<PAGE>
As filed with the Securities and Exchange Commission on September 20, 1999
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
________________
NATIONAL MORTGAGE SECURITIES CORPORATION
(Registrant)
(Exact name of registrant as specified in its charter)
Virginia Applied For
(State of Incorporation) (I.R.S. Employee I.D. No.)
909 East Main Street
Richmond, Virginia 23219
(804) 649-3952
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
____________________________
JOHN WRIGHT Copy to:
909 East Main Street EDWARD L. DOUMA
Richmond, Virginia 23219 Hunton & Williams
(804) 649-3952 Riverfront Plaza, East Tower
(804) 649-0990 (telecopy) 951 East Byrd Street
(Name, address, including zip Richmond, Virginia 23219-4074
code and telephone number, (804) 788-8200
including area code, of (804) 788-8218 (telecopy)
agent for service)
_______________________
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
_______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Securities Amount to be Offering Price Aggregate Amount of
Being Registered Registered* Per Unit* Offering Price* Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass-Through Certificates and $1,000,000 100% $1,000,000 $278
Asset-Backed Notes
======================================================================================================================
</TABLE>
* Estimated solely for calculating the registration fee pursuant to Rule
457(a).
__________________________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
Explanatory Note
This Registration Statement includes a base prospectus and two forms of
prospectus supplement. Version 1 of the form of prospectus supplement may be
used in offering a series of Asset-Backed Notes and Version 2 of the form of
prospectus supplement may be used in offering a series of Pass-Through
Certificates. Each such form is meant to be illustrative of the type of
disclosure that might be presented for a series of certificates or notes, but is
not meant to be, and necessarily cannot be, exhaustive of all possible features
that might exist in a particular series. These forms assume the possibility of
certain types of credit enhancement, but as described in the base prospectus,
the types of credit support may vary from series to series. Each base
prospectus used (in either preliminary or final form) will be accompanied by the
applicable prospectus supplement.
<PAGE>
Prospectus Supplement to Prospectus dated ______ __, 1999
$________________
Asset Backed Notes, Series 1999-___
NMSC Owner Trust 1999-___
Issuer
National Mortgage Securities Corporation
Depositor
[Asset Seller]
Seller and Servicer
_________________________
. Interest Rate [One Month LIBOR] plus _____%
. Interest Paid [Monthly]
. First Interest Payment Date [Date]
. Principal Due [Date]
. Price to Public [ ]%
. Underwriting Discount [ ]%
. Proceeds to Issuer $________
The trust initially will consist of one- to four-family residential first
and junior lien mortgage loans, multifamily residential mortgage loans,
cooperative apartment loans and manufactured housing installment sales
contracts with an aggregate principal balance of $___________. The underlying
assets are not insured or guaranteed by any governmental agency.
Investing in the notes involves risks. See "Risk Factors" on page S-__ of this
prospectus supplement and page 1 of the prospectus.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus supplement or the
prospectus to which it relates is truthful or complete. Any representation to
the contrary is a criminal offense.
Delivery of your notes will be made through The Depository Trust Company
on or about ______ __, 1999, against payment in immediately available funds.
[Underwriters]
Prospectus Supplement dated _______ __, 1999.
<PAGE>
Important notice about the information we present in this
prospectus supplement and in the accompanying prospectus.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
We provide information to you about the notes in two separate documents
that progressively provide more detail: the accompanying prospectus, which
provides general information, some of which may not apply to your notes and this
prospectus supplement, which describes the specific terms of your notes.
Your notes will not be listed on any securities exchange.
Although the underwriters intend to make a secondary market in your notes,
it is not required to do so. A secondary market for your notes may not develop.
If one does develop, it may not continue or provide sufficient liquidity.
[We have filed preliminary information regarding the trust's assets and the
notes with the SEC. The information contained in this document supersedes all of
that preliminary information, which was prepared by the underwriters for
prospective investors.]
Until ____________ all dealers that sell the offered notes, whether or not
participating in this offering, may be required to deliver a prospectus and
prospectus supplement. This requirement is in addition to the dealer's
obligation to deliver a prospectus and prospectus supplement when acting as
underwriters with respect to their unsold allotments or subscriptions.
This prospectus supplement and the accompanying prospectus include cross-
references to captions in these materials where you can find further related
discussions. The following table of contents and the table of contents included
in the accompanying prospectus provide the pages on which these captions are
located.
<PAGE>
Table of Contents
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Terms................................................................ S-1
Risk Factors.................................................................... S-5
Description of the Offered Notes................................................ S-6
General...................................................................... S-6
Book-Entry Notes............................................................. S-7
Collection of Payments on Assets............................................. S-8
Realized Losses on Liquidated Loans.......................................... S-9
Distributions................................................................ S-9
Overcollateralization........................................................ S-12
Reserve Fund................................................................. S-13
Financial Guaranty Insurance Policy.......................................... S-13
The Asset Pool.................................................................. S-13
General...................................................................... S-13
Fixed Rate Assets............................................................ S-14
Adjustable Rate Assets....................................................... S-15
Selected Data................................................................ S-17
Underwriting Guidelines...................................................... S-25
Conveyance of Assets......................................................... S-25
Conveyance of Subsequent Assets and
Pre-Funding Account........................................................ S-28
Maturity and Prepayment Considerations.......................................... S-29
Weighted Average Lives of the Offered
Notes...................................................................... S-29
Modeling Assumptions and Prepayment
Model Tables............................................................... S-30
Pre-Funding................................................................... S-34
Factors Affecting Prepayments................................................. S-35
Yield on the Offered Notes.................................................... S-35
The Trust....................................................................... S-37
General....................................................................... S-37
The Trustee................................................................... S-38
Optional Termination.......................................................... S-39
Auction Sale.................................................................. S-40
Termination of the Agreement.................................................. S-40
Voting Rights................................................................. S-41
Reports to Noteholders........................................................ S-41
Servicing of the Assets......................................................... S-43
The Servicer.................................................................. S-43
Servicing Portfolio........................................................... S-43
Delinquency and Loan
Loss/Repossession Experience............................................... S-43
Collection and Other Servicing
Procedures................................................................. S-45
Servicing Compensation and Payment of
Expenses................................................................... S-46
Advances...................................................................... S-47
Successors to Servicer, Delegation of
Duties..................................................................... S-47
Use of Proceeds................................................................. S-48
Underwriting.................................................................... S-48
Legal Matters................................................................... S-49
ERISA Considerations............................................................ S-49
Ratings......................................................................... S-52
Legal Investment Considerations................................................. S-52
Prospectus
Risk Factors....................................................................
Description of the Securities...................................................
General......................................................................
Book-Entry Procedures........................................................
Allocation of Collections from the Assets....................................
Valuation of Mortgage Assets.................................................
Optional Redemption or Termination...........................................
Maturity and Prepayment Considerations..........................................
Yield Considerations............................................................
The Trusts......................................................................
General......................................................................
Assignment of Trust Assets...................................................
The Trust Assets.............................................................
Pre-Funding..................................................................
Asset Proceeds Account.......................................................
Distribution Account.........................................................
Reserve Funds or Accounts....................................................
Mortgage Insurance on the Mortgage Assets....................................
Hazard Insurance on the Mortgage Loans.......................................
Mortgage Bankruptcy Insurance on the.........................................
MortgageAssets...............................................................
Other Insurance..............................................................
Delivery of Additional Assets................................................
Investment of Funds..........................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Sale and Servicing of the Mortgage Assets.......................................
General.......................................................................
Representations and Warranties................................................
Origination of the Mortgage Assets............................................
Payment on Mortgage Assets....................................................
Advances......................................................................
Collection and Other Servicing Procedures.....................................
Maintenance of Insurance Policies; Insurance..................................
Claims and Other Realization upon............................................
Defaulted Mortgage Assets....................................................
Evidence as to Servicing Compliance...........................................
The Agreements..................................................................
Master Servicer or Securities Administrator...................................
The Trustee...................................................................
Rights upon Event of Default..................................................
Events of Default.............................................................
Reports to Securityholders....................................................
Termination...................................................................
Certain Legal Aspects of Mortgage Loans.........................................
General.......................................................................
The Manufactured Housing Installment Sales....................................
Contracts....................................................................
Cooperative Loans.............................................................
Repossesion with Respect to Contracts.........................................
Realizing upon Cooperative Loan Security......................................
Junior Mortgages..............................................................
Consumer Protection Laws with respect to......................................
Contracts.....................................................................
Rights of Reinstatement and Redemption........................................
Leases and Rents..............................................................
Anti-Deficiency Legislation and Other.........................................
Limitations on Lenders........................................................
Environmental Considerations..................................................
"Due-on Sale" Clauses.........................................................
Enforceability of Prepayment and Late Payment.................................
Fees.......................................................................
Equitable Limitations on Remedies.............................................
Secondary Financing: Due-on-Encumberance......................................
Provisions....................................................................
The Depositor...................................................................
Use of Proceeds.................................................................
Federal Income Tax Consequences.................................................
General.......................................................................
REMIC Certificates............................................................
Tax Treatment of Residual Certificates........................................
Taxation of Certain Foreign Holders of REMIC..................................
Certificates..................................................................
Reporting and Tax Administration..............................................
Non-REMIC Certificates........................................................
State Tax Considerations........................................................
ERISA Considerations............................................................
Legal Investment................................................................
Plan of Distribution............................................................
Rating.......................................................................
Reports to Securityholders......................................................
Additional Information..........................................................
Financial Information...........................................................
Incorporation of Certain Documents by Reference.................................
Index of Terms..................................................................
</TABLE>
<PAGE>
Summary of Terms
. 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 more completely all of the terms of an
offering of the notes, read carefully this entire document and the prospectus.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding and is qualified by the full description
of this information in this prospectus supplement and the prospectus.
Information about Your Trust
Your notes are being offered by NMSC Trust 1999-___, which will be established
by National Mortgage Securities Corporation, a Virginia corporation. National
Mortgage maintains its principal office at 909 Main Street, Richmond, Virginia
23219. Its telephone number is (804) ___-____. These assets will secure payment
of your notes.
The indenture trustee is ________________. The indenture trustee's corporate
trust office's address is ____________________. Its telephone number is
_____________.
The owner trustee is ________________. The owner trustee's corporate trust
office's address is ____________________. Its telephone number is
_____________.
Neither your notes nor the underlying assets will be guaranteed or insured by
any government agency [or any other insurer].
Issuance of your notes is scheduled for ________ __, 1999.
Credit Enhancement and Subordination
[For any payment date, the overcollateralization amount will be the amount by
which the aggregate principal balance of the assets exceeds the unpaid principal
balances of the notes. On the closing date, the overcollateralization amount
will be _____% of the initial principal balance of the notes. This amount is
expected to increase as any interest received on the assets that exceeds
interest due on the notes will be applied to the principal balance of the notes.
The overcollateralization amount will be capped at _____% of the principal
balance of the notes.]
[Your notes will be secured in part by a reserve fund, which will provide monies
in the event that principal and interest received on the assets is less than the
payment due on the notes. The fund will not be an asset of the trust. On the
closing date, the reserve fund will be $______.]
[In addition, a financial guaranty insurance policy from __________ will
irrevocably and unconditionally guaranty to the indenture trustee timely payment
of interest and ultimate payment of principal due on your notes. This policy may
not be canceled for any reason. The financial guaranty insurance policy does not
guaranty any particular rate of prepayments, nor does it provide funds to redeem
your notes.]
S-1
<PAGE>
See "Description of the Offered Notes" in this prospectus supplement.
Distributions of Interest and Principal
In the ordinary course, monies received on the assets will be applied first to
distributions of interest on the notes and then to principal.
See "Description of the Offered Notes" in this prospectus supplement.
Servicing of The Assets of Your Trust
_____________ will act as servicer for the assets. It will make advances in
respect of delinquent payments on the assets and in respect of liquidation
expenses and taxes and insurance premiums not paid by an obligor on a timely
basis, if recoverable.
The servicer will be entitled to a monthly fee for servicing the assets equal to
[____]% per annum of the scheduled principal balance of the assets.
See "Servicing of the Assets" in this prospectus supplement.
The Assets Contained in Your Trust
The primary assets of your trust are
. one- to four-family residential first and junior lien mortgage loans,
. multifamily residential mortgage loans,
. cooperative apartment loans, and
. manufactured housing installment sales contracts.
The total number of assets is ______. Their total principal balance is
approximately $______. Of the total number of assets, ______ are fixed-rate
assets and ______ are variable-rate assets.
See "The Asset Pool" in this prospectus supplement.
[Your Trust Contains A Pre-Funding Account
A portion of your trust's initial assets will consist of cash in a pre-funding
account. The pre-funded amount initially will equal the difference between the
principal balance of the notes and the principal balance of the initial assets.
Funds in the pre-funding account may be used to purchase additional assets
during the [first 3 months] following the closing date. These additional assets
will have characteristics very similar to the existing assets. If all of the
pre-funded amount is not used to acquire pre-funded assets, then amounts left in
the pre-funding account after the [3-month] period will be distributed to you as
a principal prepayment. Interest income earned on the pre-funded amount during
the pre-funding period will not be allocated to you, but will belong to National
Mortgage.
See "The Asset Pool - Conveyance of Assets" and " - Conveyance of Subsequent
Assets and Pre-Funding" in this prospectus supplement.]
The Final Scheduled Distribution Date
The final scheduled distribution date for the offered notes is the distribution
date occurring in ________. Because the rate of principal distributions on the
notes will depend upon the rate of principal payments, including prepayments, on
the assets, the actual final
S-2
<PAGE>
distribution on the notes could occur significantly earlier than this date.
Optional Termination of Your Trust by The Servicer
The servicer may terminate the trust by buying all of the assets at any time
when the current aggregate principal balance of the notes is less than [10]% of
their original amount. The termination price paid for your trust's assets during
an optional termination may, in some circumstances, be less than the outstanding
principal balance and unpaid interest of the notes.
See "The Trust--Optional Termination" in this prospectus supplement.
Auction Sale of Your Trust's Assets
If the servicer does not exercise its optional termination rights when it is
initially permitted to do so, the indenture trustee will solicit bids on the
assets remaining in the trust. The termination price paid for your trust's
assets during an auction sale may, in some circumstances, be less than the
outstanding principal balance and unpaid interest of the notes.
See "The Trust -- Auction Sale" in this prospectus supplement.
Federal Income Tax Consequences to You
The notes will be debt for federal income tax purposes. Therefore, interest paid
or accrued will be taxable to you. By acceptance of your notes, you will be
deemed to have agreed to treat your certificate as a debt instrument for
purposes of federal and state income tax, franchise tax, and any other tax
measured by income.
See "Federal Income Tax Consequences" in the prospectus.
ERISA Considerations for Plans and Plan Investors
Your notes are eligible for purchase by persons investing assets of employee
benefit plans or individual retirement accounts. Your should carefully review
with your legal advisor whether the purchase or holding of the notes could give
rise to a prohibited transaction.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Your Notes May Be Legal Investments for Regulated Organizations
The notes will be mortgage related securities for purposes of SMMEA as long as
they are rated in one of the two highest rating categories by one or more
nationally recognized statistical rating organizations.
[If pre-funding account is used, the notes will become mortgage related
securities for SMMEA after pre-funded amount is reduced to zero.] [The notes
will not be SMMEA if junior lien assets are included in the trust.]
See "Legal Investment Considerations" in this prospectus supplement and in the
prospectus.
The Ratings Assigned to Your Notes
It is a condition to the issuance of the notes that the notes be rated ____
by_________ and ____ by ______________.
See "Ratings" in this prospectus supplement.
S-3
<PAGE>
By Purchasing Your Notes You Have Made Important Covenants
By accepting your notes, you agree not to institute or join in any bankruptcy,
reorganization or other insolvency or similar proceeding against the [Asset
Seller], the servicer, the trust or National Mortgage. [You also agree to allow
the securities insurer to exercise all of your voting rights with respect to
your notes.]
S-4
<PAGE>
Risk Factors
In addition to the risk factors in the prospectus, you should note the
following:
You May Experience A Over time, the market values of certain assets could
Loss on Your Investment be less than the loans they secure. This may cause
If Losses and delinquencies and may increase the amount of loss
Delinquencies On Assets On following default. In this event, your trust may
in The Trust Are High be able to recover the full amount owed, which may
not result in a loss on your notes. We can provide
you with no assurance that the performance of your
trust's assets will be similar to the statistical
information provided, in part because the values of
certain assets can be sharply affected by downturns
in regional or economic conditions. The statistical
information related to the loss experience of the
servicer is available under "Servicing of the Assets"
in this prospectus supplement.
Prepayments May Cause Obligors are not required to pay interest on their
Cash Shortfalls assets after the date of a full prepayment of
principal. As a result, a full prepayment may reduce
the amount of interest received from obligors during
that collection period to less than one month's
interest on the assets. If a sufficient number of
assets are prepaid in full, then interest payable on
the assets during that collection period may be less
than the interest due on the notes.
[The Notes Have An [The notes bear interest based on one-month LIBOR,
Uncertain Yield] which is variable and which changes differently than
do other indices. In addition, regardless of the
level of one-month LIBOR, the interest rate of the
notes may not exceed the weighted average net asset
rate.]
[Year 2000 Information [The servicer has analyzed the potential effects of
Systems Procedures] year 2000 issues on the computer systems that support
its business. This review included issues associated
with the servicer's internally developed software and
software licensed from others. The servicer also is
in the process of reviewing year 2000 issues faced by
significant third parties with whom it conducts
business.
The servicer has begun remediation of internally
developed software to resolve year 2000 compliance
issues. The costs incurred by the servicer to date
have not been material, and the servicer does not
anticipate that the expected remaining costs will be
material. Based upon its assessment of internally
S-5
<PAGE>
developed and licensed software and the status of
remediation undertaken to date, the servicer believes
that all of its significant computer systems will be
year 2000 compliant before January 1, 2000. The
servicer continues to test and monitor year 2000
compliance issues, and this testing may or may not be
successful. You may experience losses or delays in
payment if the servicer does not achieve year 2000
compliance.]
