, 2002 ........... 67,754,488.62 42,629,231.05
June 25, 2002 .......... 66,511,118.17 40,824,548.24
July 25, 2002 .......... 65,275,188.38 39,069,642.67
August 25, 2002 ........ 64,046,655.04 37,363,492.64
September 25, 2002 ..... 62,825,474.22 35,705,095.93
October 25, 2002 ....... 61,611,602.26 34,093,469.47
November 25, 2002 ...... 60,404,995.76 32,527,648.95
December 25, 2002 ...... 59,205,611.61 31,006,688.50
January 25, 2003 ....... 58,013,406.95 29,529,660.32
February 25, 2003 ...... 56,828,339.18 28,095,654.37
March 25, 2003 ......... 55,650,365.98 26,703,778.00
April 25, 2003 ......... 54,479,445.28 25,353,155.66
May 25, 2003 ........... 53,315,535.28 24,042,928.58
June 25, 2003 .......... 52,158,594.44 22,772,254.42
July 25, 2003 .......... 51,008,581.46 21,540,307.01
August 25, 2003 ........ 49,865,455.31 20,346,275.99
September 25, 2003 ..... 48,729,175.22 19,189,366.59
October 25, 2003 ....... 47,599,700.67 18,068,799.26
November 25, 2003 ...... 46,476,991.38 16,983,809.45
December 25, 2003 ...... 45,361,007.32 15,933,647.30
January 25, 2004 ....... 44,251,708.74 14,917,577.33
February 25, 2004 ...... 43,149,056.09 13,934,878.26
March 25, 2004 ......... 42,053,010.11 12,984,842.65
April 25, 2004 ......... 40,963,531.75 12,066,776.70
May 25, 2004 ........... 39,880,582.22 11,179,999.97
</TABLE>
<TABLE>
<CAPTION>
PAC SCHEDULE
FOR CLASS A-1 CLASS A-2
AND CLASS A-1-A CERTIFICATES
DISTRIBUTION DATE CERTIFICATES SCHEDULE
------------------------ ----------------- --------------
<S> <C> <C>
June 25, 2004 .......... $38,804,122.98 $10,323,845.14
July 25, 2004 .......... 37,734,115.72 9,497,657.77
August 25, 2004 ........ 36,670,522.36 8,700,796.03
September 25, 2004 ..... 35,613,305.07 7,932,630.49
October 25, 2004 ....... 34,562,426.25 7,192,543.89
November 25, 2004 ...... 33,517,848.54 6,479,930.88
December 25, 2004 ...... 32,479,534.81 5,794,197.84
January 25, 2005 ....... 31,447,448.16 5,134,762.62
February 25, 2005 ...... 30,421,551.94 4,501,054.36
March 25, 2005 ......... 29,401,809.69 3,892,513.25
April 25, 2005 ......... 28,388,185.22 3,308,590.34
May 25, 2005 ........... 27,380,642.53 2,748,747.33
June 25, 2005 .......... 26,379,145.89 2,212,456.35
July 25, 2005 .......... 25,383,659.74 1,699,199.81
August 25, 2005 ........ 24,394,148.79 1,208,470.17
September 25, 2005 ..... 23,410,577.94 739,769.75
October 25, 2005 ....... 22,432,912.33 292,610.58
November 25, 2005 ...... 21,486,096.94 0.00
December 25, 2005 ...... 20,545,028.06 0.00
January 25, 2006 ....... 19,609,671.16 0.00
February 25, 2006 ...... 18,679,991.95 0.00
March 25, 2006 ......... 17,755,956.33 0.00
April 25, 2006 ......... 16,837,530.42 0.00
May 25, 2006 ........... 15,924,680.53 0.00
June 25, 2006 .......... 15,017,373.19 0.00
July 25, 2006 .......... 14,115,575.15 0.00
August 25, 2006 ........ 13,219,253.33 0.00
September 25, 2006 ..... 12,328,374.89 0.00
October 25, 2006 ....... 11,442,907.17 0.00
November 25, 2006 ...... 10,570,874.46 0.00
December 25, 2006 ...... 9,704,137.89 0.00
January 25, 2007 ....... 8,842,665.43 0.00
February 25, 2007 ...... 7,986,425.24 0.00
March 25, 2007 ......... 7,135,385.69 0.00
April 25, 2007 ......... 6,289,515.34 0.00
May 25, 2007 ........... 5,448,782.92 0.00
June 25, 2007 .......... 4,613,157.39 0.00
July 25, 2007 .......... 3,782,607.87 0.00
August 25, 2007 ........ 2,957,103.68 0.00
September 25, 2007 ..... 2,136,614.33 0.00
October 25, 2007 ....... 1,321,109.52 0.00
November 25, 2007 ...... 526,019.17 0.00
December 25, 2007
and thereafter ....... 0.00 0.00
</TABLE>
S-60
<PAGE>
PROSPECTUS
INDYMAC MBS, INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
THE TRUSTS
PLEASE CAREFULLY
CONSIDER OUR Each trust will be established to hold assets in its trust
DISCUSSION OF SOME fund transferred to it by IndyMac MBS, Inc. The assets in
OF THE RISKS OF each trust fund will be specified in the prospectus
INVESTING IN THE supplement for the particular trust and will generally
CERTIFICATES UNDER consist of:
"RISK FACTORS"
BEGINNING ON o first lien mortgage loans secured by one- to
PAGE 4. four-family residential properties or participations in
that type of loan,
o mortgage pass-through securities issued or guaranteed
by Ginnie Mae, Fannie Mae, or Freddie Mac, or
o private mortgage-backed securities backed by first lien
mortgage loans secured by one- to four-family
residential properties or participations in that type
of loan.
THE CERTIFICATES
IndyMac MBS, Inc. will sell the certificates pursuant to a prospectus
supplement. The certificates will be grouped into one or more series, each
having its own distinct designation. Each series will be issued in one or more
classes and each class will evidence beneficial ownership of a specified
portion of future payments on the assets in the trust fund that the series
relates to. A prospectus supplement for a series will specify all of the terms
of the series and of each of the classes in the series.
OFFERS OF CERTIFICATES
The certificates may be offered through several different methods, including
offerings through underwriters.