[Recent Federal In July 1999 the President signed into law the Year
Legislation May Cause 2000 Act, which generally limits the legal liability
Delays in Payments to for losses caused by year 2000 computer-related
You] errors. Among other things, the legislation provides
a grace period from foreclosure for delinquent
obligors whose mortgage and other payments are not
processed in an accurate or timely manner because of
an actual year 2000 failure.
The Year 2000 Act does not extinguish an obligor's
payment obligations, but merely delays their
enforcement.
The Year 2000 Act could delay the servicer's ability
to foreclose upon the assets of your trust during the
first quarter of the year 2000. These delays,
consequently, could affect the timing of payments to
you.
Capitalized terms used in this prospectus supplement but not defined will
have the definitions given to them in the accompanying prospectus. See "Index
of Terms" in the prospectus.
Description of the Offered Notes
General
The Asset Backed Notes, Series 1999-___ will be issued in book-entry form
only, in denominations of $1,000 and integral multiples of $1 in excess of this
amount. Definitive notes, if issued, will be transferable and exchangeable at
the corporate trust office of indenture trustee. No service charge will be made
for any registration of exchange or transfer, but the indenture trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge incurred in connection with the exchange or transfer.
Distributions of principal and interest on the offered notes will be made
on the 15th day of each month, or, if this day is not a business day, on the
next succeeding business day, beginning in ____ __, 1999, to the persons in
whose names the notes are registered on the record date, which is the close of
business on the last business day of the month preceding the month in
S-6
<PAGE>
which the distribution date occurs. Each distribution with respect to a book-
entry certificate will be paid to the Depository, which will credit the amount
of this distribution to the accounts of its Participants in accordance with its
normal procedures. Each Participant will be responsible for disbursing this
distribution to the Beneficial Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm will be responsible for
disbursing funds to the Beneficial Owners that it represents. All credits and
disbursements with respect to book-entry notes are to be made by the Depository
and the Participants in accordance with the Depository's rules.
[Book-Entry Notes
The offered notes will be book-entry notes as described in the prospectus
under "Description of the Securities -- Book-Entry Procedures." The offered
notes will initially be registered in the name of Cede & Co., the nominee of the
Depository Trust Company.
Unless and until the offered notes are issued in certificated, fully-
registered form, it is anticipated that the only noteholder of the offered notes
will be Cede & Co., as nOMIInee of DTC. Beneficial Owners will not be
noteholders as that term is used in the indenture. Beneficial Owners are only
permitted to exercise the rights of noteholders indirectly through Depository
Participants and DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter Year 2000 problems. DTC has
informed its Participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions, including principal and income
payments, to noteholders, book-entry deliveries, and settlement of trades within
DTC continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting, and will
continue to contact, third party vendors from whom DTC acquires services to
. impress upon them the importance of these services being Year 2000
compliant, and
. determine the extent of their efforts for Year 2000 remediation --- and,
as appropriate, testing --- of their services.
In addition, DTC is in the process of developing contingency plans as it deems
appropriate.
S-7
<PAGE>
According to DTC, the foregoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.]
Collection of Payments on Assets
The serivicer will establish and maintain the certificate account for the
benefit of the indenture trustee. The certificate account must be an Eligible
Account. The certificate account is to be held in trust for the benefit of the
indenture trustee on behalf of the noteholders, and shall be either in the
indenture trustee's name or designated in a manner that reflects the custodial
nature of the account and that all funds in this account are held for the
benefit of the indenture trustee. A single certificate account may be maintained
for more than one series of notes provided that in this event, the servicer
shall cause separate accounting and records to be maintained within the
certificate account with respect to each separate series. Funds in the
certificate account will be invested in Eligible Investments that will mature or
be redeemed not later than the business day preceding the applicable monthly
distribution date. Earnings on amounts deposited into the certificate account
shall be credited to the account of the servicer as servicing compensation in
addition to the Servicing Fee and may be used to offset P&I Advances due from
the servicer in respect of the distribution date next succeeding the date on
which these earnings were made or, at the servicer's option, may be released to
the servicer on the related distribution date. The amount of any losses incurred
in respect of any of these investments shall be deposited into the certificate
account by the servicer out of its own funds promptly after any of these losses
are incurred.
All payments in respect of principal and interest on the assets received by
the servicer on or after the Cut-off Date, exclusive of collections relating to
scheduled payments due on or prior to the Cut-off Date, including principal
prepayments and net liquidation proceeds, will be deposited into the certificate
account no later than the second business day following the servicer's receipt.
Amounts collected as late payment fees, extension fees, assumption fees or
similar fees will be retained by the servicer as part of its servicing
compensation. In addition, amounts paid by [Asset Seller] for assets repurchased
as a result of breach of a representation or warranty under the indenture and
amounts required to be deposited upon substitution of a qualified substitute
asset because of a breach of a representation or warranty, as described under
"The Asset Pool -- Conveyance of Assets" in this prospectus supplement, will be
paid into the certificate account.
On or prior to the business day before each distribution date, the servicer
will remit all scheduled payments of principal and interest due on the assets
during the Collection Period and collected by the servicer and all unscheduled
collections in respect of principal and interest on the assets received during
the related Prepayment Period, in each case to the extent these collections
comprise part of the Available Distribution Amount for the upcoming distribution
date, together with the amount of any required Advances to the indenture trustee
for deposit into the distribution account. If, however, the certificate account
is maintained by the indenture trustee, the indenture trustee may withdraw this
amount, and any portion of the P&I Advance to be covered by investment earnings
on the certificate account, from the certificate account on the applicable
distribution date and deposit it into the distribution account. In such event,
the
S-8
<PAGE>
servicer will remit the portion, if any, of the required P&I Advance that is not
to be covered by investment earnings on the certificate account to the indenture
trustee on business day preceding the distribution date for deposit into the
distribution account. The distribution account shall be an Eligible Account
established and maintained by the indenture trustee.
The indenture trustee or its Paying Agent will withdraw funds from the
Distribution Account, but only to the extent of the Available Distribution
Amount, to make distributions to noteholders as specified under "
- -- Distributions -- Priority of Distributions" in this prospectus supplement.
From time to time, as provided in the indenture, the servicer will also
withdraw funds from the certificate account for other purposes as permitted by
the indenture.
Realized Losses on Liquidated Loans
The Principal Distribution Amount for any distribution date is intended to
include the Scheduled Principal Balance of each asset that became a liquidated
asset during the related Prepayment Period. A Realized Loss will be incurred on
a liquidated loan in the amount, if any, by which the net liquidation proceeds
from the liquidated loan are less than the unpaid principal balance of the
liquidated loan, plus accrued and unpaid interest thereon, plus amounts
reimbursable to the servicer for previously unreimbursed Servicing Advances.
Distributions
Available Distribution Amount
The Available Distribution Amount for a distribution date will include
. monthly payments of principal and interest due on the assets during the
related Collection Period, regardless of whether these payments were
actually collected from the obligors or advanced by the servicer and
unscheduled payments received with respect to the assets during the
related Prepayment Period, including principal prepayments, proceeds of
repurchases, net liquidation proceeds and net insurance proceeds, less
. if [Asset Seller] is not the servicer, Servicing Fees for the related
Collection Period, amounts required to reimburse the servicer for
previously unreimbursed Advances in accordance with the master servicing
agreement, amounts required to reimburse National Mortgage or the
servicer for reimbursable expenses in accordance with the master
servicing agreement and amounts required to reimburse any party for an
overpayment of a Repurchase Price for an asset.
Distributions
Distributions will be made on each distribution date to holders of record
on the preceding record date.
S-9
<PAGE>
Interest
On each distribution date, holders of the notes will be entitled to
receive, to the extent of the Available Distribution Amount:
. interest accrued on the notes during the related Interest Accrual Period
at the then-applicable pass-through rate on the principal balance
immediately prior to the distribution date (the "Interest Distribution
Amount"), plus
. any interest amounts remaining unpaid from a previous distribution date,
plus interest accrued on this amount during the related Interest Accrual
Period, at the then applicable pass-through rate.
Interest Accrual Period shall mean, with respect to each distribution date,
the calendar month preceding the month in which the distribution date occurs.
Interest on the notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
[Floating Rate Determination
Generally, the Floating Rate Determination Date for any Interest Accrual
Period is the second London banking day prior to the Interest Accrual Period.
For the initial Interest Accrual Period the Floating Rate Determination Date is
the closing date. On each Floating Rate Determination Date, the servicer will
determine the arithmetic mean of the LIBOR quotations for one-month Eurodollar
deposits ("One-Month LIBOR") for the succeeding Interest Accrual Period on the
basis of the Reference Banks' offered LIBOR quotations provided to the servicer
as of 11:00 a.m., London time, on the Floating Rate Determination Date. With
respect to a Floating Rate Determination Date, Reference Banks means leading
banks engaged in transactions in Eurodollar deposits in the international
Eurocurrency market with an established place of business in London, whose
quotations appear on the Bloomberg Screen US0001M Index page on the Floating
Rate Determination Date in question and which have been designated as such by
the servicer and are able and willing to provide these quotations to the
servicer on each Floating Rate Determination Date; and Bloomberg Screen US0001M
Index Page means the display designated as page US0001M on the Bloomberg
Financial Markets Commodities News, or another page as may replace this page on
that service for the purpose of displaying LIBOR quotations of major banks. If
any Reference Bank should be removed from the Bloomberg Screen US0001M Index
Page or in any other way fails to meet the qualifications of a Reference Bank,
the servicer may, in its sole discretion, designate an alternative Reference
Bank.
On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding Interest Accrual Period will be established by the servicer as
follows
. if, on any Floating Rate Determination Date, two or more of the
Reference Banks provide offered One-Month LIBOR quotations on the
Bloomberg Screen US0001M Index Page, One-Month LIBOR for the next
applicable Interest Accrual Period will be the arithmetic mean of the
offered quotations, rounding the arithmetic mean, if necessary, to the
nearest five decimal places.
S-10
<PAGE>
. if, on any Floating Rate Determination Date, only one or none of the
Reference Banks provides offered quotations, One-Month LIBOR for the
next applicable Interest Accrual Period will be the higher of
. One-Month LIBOR as determined on the previous Floating Rate
Determination date, and
. the Reserve Interest Rate.
The Reserve Interest Rate will be the rate per annum that the servicer
determines to be either
. the arithmetic mean, rounding the arithmetic mean upwards if necessary
to the nearest five decimal places, of the one-month Eurodollar lending
rate that New York City banks selected by the servicer are quoting, on
the relevant Floating Rate Determination Date, to the principal London
offices of at least two leading banks in the London interbank market, or
. in the event that the servicer can determine no arithmetic mean, the
lowest one-month Eurodollar lending rate that the New York City banks
selected by the servicer are quoting on the Floating Rate Determination
Date to leading European banks.
If, on any Floating Rate Determination Date, the servicer is required but is
unable to determine the Reserve Interest Rate in the manner provided, One-Month
LIBOR for the next applicable Interest Accrual Period will be One-Month LIBOR as
determined on the previous Floating Rate Determination Date.
One-Month LIBOR for an Interest Accrual Period shall not be based on One-
Month LIBOR for the previous Interest Accrual Period for two consecutive
Floating Rate Determination Dates. If One-Month LIBOR for an Interest Accrual
Period would be based on One-Month LIBOR for the previous Floating Rate
Determination Date for the second consecutive Floating Rate Determination Date,
the servicer shall select an alternative index over which the servicer has no
control used for determining one-month Eurodollar lending rates that is
calculated and published or otherwise made available by an independent third
party.
The establishment of One-Month LIBOR, or an alternative index, by the
servicer and the servicer's subsequent calculation of the pass-through rate on
the notes for the relevant Interest Accrual Period, in the absence of manifest
error, will be final and binding.
This table provides you with monthly One-Month LIBOR rates on the last day
of the related calendar month beginning in 1995, as published by Bloomberg. The
following does not purport to be a prediction of the performance of One-Month
LIBOR in the future.
S-11
<PAGE>
<TABLE>
<CAPTION>
MONTH 1999 1998 1997 1996 1995
- ----- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
January.................. 4.94% 5.60% 5.44% 5.44% 6.09%
February................. 4.96 5.69 5.44 5.31 6.13
March.................... 4.94 5.69 5.69 5.44 6.13
April.................... 4.90 5.66 5.69 5.44 6.06
May...................... 5.66 5.69 5.43 6.06
June..................... 5.66 5.69 5.47 6.13
July..................... 5.66 5.63 5.46 5.88
August................... 5.63 5.66 5.44 5.88
September................ 5.38 5.66 5.43 5.88
October.................. 5.25 5.65 5.38 5.83
November................. 5.62 5.97 5.56 5.98
December................. 5.06 5.72 5.50 5.69]
</TABLE>
Principal
The Principal Distribution Amount for any distribution date will equal the
sum of the following amounts
. the sum of the principal components of all monthly payments scheduled
to be made on the Due Date occurring during the related Collection
Period on the assets that were outstanding at the opening of business
on this Due Date, regardless of whether such monthly payments were
received by the servicer from the obligors, not including any monthly
payments due on liquidated loans or repurchased assets,
. the sum of the amounts of all principal prepayments received by the
servicer on the assets during the related Prepayment Period,
. the Scheduled Principal Balance of any asset that became a liquidated
loan during the related Prepayment Period, and
. the Scheduled Principal Balance of any asset that was purchased or
repurchased by the servicer, [Asset Seller] or National Mortgage during
the related Prepayment Period.
Priority of Distributions
On each distribution date the Available Distribution Amount will be
distributed in the following amounts and in the following order of priority:
(1) first, to the notes, their Interest Distribution Amount for that
distribution date and then any Interest Distribution Amounts remaining unpaid
from any previous distribution date, plus interest on this carryover amount, if
any, for that distribution date;
(2) second, to the notes, the Principal Distribution Amount;
S-12
<PAGE>
(3) third, to reduce the principal of the notes, subject the
overcollateralization maximum cap;
(4) fourth, if [Asset Seller] is the servicer, to the servicer in the
following sequential order:
(i) the Servicing Fee with respect to the related distribution date;
and
(ii) any Servicing Fees from previous distribution dates remaining
unpaid;
Overcollateralization
On the closing date and for any payment date, the overcollateralization
amount will be the amount by which the aggregate principal balance of the assets
exceeds the unpaid principal balance of the notes. On the closing date, the
overcollateralization amount will be ___% of the initial principal balance of
the notes. This amount is expected to increase as the principal balance of the
notes is reduced by the application of any Available Distribution Amount
remaining after payment of principal and interest on the notes. The
overcollateralizaton amount will be capped at ___% of the principal balance on
the notes
[Reserve Fund
On the closing date, the indenture trustee will deposit $__________
establish into a reserve fund for the benefit of the bondholders. The reserve
fund will belong to [Asset Seller] and will not be an asset of the trust. The
indenture trustee, will invest amounts on deposit in the reserve fund in
eligible investments. Investment earnings from eligible investment will be
credited to the reserve fund.
If, for any payment date, the Available Distribution Amount is insufficient
to pay interest and principal on the notes, the indenture trustee will withdraw
amounts for deposit into the Distribution Account from the reserve funds equal
to the amount by which the Available Distribution Amount is deficient.]
Financial Guaranty Insurance Policy
[Disclosure regarding financial guaranty insurance policy, if any.]
The Asset Pool
General
NMSC Owner Trust 1999-__ is a business trust to be formed under the laws of
the State of Delaware pursuant to an owner trust agreement among the owner
trustee, National Mortgage and [Asset Seller]. On the closing date, National
Mortgage will sell the assets to the owner trust.
S-13
<PAGE>
After its formation, the owner trust will not engage in any activity other than
the activities related to your notes.
On the closing date, National Mortgage will acquire the assets from [Asset
Seller]. [Asset Seller] will have funded the origination of each asset. Each
asset not originated directly in [Asset Seller]'s name will have been assigned
to [Asset Seller] immediately after its origination. You will find a description
of [Asset Seller]'s general practices with respect to the origination of certain
assets in this prospectus supplement under "Underwriting Guidelines."
The master servicing agreement requires the servicer to maintain or cause
to be maintained standard hazard insurance policies with respect to each
mortgaged property. Generally, no other insurance will be maintained with
respect to the mortgaged properties or the assets. See "The Trusts -- Hazard
Insurance on the Mortgage Loans -- Standard Hazard Insurance Policies" in the
prospectus.
The owner trust will convey to the indenture trustee the assets and all
rights to receive payments due after _____ 1, 1999 (the "Cut-off Date"),
including scheduled payments due after the Cut-off Date but received prior to
this date, and prepayments and other unscheduled collections on the assets
received on or after the Cut-off Date. The right to payments that were due on or
prior to the Cut-off Date but which are received later will not be conveyed to
National Mortgage by [Asset Seller], and these payments will be the property of
[Asset Seller] when collected. The servicer will retain physical possession of
the contract documents. Except to the extent required to service a mortgage
loan, the indenture trustee will maintain physical possession of the mortgage
loan documents. See " -- Conveyance of Assets" in this prospectus supplement.
Fixed Rate Assets
The assets will consist of ________ Fixed Rate Assets having an aggregate
Scheduled Principal Balance as of the Cut-off Date of approximately
$______________. A total of _______ Fixed Rate Assets, representing
approximately ____% of the Fixed Rate Assets, are step-up rate loans. The
remainder of the Fixed Rate Assets are Level Payment Loans. [Step-up rate loans
are assets that provide for periodic increases of [0.50%, 0.75%, 1.00%, 1.25% or
1.50]% in the applicable asset rates at the end of intervals of twelve months
during the first five years following origination (the "Step-up Periods"), after
which the asset rates are fixed. The total amount and the principal portion of
each monthly payment on any step-up rate loan during any period is determined on
a basis that would cause the asset to be fully amortized over its term if the
asset were to bear interest during its entire term at the asset rate applicable
during this period and as if the asset were to provide for level payments over
its entire term based on the asset rate. In addition to interest rate
adjustments during their Step-up Periods, some step-up rate loans will
experience a one-time increase in their asset rates with respect to their final
monthly payments. The statistical information concerning the Fixed Rate Assets
sets forth only the asset rates borne by these assets as of the Cut-off Date.]
See "The Trust -- The Assets" in the prospectus.
S-14
<PAGE>
[Except in the case of the step-up rate loans during their Step-up
Periods,] each Fixed Rate Asset bears interest at a fixed annual percentage rate
and provides for level payments over the term of the asset that fully amortize
the principal balance of the asset. All of the Fixed Rate Assets are actuarial
obligations. The portion of each monthly payment for any Fixed Rate Asset
allocable to principal is equal to the total amount of the monthly payment less
the portion allocable to interest. The portion of each monthly payment due in a
particular month that is allocable to interest is a precomputed amount equal to
one month's interest on the principal balance of the Fixed Rate Asset, which
principal balance is determined by reducing the initial principal balance by the
principal portion of all monthly payments that were due in prior months,
regardless of whether the monthly payments were made in a timely fashion, and
all prior partial principal prepayments. Thus, each scheduled monthly payment on
an asset will be applied to interest and to principal in accordance with the
precomputed allocation regardless of whether the monthly payment was received in
advance of or subsequent to its Due Date. See "Servicing of the Assets --
Collection and Other Servicing Procedures" in this prospectus supplement.
As of the Cut-off Date, approximately _____% of the Fixed Rate Assets were
_____________. As of the Cut-off Date, approximately _____% of the Fixed Rate
Assets were mortgage loans.
As of the Cut-off Date, each Fixed-Rate Asset had an asset rate of at least
________% per annum and not more than _____% per annum. The weighted average
asset rate of the Fixed-Rate Assets was approximately ____% per annum[, without
giving effect to any subsequent increase in the asset rates of the step-up rate
loans.] The Fixed Rate Assets had remaining terms to stated maturity as of the
Cut-off Date of at least ___ months but not more than 360 months and original
terms to stated maturity of at least ___ months but not more than 360 months.
Each Fixed Rate Asset was originated on or after ___________. As of the Cut-off
Date, the Fixed Rate Assets had a weighted average original term to stated
maturity of approximately ____ months, and a weighted average remaining term to
stated maturity of approximately ____ months. The remaining term to stated
maturity of an asset is calculated as the number of monthly payments scheduled
to be made on the asset over its term less the number of monthly payments made
or scheduled to have been made on or before the Cut-off Date. The average
Scheduled Principal Balance of the Fixed Rate Assets as of the Cut-off Date was
approximately $_________ and the Scheduled Principal Balance of the Fixed Rate
Assets as of the Cut-off Date ranged from $______ to $_______.
Approximately ________% of the Fixed Rate Assets have Loan-to-Value Ratios
greater than 95%. [Asset Seller] computes each Loan-to-Value Ratio by
determining the ratio of the principal amount of the mortgage or contract to the
purchase price of the home, including taxes, insurance and any land
improvements, and the amount of any prepaid finance charges or closing costs
that are financed. [Asset Seller] computes each Loan-to-Value Ratio by
determining the ratio of the principal amount of the mortgage loan to either
. the sum of the appraised value of the land and improvements, and the
amount of any prepaid finance charges or closing costs that are
financed, or
S-15
<PAGE>
. the sum of the purchase price of the home, including taxes, insurance
and any land improvements, the appraised value of the land and the
amount of any prepaid finance charges or closing costs that are
financed.
The Fixed Rate Assets are secured by mortgaged properties, located in ___
states. Approximately [>10]% and [>10]% of the Fixed Rate Assets were secured
- -
as of the Cut-off Date by mortgaged properties located in ______ and _______,
respectively. As of the Cut-off Date, no more than approximately ____%, ____%
and ____% of the Fixed Rate Assets were secured by mortgaged properties which
were used, repossessed or transferred to an assignee of the original obligor,
respectively, at the time the related assets were originated.
Adjustable Rate Assets
The asset pool will consist of ___ adjustable rate assets having an
aggregate Scheduled Principal Balance as of the Cut-off Date of approximately
$________.
Each adjustable rate asset has an asset rate that adjusts annually based on
__________, and provides for [level] payments over the term of the asset that
fully amortize the principal balance of the asset. All of the adjustable rate
assets are actuarial obligations.
Each adjustable rate asset has an annual cap of ___% per annum. The
weighted average lifetime cap of the adjustable rate assets as of the Cut-off
Date was approximately ___% per annum. The adjustable rate assets had Gross
Margins as of the Cut-off Date of at least ___% per annum but not more than ___%
per annum, with a weighted average Gross Margin of approximately ___% per annum.
The portion of each monthly payment for any adjustable rate asset allocable to
principal is equal to the total amount of the monthly payment less the portion
allocable to interest. The portion of each monthly payment due in a particular
month that is allocable to interest is a precomputed amount equal to one month's
interest on the principal balance of the adjustable rate asset, which principal
balance is determined by reducing the initial principal balance by the principal
portion of all monthly payments that were due in prior months, regardless of
whether the Monthly Payments were made in a timely fashion, and all prior
partial principal prepayments. Thus, each scheduled monthly payment on an asset
will be applied to interest and to principal in accordance with the precomputed
allocation regardless of whether the monthly payment was received in advance of
or subsequent to its Due Date. As of the Cut-off Date all of the adjustable rate
assets were mortgage loans. See "Servicing of the Assets -- Collection and Other
Servicing Procedures" in this prospectus supplement.
As of the Cut-off Date, each adjustable rate asset had an asset rate of at
least ____% per annum and not more than ____% per annum. The weighted average
asset rate of the adjustable rate assets was approximately ____% per annum,
without giving effect to any subsequent adjustment in the asset rates of the
adjustable rate assets. The adjustable rate assets had remaining terms to stated
maturity as of the Cut-off Date of at least ____ months but not more than ____
months and original terms to stated maturity of ____ months. Each adjustable
rate asset was originated on or after ____________. As of the Cut-off Date, the
adjustable rate assets had a weighted average original term to stated maturity
of approximately ______ months, and a
S-16
<PAGE>
weighted average remaining term to stated maturity of approximately _______
months. The remaining term to stated maturity of an asset is calculated as the
number of monthly payments scheduled to be made on the asset over its term less
the number of monthly payments made or scheduled to have been made on or before
the Cut-off Date. The average Scheduled Principal Balance of the adjustable rate
assets as of the Cut-off Date was approximately $________ and the Scheduled
Principal Balance of the adjustable rate assets as of the Cut-off Date ranged
from $________ to $________. Approximately ____% of the adjustable rate assets
have Loan-to-Value Ratios greater than 95%.
The adjustable rate assets are secured by mortgaged properties located in
____ states. Approximately [ >10 ]%, [ >10 ]%, [ >10 ]%, [ >10 ]% and [ >10 ]%
- - - - -
of the adjustable rate assets were secured as of the Cut-off Date by mortgaged
properties located in __________, __________, __________, __________ and
__________, respectively.
Selected Data
It is possible that some of the assets may be repaid in full or in part, or
otherwise removed from the asset pool. In this event, other assets may be
transferred to the trust. Consequently, the actual asset pool may vary slightly
from the presentation in this prospectus supplement.
Whenever reference is made to a percentage of the assets, or to a
percentage of the Scheduled Principal Balance of the assets, the percentage is
calculated based on the Scheduled Principal Balances of the assets as of the
Cut-off Date. In addition, numbers in any columns in these tables may not sum
exactly to the total number at the bottom of the column due to rounding.
Fixed Rate Assets
Geographic Distribution of Mortgage Assets -- Fixed Rate Assets
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Fixed Rate
Fixed Rate Scheduled Asset Pool
Geographic Location Assets Principal Balance By SPB
- ------------------- ------ ----------------- ------
<S> <C> <C> <C>
Alabama.............................. ______ _________ ____
Arizona.............................. ______ _________ ____
Arkansas............................. ______ _________ ____
California........................... ______ _________ ____
Colorado............................. ______ _________ ____
Delaware............................. ______ _________ ____
Florida.............................. ______ _________ ____
Georgia.............................. ______ _________ ____
Idaho................................ ______ _________ ____
Illinois............................. ______ _________ ____
Indiana.............................. ______ _________ ____
Kansas............................... ______ _________ ____
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C> <C> <C>
Kentucky........................ _____ _________ ____
Louisiana....................... _____ _________ ____
Maine........................... _____ _________ ____
Maryland........................ _____ _________ ____
Michigan........................ _____ _________ ____
Minnesota....................... _____ _________ ____
Mississippi..................... _____ _________ ____
Missouri........................ _____ _________ ____
Montana......................... _____ _________ ____
Nevada.......................... _____ _________ ____
New Jersey...................... _____ _________ ____
New Mexico...................... _____ _________ ____
New York........................ _____ _________ ____
North Carolina.................. _____ _________ ____
Ohio............................ _____ _________ ____
Oklahoma........................ _____ _________ ____
Oregon.......................... _____ _________ ____
Pennsylvania.................... _____ _________ ____
South Carolina.................. _____ _________ ____
Tennessee....................... _____ _________ ____
Texas........................... _____ _________ ____
Utah............................ _____ _________ ____
Virginia........................ _____ _________ ____
Washington...................... _____ _________ ____
West Virginia................... _____ _________ ____
Wisconsin....................... _____ _________ ____
WyOMIng......................... _____ _________ ____
Total...................... $ %
===== ========= ====
</TABLE>
- ------------
Based on the mailing address of the obligor on the related Fixed Rate Asset as
of the Cut-off Date.
Distribution of Original Fixed Rate Asset Amounts
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Fixed Rate Asset Amount Assets Principal Balance Pool By SPB
- -------------------------------- ------ ------------------ -----------
<S> <C> <C> <C>
$4,999 or less.................. _____ _________ ____
$5,000 - $ 9,999............... _____ _________ ____
$10,000 - $14,999............... _____ _________ ____
$15,000 - $19,999............... _____ _________ ____
$20,000 - $24,999............... _____ _________ ____
$25,000 - $29,999............... _____ _________ ____
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
$30,000 - $34,999.................. _____ _________ ____
$35,000 - $39,999.................. _____ _________ ____
$40,000 - $44,999.................. _____ _________ ____
$45,000 - $49,999.................. _____ _________ ____
$50,000 - $54,999.................. _____ _________ ____
$55,000 - $59,999.................. _____ _________ ____
$60,000 - $64,999.................. _____ _________ ____
$65,000 - $69,999.................. _____ _________ ____
$70,000 - $74,999.................. _____ _________ ____
$75,000 - $79,999.................. _____ _________ ____
$80,000 - $84,999.................. _____ _________ ____
$85,000 - $89,999.................. _____ _________ ____
$90,000 - $94,999.................. _____ _________ ____
$95,000 - $99,999.................. _____ _________ ____
$100,000 or more.................. _____ _________ ____
Total............................. $ %
===== ========= ====
</TABLE>
The highest original Fixed Rate Asset amount was $_________, which
represents approximately _____% of the aggregate principal balance of the Fixed
Rate Assets at origination. The average original principal amount of the Fixed
Rate Assets was approximately $______ as of the Cut-off Date.
Distribution of Original Loan-to-Value Ratios of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
50% or less........................... _____ _________ ____
51% - 55%............................ _____ _________ ____
56% - 60%............................ _____ _________ ____
61% - 65%............................ _____ _________ ____
66% - 70%............................ _____ _________ ____
71% - 75%............................ _____ _________ ____
76% - 80%............................ _____ _________ ____
81% - 85%............................ _____ _________ ____
86% - 90%............................ _____ _________ ____
91% - 95%............................ _____ _________ ____
96% - 100%............................ _____ _________ ____
101%- 110%............................ _____ _________ ____
Total........................... $ %
===== ========= ====
</TABLE>
The weighted average original Loan-to-Value Ratio of the Fixed Rate Assets
was approximately ____% as of the Cut-off Date. Rounded to nearest 1%.
S-19
<PAGE>
Fixed Rate Asset Rates
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
- ---------- ------ ----------------- -----------
<S> <C> <C> <C>
6.000 - 6.999%............ _____ _________ ____
7.000 - 7.999%............ _____ _________ ____
8.000 - 8.999%............ _____ _________ ____
9.000 - 9.999%............ _____ _________ ____
10.000 - 10.999%............ _____ _________ ____
11.000 - 11.999%............ _____ _________ ____
12.000 - 12.999%............ _____ _________ ____
13.000 - 13.999%............ _____ _________ ____
14.000 - 14.999%............ _____ _________ ____
Total....................... $ %
===== ========= ====
</TABLE>
The weighted average Fixed Rate Asset Rate was approximately _____1% per
annum as of the Cut-off Date. This table reflects the Fixed Rate Asset Rates of
the step-up rate loans as of the Cut-off Date and does not reflect any
subsequent increases in the Rates of the step-up rate loans.
Year of Origination of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
1996.......................... _____ _________ ____
1997.......................... _____ _________ ____
1998.......................... _____ _________ ____
1999.......................... _____ _________ ____
Total......................... $ %
===== ========= ====
</TABLE>
The weighted average seasoning of the Fixed Rate Assets was approximately
___ months as of the Cut-off Date.
Remaining Terms to Maturity, in months, of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ------ ----------------- -----------
<S> <C> <C> <C>
1 - 60 months.............. _____ _________ ____
61 - 96 months.............. _____ _________ ____
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C> <C> <C>
97 - 120 months.............. _____ _________ ____
121 - 156 months.............. _____ _________ ____
157 - 180 months.............. _____ _________ ____
181 - 216 months.............. _____ _________ ____
217 - 240 months.............. _____ _________ ____
241 - 300 months.............. _____ _________ ____
301 - 360 months.............. _____ _________ ____
Total......................... $ %
===== ========= ====
</TABLE>
The weighted average remaining term to maturity of the Fixed Rate Assets
was approximately ____ months as of the Cut-off Date.
Original Terms to Maturity, in months, of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Term to Maturity Assets Principal Balance Pool By SPB
- ------------------------- ------ ----------------- -----------
<S> <C> <C> <C>
1 - 60 months............... ______ _________ ____
61 - 96 months............... ______ _________ ____
97 - 120 months.............. ______ _________ ____
121 - 156 months.............. ______ _________ ____
157 - 180 months.............. ______ _________ ____
181 - 216 months.............. ______ _________ ____
217 - 240 months.............. ______ _________ ____
241 - 300 months.............. ______ _________ ____
301 - 360 months.............. ______ _________ ____
Total......................... $ %
====== ========= ====
</TABLE>
The weighted average original term to maturity of the Fixed Rate Assets was
approximately ___ months as of the Cut-off Date.
Adjustable Rate Assets
Geographic Distribution of Assets - Adjusted Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Geographic Location Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
Arizona............................... _____ _________ ____
California............................ _____ _________ ____
Colorado.............................. _____ _________ ____
Florida............................... _____ _________ ____
Georgia............................... _____ _________ ____
Idaho................................. _____ _________ ____
</TABLE>
S-21
<PAGE>
<TABLE>
<S> <C> <C> <C>
Kentucky.......................... _____ _________ ____
New Mexico........................ _____ _________ ____
North Carolina.................... _____ _________ ____
Oregon............................ _____ _________ ____
South Carolina.................... _____ _________ ____
Tennessee......................... _____ _________ ____
Virginia.......................... _____ _________ ____
Washington........................ _____ _________ ____
Total............................. $ %
===== ========= ====
</TABLE>
Based on the mailing address of the obligor on the related adjustable rate
asset as of the Cut-off Date.
Distribution of Original Adjustable Rate Asset Amounts
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Adjustable Rate Asset Amount Assets Principal Balance Pool By SPB
- ------------------------------------- ------ ----------------- -----------
<S> <C> <C> <C>
$45,000 - $49,999................... ______ _________ ____
$55,000 - $59,999................... ______ _________ ____
$60,000 - $64,999................... ______ _________ ____
$65,000 - $69,999................... ______ _________ ____
$70,000 - $74,999................... ______ _________ ____
$75,000 - $79,999................... ______ _________ ____
$80,000 - $84,999................... ______ _________ ____
$85,000 - $89,999................... ______ _________ ____
$90,000 - $94,999................... ______ _________ ____
$95,000 - $99,999................... ______ _________ ____
$100,000 or more.................... ______ _________ ____
Total............................... $ %
====== ========= ====
</TABLE>
The highest original adjustable rate asset amount was $__________, which
represents approximately _____% of the aggregate principal balance of the
adjustable rate assets at origination. The average original principal amount of
the adjustable rate assets was approximately $_______ as of the Cut-off Date.
Distribution of Original Loan-to-Value Ratios of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
51% -- 55%......................... ______ _________ ____
</TABLE>
S-22
<PAGE>
<TABLE>
<S> <C> <C> <C>
66% -- 70%................... _____ _________ ____
71% -- 75%................... _____ _________ ____
76% -- 80%................... _____ _________ ____
81% -- 85%................... _____ _________ ____
86% -- 90%................... _____ _________ ____
91% -- 95%................... _____ _________ ____
96% -- 100%.................. _____ _________ ____
101% -- 105%.................. _____ _________ ____
Total......................... $ %
===== ========= ====
</TABLE>
The weighted average original Loan-to-Value Ratio of the Adjustable Assets
was approximately _____% as of the Cut-off Date. Rounded to nearest 1%.
Current Asset Rates of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
- ---------- ------ ----------------- -----------
<S> <C> <C> <C>
7.000% - 7.999%............... _____ _________ ____
8.000% - 8.999%............... _____ _________ ____
9.000% - 9.999%............... _____ _________ ____
Total..................... $ %
===== ========= ====
</TABLE>
The weighted average adjustable rate asset Rate was approximately _____%
per annum as of the Cut-off Date. This table reflects the Asset Rates of the
adjustable rate assets as of the Cut-off Date and does not reflect any
subsequent adjustments in the Asset Rates of the adjustable rate assets.