---------------------
THE SEC AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 27, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Important Notice About Information In
This Prospectus and Each
Accompanying Prospectus Supplement 3
Risk Factors ....................................... 4
Limited Source of Payments--
No Recourse to Sellers, Depositor or
Servicer. .................................... 4
Credit Enhancement May Not Be
Sufficient To Protect You From Losses 5
Losses on Balloon Payment Mortgages
Are Borne By You ............................. 6
Nature of Mortgages ............................. 6
You Could Be Adversely Affected By
Violations of Environmental Laws ............. 8
Ratings of the Certificates Does Not
Assure Their Payment ......................... 9
Book-Entry Registration ......................... 10
Bankruptcy or Insolvency May Affect
the Timing and Amount of
Distributions on the Certificates ............ 11
The Trust Fund ..................................... 14
The Mortgage Loans--General ..................... 15
Agency Securities. .............................. 17
Private Mortgage-Backed Securities .............. 22
Substitution of Mortgage Assets ................. 24
Available Information ........................... 24
Incorporation of Certain Documents by
Reference .................................... 25
Use of Proceeds .................................... 25
The Depositor ...................................... 25
Mortgage Loan Program .............................. 25
Underwriting Process ............................ 25
Qualifications of Sellers ....................... 26
Representations by Sellers; Repurchases 26
Description of the Certificates .................... 28
General ......................................... 29
Distributions on Certificates ................... 30
Advances ........................................ 32
Reports to Certificateholders ................... 33
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 ................ 42
Special Hazard Insurance Policies ............... 44
Bankruptcy Bonds ................................ 45
Reserve Fund .................................... 45
Cross Support ................................... 45
Insurance Policies, Surety Bonds and
Guaranties ................................... 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Over-Collateralization .......................... 46
Yield and Prepayment Considerations ................ 46
The Pooling and Servicing Agreement ................ 47
Assignment of Mortgage Assets ................... 47
Payments on Mortgage Assets; Deposits
to Certificate Account ....................... 49
Collection Procedures ........................... 51
Hazard Insurance ................................ 52
Realization Upon Defaulted Mortgage
Loans ........................................ 53
Servicing and Other Compensation and
Payment of Expenses .......................... 57
Evidence as to Compliance ....................... 57
List of Certificateholders ...................... 58
Certain Matters Regarding the Master
Servicer and the Depositor ................... 58
Events of Default ............................... 59
Rights Upon Event of Default .................... 60
Amendment ....................................... 60
Termination; Optional Termination ............... 61
The Trustee ..................................... 61
Certain Legal Aspects of the Mortgage
Loans ............................................. 62
General ......................................... 62
Foreclosure and Repossession .................... 63
Rights of Redemption ............................ 65
Anti-Deficiency Legislation and Other
Limitations on Lenders ....................... 65
Environmental Risks ............................. 66
Due-on-Sale Clauses ............................. 67
Prepayment Charges .............................. 68
Applicability of Usury Laws ..................... 68
Soldiers' and Sailors' Civil Relief Act ......... 68
Material Federal Income Tax
Consequences ...................................... 69
General ......................................... 69
Non-REMIC Certificates .......................... 69
REMIC Certificates .............................. 77
Prohibited Transactions and Other Taxes 90
Liquidation and Termination ..................... 91
Administrative Matters .......................... 91
Tax-Exempt Investors ............................ 91
Non-U.S. Persons ................................ 92
Tax-Related Restrictions on Transfers of
Residual Certificates ........................ 92
State Tax Considerations ........................... 94
ERISA Considerations ............................... 94
Legal Investment ................................... 98
Method of Distribution ............................. 99
Legal Matters ...................................... 99
Financial Information .............................. 100
Rating ............................................. 100
Index to Defined Terms ............................. 101
</TABLE>
2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of certificates is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o 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 25.
3
<PAGE>
RISK FACTORS
You should carefully consider the following information since it
identifies significant risks associated with an investment in the certificates.
<TABLE>
<S> <C>
LIMITED SOURCE OF PAYMENTS -- The applicable prospectus supplement may
NO RECOURSE TO SELLERS, provide that certificates will be payable from
DEPOSITOR OR SERVICER 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:
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
o funds obtained from enforcing a corresponding
obligation of a seller or originator of the loan,
or
o 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 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 Credit enhancement is intended to reduce the
BE SUFFICIENT TO PROTECT YOU effect of loan losses. But credit enhancements
FROM LOSSES 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 Some of the underlying loans may not be fully
MORTGAGES ARE 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 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 held in the trust fund may decline over time.
May Adversely Affect You Among the factors that could adversely affect the
value of the properties are:
o an overall decline in the residential real
estate market in the areas in which they are
located,
o a decline in their general condition from the
failure of borrowers to maintain their
property adequately, and
o 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,
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
will be borne by the holder of one or more
classes of certificates.
Delays In Liquidation May Even if the properties underlying the loans held
Adversely Affect You in the trust fund provide adequate security for
the loans, substantial delays could occur before
defaulted loans are liquidated and their proceeds
are forwarded to investors. Property foreclosure
actions are regulated by state statutes and rules
and are subject to many of the delays and
expenses of other lawsuits if defenses or
counterclaims are made, sometimes requiring
several years to complete. Furthermore, in some
states if the proceeds of the foreclosure are
insufficient to repay the loan, the borrower is not
liable for the deficit. Thus, if a borrower defaults,
these restrictions may impede the trust's ability
to dispose of the property and obtain sufficient
proceeds to repay the loan in full. In addition,
the servicer will be entitled to deduct from
liquidation proceeds all expenses reasonably
incurred in attempting to recover on the
defaulted loan, including legal fees and costs, real
estate taxes, and property maintenance and
preservation expenses.
Disproportionate Effect of Liquidation expenses of defaulted loans generally
Liquidation Expenses May do not vary directly with the outstanding
Adversely Affect You 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.
Consumer Protection Laws State laws generally regulate interest rates and
May Adversely Affect You other charges, require certain disclosures, and
require licensing of mortgage loan originators
and servicers. In addition, most states have other
laws and public policies for the protection of
consumers that prohibit unfair and deceptive
practices in the origination, servicing, and
collection of mortgage loans. Depending on the
particular law and the specific facts involved,
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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:
o the Federal Truth in Lending Act and its
regulations, which require disclosures to the
borrowers regarding the terms of any
mortgage loan;
o 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
o 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 Federal, state, and local laws and regulations
AFFECTED BY VIOLATIONS OF impose a wide range of requirements on
ENVIRONMENTAL LAWS 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.
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In some states, a lien on the property due to
contamination has priority over the lien of an
existing mortgage. Also, a mortgage lender may
be held liable as an "owner" or "operator" for
costs associated with the release of petroleum
from an underground storage tank under certain
circumstances. If the trust is considered the
owner or operator of a property, it will suffer
losses as a result of any liability imposed for
environmental hazards on the property.
RATINGS OF THE CERTIFICATES DOES Any class of certificates issued under this
NOT 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:
o a decrease in the adequacy of the value of
the trust assets or any related credit
enhancement,
o an adverse change in the financial or other
condition of a credit enhancement provider,
or
o a change in the rating of the credit
enhancement provider's long-term debt.
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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 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.
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Limit on Ability to Transfer Transactions in book-entry certificates can be
or Pledge 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 The seller and the depositor will treat the
AFFECT THE TIMING AND AMOUNT transfer of the loans held in the trust fund by the
OF DISTRIBUTIONS ON THE seller to the depositor as a sale for accounting
CERTIFICATES 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 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
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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.