Distribution of Gross Margins of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Gross Margin Assets Principal Balance Pool By SPB
- ------------ ------ ----------------- -----------
<S> <C> <C> <C>
3.250% - 3.500%............... _____ _________ ____
4.500% - 4.750%............... _____ _________ ____
Total....................... $ %
===== ========= ====
</TABLE>
The weighted average Gross Margin of the adjustable rate assets was
approximately ____% per annum as of the Cut-off Date.
Maximum Asset Rates of Adjustable Rate Assets
Number of Aggregate Percentage of
S-23
<PAGE>
<TABLE>
<CAPTION>
Fixed Rate Scheduled Fixed Rate Asset
Maximum Asset Rates Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
13.000% to 13.625%............ _____ _________ ____
14.000% to 14.625%............ _____ _________ ____
Total........................ $ %
===== ========= ====
</TABLE>
The weighted average maximum Asset Rate of the adjustable rate assets was
approximately ______% per annum as of the Cut-Off Date.
S-24
<PAGE>
Year of Origination of Adjustable Rate Assets
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
1997.................. _____ _________ ____
1998.................. _____ _________ ____
Total.............. $ %
===== ========= ====
The weighted average seasoning of the adjustable rate assets was
approximately ___ months as of the Cut-off Date.
Remaining Terms to Maturity, in months, of Adjustable Rate Assets
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ------ ----------------- -----------
348 - 360 months.......... _____ _________ _____
Total.................. $ %
===== ========= =====
The weighted average remaining term to maturity of the adjustable rate
assets was approximately ____ months as of the Cut-off Date.
Original Terms to Maturity, in months, of Adjustable Rate Assets
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Terms to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ------ ----------------- -----------
360 months................... _____ _________ ____
Total....................... $ %
===== ========= ====
The weighted average original term to maturity of the adjustable rate
assets was approximately ___ months as of the Cut-off Date.
S-25
<PAGE>
Date of Next Asset Rate Adjustment of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Date of Next Asset Rate Adjustment Assets Principal Balance Pool By SPB
- ---------------------------------- ------ ----------------- -----------
<S> <C> <C> <C>
August 1, 1999................... _____ _________ ____
August 15, 1999.................. _____ _________ ____
October 1, 1999.................. _____ _________ ____
November 1, 1999................. _____ _________ ____
December 1, 1999................. _____ _________ ____
January 1, 2000.................. _____ _________ ____
Total $ %
===== ========= ====
</TABLE>
Underwriting Guidelines
The mortgage assets were underwritten by [Asset Seller] and were
underwritten and originated substantially in accordance with its guidelines
[Description of Underwriting Policies from Asset Seller].
Conveyance of Assets
On the date of issuance of the notes [or on each Subsequent Transfer Date],
National Mortgage will transfer to the indenture trustee, without recourse, all
of its right, title and interest in and to the assets, including all principal
and interest received on or with respect to the assets, not including principal
and interest due on the assets on or before the Cut-off Date and any other
amounts collected on the assets before the Cut-off Date other than early
collections of Monthly Payments that were due after the Cut-off Date, and all
rights under the standard hazard insurance policies maintained with respect to
the mortgaged properties. [The indenture permits the trust to purchase
Subsequent Assets on one or more dates through the close of business on ________
(each, a "Subsequent Transfer Date").] The asset schedule will identify the
Scheduled Principal Balance of each asset, the amount of each monthly payment
due on each asset, and the asset rate on each asset, in each case as of the Cut-
off Date. Prior to the conveyance of the assets to the indenture trustee, [Asset
Seller]'s operations department will complete a review of all of the mortgage
asset files, including the certificates of title to, or other evidence of a
perfected security interest in, the mortgaged properties to check the accuracy
of the asset schedule delivered to the indenture trustee. The indenture trustee
will complete a review of the mortgage asset files to check the accuracy of the
mortgage asset schedule.
National Mortgage will represent and warrant only that:
. the information set forth in the asset schedule was true and correct
as of the date or dates on which the information was furnished;
. National Mortgage is the owner of, or holder of a first-priority
security interest in, each asset;
S-26
<PAGE>
. National Mortgage acquired its ownership of, or security interest in,
each asset in good faith without notice of any adverse claim;
. except for the sale of the assets to the indenture trustee, National
Mortgage has not assigned any interest or participation in any asset
that has not been released; and
. National Mortgage has the full right to sell the trust estate to the
indenture trustee.
The servicer, on behalf of the noteholders, will hold the original and
copies of documents and instruments relating to each asset and the security
interest in the asset and any asset property relating to each asset. In order to
provide notice of the assignment of the assets to the indenture trustee, UCC-1
financing statements identifying the indenture trustee as the secured party or
purchaser and identifying all the assets as collateral will be filed in the
appropriate offices in the _________________. Despite these filings, if a
subsequent purchaser were able to take physical possession of the asset without
notice of the assignment of the asset to the indenture trustee, the indenture
trustee's interest in the contracts could be defeated. To provide some
protection against this possibility, in addition to filing UCC-1 financing
statements, within one week after the initial delivery of the notes or after
each Subsequent Transfer Date, as applicable, the assets will be stamped or
otherwise marked to reflect their assignment to the indenture trustee. The
indenture trustee, on behalf of the noteholders, will hold the original mortgage
notes and mortgages, and copies of documents and instruments relating to each
mortgage loan. See "Legal Aspects of the Mortgage Loans" in the prospectus.
[Asset Seller] will make representations and warranties regarding the
assets in the sales agreement. These representations and warranties are
detailed in the prospectus under the heading "Sale and Servicing of the Mortgage
Assets --- Representations and Warranties."
Under the terms of the indenture and the sales agreement, and subject to
[Asset Seller]'s option to effect a substitution as described in the next
paragraph, [Asset Seller] will be obligated to repurchase any asset for its
Repurchase Price within 90 days after [Asset Seller]'s discovery, or receipt of
written notice from the indenture trustee or the servicer, of a breach of any
representation or warranty made by [Asset Seller] in the sales agreement that
materially and adversely affects the indenture trustee's interest in any asset,
if the breach has not been cured by the 90th day. The Repurchase Price for any
asset will be the unpaid principal balance of the asset at the close of business
on the date of repurchase, plus accrued and unpaid interest thereon to the next
Due Date for the asset following the repurchase. Prior to being distributed to
noteholders, this Repurchase Price will be used to reimburse the servicer for
any previously unreimbursed Advances made by the servicer in respect of the
repurchased asset and, if the repurchaser is the servicer, the Repurchase Price
may be remitted net of reimbursement amounts.
In lieu of repurchasing an asset as specified in the preceding paragraph,
during the two-year period following the date of the initial issuance of the
notes, [Asset Seller] may, at its option, substitute a qualified substitute
asset for any asset to be replaced. A qualified substitute asset is any asset
that, on the date of substitution,
S-27
<PAGE>
. has an unpaid principal balance not greater than, and not more than
$10,000 less than, the unpaid principal balance of the replaced asset,
. has an asset rate not less than, and not more than one percentage
point in excess of, the asset rate of the replaced asset,
. has a net rate at least equal to the net rate of the replaced asset,
. has a remaining term to maturity not greater than, and not more than
one year less than, that of the replaced asset,
. has a Loan-to-Value Ratio as of the first day of the month in which
the substitution occurs equal to or less than the Loan-to-Value Ratio
of the replaced asset as of such date, in each case, using the
appraised value at origination, and after taking into account the
monthly payment due on this date, and
. complies with each representation and warranty in Section _____ of the
indenture and in the sales agreement.
In the event that more than one asset is substituted for a replaced asset,
the unpaid principal balances may be determined on an aggregate basis, and the
asset rate, net rate and term on a weighted average basis, provided that no
qualified substitute asset may have an original term to maturity beyond the
latest original term to maturity of any asset assigned to the trust on the
closing date.
In addition, any replaced asset that is a mortgage loan may only be
replaced by another mortgage loan.
[Asset Seller] will deposit cash into the certificate account in the
amount, if any, by which the aggregate of the unpaid principal balances of any
replaced assets exceeds the aggregate of the unpaid principal balances of the
assets being substituted for the replaced assets. Also, if it is discovered that
the actual Scheduled Principal Balance of an asset is less than the Scheduled
Principal Balance identified for the asset on the asset schedule, [Asset Seller]
may, at its option, deposit the amount of the discrepancy into the certificate
account instead of repurchasing the asset. Any deposit will be treated as a
partial principal prepayment.
In addition, [Asset Seller] is required to indemnify National Mortgage and
its assignees, including the trust, against losses and damages they incur as a
result of breaches of [Asset Seller]'s representations and warranties. [Asset
Seller]'s obligation to repurchase or substitute for an asset affected by a
breach of a representation or warranty and to indemnify National Mortgage and
its assignees for losses and damages caused by a breach constitute the sole
remedies available to the indenture trustee and the noteholders for a breach of
a representation or warranty under the indenture or the sales agreement with
respect to the assets.
S-28
<PAGE>
[Conveyance of Subsequent Assets and Pre-Funding Account
A Pre-Funding Account will be established by the indenture trustee and
funded by National Mortgage on the closing date to provide the trust with funds
to purchase Subsequent Assets. The Subsequent Assets will be purchased by the
trust during the Pre-Funding Period, which will begin on the closing date and
end on ______ __, _____. The Pre-Funded Amount will initially equal the
difference between the aggregate certificate principal balance of the offered
notes on the closing date and the aggregate Scheduled Principal Balance of the
initial assets as of the Cut-Off Date. In the event that the trust is unable to
acquire sufficient qualifying assets by _______, any amounts remaining in the
Pre-Funding Account will be applied as a partial principal prepayment to
noteholders entitled to the payment on the first date distributions are made.
Any investment income earned on amounts on deposit in the Pre-Funding Account
will be paid to National Mortgage and will not be available for distribution to
noteholders.
Under the indenture, the trust will be obligated to purchase Subsequent
Assets from National Mortgage during the Pre-Funding Period, if available.
Subsequent Assets will be transferred to the trust pursuant to subsequent
transfer instruments between National Mortgage and the trust. Each Subsequent
Asset, if it is a mortgage asset, will have been underwritten in accordance with
National Mortgage's standard underwriting criteria. In connection with the
purchase of Subsequent Assets on each Subsequent Transfer Date, the trust will
be required to pay to National Mortgage from amounts on deposit in the Pre-
Funding Account a cash purchase price of 100% of the Scheduled Principal Balance
of the Subsequent Assets as of the related Cut-Off Date. Any conveyance of
Subsequent Assets on a Subsequent Transfer Date must satisfy conditions
including, but not limited to
. each Subsequent Asset must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the
indenture,
. National Mortgage will not select Subsequent Assets in a manner that
it believes is adverse to the interests of the noteholders,
. each Subsequent Asset must not be more than 30 days delinquent as of
its Cut-off Date,
. as a result of the purchase of the Subsequent Assets, the notes will
not receive from _______ or ________ a lower credit rating than the
rating assigned at the initial issuance of the notes, and
. an independent accountant will provide a letter stating whether or not
the characteristics of the Subsequent Assets conform to the
characteristics described in this prospectus supplement.
Following the end of the Pre-Funding Period, the asset pool must satisfy the
following criteria
. the weighted average asset rate must not be less than ____% or more
than ____%,.
S-29
<PAGE>
. the weighted average remaining term to stated maturity must not be
less than ____ months or more than ____ months,
. the weighted average Loan-to-Value Ratio must not be greater than
____%,
. not less than ____% of the asset pool, by Scheduled Principal Balance,
must be attributable to loans to purchase new assets, and
. not more than ____%, ____% and ____% of the assets located in
_______________, ______________, or any other individual state,
respectively.
Information regarding Subsequent Assets comparable to the disclosure
regarding the initial assets provided in this prospectus supplement will be
filed on a report on Form 8-K with the SEC within 15 days following the end of
the Pre-Funding Period.]
Maturity and Prepayment Considerations
The assets had terms to maturity at origination ranging from ___ months to
360 months, but may be prepaid in full or in part at any time. The prepayment
experience of the assets, including prepayments due to liquidations of defaulted
assets, will affect the weighted average life of the notes. Based on the
servicer's experience with the portfolio of assets it services, the serivicer
anticipates that a number of assets will be liquidated or prepaid in full prior
to their respective maturities. A number of factors, including homeowner
mobility, general and regional economic conditions and prevailing interest rates
may influence prepayments. In addition, any repurchases of assets on account of
breaches of representations and warranties will have the same effect as
prepayments of the assets and accordingly will affect the life of the notes.
Natural disasters may also influence prepayments. Most of the Assets contain
provisions that prohibit the obligors from selling an underlying mortgaged
property without the prior consent of the holder of the asset. These provisions
may not be enforceable in some states. The servicer's policy is to permit most
sales of mortgaged properties without accelerating the assets where the proposed
buyer meets the servicer's then-current underwriting standards and either enters
into an assumption agreement or executes a new note, contract or other form of
indebtedness for the unpaid balance of the existing asset. The execution of a
new contract or mortgage note and mortgage would have the same effect as a
prepayment of the existing asset in full. See "Certain Legal Aspects of Mortgage
Loans" in the prospectus.
Weighted Average Lives of the Notes
The following information is given solely to illustrate the effect of
prepayments of the assets on the weighted average life of the notes under the
stated assumptions and is not a prediction of the prepayment rate that might
actually be experienced with respect to the assets.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average lives of the
offered notes will be affected by the rate at which
S-30
<PAGE>
principal on the assets is paid. Principal payments on assets may be in the form
of scheduled amortization or prepayments --- for this purpose, the term
prepayment includes any voluntary prepayment by an obligor, the receipt of
Liquidation Proceeds upon disposition of the property securing any defaulted
asset and the receipt of the Repurchase Price for any asset upon its repurchase
by [Asset Seller] as a result of any breaches of its representations and
warranties. Prepayments on contracts and mortgage loans may be measured relative
to a prepayment standard or model. The [prepayment model] (the "[prepayment
model]") is based on an assumed rate of prepayment each month of the then unpaid
principal balance of a pool of new assets. A prepayment assumption of 100%
[prepayment model] assumes constant prepayment rates of ___% per annum of the
then unpaid principal balance of the assets in the first month of the life of
the contracts and mortgage loans and an additional ____% per annum in each month
thereafter until the 24th month. Beginning in the 24th month and in each month
thereafter during the life of all of the contracts and mortgage loans, 100%
[prepayment model] assumes a constant prepayment rate of ____% per annum each
month.
As used in the following tables "0% [prepayment model]" assumes no
prepayments on the assets; "100% [prepayment model]" assumes the assets will
prepay at rates equal to 100% of the [prepayment model] assumed prepayment
rates; "200% [prepayment model]" assumes the assets will prepay at rates equal
to 200% of the [prepayment model] assumed prepayment rates; and so on.
There is no assurance, however, that the rate of prepayments of the assets
will conform to any level of the [prepayment model], and no representation is
made that the assets will prepay at the prepayment rates shown or any other
prepayment rate. National Mortgage makes no representations as to the
appropriateness of the [prepayment model].
Modeling Assumptions and [prepayment model] Tables
The asset prepayment tables (the "[prepayment model] Tables") were prepared
based upon the assumptions that there are no delinquencies on the assets and
that there will be a sufficient Available Distribution Amount to distribute all
accrued interest and the Principal Distribution Amount due (collectively, the
"Modeling Assumptions").
The percentages and weighted average lives in the following tables were
determined assuming that
. scheduled interest and principal payments on the assets will be
received each month on their Due Dates and full prepayments on and
liquidations of the assets will be received on the last day of each
month, commencing in ________ 1999, and will include 30 days of
interest,
. the servicer exercises the right of optional termination at the
earliest possible date,
. the assets have the characteristics set forth in the two tables
provided,
S-31
<PAGE>
. the initial certificate principal balance and pass-through rate of the
notes are as described in this prospectus supplement,
. no Due Date Interest Shortfalls will arise in connection with
prepayments in full or liquidations of the assets,
. no losses will be experienced on any assets included in the asset
pool,
. the closing date for the issuance of the notes will be
_________________,
. cash distributions will be received by the holders of the notes on
____________ and on the 15th day of each month thereafter until
retirement of the notes,
. year CMT is assumed to be ____% per annum, and One-Month LIBOR is
assumed to be ____% per annum, and
. the assets will prepay monthly at the percentages of [prepayment model]
indicated in the [prepayment model] Tables.
No representation is made that the assets will experience delinquencies or
losses at the respective rates assumed or at any other rates.
Assumed Fixed Rate Asset Characteristics
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to
As of the Maturity Seasoning
Cut-off-Date Asset Rate (Months) (Months)
------------ ----------- -------- ---------
<S> <C> <C> <C> <C>
Level Pay Assets
1................................ ____________ --------- ______ ______
2................................ ____________ _________ ______ ______
3................................ ____________ _________ ______ ______
4................................ ____________ _________ ______ ______
5................................ ____________ _________ ------ ______
</TABLE>
<TABLE>
<CAPTION>
Step-Up Rate Assets
Scheduled Remaining
Principal Balance Term to Months to Months to Months to
As of the Asset Maturity Seasoning First Second Third
Cut-off Date Rate (Months) (Months) Step Step Step
------------ ----- ------ ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1................ __________ ______ ____ ___ ___ ___ ___
2................ __________ ______ ____ ___ ___ ___ ___
3................ __________ ______ ____ ___ ___ ___ ___
<CAPTION>
First Step Second Step Third Step
Rate Rate Rate
Step Step Step
----- ---- ----
<S> <C> <C>
____ _____ ____
____ _____ ____
____ _____ ____
</TABLE>
* Not applicable.
S-32
<PAGE>
<TABLE>
<CAPTION>
Assumed Adjustable Rate Asset Characteristics
Scheduled
Principal Remaining
Balance Term to Months to Lifetime Periodic Reset
As of the Asset Maturity Seasoning Gross Next Rate Rate Frequency
Cut-off Date Rate (Months) (Months) Margin Change Cap Cap Index Months
------------ ---- ------ ------ ------ ------ --- --- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1......... $--------- ------% ------ --- ---% ----- -----% ----- ------% 1 year CMT
</TABLE>
There will be discrepancies between the assets actually included in the
trust and the assumptions made as to the characteristics of the assets in
preparing the [prepayment model] Tables. There is no assurance that prepayment
of the assets will conform to any of the constant percentages of [prepayment
model] described in the [prepayment model] Tables or any other constant rate.
Among other things, the [prepayment model] Tables assume that the assets prepay
at the indicated constant percentages of [prepayment model], even though the
assets may vary substantially as to asset rates and original terms to maturity.
Variations in actual prepayment experience for the assets will increase or
decrease the percentages of initial principal balances and weighted average
lives shown in the [prepayment model] Tables. Assuming no prepayments, the step-
up rate loans and the Adjustable Rate Loans will cause the Weighted Average Net
Asset Rate for the assets to rise from approximately _____% per annum at the
Cut-off Date to a maximum of approximately _____% per annum, as the asset rates
on the step-up rate loans and the Adjustable Rate Loans increase. Weighted
Average Net Asset Rate means for any distribution date, a rate equal to
. the weighted average of the asset rates applicable to the scheduled
monthly payments that were due in the related Collection Period on
outstanding assets, less
. the Servicing Fee Rate.
The [prepayment model] Tables indicate the weighted average life of the
notes and set forth the percentage of the initial principal balance of the notes
that would be outstanding after each of the dates shown assuming prepayments of
the assets occur at various percentages of [prepayment model]. The weighted
average life of the notes set forth in the [prepayment model] Tables has been
determined by multiplying the amount of each principal payment on the notes by
the number of years from the date of delivery of the notes to the related
distribution date, summing the results and dividing the sum by the total
principal to be paid on the notes. See "Maturity and Prepayment Considerations"
in the prospectus.
Please make your investment decisions on a basis that includes your
determination as to anticipated prepayment rates based on your own assumptions
as to the matters discussed in this prospectus supplement.
S-33
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Notes at the following
Percentages of [prepayment model]
-------------------------------------
0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percent............ ___ ___ ___ ___ ___ __
_____ 15, 2000......... ___ ___ ___ ___ ___ __
_____ 15, 2001......... ___ ___ ___ ___ ___ __
_____ 15, 2002......... ___ ___ ___ ___ ___ __
_____ 15, 2003......... ___ ___ ___ ___ ___ __
_____ 15, 2004......... ___ ___ ___ ___ ___ __
_____ 15, 2005......... ___ ___ ___ ___ ___ __
_____ 15, 2006......... ___ ___ ___ ___ ___ __
_____ 15, 2007......... ___ ___ ___ ___ ___ __
_____ 15, 2008......... ___ ___ ___ ___ ___ __
_____ 15, 2009......... ___ ___ ___ ___ ___ __
_____ 15, 2010......... ___ ___ ___ ___ ___ __
_____ 15, 2011......... ___ ___ ___ ___ ___ __
_____ 15, 2012......... ___ ___ ___ ___ ___ __
_____ 15, 2013......... ___ ___ ___ ___ ___ __
_____ 15, 2014......... ___ ___ ___ ___ ___ __
_____ 15, 2015......... ___ ___ ___ ___ ___ __
_____ 15, 2016......... ___ ___ ___ ___ ___ __
_____ 15, 2017......... ___ ___ ___ ___ ___ __
_____ 15, 2018......... ___ ___ ___ ___ ___ __
_____ 15, 2019......... ___ ___ ___ ___ ___ __
_____ 15, 2020......... ___ ___ ___ ___ ___ __
_____ 15, 2021......... ___ ___ ___ ___ ___ __
_____ 15, 2022......... ___ ___ ___ ___ ___ __
_____ 15, 2023......... ___ ___ ___ ___ ___ __
_____ 15, 2024......... ___ ___ ___ ___ ___ __
_____ 15, 2025......... ___ ___ ___ ___ ___ __
_____ 15, 2026......... ___ ___ ___ ___ ___ __
_____ 15, 2027......... ___ ___ ___ ___ ___ __
_____ 15, 2028......... ___ ___ ___ ___ ___ __
_____ 15, 2029......... ___ ___ ___ ___ ___ __
Avg Life In Years:......... ___ ___ ___ ___ ___ __
</TABLE>
This [prepayment model] Table has been prepared based on the Modeling
Assumptions, including the assumptions regarding the characteristics and
performance of the assets, which will differ from their actual characteristics
and performance, and should be read in conjunction with these assumptions.
[Pre-Funding
The notes will be prepaid in part on the first distribution date after the
Pre-Funding Period if any Pre-Funding Amount remains in the Pre-Funding
Account on this distribution date. These amounts will be treated as a partial
principal prepayment. It is expected that substantially all of the Pre-Funded
Amount will be used to acquire Subsequent Assets. It is unlikely, however,
that the aggregate Scheduled Principal Balance of the Subsequent Assets
purchased by the trust will be identical to the Pre-Funded Amount, and
consequently, noteholders will likely receive some prepayment of principal.]
S-34
<PAGE>
Factors Affecting Prepayments
The rate of principal payments on pools of assets is influenced by a
variety of economic, geographic, social and other factors, including the
prevailing level of interest rates from time to time and the rate at which
owners of assets sell their assets or default on their loans. Other factors
affecting prepayment of assets include changes in obligors' housing needs, job
transfers, unemployment and obligors' net equity in the mortgaged properties.
In general, if prevailing interest rates fall significantly below the
interest rates on the assets in your pool, these assets are likely to experience
higher prepayment rates than if prevailing interest rates remained at or above
the rates borne by these assets, because the obligors may refinance and obtain
new loans with lower interest rates and lower monthly payments. Conversely, if
prevailing interest rates rise above the interest rates on these assets, the
rate of prepayment would be expected to decrease because new loans would bear
higher interest rates and require higher monthly payments.
The assets may be prepaid by the obligors at any time without imposition of
any prepayment fee or penalty. In addition, defaults on assets leading to
repossession, and foreclosure in the mortgage loans, and the ultimate
liquidation of the related mortgaged properties, may occur with greater
frequency during their early years. Prepayments, liquidations and repurchases
of the assets will result in distributions of principal to noteholders of
amounts that would otherwise have been distributed over the remaining terms of
the assets. See "Yield on the Offered Notes" in this prospectus supplement.
[Asset Seller], as seller under the sales agreement, may be required to
repurchase assets if it breaches its representations and warranties contained in
the sales agreement. Any repurchase of an asset will have the same effect as a
prepayment in full of the asset and will affect your yield to maturity. See "The
Asset Pool -- Conveyance of Contracts" in this prospectus supplement.
The servicer has the option to terminate the trust, thereby causing the
retirement of all outstanding notes, on any distribution date on or after the
distribution date on which the sum of the certificate principal balance of the
notes is less than [10]% of the sum of their original certificate principal
balance. If the servicer does not exercise its optional termination rights
within 90 days after becoming eligible to do so, the indenture trustee shall
solicit bids for the purchase of all assets, REO properties and repo properties
remaining in the trust. This purchase, if consummated, would likewise cause the
retirement of all outstanding notes. See "The Trust" in this prospectus
supplement.
Yield on the Notes
Distributions of interest on the notes on any distribution date will
include interest accrued thereon through the last day of the month preceding the
month in which this distribution date occurs. Because interest will not be
distributed on the notes until the 15th day, or, if this day is not a business
day, then on the next succeeding business day, of the month following the month
in which this interest accrues, the effective yield to the holders of the notes
will be lower than the yield otherwise produced by the pass-through rate and
purchase price.
S-35
<PAGE>
The yield to maturity of, and the amount of distributions on, each the
notes will be related to the rate and timing of principal payments on the
assets. The rate of principal payments on the assets will be affected by the
amortization schedules of the assets and by the rate of principal prepayments,
including for this purpose payments resulting from refinancings, liquidations of
the assets due to defaults, casualties, condemnations and repurchases by or on
behalf of National Mortgage or [Asset Seller], as the case may be. No assurance
can be given as to the rate of principal payments or on the prepayments on the
assets.
Delinquencies on assets could produce payment delays and could lead to
repossessions of assets and foreclosures in the case of mortgage loans.
Repossession of assets or foreclosure on a real property or mortgaged property
and the subsequent resale of the home securing assets or a property securing a
mortgage loan may produce net liquidation proceeds that are less than the
Scheduled Principal Balance of the related asset plus interest accrued and the
expenses of sale. This shortfall upon repossession and disposition of an asset
or foreclosure on a real property or mortgaged property would result in a
Realized Loss on the asset.
The timing of changes in the rate of prepayments and defaults on the assets
may affect an investor's actual yield to maturity significantly, even if the
average rate of principal payments and defaults experienced over time is
consistent with an investor's expectations. In general, the earlier a
prepayment of principal of or a default on an asset, the greater will be the
effect on the investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments or defaults occurring at a rate
higher --- or lower --- than the rate anticipated by the investor during the
period immediately following the issuance of the notes would not be fully offset
by a subsequent like reduction --- or increase --- in the rate of principal
payments or defaults.
If a purchaser of notes calculates its anticipated yield based on an
assumed rate of default and an assumed amount of Realized Losses that are lower
than the default rate and amount of Realized Losses actually incurred and the
amount of Realized Losses actually incurred is not entirely covered by Excess
Interest, the purchaser's actual yield to maturity will be lower than that so
calculated. The timing of Realized Losses on liquidated loans will also affect
an investor's actual yield to maturity, even if the rate of defaults and
severity of losses are consistent with an investor's expectations. There can be
no assurance that the delinquency or repossession experience set forth in this
prospectus supplement under the heading "Servicing of the Assets -- Delinquency
and Loan Loss/Repossession Experience" will be representative of the results
that may be experienced with respect to the assets. There can be no assurance
as to the delinquency, repossession, foreclosure or loss experience with respect
to the assets.
If the purchaser of a note offered at a discount from its Parity Price
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal that is faster than that actually experienced on the assets, the
actual yield to maturity will be lower than that so calculated. Similarly, if
the purchaser of a note offered at a premium above its Parity Price calculates
its anticipated yield to maturity based on an assumed rate of payment of
principal that is slower than that actually experienced on the assets, the
actual pre-tax yield to maturity will be lower than that so calculated. Parity
Price is the price at which a security will yield its coupon.
S-36
<PAGE>
While partial prepayments of principal on the assets are applied on Due
Dates for the assets, obligors are not required to pay interest on the assets
after the date of a full prepayment of principal. As a result, full prepayments
of assets in advance of their Due Dates during the Collection Period will reduce
the amount of interest received from obligors during that Collection Period to
less than one month's interest on all the assets. If a sufficient number of
assets are prepaid in full during the Prepayment Period in advance of their
respective Due Dates, then interest payable on all of the assets during the
related Collection Period may be less than the interest payable on all of the
notes with respect to the Collection Period. See "Description of the Offered
Notes" in this prospectus supplement.
[Investors in the notes should understand that the timing of changes in the
level of One-Month LIBOR may affect the actual yields to investors even if the
average level is consistent with the investor's expectations. Each investor
must make an independent decision as to the appropriate One-Month LIBOR
assumption to be used in deciding whether to purchase a note.]
The aggregate amount of distributions and the yield to maturity of the
notes will also be affected by early payments of principal on the assets
resulting from any purchases of assets not conforming to representations and
warranties of [Asset Seller] and by the exercise by the servicer of its option
to purchase the assets and other assets of the trust, thereby effecting early
retirement of any outstanding notes. If the servicer does not exercise its
optional termination right within 90 days after it first becomes eligible to do
so, the indenture trustee shall solicit bids for the purchase of all assets, REO
Properties and Repo Properties remaining in the trust. The indenture trustee
shall sell these assets, REO Properties and Repo Properties only if the net
proceeds to the trust from the sale would at least equal the Termination Price
The net proceeds from the sale will be distributed first to the servicer to
reimburse it for all previously unreimbursed Liquidation Expenses paid and
Advances made by, and not previously reimbursed to, it with respect to the
assets and second to the Holders of the notes and the servicer. Accordingly, it
is possible that your notes could be redeemed at a price less than their
outstanding principal amount plus accrued and unpaid interest.
If the net proceeds from the sale would not at least equal the Termination
Price, the indenture trustee shall decline to sell the assets, REO Properties
and Repo Properties and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the assets, REO Properties and
Repo Properties.
The Trust
General
The notes will be issued pursuant to an indenture. This summary of the
provisions of the indenture does not purport to be complete. Reference is made
to the prospectus for important information in addition to that set forth in
this prospectus supplement regarding the terms and conditions of the offered
notes. A copy of the indenture relating to the notes, in the form in which it
was executed by National Mortgage, the servicer and the indenture trustee,
without exhibits, will be filed with the SEC in a Current Report on Form 8-K
within 15 days after the closing date.
S-37
<PAGE>
The trust created pursuant to the indenture will consist of the assets,
including all rights to receive payments due on the assets after the Cut-off
Date; assets as from time to time are identified as deposited in any account
held for the benefit of noteholders, including the note account and the
distribution account; any asset, real property or mortgaged property acquired on
behalf of noteholders by repossession, foreclosure or by deed in lieu of
foreclosure; the rights of the indenture trustee to receive the proceeds of any
standard hazard insurance policies maintained with respect to the mortgaged
properties in accordance with the indenture and of any FHA insurance maintained
with respect to the assets; and certain rights of National Mortgage relating to
the enforcement of representations and warranties made by [Asset Seller]
relating to the assets.
The Indenture Trustee
The indenture trustee is _____________. Any notices to the indenture
trustee relating to the notes or the indenture should be sent to
_________________________________________.
Investors may contact the indenture trustee's corporate trust office by
telephone to ascertain the note principal balance of the notes and the then
current pass-through rate applicable to the notes. The telephone number
currently maintained by the indenture trustee for the purpose of reporting this
information is (___) ___________. National Mortgage will file a Current Report
on Form 8-K with the SEC within 15 days following the closing date. This
Current Report on Form 8-K will specify the initial principal amount of the
notes.
The indenture trustee may resign at any time, in which event National
Mortgage will be obligated to appoint a successor indenture trustee. National
Mortgage may also remove the indenture trustee if the indenture trustee ceases
to be eligible to continue as such under the indenture or if the indenture
trustee becomes insolvent. In these circumstances, National Mortgage will also
be obligated to appoint a successor indenture trustee. Any resignation or
removal of the indenture trustee and appointment of a successor indenture
trustee will not become effective until acceptance of the appointment by the
successor indenture trustee.
The indenture requires the indenture trustee to maintain, at its own
expense, an office or agency where notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the indenture
trustee and the Note Registrar in respect of the notes pursuant to the indenture
may be served.
The Owner Trustee
[Wilmington Trust Company, a Delaware banking corporation,] will act as
owner trustee under the owner trust agreement. [Wilmington Trust Company's]
principal offices are located at [Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001.] Certain functions of the owner trustee under
the owner trust agreement will be performed by the indenture trustee.
S-38
<PAGE>
Optional Termination
The servicer may terminate the trust by purchasing all assets, REO
Properties and Repo Properties remaining in the trust on any distribution date
(the "Call Option Date") occurring on or after the distribution date on which
the sum of the Note Balance of the notes is less than [10]% of the sum of the
original note principal balance of the notes. See "Description of the Securities
- -- Optional Redemption or Termination" in the prospectus.
The Termination Price will equal the greater of
. the sum of
. any Liquidation Expenses incurred by the servicer in respect of any
asset that has not yet been liquidated,
. all amounts required to be reimbursed or paid to the servicer in
respect of previously unreimbursed Advances, and
. the sum of
. the aggregate unpaid principal balance of the assets, plus
accrued and unpaid interest thereon at the asset rates borne
by your assets through the end of the Interest Accrual Period
in respect of the date of the terminating purchase, plus
. the lesser of
. the aggregate unpaid principal balance of each asset that
had been secured by any REO Property or Repo Property
remaining in the trust, plus accrued interest thereon at
the asset rates borne by assets through the end of the
month preceding the month of the terminating purchase,
and
. the current appraised value of any REO Property or Repo
Property, net of Liquidation Expenses to be incurred in
connection with the disposition of this property
estimated in good faith by the servicer, the appraisal to
be conducted by an appraiser mutually agreed upon by the
servicer and the indenture trustee, plus all previously
unreimbursed P&I Advances made in respect of the REO
Property or Repo Property, and
. the aggregate fair market value of the assets of the trust, as
determined by the servicer, plus all previously unreimbursed P&I
Advances made with respect to the assets.
S-39
<PAGE>
The fair market value of the assets of the trust as determined for purposes of a
terminating purchase shall be deemed to include accrued interest at the
applicable asset rate on the unpaid principal balance of each asset, including
any asset that has become a REO Property or a Repo Property, which REO Property
or Repo Property has not yet been disposed of by the servicer, through the end
of the month preceding the month of the terminating purchase. Accordingly, it is
possible that your notes could be redeemed by an optional termination at a price
less than their outstanding principal amount plus accrued and unpaid interest.
The basis for a valuation shall be furnished by the servicer to the noteholders
upon request. See "Description of the Securities -- Optional Redemption or
Termination" in the prospectus.
On the date of any termination of the trust, the Termination Price shall be
distributed first to the servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by and not previously
reimbursed to the servicer with respect to the assets and second to the
noteholders in accordance with the distribution priorities set forth under
" -- Distributions -- Priority of Distributions" in this prospectus supplement.
The Termination Price shall be deemed to be a principal prepayment in full,
together with related interest, received during the related Prepayment Period
for purposes of determining the allocation of the distributions. Upon the
termination of the trust and payment of all amounts due on the notes and all
administrative expenses associated with the trust, any remaining assets of the
trust shall be sold and the proceeds distributed pro rata to the [Asset Seller].
See "Description of the Securities -- Optional Redemption or Termination" in
the prospectus.