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Certain capitalized terms are used in this
prospectus to assist you in understanding the
terms of the certificates. The capitalized terms
used in this prospectus are defined on the pages
indicated under the caption "Index to Defined
Terms" beginning on page 109.
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THE TRUST FUND*
This prospectus relates to Mortgage Pass-Through Certificates, which may
be sold from time to time in one or more series by the depositor, IndyMac MBS,
Inc., on terms determined at the time of sale and described in this prospectus
and the related prospectus supplement. Each series will be issued under a
separate pooling and servicing agreement to be entered into with respect to
each series. The certificates of a series will evidence beneficial ownership of
a trust fund. The trust fund for a series of certificates will include certain
mortgage related assets (the "Mortgage Assets") consisting of
o a pool of first lien mortgage loans (or participation interests in
them) secured by one- to four-family residential properties,
o mortgage pass-through securities (the "Agency Securities") issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac or
o 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 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
----------
* 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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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:
o 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.
o 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.
o 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.
o 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
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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
o 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,
o 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),
o the original terms to maturity of the mortgage loans,
o the largest principal balance and the smallest principal balance of
any of the mortgage loans,
o the earliest origination date and latest maturity date of any of the
mortgage loans,
o the aggregate principal balance of mortgage loans having Loan-to-Value
Ratios at origination exceeding 80%,
o the maximum and minimum per annum mortgage rates and
o 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
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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 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
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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.
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.
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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.
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.
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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 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
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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 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 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.
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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 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
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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.
The prospectus supplement for a series for which the trust fund includes
Private Mortgage-Backed Securities will specify
o the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the trust fund;
o certain characteristics of the mortgage loans that comprise the
underlying assets for the Private Mortgage-Backed Securities including
o the payment features of the mortgage loans,
o the approximate aggregate principal balance, if known, of
underlying mortgage loans insured or guaranteed by a governmental
entity,
o the servicing fee or range of servicing fees with respect to the
mortgage loans and
o the minimum and maximum stated maturities of the underlying
mortgage loans at origination;
o the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities;
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o the weighted average term-to stated maturity of the Private
Mortgage-Backed Securities;
o the pass-through or certificate rate of the Private Mortgage-Backed
Securities;
o the weighted average pass-through or certificate rate of the Private
Mortgage-Backed Securities;
o 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;
o 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;
o 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
o 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.
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.
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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
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 Bank, F.S.B., 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
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underwriting officer pertinent credit information. As part of the description
of the borrower's financial condition, the borrower generally is required to
provide a current list of assets and liabilities and a statement of income and
expenses, as well as an authorization to apply for a credit report which
summarizes the borrower's credit history with local merchants and lenders and
any record of bankruptcy. In most cases, an employment verification is obtained
from an independent source, typically the borrower's employer. The verification
reports the length of employment with that organization, the borrower's current
salary and whether it is expected that the borrower will continue employment in
the future. If a prospective borrower is self-employed, the borrower may be
required to submit copies of signed tax returns. The borrower may also be
required to authorize verification of deposits at financial institutions where
the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available to meet monthly housing
expenses and other financial obligations and monthly living expenses and to
meet the borrower's monthly obligations on the proposed mortgage loan
(generally determined on the basis of the monthly payments due in the year of
origination) and other 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:
o 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;
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o 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;
o 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);
o that there were no delinquent tax or assessment liens against the
mortgaged property; and
o 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.
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
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<PAGE>
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 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:
o 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;
o 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;
o 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;
o the circumstances, if any, under which the trust fund may be subject
to early termination;
o the method used to calculate the amount of principal to be distributed
with respect to each class of certificates;
o the order of application of distributions to each of the classes
within the series, whether sequential, pro rata, or otherwise;
o the distribution dates with respect to the series;
o additional information with respect to the plan of distribution of the
certificates;
o whether one or more REMIC elections will be made and designation of
the regular interests and residual interests;
o the aggregate original percentage ownership interest in the trust fund
to be evidenced by each class of certificates;
o 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
o information as to the seller, the master servicer and the trustee.
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<PAGE>
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
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,
o 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);
o the assets required to be deposited in the related Certificate Account
from time to time;
o property that secured a mortgage loan and that is acquired on behalf
of the certificateholders by foreclosure or deed in lieu of
foreclosure; and
o 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 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
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<PAGE>
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 "ERISA 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 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
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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 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
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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 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.
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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 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:
o the amount of the distribution allocable to principal, separately
identifying the aggregate amount of any principal prepayments and, if
so specified in the related prospectus supplement, prepayment
penalties;
o the amount of the distribution allocable to interest;
o the amount of any advance;
o 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;
o 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;
o 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;
o 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;
o 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;
o 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;
o the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
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o 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;
o if applicable, the amount remaining in the reserve fund at the close
of business on the distribution date;
o the pass-through rate as of the day before the preceding distribution
date; and
o 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 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>
DEFINITION
CATEGORIES OF CLASSES 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.
</TABLE>
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<TABLE>
<CAPTION>
DEFINITION
CATEGORIES OF CLASSES PRINCIPAL TYPES
<S> <C>
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.
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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES INTEREST TYPES
<S> <C>
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.
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
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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
o LIBOR as determined on the previous LIBOR determination date or
o the reserve interest rate.
The reserve interest rate shall be the rate per annum which the calculation
agent determines to be either
o 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
o 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."
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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.
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.
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
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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 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
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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 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,
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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.
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
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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
o any required primary mortgage insurance policy is in effect for the
defaulted mortgage loan and a claim under it has been submitted and
settled;
o hazard insurance on the related mortgaged property has been kept in
force and real estate taxes and other protection and preservation
expenses have been paid;
o if there has been physical loss or damage to the mortgaged property,
it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and
o the insured has acquired good and merchantable title to the mortgaged
property free and clear of liens except 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 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
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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 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.
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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.
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
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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 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
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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 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,
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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 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
o 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,
o 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),
o an assignment of the mortgage to the trustee in recordable form and
o 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
o 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),
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o an executed financing agreement and
o 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
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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 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
o 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,
o 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 otherwise secured such that, as
evidenced by an opinion of counsel, the certificateholders have a
claim
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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,
o 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
o 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):
o all payments on account of principal, including principal prepayments
and, if specified in the related prospectus supplement, prepayment
penalties, on the mortgage loans;
o all payments on account of interest on the mortgage loans, net of
applicable servicing compensation;
o 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;
o 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";
o 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";
o 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
o all other amounts required to be deposited in the Certificate Account
pursuant to the pooling and servicing agreement.
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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:
o 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;
o 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;
o to reimburse the master servicer for any advances previously made that
the master servicer has determined to be nonrecoverable;
o 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;
o 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;
o 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;
o to reimburse the master servicer or the depositor for expenses
incurred and reimbursable pursuant to the pooling and servicing
agreement;
o to withdraw any amount deposited in the Certificate Account that was
not required to be deposited in it; and
o 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.