Auction Sale
If the servicer does not exercise its optional termination right within 90
days after it first becomes eligible to do so, the indenture trustee shall
solicit bids for the purchase of all assets, REO Properties and Repo Properties
remaining in the trust. The indenture trustee shall sell the assets, REO
Properties and Repo Properties only if the net proceeds to the trust from the
sale would at least equal the Termination Price, and the net proceeds from the
sale will be distributed first to the servicer to reimburse it for all
previously unreimbursed Liquidation Expenses paid and Advances made by, and not
previously reimbursed to, it with respect to the assets and second to the
noteholders and the servicer in accordance with the distribution priorities set
forth under "Description of the Offered Noteholders -- Distributions -- Priority
of Distributions" in this prospectus supplement. Accordingly, it is possible
that your notes could be redeemed by reason of an auction sale at a price less
than their outstanding principal amount plus accrued and unpaid interest. If
the net proceeds from the sale would not at least equal the Termination Price,
the indenture trustee shall decline to sell the assets, REO Properties and Repo
Properties and shall not be under any obligation to solicit any further bids or
otherwise negotiate any further sale of the assets, REO Properties and Repo
Properties.
Termination of the Agreement
The indenture will terminate upon the last action required to be taken by
the indenture trustee on the final distribution date following the later of the
purchase by the servicer of all assets and all property acquired in respect of
any asset remaining in the trust estate, as described
S-40
<PAGE>
under " -- Optional Termination" and "Auction Sale" in this prospectus
supplement and the final payment or other liquidation, or any related advance,
of the last asset remaining in the trust estate or the disposition of all
property acquired upon repossession or foreclosure on any mortgaged property.
Upon presentation and surrender of the notes, the indenture trustee shall
cause to be distributed, to the extent of available funds, to the noteholders on
the final distribution date the amounts due them in accordance with the
indenture. The amount remaining on deposit in the note account, other than
amounts retained to meet claims, after all required distributions have been made
to the holders of the notes, or to the Termination Account, will be paid to the
[Asset Seller], in accordance with the provisions of the indenture.
Voting Rights
The voting rights of the trust will be allocated to the notes in proportion
to their respective note principal balances. For a description of the limited
matters on which the noteholders may vote, see "The Agreements" in the
prospectus.
Reports to Noteholders
The indenture trustee will furnish the noteholders with monthly statements
prepared by the servicer (each, a "Remittance Report") containing information
with respect to principal and interest distributions on the notes and Realized
Losses on the assets. Any financial information contained in these reports will
not have been examined or reported upon by an independent public accountant.
Copies of the monthly statements and any annual reports prepared by the servicer
evidencing the status of its compliance with the provisions of a indenture will
be furnished to related noteholders upon request addressed to the indenture
trustee.
A Remittance Report for a distribution date will identify the following
items
. the Available Distribution Amount for the related distribution date,
. the Interest Distribution Amount and the carryover amounts for the notes
for the related distribution date, and the amount of interest of each
category to be distributed based upon the Available Distribution Amount
for the related distribution date,
. the amount to be distributed on the related distribution date on the
notes to be applied to reduce the note principal balance, separately
identifying any portion of the amount attributable to prepayments, and
the aggregate of any Principal Distribution Amounts remaining unpaid
from previous distribution dates for the notes for the related
distribution date, and the amount to be distributed to reduce any
Principal Distribution Amounts remaining unpaid from previous
distribution dates based upon the Available Distribution Amount for the
related distribution date,
. the aggregate amount of P&I Advances required to be made by the servicer
with respect to the related distribution date,
S-41
<PAGE>
. the amount of any Realized Losses incurred on the assets during the
related Prepayment Period and in the aggregate since the Cut-off Date,
. the note principal balance of the notes after giving effect to the
distributions to be made on the related distribution date,
. the aggregate Interest Distribution Amount remaining unpaid, if any, and
the aggregate carryover amount remaining unpaid, if any, for the notes,
after giving effect to the distributions to be made on the related
distribution date,
. the aggregate of any Principal Distribution Amounts remaining unpaid
from previous distribution dates, if any, for the notes, after giving
effect to the distributions to be made on the related distribution date,
. the amount of the aggregate Servicing Fee in respect of the related
distribution date,
. the aggregate number and the aggregate of the unpaid principal balances
of outstanding assets that are delinquent one month --- 30 to 59 days
---as of the end of the related Prepayment Period, delinquent two
months ---60 to 89 days --- as of the end of the related Prepayment
Period, delinquent three months--- 90 days or longer --- as of the end
of the related Prepayment Period and as to which repossession,
foreclosure or other comparable proceedings have been commenced as of
the end of the related Prepayment Period,
. the aggregate number and the aggregate unpaid principal balance of
outstanding contracts and outstanding mortgage loans, stated separately,
for which the obligor is also a debtor, whether voluntary or
involuntary, in a proceeding under the Bankruptcy Code; and the
aggregate number and the aggregate Unpaid Principle Balance of
outstanding contracts and outstanding mortgage loans for which the
obligor is also a debtor, whether voluntary or involuntary, in a
proceeding under the Bankruptcy Code, stated separately, that are
delinquent one month --- 30 to 59 days --- as of the end of the related
Prepayment Period, delinquent two months --- 60 to 89 days --- as of the
end of the related Prepayment Period, and delinquent three months --- 90
days or longer --- as of the end of the related Prepayment Period, and
. [the Pre-Funded Amount, if any, in the Pre-Funding Account on the
related distribution date, the amount of funds, if any, used to purchase
Subsequent Assets during the Pre-Funding Period and the amount of funds,
if any allocated as a prepayment of principal at the end of the Pre-
Funding Period.]
In the case of information furnished pursuant to the second and third
bullet points, the amounts shall be expressed, with respect to any note, as a
dollar amount per $1,000 denomination.
S-42
<PAGE>
Servicing of the Assets
The Servicer
__________________ is incorporated in the state of ____________. The servicer
is primarily engaged in the business of underwriting, originating, pooling,
selling and servicing [Asset Type]. The servicer's principal offices are
located at ______________________________, telephone (___) ___-____.
Servicing Portfolio
The servicer services all of the assets it originates or purchases
--- except for some asset portfolios which it sells on a servicing-released
basis --- collecting loan payments, insurance premiums and other payments from
borrowers and remitting principal and interest payments to the holders of the
notes. The following table shows the composition of the servicer's servicing
portfolio on the dates indicated.
Asset Servicing Portfolio
<TABLE>
<CAPTION>
At ______ 30, At ____ 31,
------------------------------------------------------ --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- -------- -------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Serviced
Assets
[Asset Seller] Originated......................
Acquired Portfolios............................
Aggregate Outstanding Principal Balance
of Serviced Assets
[Asset Seller] Originated......................
Acquired Portfolios............................
Average Outstanding Principal Balance
per Serviced Asset
[Asset Seller] Originated......................
Acquired Portfolios............................
Weighted Average Interest Rate of Serviced
Assets
[Asset Seller] Originated......................
Acquired Portfolios............................
</TABLE>
Delinquency and Loan Loss/Repossession Experience
The following tables set forth information concerning the delinquency
experience and the loan loss and repossession experience of the portfolio of
assets, serviced by [Asset Seller], in each case for each of the servicer's
fiscal years from ____ through ____. Because delinquencies, losses and
repossessions are affected by a variety of economic, geographic and other
factors, there can be no assurance that the delinquency and loss experience of
the assets will be comparable to that set forth.
Delinquency Experience
At _________ 30, At _______- 31,
---------------------------------- --------------------
S-43
<PAGE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
[Loan Seller] Originated..................
Acquired Portfolios.......................
Number of Delinquent Assets
[Loan Seller] Originated:
30 to 59 days past due....................
60 to 89 days past due....................
90 days or more past due..................
Total Number of Assets Delinquent.........
Acquired Portfolios:
30-59 days past due.......................
60-89 days past due.......................
90 days or more past due..................
Total Number of Assets Delinquent.........
Total Delinquencies as a Percentage of Serviced
Assets, by Number of Assets
[Loan Seller] Originated..................
Acquired Portfolios.......................
</TABLE>
______________
Assets that are already the subject of repossession or foreclosure procedures
are not included in "delinquent assets" for purposes of this table. The period
of delinquency is based on the number of days payments are contractually past
due, assuming 30-day months. Consequently, a payment due on the first day of a
month is not 30 days delinquent until the first day of the following month.
Loan Loss/Repossession Experience
<TABLE>
<CAPTION>
At or for the
Six Months
At ________ 30, ended ______ 31,
________________________________________________________________________
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Serviced Assets at Period End............
Average Number of Serviced Assets During Period..........
Number of Serviced Assets Repossessed....................
Serviced Assets Repossessed as a Percentage of Total
Serviced Assets (1)................................
Serviced Assets Repossessed as a Percentage of Average
Number of
Serviced Assets....................................
Average Outstanding Principal Balance of Assets
[Loan Seller] Originated...........................
Acquired Portfolios................................
Net Losses from Asset Liquidations (2):
Total Dollars
[Loan Seller] Originated...........................
Acquired Portfolios................................
As a Percentage of Average Outstanding Principal
Balance of Assets(3)
[Loan Seller] Originated...........................
Acquired Portfolios................................
</TABLE>
Percentages expressed in the six month tables are annualized.
(1) Total number of serviced assets repossessed during the applicable period
expressed as a percentage of the total number of serviced assets at the end
of the applicable period.
(2) Net losses represent all losses incurred on [Loan Seller]-serviced
portfolios. Such amounts include estimates of net losses with respect to
certain defaulted assets. The length of the accrual period for the amount
of accrued and unpaid interest included in the calculation of the net loss
varies depending upon the period in which the loss was charged and whether
the asset was owned by an entity other than [Loan Seller].
(3) Total net losses incurred on assets liquidated during the applicable period
expressed as a percentage of the average outstanding principal balance of
all assets.
S-44
<PAGE>
The servicer owns few of the assets in the foregoing tables, and
accordingly does not maintain loan loss reserves or charge-off loans. The policy
with respect to the vast majority of loans reflected in these tables, which the
servicer services primarily for the accounts of securitization trusts, is to
reflect credit loss only when an REO Property or a Repo Property has been
finally disposed of and not before. In most cases, disposition occurs shortly
after the asset becomes 90 days delinquent; however it may occur before this
time and it may occur later. This policy exists because only at the final
disposition of the collateral does the servicer know with certainty the amount
of the loss, if any, for reporting purposes.
Macroeconomic and social conditions likely are responsible for the trend to
some extent as well, although it is difficult to say for certain. For example,
the U.S. economy has witnessed a general increase in consumer credit over the
past several years, and credit also has been made more generally available to
all economic classes than in the past. Finally, there seems to be an increased
willingness on the part of consumers to seek the protection of federal
bankruptcy laws.
The data in the foregoing tables are presented for illustrative purposes
only, and there is no assurance that the delinquency, loan loss and repossession
experience of the assets will be similar to that set forth. The delinquency,
loan loss and repossession experience of assets historically has been sharply
affected by downturns in regional or local economic conditions. For instance, a
downturn was experienced in areas dependent on the oil and gas industry in the
1980s, causing increased levels of delinquencies, repossessions and loan losses
on assets in the affected areas. The asset pool consists primarily of
contracts. Regional and local economic conditions are often volatile, and no
predictions can be made regarding their effects on future economic losses upon
repossessions or as to the levels of losses that will be incurred as a result of
any repossessions of or foreclosures on assets. See "Risk Factors -- You May
Experience A Loss On Your Investment If Losses And Delinquencies On Assets in
The Trust Are High" in this prospectus supplement.
Collection and Other Servicing Procedures
The servicer will administer, service and make collections on the assets,
exercising the degree of care that the servicer exercises with respect to
similar contracts serviced by the servicer.
[Except for the step-up rate loans during their Step-up Periods], each
Fixed Rate Asset bears interest at a fixed annual percentage rate and provides
for level payments over the term of the asset that fully amortize the principal
balance of the asset. All payments received on the assets --- other than
payments allocated to items other than principal and interest or payments
sufficient to pay the outstanding principal balance of and all accrued and
unpaid interest on the assets --- will be applied when received first to any
previously unpaid scheduled monthly payments, and then to the currently due
monthly payment, in the chronological order of occurrence of the Due Dates for
the monthly payments. Any payments on an asset that exceed the amount necessary
to bring the asset current are applied to the partial prepayment of principal of
the asset if the servicer determines, based on specific directions from the
obligor as to the payment or on a course of dealing with the obligor, that the
obligor intended the payment as a
S-45
<PAGE>
partial principal prepayment. If the servicer cannot determine the obligor's
intent with respect to any excess payment, the servicer will apply the excess
payment as an early payment of scheduled monthly payments for subsequent Due
Dates to the extent the excess payment is an integral multiple of the obligor's
scheduled monthly payment, and will apply the remainder of the excess payment as
a partial principal prepayment.
Servicing Compensation and Payment of Expenses
On each distribution date, the servicer will be entitled to receive a
monthly Servicing Fee equal to _____% per annum (the "Servicing Fee Rate")
multiplied by the aggregate Scheduled Principal Balance of the assets at the
beginning of the related Collection Period, without giving effect to any
principal prepayments, net liquidation proceeds and Repurchase Prices received
(or Realized Losses incurred, during the related Prepayment Period). If [Asset
Seller] is the servicer, the Servicing Fee in respect of a distribution date
will be paid pursuant to clause (12) under "Description of the Offered
Securities -- Distributions" in this prospectus supplement and only to the
extent of funds available pursuant to clause (12), except that it may retain its
Servicing Fee out of collections on the assets to the extent that the amount
already on deposit in the note account for the related distribution date will
allow the full distribution of all amounts required to be distributed pursuant
to clauses (1) through (11) under "Description of the Offered Securities --
Distributions -- Priority of Distributions" in this prospectus on the related
distribution date. If [Asset Seller] is not the servicer, the Servicing Fee in
respect of each asset may be retained by the servicer at the time of the related
collection on the asset or may be withdrawn from the note account at a later
time, in which case the amount will not be part of the Available Distribution
Amount.
The Servicing Fee provides compensation for customary third-party servicing
activities to be performed by the servicer for the trust and for additional
administrative services performed by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records with
respect to each asset. Administrative services performed by the servicer on
behalf of the trust include calculating distributions to noteholders and
providing related data processing and reporting services for noteholders and on
behalf of the indenture trustee. Expenses incurred in connection with servicing
of the assets and paid by the servicer from its monthly Servicing Fee include,
without limitation, payment of fees and expenses of accountants, payment of all
fees and expenses incurred in connection with the enforcement of contracts or
mortgage loans, except Liquidation Expenses, and payment of expenses incurred in
connection with distributions and reports to noteholders. The servicer will be
reimbursed out of the Liquidation Proceeds of a defaulted asset for all
reasonable, out-of-pocket Liquidation Expenses incurred by it in repossessing,
foreclosing on and liquidating the related mortgaged property.
As part of its servicing fees, the servicer will also be entitled to
retain, as compensation for the additional services provided in connection with
the master servicing agreement, any late payment fees made by obligors,
extension fees paid by obligors for the extension of scheduled payments and
assumption fees paid in connection with permitted assumptions of assets by
S-46
<PAGE>
purchasers of the mortgaged properties, as well as investment earnings on funds
in the note account.
Advances
On or prior to the business day preceding each distribution date, the
servicer will either
. deposit from its own funds the related aggregate P&I Advance into the
note account,
. cause appropriate entries to be made in the records of the note account
that funds in the note account that are not part of the Available
Distribution Amount for the related distribution date have been used to
make the aggregate P&I Advance,
. if the note account is maintained by the indenture trustee, instruct the
indenture trustee to use investment earnings on the note account to
defray the servicer's P&I Advance obligation, or
. make or cause to be made the aggregate P&I Advance through any
combination of the methods described.
Any funds held for future distribution and used in accordance with the second
bullet point must be restored by the servicer from its own funds or from early
payments collected on the assets when they become part of a future Available
Distribution Amount. The aggregate required P&I Advance for a distribution date
is the sum of delinquent scheduled monthly payments due in the related
Collection Period, exclusive of all Non-Recoverable Advances.
P&I Advances are intended to maintain a regular flow of scheduled interest
and principal payments to noteholders rather than to guarantee or insure against
losses.
The servicer will also be obligated to make advances ("Servicing
Advances"), to the extent the servicer deems the Advances recoverable out of
Liquidation Proceeds of, or from collections on, the related contract or
mortgage loan, in respect of Liquidation Expenses and taxes and insurance
premiums not paid by an obligor on a timely basis.
The servicer may reimburse itself for Servicing Advances out of collections
of the late payments in respect of which the Advances were made and, upon the
determination that a Non-recoverable Advance has been made in respect of an
asset or upon an asset becoming a liquidated loan, out of Funds in the note
account for unreimbursed amounts advanced by it in respect of the asset. In
addition, the servicer may reimburse itself out of funds in the note account for
unreimbursed amounts advanced by it in respect of P&I Advances.
Successors to Servicer, Delegation of Duties
Any entity with which the servicer is merged or consolidated, or any entity
resulting from any merger, conversion or consolidation to which the servicer is
a party, or any entity succeeding to the business of the servicer, will be the
successor to the servicer under the master servicing
S-47
<PAGE>
agreement so long as each rating agency has delivered to the indenture trustee a
letter to the effect that the successorship will not result in a downgrading of
the rating then assigned by the rating agency to the notes. The servicer may
delegate computational, data processing, collection and foreclosure, including
repossession, duties under the master servicing agreement without any notice to
or consent from National Mortgage or the indenture trustee, provided that the
servicer will remain fully responsible for the performance of these duties.
Use of Proceeds
Substantially all of the net proceeds to be received from the sale of the
notes will be used to purchase the assets and to pay other expenses connected
with pooling the assets and issuing the notes.
Underwriting
National Mortgage [and Asset Seller] have entered into an underwriting
agreement dated ______________________ with _________________________________
and _______________________________________ (the "Underwriters"), for whom
__________________________________ is acting as representative (the
"Representative"). In the underwriting agreement, National Mortgage has agreed
to sell to the Underwriters, and the Underwriters have agreed to purchase, the
principal amount of the offered notes set forth opposite each of their names:
[Underwriter] $_________
[Underwriter] $_________
Total........... $_________
The underwriting agreement provides that there are conditions precedent to
the obligations of the several Underwriters and that the Underwriters will be
obligated to purchase all of the offered notes if any of the offered notes are
purchased. In the event of default by any Underwriter, the underwriting
agreement provides that, in some circumstances, the purchase commitments of the
nondefaulting Underwriter may be increased or the underwriting agreement may be
terminated.
National Mortgage has been advised by the Representative that the several
Underwriters propose to offer the offered notes to the public initially at the
respective public offering prices set forth on the cover page of this prospectus
supplement, and to dealers at such prices less a concession not in excess of the
amount set forth. The Underwriters and dealers may allow a discount not in
excess of the amount set forth to other dealers. After the initial public
offering of the offered notes, the public offering prices and concessions and
discounts to dealers may be changed by the Representative.
S-48
<PAGE>
Concession Discount
(Percent of (Percent of
Principal Principal
Amount) Amount)
------- -------
____%...................._____%
The Underwriters and any dealers that participate with the Underwriters in
the distribution of the offered notes may be deemed to be underwriters, and any
discounts, concessions or commissions received by them, and any profit on the
resale of the offered notes purchased by them, may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Act").
National Mortgage [and Asset Seller] have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Act, or contribute to payments which the Underwriters may be required to make.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the offered notes
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the offered notes originally
sold by syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the offered notes to be
higher than it would otherwise be in the absence of these transactions. These
transactions, if commenced, may be discontinued at any time.
National Mortgage estimates that its expenses in connection with the
issuance and offering of the notes will be approximately $________. This
information concerning National Mortgage's fees and expenses is an approximation
and may be changed by future contingencies.
Legal Matters
Legal matters will be passed upon for National Mortgage by Hunton &
Williams, Richmond, Virginia, and for the Underwriters by _________________. The
material federal income tax consequences of the offered notes will be passed
upon for National Mortgage by Hunton & Williams.
ERISA Considerations
S-49
<PAGE>
General
Title I of the Employee Retirement Income Security Act of 1974, as amended,
and section 4975 of the Internal Revenue Code of 1986, as amended, impose
restrictions on retirement plans and other subject employee benefits plans or
arrangements and on persons who are parties in interest or disqualified persons
with respect to plans. Some employee benefit plans, such as governmental plans
and church plans are not subject to the restrictions of ERISA, and assets of
these plans may be invested in the notes without regard to ERISA considerations,
subject to other federal and state law. However, a governmental or church plan
that is qualified under section 401(a) of the Code and exempt from taxation
under section 501(a) of the Code is subject to the prohibited transaction rules
of section 503 of the Code. Any plan fiduciary that proposes to cause a plan to
acquire any of the notes should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the plan's acquisition and
ownership of the Notes. See "ERISA Considerations" in the accompanying
prospectus.
Investments by plans are also 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.
Prohibited Transactions
Section 406 of ERISA prohibits parties in interest from engaging in
transactions involving a plan and its assets unless a statutory or
administrative exemption applies to the transaction. Section 4975 of the Code
imposes excise taxes, or, in some cases, a civil penalty may be assessed
pursuant to section 502(i) of ERISA, on parties in interest that engage in non-
exempt prohibited transactions.
The United States Department of Labor has issued regulations concerning the
definition of what constitutes the assets of a plan for purposes of ERISA and
the prohibited transaction provisions of the Code. The plan asset regulation
describes the circumstances under which the assets of an entity in which a plan
invests will be considered to be "plan assets" such that any person who
exercises control over such assets would be subject to ERISA's fiduciary
standards. Under the plan asset regulation, generally when a plan invests in
another entity, the plan's assets do not include, solely by reason of such
investment, any of the underlying assets of the entity. However, the plan asset
regulation provides that, if a plan acquires an "equity interest" in an entity,
the assets of the entity will be treated as assets of the plan investor unless
exceptions not applicable here apply.
Under the plan asset regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." If the notes are not treated as equity interests in the owner trust
for purposes of the plan asset regulation, a plan's investment in the notes
would not cause the assets of the owner trust to be deemed plan assets.
However, National Mortgage, the servicer, the indenture trustee, and the owner
trustee may be the sponsor of or investment advisor with respect to one or more
plans. Because such parties may receive certain benefits in connection with the
sale of the notes, the purchase of notes using plan assets over which any such
S-50
<PAGE>
parties has investment authority might be deemed to be a violation of the
prohibited transaction rules of ERISA and the Code for which no exemption may be
available. Accordingly, the notes may not be purchased using the assets of any
plan if National Mortgage, the servicer, the indenture trustee, or the owner
trustee has investment authority with respect to such assets.
In addition, certain affiliates of the owner trustee might be considered or
might become parties in interest with respect to a plan. Also, any holder of
residual interest certificates, because of its activities or the activities of
its respective affiliates, may be deemed to be a party in interest with respect
to certain plans, including but not limited to plans sponsored by such holder.
In either case, the acquisition or holding of the notes by or on behalf of such
a plan could be considered to give rise to an indirect prohibited transaction
within the meaning of ERISA and the Code, unless it is subject to one or more
exemptions such as prohibited transaction class exemption 84-14, which exempts
certain transactions effected on behalf of a plan by a "qualified professional
asset manager," PTCE 90-1, which exempts certain transactions involving
insurance company pooled separate accounts, PTCE 91-38, which exempts certain
transactions involving bank collective investment funds, PTCE 95-60, which
exempts certain transactions involving insurance company general accounts, or
PTCE 96-23, which exempts certain transactions effected on behalf of a plan by
certain "in-house asset managers." Each purchaser or transferee of a note that
is a plan or is investing assets of a plan shall be deemed to have represented
that the relevant conditions for exemptive relief under at least one of the
foregoing exemptions have been satisfied.
If the notes are deemed to be equity interests in the owner trust, the
owner trust could be considered to hold plan assets by reason of a plan's
investment in the notes. In such an event, the servicer and other persons
exercising management or discretionary control over the assets of the owner
trust may be deemed to be fiduciaries with respect to investing plans and thus
subject to the fiduciary responsibility provisions of Title I of ERISA,
including the prohibited transaction provisions of section 406 of ERISA, and
section 4975 of the Code with respect to transactions involving the owner
trust's assets. There can be no assurance that any statutory or administrative
exemption will apply to all prohibited transactions that might arise in
connection with the purchase or holding of an equity interest in the owner trust
by a plan.
Review by Plan Fiduciaries
Any plan fiduciary considering whether to purchase any notes on behalf of a
plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment and the availability of any prohibited transaction
exemptions. The sale of notes to a plan is in no respect a representation by
National Mortgage or the Underwriters that this investment meets all relevant
requirements with respect to investments by plans generally or any particular
plan or that this investment is appropriate for plans generally or any
particular plan.
S-51
<PAGE>
Ratings
It is a condition to the issuance of the notes that the notes obtain a
________ and ___________ ratings by _____ and ______, respectively:
The ratings on asset-backed notes address the likelihood of the receipt by
noteholders of all distributions on the underlying assets to which they are
entitled. Rating opinions address the structural, legal and issuer-related
aspects associated with the securities, including the nature of the underlying
assets. Ratings on asset-backed notes do not represent any assessment of the
likelihood that principal prepayments will be made by borrowers with respect to
the underlying assets or of the degree to which the rate of prepayments might
differ from that originally anticipated. As a result, the ratings do not
address the possibility that holders of the offered notes purchased at a premium
might suffer a lower than anticipated yield in the event of rapid prepayments of
the assets or in the event that the trust is terminated prior to the Final
Scheduled distribution date for the notes.
A security rating is not a recommendation to buy, sell or hold securities
and may be revised or withdrawn at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
National Mortgage will request _______ and _______ to rate the offered
notes. There can be no assurance as to whether any rating agency not requested
to rate the offered notes will nonetheless issue a rating and, if so, what the
rating would be. A rating assigned to the offered notes by a rating agency that
has not been requested by National Mortgage to do so may be lower than the
rating assigned by a rating agency pursuant to National Mortgage's request.
Legal Investment Considerations
[If pre-funding account is used the notes become mortgage related securities for
SMMEA after pre-funded amount is reduced to zero.] [The notes will not be SMMEA
if junior lien assets are included in the trust.] The notes will constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 for so long as they are rated in one of the two highest
rating categories by one or more nationally recognized statistical rating
organizations. As mortgage related securities, the notes will be legal
investments for entities to the extent provided in SMMEA, unless there are state
laws overriding SMMEA. A number of states have enacted legislation overriding
the legal investment provisions of SMMEA. See "Legal Investment Considerations"
in the prospectus.
Any financial institution regulated by the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration, any state insurance commission or any other federal or state
agency with similar authority should review any applicable rules, guidelines and
regulations prior to purchasing any notes. Financial institutions should review
and consider the applicability of the Federal Financial Institutions Examination
Counsel Supervisory Policy Statement on the Selection of Securities Dealers and
Unsuitable Investment
S-52
<PAGE>
Practices, to the extent adopted by their respective federal regulators, which,
among other things, sets forth guidelines for investing in certain types of
mortgage related securities and prohibits investment in high-risk mortgage
securities.
National Mortgage makes no representations as to the proper
characterization of the offered notes for legal investment or other purposes, or
as to the legality of investment by particular investors in the notes under
applicable legal investment restrictions. Accordingly, all institutions that
must observe legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the offered notes
constitute legal investments under SMMEA or must follow investment, capital or
other restrictions. See "Legal Investment Considerations" in the prospectus.
S-53
<PAGE>
NMSC Trust 1999-____
Issuer
National Mortgage Securities Corporation
Depositor
$________________
Senior/Subordinated Pass-Through Certificates, Series 1999-____
[ Asset Seller ]
Seller and Servicer
_________________________
Your trust initially will consist of one- to four-family residential first
and junior lien mortgage loans, multifamily residential mortgage loans,
cooperative apartment loans and manufactured housing installment sales contracts
with an aggregate principal balance of $___________. An election will be made to
treat the assets as one or more REMICs under the Internal Revenue Code, and your
certificates will be regular interests in one of the REMICs. The underlying
assets are not insured or guaranteed by any governmental agency.
Investing in the certificates involves risks. See "Risk Factors" on page S-__
of this prospectus supplement and page 1 of the prospectus.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus supplement or the
prospectus to which it relates is truthful or complete. Any representation to
the contrary is a criminal offense.
<TABLE>
<CAPTION>
Underwriting
Principal Class Monthly Price to Discounts and Proceeds to
Amount Interest Rate Public Commissions Issuer
------ ------------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
A-1 Certificates................. $__________ One Month Libor + __%(*) __________% ______% __________%
A-2 Certificates................. $__________ ______% __________% ______% __________%
A-3 Certificates................. $__________ ______% __________% ______% __________%
A-4 Certificates................. $__________ ______% __________% ______% __________%
A-5 Certificates................. $__________ ______% __________% ______% __________%
M-1 Certificates................. $__________ ______%(*) __________% ______% __________%
M-2 Certificates................. $__________ ______%(*) __________% ______% __________%
B-1 Certificates................. $__________ ______%(*) __________% ______% __________%
B-2 Certificates................. $__________ ______%(*) __________% ______% __________%
Total............................ $__________ $____________ $_________ $____________
</TABLE>
*Capped at the weighted average net asset rate.
The price to the public is per certificate, plus accrued interest from
_____ 1, 1999 in the case of the class A-2, A-3, A-4, A-5, M and B certificates
and from the date the certificates are issued, in the case of the class A-1
certificates. Proceeds to issuer has been calculated before deducting expenses
payable by National Mortgage, estimated to be approximately $__________.
The first distribution date will be __________ 15, 1999. The record date
for each distribution date will be the last business day of the month preceding
a distribution date.
Delivery of your certificates will be made through The Depository Trust
Company on or about _________ __, 1999, against payment in immediately available
funds.
[Underwriters]
Prospectus Supplement dated ____ __, 1999.
<PAGE>
Important notice about the information we present in this
prospectus supplement and in the accompanying prospectus.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
We provide information to you about the certificates in two separate
documents that progressively provide more detail: the accompanying prospectus,
which provides general information, some of which may not apply to your
certificates and this prospectus supplement, which describes the specific terms
of your certificates.
Your certificates will not be listed on any securities exchange.
Although the underwriters intend to make a secondary market in your
certificates, they are not required to do so. A secondary market for your
certificates may not develop. If one does develop, it may not continue or
provide sufficient liquidity.
[We have filed preliminary information regarding the trust's assets and the
certificates with the SEC. The information contained in this document
supersedes all of that preliminary information, which was prepared by the
underwriters for prospective investors.]
Until ____________ all dealers that sell your certificates, whether or not
participating in this offering, may be required to deliver a prospectus and
prospectus supplement. This requirement is in addition to the dealer's
obligation to deliver a prospectus and prospectus supplement when acting as
underwriters with respect to their unsold allotments or subscriptions.
This prospectus supplement and the accompanying prospectus include cross-
references to captions in these materials where you can find further related
discussions. The following table of contents and the table of contents included
in the accompanying prospectus provide the pages on which these captions are
located.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Prospectus Supplement
Page
----
<S> <C>
Summary of Terms..................................................... S-1
Risk Factors......................................................... S-5
Description of the Offered Certificates.............................. S-7
General........................................................... S-7
[Book-Entry Certificates.......................................... S-7
Collection of Payments on Assets.................................. S-8
Realized Losses on Liquidated Loans............................... S-9
Allocation of Writedown Amounts................................... S-10
Distributions..................................................... S-10
Subordination of the Subordinated Certificates.................... S-19
The Asset Pool....................................................... S-19
General........................................................... S-19
Fixed Rate Assets................................................. S-20
Adjustable Rate Assets............................................ S-22
Selected Data..................................................... S-23
Underwriting Guidelines........................................... S-32
Conveyance of Assets.............................................. S-32
[Conveyance of Subsequent Assets and Pre-Funding Account.......... S-35
Maturity and Prepayment Considerations............................... S-36
Weighted Average Lives of the Offered Certificates................ S-37
Modeling Assumptions and Prepayment Model Tables.................. S-38
[Pre-Funding...................................................... S-44
Factors Affecting Prepayments..................................... S-45
Yield on the Offered Certificates................................. S-45
The Trust............................................................ S-49
General........................................................... S-49
The Trustee....................................................... S-49
Optional Termination.............................................. S-50
Auction Sale...................................................... S-51
Termination of the Agreement...................................... S-52
Voting Rights..................................................... S-52
Reports to Certificateholders..................................... S-52
Servicing of the Assets.............................................. S-54
The Servicer...................................................... S-54
Servicing Portfolio............................................... S-54
Delinquency and Loan Loss/Repossession Experience................. S-55
Collection and Other Servicing Procedures......................... S-57
Servicing Compensation and Payment of Expenses.................... S-57
Advances.......................................................... S-58
Successors to Servicer, Delegation of Duties...................... S-59
Use of Proceeds...................................................... S-60
Underwriting......................................................... S-60
Legal Matters........................................................ S-62
ERISA Considerations................................................. S-62
Ratings.............................................................. S-65
Legal Investment Considerations...................................... S-66
<CAPTION>
Prospectus
Page
<S> ----
Risk Factors......................................................... <C>
Description of the Securities........................................
General...........................................................
Book-Entry Procedures.............................................
Allocation of Collections from the Assets.........................
Valuation of Mortgage assets......................................
Optional Redemption or Termination................................
Maturity and Prepayment Considerations...............................
Yield Considerations.................................................
The Trusts...........................................................
General...........................................................
Assignment of Trust Assets........................................
The Trust Assets..................................................
Pre-Funding.......................................................
Asset Proceeds Account............................................
Distribution Account..............................................
Reserve Funds or Accounts.........................................
Mortgage Insurance on the Mortgage assets.........................
Hazard Insurance on the Mortgage Loans............................
Mortgage Bankruptcy Insurance on the
Mortgage Assets...................................................
Other Insurance...................................................
Delivery of Additional Assets.....................................
Investment of Funds...............................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Sale and Servicing of the Mortgage Assets..............................
General.............................................................
Representations and Warranties......................................
Origination of the Mortgage assets..................................
Payment on Mortgage assets..........................................
Advances............................................................
Collection and Other Servicing Procedures...........................
Maintenance of Insurance Policies; Insurance
Claims and Other Realization upon Defaulted Mortgage assets.......
Evidence as to Servicing Compliance.................................
The Agreements.........................................................
Master Servicer or Securities Administrator.........................
The Trustee.........................................................
Rights upon Event of Default........................................
Events of Default...................................................
Reports to Securityholders..........................................
Termination.........................................................
Certain Legal Aspects of Mortgage Loans................................
General.............................................................
The Manufactured Housing Installment Sales Contracts................
Cooperative Loans...................................................
Repossesion with Respect to Contracts...............................
Realizing upon Cooperative Loan Security............................
Junior Mortgages....................................................
Consumer Protection Laws with respect to Contracts..................
Rights of Reinstatement and Redemption..............................
Leases and Rents....................................................
Anti-Deficiency Legislation and Other Limitations on Lenders........
Environmental Considerations........................................
"Due-on Sale" Clauses...............................................
Enforceability of Prepayment and Late Payment Fees..................
Equitable Limitations on Remedies...................................
Secondary Financing: Due-on-Encumberance Provisions.................
The Depositor..........................................................
Use of Proceeds........................................................
Federal Income Tax Consequences........................................
General.............................................................
REMIC Certificates..................................................
Tax Treatment of Residual Certificates..............................
Taxation of Certain Foreign Holders of REMIC Certificates...........
Reporting and Tax Administration....................................
Non-REMIC Certificates..............................................
State Tax Considerations...............................................
ERISA Considerations...................................................