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.
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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
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
o the maximum insurable value of the improvements securing the mortgage
loan or
o the greater of
o the outstanding principal balance of the mortgage loan and
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o 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 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,
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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, 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
o advance or discharge
o all hazard insurance policy premiums and
o 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;
o 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
o 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
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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 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
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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 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 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
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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
o 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
o 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
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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
o 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;
o 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
o 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.
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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 662/3% of the voting rights and
under any other circumstances specified in the pooling and servicing agreement,
the trustee shall, terminate all of the rights and obligations of the master
servicer under the pooling and servicing agreement relating to the trust fund
and in the Mortgage Assets, whereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the master servicer under the
pooling and servicing agreement, including, if specified in the related
prospectus supplement, the obligation to make advances, and will be entitled to
similar compensation arrangements. If the trustee is unwilling or unable so to
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the master servicer under the pooling
and servicing agreement. Pending appointment, the trustee is obligated to act
as master servicer. The trustee and any successor may agree upon the servicing
compensation to be paid to the successor servicer, which may not be greater
than the compensation payable to the master servicer under the pooling and
servicing agreement.
No certificateholder, solely by virtue of its status as a
certificateholder, will have any right under any pooling and servicing
agreement to institute any proceeding with respect to the pooling and servicing
agreement, unless the holder previously has given to the trustee written notice
of default and unless the holders of any class of certificates of the series
evidencing not less than 25% of the voting rights have requested the trustee in
writing to institute a proceeding in its own name as trustee and have offered
to the trustee reasonable indemnity, and the trustee for 60 days has neglected
or refused to institute the proceeding.
AMENDMENT
The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each pooling and servicing agreement may
be amended by the depositor, the master servicer and the trustee, without the
consent of any of the certificateholders,
(a) to cure any ambiguity or mistake;
(b) to correct any defective provision therein or to supplement any
provision in the pooling and servicing agreement that may be inconsistent
with any other provision in it;
(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.
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The applicable prospectus supplement may specify other amendment
provisions, but if it does not, then each pooling and servicing agreement may
also be amended by the depositor, the master servicer and the trustee with the
consent of holders of certificates of the series evidencing a majority in
interest of each class affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the pooling and servicing agreement or of modifying in any manner the rights of
the holders of the related certificates. However, no amendment may
(a) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Assets that are required to be distributed on
any certificate without the consent of the holder of the certificate,
(b) adversely affect in any material respect the interests of the
holders of any class of certificates in a manner other than as described in
(a), without the consent of the holders of certificates of the class
evidencing, as to the class, percentage interests aggregating 66%, or
(c) reduce the aforesaid percentage of certificates of any class of
holders that is required to consent to the amendment without the consent of
the holders of all certificates of the class covered by the pooling and
servicing agreement then outstanding.
If a REMIC election is made with respect to a trust fund, the trustee will not
be entitled to consent to an amendment to the related pooling and servicing
agreement without having first received an opinion of counsel to the effect
that the amendment will not cause the trust fund to fail to qualify as a REMIC.
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
o 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
o 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 by the
holder of the blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed the purchase by an
individual tenant-stockholder of cooperative shares or, in the case of a trust
fund including cooperative loans, the collateral securing the cooperative
loans.
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The cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing the tenant-
stockholder's pro rata share of the cooperative's payments for its blanket
mortgage, real property taxes, maintenance expenses and other capital or
ordinary expenses. An ownership interest in a cooperative and accompanying
rights is financed through a cooperative share loan evidenced by a promissory
note and secured by a security interest in the occupancy agreement or
proprietary lease and in the related cooperative shares. The lender takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement, and a financing statement covering the proprietary
lease or occupancy agreement and the cooperative shares is filed in the
appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in
the security agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares.
FORECLOSURE AND REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain
states, foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, such as California, the
trustee must record a notice of default and send a copy to the borrower-trustor
and to any person who has recorded a request for a copy of any notice of
default and notice of sale. In addition, the trustee must provide notice in
some states to any other individual having an interest of record in the real
property, including any junior lien holders. If the deed of trust is not
reinstated within any applicable cure period, a notice of sale must be posted
in a public place and, in most states, including California, published for a
specified period of time in one or more newspapers. In addition, these notice
provisions require that a copy of the notice of sale be posted on the property
and sent to all parties having an interest of record in the property. In
California, the entire process from recording a notice of default to a
non-judicial sale usually takes four to five months.
In some states, including California, the borrower-trustor has the right
to reinstate the loan at any time following default until shortly before the
trustee's sale. In general, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recoverable by a lender.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are sometimes not contested by any of
the parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property. In general, the borrower, or any other person
having a junior encumbrance on the real estate, may, during a statutorily
prescribed reinstatement 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,
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published for a specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty
of determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making repairs at its own expense necessary to render the
property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of
the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions reflecting
due process concerns for fair notice require that borrowers under deeds of
trust receive notice longer than that prescribed by statute. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust does not involve sufficient
state action to afford constitutional protection to the borrower.
Cooperative Loans. The cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by the tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by the
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate the lease or agreement if an obligor fails
to make payments or defaults in the performance of covenants required under it.
Typically, the lender and the cooperative enter into a recognition agreement,
which establishes the rights and obligations of both parties upon a default by
the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, if the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from the sale of the cooperative apartment,
subject, however, to the cooperative's right 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"
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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 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.
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In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, upon waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize on its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on a
mortgaged property without the permission of the bankruptcy court. And in
certain instances a bankruptcy court may allow a borrower to reduce the monthly
payments, change the rate of interest, and alter the mortgage loan repayment
schedule for under collateralized mortgage loans. The effect of these types of
proceedings can be to cause delays in receiving payments on the loans
underlying certificates and even to reduce the aggregate amount of payments on
the loans underlying certificates.
The federal tax laws provide priority to certain tax liens over the lien
of a mortgage or secured party. Numerous federal and state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and enforcement of mortgage loans. These laws
include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These federal and state
laws impose specific statutory liabilities on lenders who fail to comply with
the provisions of the law. In some cases, this liability may affect assignees
of the loans or contracts.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
cooperative loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on 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
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inconsistent. In United States v. Fleet Factors Corp. (1990), the United States
Court of Appeals for the Eleventh Circuit suggested that the mere capacity of
the lender to influence a borrower's decisions regarding disposal of hazardous
substances was sufficient participation in the management of the borrower's
business to deny the protection of the secured creditor exclusion to the
lender, regardless of whether the lender actually exercised influence. Other
judicial decisions did not interpret the secured creditor exclusion as narrowly
as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996
(the "Asset Conservation Act"), which took effect on September 30, 1996. The
Asset Conservation Act provides that to be deemed to have participated in the
management of a secured property, a lender must actually participate in the
operational affairs of the property or of the borrower. The Asset Conservation
Act also provides that participation in the management of the property does not
include "merely having the capacity to influence, or unexercised right to
control" operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the secured property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or
operator, who created the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that the costs
arising from the circumstances set forth above would result in a loss to
certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule 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
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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 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 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
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(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:
o 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;
o 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
o 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 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
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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 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
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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 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").
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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 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
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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.
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
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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.
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
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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.
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
o a citizen or resident of the United States,
o 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),
o 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
o 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,
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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.
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 or residual interest in the REMIC. With respect to each trust fund
for which a REMIC election is to be made, Brown & Wood LLP will issue an
opinion confirming the conclusions expressed above concerning the status of the
trust fund as a REMIC and the status of the certificates as representing
regular or residual interests in a REMIC.
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In general, with respect to each series of certificates for which a REMIC
election is made, certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A); and interest on certificates held by a real estate investment
trust will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). If less than 95% of
the REMIC's assets are assets qualifying under any of these Code sections, the
certificates will be qualifying assets only to the extent that the REMIC's
assets are qualifying assets. In addition, payments on mortgage loans held
pending distribution on the REMIC Certificates will be considered to be real
estate assets for purposes of Code Section 856(c).
In some instances the mortgage loans may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
buydown loans contained in "--Non-REMIC Certificates--Single Class of
Certificates." REMIC Certificates held by a real estate investment trust will
not constitute "Government Securities" within the meaning of Code Section
856(c)(4)(A), and REMIC Certificates held by a regulated investment company
will not constitute "Government Securities" within the meaning of Code Section
851(b)(4)(A)(ii). REMIC Certificates held by certain financial institutions
will constitute "evidences of indebtedness" within the meaning of Code Section
582(c)(1).
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in an obligation) that is principally secured by
an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) that are
"single family residences" under Code Section 25(e)(10) will qualify as real
property without regard to state law classifications. Under Code Section
25(e)(10), a single family residence includes any manufactured home that has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain series of certificates, two or more
separate elections may be made to treat designated portions of the related
trust fund as REMICs (respectively, the "Subsidiary REMIC or REMICs" and the
"Master REMIC") for federal income tax purposes. Upon the issuance of such a
series of certificates, assuming compliance with all provisions of the related
pooling and servicing agreement, the Master REMIC as well as each Subsidiary
REMIC will each qualify as a REMIC, and the REMIC Certificates issued by the
Master REMIC and each Subsidiary REMIC, respectively, will be considered to
evidence ownership of Regular Certificates or Residual Certificates in the
related REMIC within the meaning of the REMIC provisions. With respect to each
trust fund for which more than one REMIC election is to be made, Brown & Wood
LLP will issue an opinion confirming the conclusions expressed above concerning
the status of the Master REMIC and each Subsidiary REMIC as a REMIC and the
status of the certificates as regular or residual interests in a REMIC.
Only REMIC Certificates, other than the residual interest in any
Subsidiary REMIC, issued by the Master REMIC will be offered under this
prospectus. All Subsidiary REMICs and the Master REMIC will be treated as one
REMIC solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code;
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code; and whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code.
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.
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Original Issue Discount and Premium. The Regular Certificates may be
issued with OID. Generally, OID, if any, will equal the difference between the
"stated redemption price at maturity" of a Regular Certificate and its "issue
price." Holders of any class of certificates issued with OID will be required
to include OID in gross income for federal income tax purposes as it accrues,
in accordance with a constant interest method based on the compounding of
interest as it accrues rather than in accordance with receipt of the interest
payments. The following discussion is based in part on the OID Regulations and
in part on the provisions of the 1986 Act. The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994. Holders of
Regular Certificates (the "Regular Certificateholders") should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the Regular Certificates and prescribe a method for
adjusting the amount and rate of accrual of the discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative
History provides, however, that Congress intended the regulations to require
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of the Regular Certificates. The
prospectus supplement for each series of Regular Certificates will specify the
Prepayment Assumption to be used for the purpose of determining the amount and
rate of accrual of OID. No representation is made that the Regular Certificates
will prepay at the Prepayment Assumption or at any other rate.
The IRS issued final regulations (the "Contingent Regulations") in June
1996 governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). The trustee
intends to base its computations on Code Section 1272(a)(6) and the OID
Regulations as described in this prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that this methodology represents the correct manner of calculating
OID.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its issue price. The issue price of
a Regular Certificate is the first price at which a substantial amount of
Regular Certificates of that class are first sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). The issue price of a Regular
Certificate also includes the amount paid by an initial certificateholder for
accrued interest that relates to a period before the issue date of the Regular
Certificate. The stated redemption price at maturity of a Regular Certificate
includes the original principal amount of the Regular Certificate, but
generally will not include distributions of interest that constitute "qualified
stated interest." Qualified stated 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
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on a Regular Certificate is shorter than the interval between subsequent
distribution dates, interest due on the first distribution date in excess of
the amount that accrued during the first period would be added to the
certificates stated redemption price at maturity. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate. Additionally, it is
possible that the IRS could assert that the stated pass-through rate of
interest on the Regular Certificates is not unconditionally payable because
late payments or nonpayments on the mortgage loans are not penalized nor are
there reasonable remedies in place to compel payment on the mortgage loans.
That position, if successful, would require all holders of Regular Certificates
to accrue income on the certificates under the OID Regulations.
Under the de minimis rule, OID on a Regular Certificate will be considered
to be zero if it is less than 0.25% of the stated redemption price at maturity
of the Regular Certificate multiplied by the weighted average maturity of the
Regular Certificate. For this purpose, the weighted average maturity of the
Regular Certificate is computed as the sum of the amounts determined by
multiplying the number of full years (i.e., rounding down partial years) from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. Although currently
unclear, it appears that the schedule of these distributions should be
determined in accordance with the Prepayment Assumption. The Prepayment
Assumption with respect to a series of Regular Certificates will be set forth
in the related prospectus supplement. Holders generally must report de minimis
OID pro rata as principal payments are received, and income will be capital
gain if the Regular Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market
discount under a constant interest method.
The prospectus supplement with respect to a trust fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of Super-Premium
Certificates is not entirely certain. For information reporting purposes, the
trust fund intends to take the position that the stated redemption price at
maturity of Super-Premium Certificates is the sum of all payments to be made on
these Regular Certificates determined under the Prepayment Assumption, with the
result that these Regular Certificates would be issued with OID. The
calculation of income in this manner could result in negative original issue
discount (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the mortgage loans exceed those estimated under
the Prepayment 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
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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
o adding
o 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
o any payments included in the stated redemption price at maturity
received during the same accrual period, and
o subtracting from that total the adjusted issue price of the Regular
Certificates at the beginning of the same accrual period.
The adjusted issue price of a Regular Certificate at the beginning of the first
accrual period is its issue price; the adjusted issue price of a Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end
of or during that accrual period. The OID accrued during an accrual period will
then be divided by the number 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:
o 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
o 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.
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A holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate Regular Certificates. Regular Certificates may provide for
interest based on a variable rate. Interest is treated as payable at a variable
rate and not as contingent interest if, generally, the issue price does not
exceed the original principal balance by more than a specified amount and the
interest compounds or is payable at least annually at current values of certain
objective rates matured by or based on lending rates for newly borrowed funds.
For a debt instrument issued after August 13, 1996, an objective rate is a rate
(other than a qualified floating rate) that is determined using a single fixed
formula and that is based on objective financial or economic information. The
variable interest generally will be qualified stated interest to the extent it
is unconditionally payable at least annually and, to the extent successive
variable rates are used, interest is not significantly accelerated or deferred.
The amount of OID with respect to a Regular Certificate bearing a variable
rate of interest will accrue in the manner described under "--Original Issue
Discount and Premium" by assuming generally that the index used for the
variable rate will remain fixed throughout the term of the certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on mortgage loans as variable rate certificates. In such case,
the weighted average rate used to compute the initial pass-through rate on the
Regular Certificates will be deemed to be the index in effect through the life
of the Regular Certificates. It is possible, however, that the IRS may treat
some or all of the interest on Regular Certificates with a weighted average
rate as taxable under the rules relating to obligations providing for
contingent payments. This treatment may effect the timing of income accruals on
the Regular Certificates. Additionally, if some or all of the mortgage loans
are 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
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include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, the election
will apply to all market discount bonds acquired by the electing
certificateholder on or after the first day of the first taxable year to which
the election applies.
Market discount with respect to a Regular Certificate will be considered
to be zero if the amount allocable to the Regular Certificate is less than
0.25% of the Regular Certificate's stated redemption price at maturity
multiplied by the Regular Certificate's weighted average maturity remaining
after the date of purchase. If market discount on a Regular Certificate is
considered to be zero under this rule, the actual amount of market discount
must be allocated to the remaining principal payments on the Regular
Certificate, and gain equal to the allocated amount will be recognized when the
corresponding principal payment is made. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, investors should
consult their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
the payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as ordinary
income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is 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.
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Premium. A purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the Regular Certificate at a premium and may elect to amortize
the premium under a constant yield method. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of
the Regular Certificate for this purpose. The Amortizable Bond Premium
Regulations described above specifically do not apply to prepayable debt
instruments subject to Code Section 1272(a)(6) such as the Regular
Certificates. Absent further guidance from the IRS, the trustee intends to
account for amortizable bond premium in the manner described in this
prospectus. However, the Legislative History states that the same rules that
apply to accrual of market discount (which rules require use of a Prepayment
Assumption in accruing market discount with respect to Regular Certificates
without regard to whether the certificates have OID) will also apply in
amortizing bond premium under Code Section 171. The Code provides that
amortizable bond premium will be allocated among the interest payments on the
Regular Certificates and will be applied as an offset against the interest
payment. Prospective purchasers of the Regular Certificates should consult
their tax advisors regarding the possible application of the Amortizable Bond
Premium Regulations.
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
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payment that is part of the stated redemption price at maturity of a Regular
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over the holder's adjusted basis in the Regular Certificate. A
Regular Certificateholder who receives a final payment that is less than the
holder's adjusted basis in the Regular Certificate will generally recognize a
loss. Except as provided in the following paragraph and as provided under
"Market Discount," any gain or loss will be capital gain or loss, provided that
the Regular Certificate is held as a "capital asset" (generally, property held
for investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the
extent that the gain does not exceed the excess, if any, of the amount that
would have been includible in the holder s income with respect to the Regular
Certificate had income accrued on it at a rate equal to 110% of the AFR as
defined in Code Section 1274(d) determined as of the date of purchase of the
Regular Certificate, over the amount actually includible in the holder's
income.
The Regular Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Regular Certificate by a bank or a thrift institution to which this
section applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of
the adjusted issue price of the Regular Certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary
trading of Regular Certificates. Because exact computation of the accrual of
market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that
the information reports will only require information pertaining to the
appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between distribution dates but that
ends before each distribution date. The period between the Closing Date for
Payment Lag Certificates and their first distribution date may or may not
exceed that interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first distribution date does not exceed
that interval could pay upon purchase of the Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the distribution date were interest accrued from distribution date to
distribution date. If a portion of the initial purchase price of a Regular
Certificate is allocable to interest that has accrued before the issue date
("pre-issuance accrued interest") and the Regular Certificate provides for a
payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the Regular Certificates issue price
may be computed by subtracting from the issue price the amount of pre-issuance
accrued interest, rather than as an amount payable on the Regular Certificate.
However, it is unclear under this method how the OID Regulations treat interest
on Payment Lag Certificates. Therefore, in the case of a Payment Lag
Certificate, the trust fund intends to include accrued interest in the issue
price and report interest payments made on the first distribution date as
interest to the extent the payments represent interest for the number of days
that the certificateholder has held the Payment Lag Certificate during the
first accrual period.
Investors are encouraged to consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under the temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will
be allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders." certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC under Residual Certificates."
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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, 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.
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B. RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Taxes." Instead, each original holder of a Residual
Certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which it owns any Residual Certificates. The taxable income of the
REMIC for each day will be determined by allocating the taxable income of the
REMIC for each calendar quarter ratably to each day in the quarter. An original
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding Residual Certificates that the holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the holders of Residual Certificates without
regard to the timing or amounts of cash distributions by the REMIC. Ordinary
income derived from Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to the limitations on the
deductibility of "passive losses." As residual interests, the Residual
Certificates will be subject to tax rules, described below, that differ from
those that would apply if the Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the certificates or as
debt instruments issued by the REMIC.
A Residual Certificateholder may be required to include taxable income
from the Residual Certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(that is, a fast-pay, slow-pay structure) may generate that sort of mismatching
of income and cash distributions (that is, "phantom income"). This mismatching
may be caused by the use of certain required tax accounting methods by the
REMIC, variations in the prepayment rate of the underlying mortgage loans and
certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a Residual Certificate to a Residual Certificateholder. Investors
should consult their own tax advisors concerning the federal income tax
treatment of a Residual Certificate and the impact of the tax treatment on the
after-tax yield of a Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that the Residual Certificateholder owns the Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual Certificateholder,
as described above. The Legislative History indicates that certain adjustments
may be appropriate to reduce (or increase) the income of a subsequent holder of
a Residual Certificate that purchased the Residual Certificate at a price
greater than (or less than) the adjusted basis the Residual Certificate would
have in the hands of an original Residual Certificateholder. See "--Sale or
Exchange of Residual Certificates." It is not clear, however, whether these
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for these adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of the income from the
mortgage loans and the REMIC's other assets and the deductions allowed to the
REMIC for interest and OID on the Regular 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
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income by Residual Certificateholders may differ from the time the actual loss
is allocated to the Regular Certificates. The REMIC's deductions include
interest and original issue discount expense on the Regular Certificates,
servicing fees on the mortgage loans, other administrative expenses of the
REMIC and realized losses on the mortgage loans. The requirement that Residual
Certificateholders report their pro rata share of taxable income or net loss of
the REMIC will continue until there are no certificates of any class of the
related series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular Certificates and the Residual Certificates (or, if a class of
certificates is not sold initially, its fair market value). The aggregate basis
will be allocated among the mortgage loans and other assets of the REMIC in
proportion to their respective fair market value. A mortgage loan will be
deemed to have been acquired with discount or premium to the extent that the
REMIC s basis therein is less than or greater than its principal balance,
respectively. Any discount (whether market discount or OID) will be includible
in the income of the REMIC as it accrues, in advance of receipt of the cash
attributable to this income, under a method similar to the method described
above for accruing OID on the Regular Certificates. The REMIC expects to elect
under Code Section 171 to amortize any premium on the mortgage loans. Premium
on any mortgage loan to which the election applies would be amortized under a
constant yield method. It is not clear whether the yield of a mortgage loan
would be calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, the election would not
apply to the yield with respect to any underlying mortgage loan originated on
or before September 27, 1985. Instead, premium with respect to that mortgage
loan would be allocated among the principal payments thereon and would be
deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the Regular
Certificates. The amount and method of accrual of OID will be calculated for
this purpose in the same manner as described above with respect to Regular
Certificates except that the 0.25% per annum de minimis rule and adjustments
for subsequent holders described therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost of
the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, that taxable income will not include cash received by the
REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the Residual Certificates will be added to
the issue price of the Regular Certificates in determining the REMIC's initial
basis in its assets. See "--Sale or Exchange of Residual Certificates." For a
discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of the
Residual Certificate to the holder and the adjusted basis the Residual
Certificate would have in the hands of an original Residual Certificateholder,
see "--Allocation of the Income of the REMIC to the Residual Certificates."
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
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allocated, under temporary Treasury regulations, among the Regular
Certificateholders and the Residual Certificateholders on a daily basis in
proportion to the relative amounts of income accruing to each certificateholder
on that day. In general terms, a single class REMIC is one that either would
qualify, under existing Treasury regulations, as a grantor trust if it were not
a REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or is similar to a grantor
trust and is structured with the principal purpose of avoiding the single class
REMIC rules. The applicable prospectus supplement may apportion expenses to the
Regular Certificates, but if it does not, then the expenses of the REMIC will
be allocated to holders of the related Residual Certificates in their entirety
and not to holders of the related Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a Regular Certificate or a Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), the trust expenses will be deductible under
Code Section 67 only to the extent that those expenses, plus other
"miscellaneous itemized deductions" of the individual, exceed 2% of the
individual's adjusted gross income. In addition, Code Section 68 provides that
the amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a certain amount (the "Applicable Amount") will
be reduced by the lesser of 3% of the excess of the individual's adjusted gross
income over the Applicable Amount or 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining their
alternative minimum taxable income. The REMIC is required to report to each
pass-through interest holder and to the IRS the holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Residual Certificateholders that are pass-through interest holders are
encouraged to consult their own tax advisors about the impact of these rules on
an investment in the Residual Certificates.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
generally will be subject to federal income tax in all events. Thus, for
example, an excess inclusion may not be offset by any 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.
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In the case of any Residual Certificates held by a real estate investment
trust, the aggregate excess inclusions with respect to the Residual
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of the trust in
proportion to the dividends received by the shareholders from the trust, and
any amount so allocated will be treated as an excess inclusion with respect to
a Residual Certificate as if held directly by the shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject
to similar rules.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in
the Residual Certificate. To the extent a distribution exceeds the adjusted
basis, it will be treated as gain from the sale of the Residual Certificate.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to
the difference between the amount realized on the sale or exchange and its
adjusted basis in the Residual Certificate (except that the recognition of loss
may be limited under the "wash sale" rules). A holder's adjusted basis in a
Residual Certificate generally equals the cost of the Residual Certificate to
the Residual Certificateholder, increased by the taxable income of the REMIC
that was included in the income of the Residual Certificateholder with respect
to the Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to the Residual Certificateholder
with respect to the Residual Certificate and by the distributions received
thereon by the Residual Certificateholder. In general, the gain or loss will be
capital gain or loss provided the Residual Certificate is held as a capital
asset. However, Residual Certificates will be "evidences of indebtedness"
within the meaning of Code Section 582(c)(1), so that gain or loss recognized
from sale of a Residual Certificate by a bank or thrift institution to which
that section applies would be ordinary income or loss.
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
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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
o 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
o the seller's obligation to repurchase a mortgage loan, the tax will be
borne by the seller.
If the master servicer, trustee or seller, as the case may be, fails to pay or
is not required to pay the tax as provided above, the tax will be payable out
of the trust fund for the series and will result in a reduction in amounts
available to be distributed to the certificateholders of the series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which the adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
that date, the REMIC will not be subject to any Prohibited 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."
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NON-U.S. PERSONS
Amounts paid to Residual Certificateholders who are not U.S. persons (see
"--Regular Certificates--Non-U.S. Persons") are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to holders of Residual Certificates should qualify as
"portfolio interest," subject to the conditions described in "--Regular
Certificates," but only to the extent that the underlying mortgage loans were
originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a Residual Certificate that is excess inclusion income will not be
subject to reduction under any applicable tax treaties. See "--Residual
Certificates--Excess Inclusions." If the portfolio interest exemption is
unavailable, the amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where 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
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pass-through entities is generally effective for periods after March 31, 1988,
except that in the case of regulated investment companies, real estate
investment trusts, common trust funds and publicly-traded partnerships the tax
shall apply only to taxable years of the entities beginning after December 31,
1988. Under the Taxpayer Relief Act of 1997, large partnerships (generally with
250 or more partners) will be taxable on excess inclusion income as if all
partners were disqualified organizations.
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 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
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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 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
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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 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
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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:
o 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;
o the existence of a pool trustee who is not an affiliate of the pool
sponsor; and
o a limitation on the amount of the payment retained by the pool
sponsor, together with other funds inuring to its benefit, to not more
than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to
the mortgage pool.
The depositor believes that the first general condition referred to above
will be satisfied with respect to the certificates in a series issued without a
subordination feature, or the senior certificates only in a series issued with
a subordination feature, provided that the subordination and reserve fund,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described in this prospectus (that subordination, pool
insurance or other form of credit enhancement being the system of insurance or
other protection referred to above) with respect to a series of certificates is
maintained in an amount not less than the greater of one percent of the
aggregate principal balance of the mortgage loans or the principal balance of
the largest mortgage loan. See "Description of the Certificates." In the
absence of a ruling that the system of insurance or other protection with
respect to a series of certificates satisfies the first general condition
referred to above, there can be no assurance that these features will be so
viewed by the DOL. The trustee will not be affiliated with the depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family
Certificates must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the availability
of any other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the certificates is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions
and requirements of the Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
o 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;
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o 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;
o 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.;
o the trustee is not an affiliate of any other member of the Restricted
Group;
o 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
o 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:
o the corpus of the trust fund must consist solely of assets of the type
that have been included in other investment pools;
o certificates in other investment pools must have been rated in one of
the three highest rating categories of S&P, Moody's, Fitch or D&P for
at least one year before the Plan's acquisition of certificates; and
o 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:
o in the case of an acquisition in connection with the initial issuance
of certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group,
o 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;
o 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
o 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
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pre-funded accounts for trusts issuing pass-through certificates. The amendment
generally allows mortgage loans or other secured receivables supporting
payments to certificateholders, and having a value equal to no more than
twenty-five percent of the total principal amount of the certificates being
offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date, instead of requiring that all
obligations be either identified or transferred on or before the closing date.
The relief is available when certain conditions are met.
The prospectus supplement for each series of certificates will indicate
the classes of certificates, if any, offered thereby as to which it is expected
that an Underwriter Exemption will apply.
Any Plan fiduciary that proposes to cause a Plan to purchase certificates
is encouraged to consult with its counsel concerning the impact of ERISA and
the Code, the applicability of PTE 83-1, the availability and applicability of
any Underwriter Exemption or any other exemptions from the prohibited
transaction provisions of ERISA and the Code and the potential consequences in
their specific circumstances, before making the investment. Moreover, each Plan
fiduciary should determine whether under the general fiduciary standards of
investment prudence and diversification an investment in the certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
LEGAL INVESTMENT
The prospectus supplement for each series of certificates will specify
which, if any, of the classes of certificates offered by it will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of certificates that qualify as
"mortgage related securities" will be legal investments for those investors
whose authorized investments are subject to state regulation, to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States constitute legal investments for
them. Those investors are persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to
or existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico). Under SMMEA, if a state enacts
legislation before October 4, 1991 specifically limiting the legal investment
authority of those entities with respect to "mortgage related securities," the
certificates will constitute legal investments for entities subject to the
legislation only to the extent provided in it. Approximately twenty-one states
adopted limiting legislation before the October 4, 1991 deadline.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in certificates
without limitations as to the percentage of their assets represented by them,
federal credit unions may invest in mortgage related securities, and national
banks may purchase certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to regulations that the applicable
federal authority may prescribe. In this connection, federal credit unions
should review the National Credit Union Administration Letter to Credit Unions
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
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certificates not entitled to distributions allocated to principal or interest,
or subordinated certificates. Under the policy statement, each depository
institution must determine, before purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security," and whether the purchase (or retention) of such a product
would be consistent with the policy statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including "prudent
investor" provisions, percentage-of-assets limits and provisions that may
restrict or prohibit investment in securities that are not "interest bearing"
or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of the
investor's assets. Investors are encouraged to consult their own legal advisors
in determining whether and to what extent the certificates constitute legal
investments for them.
METHOD OF DISTRIBUTION
Certificates are being offered hereby in series from time to time (each
series evidencing a separate trust fund) through any of the following methods:
o by negotiated firm commitment underwriting and public reoffering by
underwriters;
o by agency placements through one or more placement agents primarily
with institutional investors and dealers; and
o 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.
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FINANCIAL INFORMATION
A new trust fund will be formed for each series of certificates and no
trust fund will engage in any business activities or have any assets or
obligations before the issuance of the related series of certificates.
Accordingly, no financial statements for any trust fund will be included in
this prospectus or in the related prospectus supplement.
RATING
It is a condition to the issuance of the certificates of each series
offered by this prospectus and by the prospectus supplement that they shall
have been rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
prospectus supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with the certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which the
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1986 Act ...................................... 74
Agency Securities ............................. 14
Amortizable Bond Premium Regulations .......... 71
Applicable Amount ............................. 89
ARM Loans ..................................... 74
Asset Conservation Act ........................ 67
CERCLA ........................................ 66
Certificate Account ........................... 49
Class Certificate Balance ..................... 31
Code .......................................... 27, 69
Contingent Regulations ........................ 79
Contributions Tax ............................. 90
Deferred Interest ............................. 75
Eleventh District ............................. 38
excess inclusion .............................. 89
excess servicing .............................. 73
FHLBSF ........................................ 38
Garn-St Germain Act ........................... 67
Insured Expenses .............................. 50
Legislative History ........................... 74
Liquidated Mortgage ........................... 57
Loan-to-Value Ratio ........................... 16
Master REMIC .................................. 78
Mortgage Assets ............................... 14
National Cost of Funds Index .................. 39
New Proposed Regulations ...................... 93
New Withholding Regulations ................... 77
Non-U.S. Person ............................... 76
OID ........................................... 69
OID Regulations ............................... 74
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
OTS ........................................... 39
Parties in Interest ........................... 94
Payment Lag Certificates ...................... 85
phantom income ................................ 87
Plans ......................................... 94
pre-issuance accrued interest ................. 85
Prepayment Assumption ......................... 74
Private Mortgage-Backed Securities ............ 14
Prohibited Transactions Tax ................... 90
PTE 83-1 ...................................... 95
RCRA .......................................... 67
Regular Certificateholders .................... 79
Regular Certificates .......................... 77
Relief Act .................................... 68
REMIC Certificates ............................ 77
REMICs ........................................ 78
Residual Certificateholder .................... 86
Residual Certificates ......................... 77
Resource Conservation and Recovery Act 67
Restricted Group .............................. 97
Single Family Certificates .................... 95
SMMEA ......................................... 98
Stripped ARM Obligations ...................... 75
Stripped Bond Certificates .................... 72
Stripped Coupon Certificates .................. 72
Subsidiary REMIC .............................. 78
Super-Premium Certificates .................... 80
Title V ....................................... 68
U.S. Person ................................... 76, 93
Underwriter Exemptions ........................ 96
</TABLE>
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RESIDENTIAL ASSET SECURITIZATION TRUST 2000-A8
ISSUER
INDYMAC MBS, INC.
DEPOSITOR
[GRAPHIC OMITTED]
SELLER AND MASTER SERVICER
$210,047,156
(APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-H
---------------------
PROSPECTUS SUPPLEMENT
---------------------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
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-H 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-H Mortgage Pass-Through Certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the Series 2000-H Mortgage Pass-Through Certificates will be required
to deliver a prospectus supplement and prospectus until January 25, 2001.
OCTOBER 27, 2000