Legal Investment.......................................................
Plan of Distribution...................................................
Rating.................................................................
Reports to Securityholders.............................................
Additional Information.................................................
Financial Information..................................................
Incorporation of Certain Documents by Reference........................
Index of Terms.........................................................
</TABLE>
<PAGE>
Summary of Terms
. 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 more completely all of the terms of an
offering of the certificates, read carefully this entire document and the
prospectus.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding and is qualified by the full
description of this information in this prospectus supplement and the
accompanying prospectus.
Information about Your Trust
Your certificates are being offered by NMSC Trust 1999-___, which will be
established by National Mortgage Securities Corporation, a Virginia corporation.
National Mortgage maintains its principal office at 909 East Main Street,
Richmond, Virginia 23219. Its telephone number is (804) ___-____. The assets
will secure the payment of your certificates.
Only the class A-1, class A-2, class A-3, class A-4, class A-5, class M-1, class
M-2, class B-1 and class B-2 certificates are being offered by this prospectus
supplement.
The trustee is _________________________. The trustee's corporate trust office's
address is ______________________________. Its telephone number is
_____________.
Neither your certificates nor the underlying assets will be guaranteed or
insured by any government agency [or any other insurer].
Issuance of your certificates is scheduled for ________ __, 1999.
Credit Enhancement and Subordination
The subordination of the class M-1, M-2, B-1, B-2, X and R certificates provides
credit support for the class A-1, A-2, A-3, A-4 and A-5 certificates. The
subordination of the class M-2, B-1, B-2, X and R certificates provides credit
support for the class M-1 certificates. The subordination of the class B-1, B-2,
X and R certificates provides credit support for the class M-2 certificates. The
subordination of the class B-2, X and R certificates provides credit support for
the class B-1 certificates. The subordination of the class X and R certificates
provide credit support for the class B-2 certificates.
See "Description of the Offered Certificates" in this prospectus supplement.
Distributions of Interest and Principal
In the ordinary course, monies received on the assets will be applied first to
distributions of interest on each class of certificates in the order of their
priority, and then to principal. Until the occurrence of events described in
this prospectus supplement, principal distributions will be applied first to the
class A certificates, and only thereafter to the other classes of certificates.
If performance criteria are met, a portion of principal may be
S-1
<PAGE>
distributed to subordinated classes simultaneously with principal distributions
on the class A certificates.
See "Description of the Offered Certificates" in this prospectus supplement.
Servicing of The Assets of Your Trust
___________ will act as servicer for the assets. It will make advances in
respect of delinquent payments on the assets and in respect of liquidation
expenses and taxes and insurance premiums not paid by an obligor on a timely
basis, if recoverable.
The servicer will be entitled to a monthly fee for servicing the assets equal to
[___]% per annum of the scheduled principal balance of the assets.
See "Servicing of the Assets" in this prospectus supplement.
The Assets Contained in Your Trust
. The primary assets of your trust are:
. one- to four-family residential first and junior lien mortgage loans,
. multifamily residential mortgage loans,
. cooperative apartment loans, and
. manufactured housing installment sales contracts.
The total number of assets is ______. Their total principal balance is
approximately $______. Of the total number of assets, ______ are fixed-rate
assets and ______ are variable-rate assets.
See "The Asset Pool" in this prospectus supplement.
[Your Trust Contains A Pre-Funding Account
A portion of your trust's initial assets will consist of cash in a pre-funding
account. The pre-funded amount initially will equal the difference between the
principal balance of the certificates and the principal balance of the initial
assets. Funds in the pre-funding account may be used to purchase additional
assets during the [first 3 months] following the closing date. These additional
assets will have characteristics very similar to the existing assets. If all of
the pre-funded amount is not used to acquire pre-funded assets, then amounts
left in the pre-funding account after the [3-month] period will be distributed
to you as a principal prepayment. Interest income earned on the pre-funded
amount during the pre-funding period will not be allocated to you, but will
belong to National Mortgage.
See "The Asset Pool - Conveyance of Assets" and " - Conveyance of Subsequent
Assets and Pre-Funding" in this prospectus supplement.]
The Final Scheduled Distaribution Date
The final scheduled distribution date for each class of offered certificates is
the distribution date occurring in ________. Because the rate of principal
distributions on the certificates will depend upon the rate of principal
payments, including prepayments, on the assets, the actual final distribution on
the classes of certificates could occur significantly earlier than this date.
Optional Termination of Your Trust by The Servicer
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The servicer may terminate the trust by buying all of the assets at any time
when the current aggregate principal balance of all certificates is less than
[10]% of their original amount. The termination price paid for your trust's
assets during an optional termination may, in some circumstances, be less than
the outstanding principal balance and unpaid interest of the certificates.
The servicer may also terminate the trust if it determines that there is a
substantial risk that either the pooling REMIC or the issuing REMIC will lose
its REMIC status.
See "The Trust--Optional Termination" in this prospectus supplement.
Auction Sale of Your Trust's Assets
If the servicer does not exercise its optional termination rights when it is
initially permitted to do so, the trustee will solicit bids on the assets
remaining in the trust. The termination price paid for your trust's assets
during an auction sale may, in some circumstances, be less than the outstanding
principal balance and unpaid interest of the certificates.
See "The Trust -- Auction Sale" in this prospectus supplement.
Federal Income Tax Consequences to You
The assets of the trust will be treated as a pooling REMIC for federal income
tax purposes. The regular interests of the pooling REMIC will be treated as a
different REMIC, an issuing REMIC, for federal income tax purposes. Class A-1,
A-2, A-3, A-4, A-5, M-1, M-2, B-1, B-2 and X certificates will be regular
interests in the issuing REMIC. Therefore, your certificates will evidence debt
obligations under the Internal Revenue Code of 1986, as amended, and interest
paid or accrued will be taxable to you. By acceptance of your certificates, you
will be deemed to have agreed to treat your certificate as a debt instrument for
purposes of federal and state income tax, franchise tax, and any other tax
measured by income. The class A-2, A-3, A-4 and A-5 certificates earn interest
at a fixed rate and will be issued with original issue discount only if their
stated principal amount exceeds their issue prices. The class A-1, M-1, M-2, B-1
and B-2 certificates are variable rate certificates that will be treated as
issued with original issue discount, regardless of their issue prices. We will
use ______% of the [prepayment model] as the prepayment assumption to calculate
the accrual rate of original issue discount, if any. However, there is no
assurance as to what the rate of prepayment will be.
See "Federal Income Tax Consequences" in the prospectus.
ERISA Considerations for Plans and Plan Investors
Fiduciaries of employee benefit plans and certain other retirement plans that
propose to cause a plan to acquire any of the offered certificates should
consult with their own counsel to determine whether the purchase or holding of
the offered certificates could give rise to a transaction that is prohibited
either under ERISA or the Internal Revenue Code. Certain prohibited transaction
exemptions may be applicable to the purchase and holding of the class A
certificates.
Because the class M-1, M-2, B-1 and B-2 certificates are subordinated to other
classes of certificates, the requirements of certain prohibited transaction
exemptions will not be satisfied. As a result, the purchase or holding
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of any of these certificates by a plan investor may constitute a non-exempt
prohibited transaction or result in the imposition of excise taxes or civil
penalties. Accordingly, the class M-1, M-2, B-1 and B-2 certificates are not
offered to or transferable to plan investors unless the plan investor meets
certain requirements.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Your Certificates May Be Legal Investments for Regulated Organizations
The class A and M-1 certificates will be mortgage related securities for
purposes of SMMEA as long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical rating
organizations.
[If pre-funding account is used, classes become mortgage related securities for
SMMEA after pre-funded amount is reduced to zero.]
[Certificates will not be SMMEA if junior lien assets are in the trust.]
The class M-2, B-1 and B-2 certificates will not be mortgage related securities
for purposes of SMMEA because they are not rated in one of the two highest
rating categories.
See "Legal Investment Considerations" in this prospectus supplement and in the
prospectus.
The Ratings Assigned to Your Certificates
It is a condition to the issuance of the certificates that the classes of
certificates obtain the following ratings by ______________ and ______________:
Class A-1 __ __
Class A-2 __ __
Class A-3 __ __
Class A-4 __ __
Class A-5 __ __
Class M-1 __ __
Class M-2 __ __
Class B-1 __ __
Class B-2 __ __
See "Ratings" in this prospectus supplement.
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Risk Factors
In addition to the risk factors in the prospectus, you should note the
following
You May Experience A Over time the market values of the assets could
Loss on Your be less than the loans they secure. This may
Investment If Losses cause delinquencies and may increase the amount
and Delinquencies On of loss following default. In this event, your
Assets in Your Trust trust may not be able to recover the full amount
Are High owed, which may result in a loss on your
certificates. We can provide you with no assurance
that the performance of your trust's assets will be
similar to the statistical information provided, in
part because the values of certain assets can be
sharply affected by downturns in regional or
economic conditions. The statistical information
related to the loss experience of _______ as
servicer is available under "Servicing of the
Assets" in this prospectus supplement.
Losses Will Affect The class M-1, class M-2, class B-1 and class B-2
Subordinated Certificates certificates are subordinated to the class A-1,
before Affecting More A-2, A-3, A-4 and A-5 certificates. Losses in
Senior Certificates excess of the credit support provided by the
class X and R certificates will be experienced
first by the class B-2 certificates, next by the
class B-1 certificates, next by the class M-2
certificates, and next by the class M-1
certificates. Thereafter, losses on the assets
exceeding the amount of the subordinated
certificates could result in a loss being realized
by the class A-1, A-2, A-3, A-4 and A-5
certificates.
Prepayments May Cause Cash Obligors are not required to pay interest on their
Shortfalls assets after the date of a full prepayment of
principal. As a result, a full prepayment may
reduce the amount of interest received from
obligors during that collection period to less than
one month's interest on the assets. If a sufficient
number of assets are prepaid in full, then interest
payable on the assets during that collection period
may be less than the interest due on the
certificates.
[Class A-1 Certificates [Class A-1 certificates bear interest based on
Have An Uncertain Yield] one-month LIBOR, which is variable and which
changes differently than do other indices. In
addition, regardless of the level of one-month
LIBOR, the interest rate of the class A-1
certificates may not exceed the weighted average
net asset rate.]
[Year 2000 Information [The servicer has analyzed the potential effects
Systems Procedures] of year 2000 issues on the computer systems that
support its business. This
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review included issues associated with the
servicer's internally developed software and
software licensed from others. The servicer also is
in the process of reviewing year 2000 issues faced
by significant third parties with whom it conducts
business.
The servicer has begun remediation of internally
developed software to resolve year 2000 compliance
issues. The costs incurred by the servicer to date
have not been material, and the servicer does not
anticipate that the expected remaining costs will
be material. Based upon its assessment of
internally developed and licensed software and the
status of remediation undertaken to date, the
servicer believes that all of its significant
computer systems will be year 2000 compliant before
January 1, 2000. The servicer continues to test and
monitor year 2000 compliance issues, and this
testing may or may not be successful. You may
experience losses or delays in payment if the
servicer does not achieve year 2000 compliance.]
[Recent Federal Legislation In July 1999 the President signed into law the
May Cause Delays in Year 2000 Act, which generally limits the legal
Payments to You] liability for losses caused by year 2000 computer-
related errors. Among other things, the legislation
provides a grace period from foreclosure for
delinquent obligors whose mortgage and other
payments are not processed in an accurate or timely
manner because of an actual year 2000 failure.
The Year 2000 Act does not extinguish an obligor's
payment obligations, but merely delays their
enforcement.
The Year 2000 Act could delay the servicer's
ability to foreclose upon the assets of your trust
during the first quarter of the year 2000. These
delays, consequently, could affect the timing of
payments to you.
Capitalized terms used in this prospectus supplement but not defined will
have the definitions given to them in the accompanying prospectus. See "Index of
Terms" in the accompanying prospectus.
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Description of the Offered Certificates
General
The Senior/Subordinated Pass-Through Certificates, Series 1999-___, will
consist of the class A-1, class A-2, class A-3, class A-4, class A-5, class M-1,
class M-2, class B-1, class B-2, class X and class R certificates. Only the
class A-1, class A-2, class A-3, class A-4, class A-5, class M-1, class M-2,
class B-1 and class B-2 certificates are offered by this prospectus supplement.
The class M-1, class M-2, class B-1, class B-2, class X and class R certificates
will be subordinated to the class A certificates in respect of distributions of
principal and interest. The offered certificates will be issued in book-entry
form only, in denominations of $1,000 and integral multiples of $1 in excess of
this amount. Definitive certificates, if issued, will be transferable and
exchangeable at the corporate trust office of ______________ at its Corporate
Trust Department. No service charge will be made for any registration of
exchange or transfer, but the trustee may require payment of a sum sufficient to
cover any tax or other governmental charge incurred in connection with the
exchange or transfer.
Distributions of principal and interest on the offered certificates will be
made on the 15th day of each month, or, if this day is not a business day, on
the next succeeding business day, beginning in ____, 1999, to the persons in
whose names the certificates are registered on the record date, which is the
close of business on the last business day of the month preceding the month in
which the distribution date occurs. Each distribution with respect to a book-
entry certificate will be paid to the Depository, which will credit the amount
of this distribution to the accounts of its Participants in accordance with its
normal procedures. Each Participant will be responsible for disbursing this
distribution to the Beneficial Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm will be responsible for
disbursing funds to the Beneficial Owners that it represents. All credits and
disbursements with respect to book-entry certificates are to be made by the
Depository and the Participants in accordance with the Depository's rules.
The class X certificates are interest-only securities that have no stated
certificate principal balance, but are entitled to receive a distribution on
each distribution date of certain interest amounts, as more fully set forth in
the pooling and master servicing agreement. The class R certificates will have
no stated certificate principal balance or pass-through rate, and will represent
the beneficial ownership of the residual interest in each of the REMICs.
[Book-Entry Certificates
The offered certificates will be book-entry certificates as described in
the prospectus under "Description of the Certificates -- Book-Entry Procedures."
The offered certificates will initially be registered in the name of Cede & Co.,
the nominee of the Depository Trust Company.
Unless and until the offered certificates are issued in certificated,
fully-registered form, it is anticipated that the only certificateholder of the
offered certificates will be Cede & Co., as
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<PAGE>
nOMIInee of DTC. Beneficial Owners will not be certificateholders as that term
is used in the pooling and master servicing agreement. Beneficial Owners are
only permitted to exercise the rights of certificateholders indirectly through
Depository Participants and DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter Year 2000 problems. DTC has
informed its Participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions, including principal and income
payments, to certificateholders, book-entry deliveries, and settlement of trades
within DTC continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting, and will
continue to contact, third party vendors from whom DTC acquires services to:
. impress upon them the importance of these services being Year 2000
compliant; and
. determine the extent of their efforts for Year 2000 remediation ---
and, as appropriate, testing --- of their services.
In addition, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.]
Collection of Payments on Assets
The servicer will establish and maintain the certificate account for the
benefit of the trustee. The certificate account must be an Eligible Account. The
certificate account is to be held in trust for the benefit of the trustee on
behalf of the certificateholders, and shall be either in the trustee's name or
designated in a manner that reflects the custodial nature of the account and
that all funds in this account are held for the benefit of the trustee. A single
certificate account may be maintained for more than one series of certificates
provided that in this event, the servicer shall cause separate accounting and
records to be maintained within the certificate account with respect to each
separate series. Funds in the certificate account will be invested in Eligible
Investments that will mature or be redeemed not later than the business day
preceding the applicable monthly distribution date. Earnings on amounts
deposited into the certificate account shall be credited to the account of the
servicer as servicing compensation in addition to the Servicing Fee and may be
used to offset P&I Advances due from the servicer in respect of the
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<PAGE>
distribution date next succeeding the date on which these earnings were made or,
at the servicer's option, may be released to the servicer on the related
distribution date. The amount of any losses incurred in respect of any of these
investments shall be deposited into the certificate account by the servicer out
of its own funds promptly after any of these losses are incurred.
All payments in respect of principal and interest on the assets received by
the servicer on or after the Cut-off Date, exclusive of collections relating to
scheduled payments due on or prior to the Cut-off Date, including principal
prepayments and net liquidation proceeds, will be deposited into the certificate
account no later than the second business day following the servicer's receipt.
Amounts collected as late payment fees, extension fees, assumption fees or
similar fees will be retained by the servicer as part of its servicing
compensation. In addition, amounts paid by [Asset Seller] for assets repurchased
as a result of breach of a representation or warranty under the pooling and
master servicing agreement and amounts required to be deposited upon
substitution of a qualified substitute asset because of a breach of a
representation or warranty, as described under "The Asset Pool -- Conveyance of
Assets" in this prospectus supplement, will be paid into the certificate
account.
On or prior to the business day before each distribution date, the servicer
will remit all scheduled payments of principal and interest due on the assets
during the Collection Period and collected by the servicer and all unscheduled
collections in respect of principal and interest on the assets received during
the related Prepayment Period, in each case to the extent these collections
comprise part of the Available Distribution Amount for the upcoming distribution
date, together with the amount of any required Advances to the trustee for
deposit into the distribution account. If, however, the certificate account is
maintained by the trustee, the trustee may withdraw this amount, and any portion
of the P&I Advance to be covered by investment earnings on the certificate
account, from the certificate account on the applicable distribution date and
deposit it into the distribution account. In such event, the servicer will remit
the portion, if any, of the required P&I Advance that is not to be covered by
investment earnings on the certificate account to the trustee on business day
preceding the distribution date for deposit into the distribution account. The
distribution account shall be an Eligible Account established and maintained by
the trustee.
The trustee or its Paying Agent will withdraw funds from the Distribution
Account, but only to the extent of the Available Distribution Amount, to make
distributions to certificateholders as specified under " -- Distributions --
Priority of Distributions" in this prospectus supplement.
From time to time, as provided in the pooling and master servicing
agreement, the Servicer will also withdraw funds from the certificate account
for other purposes as permitted by the pooling and master servicing agreement.
Realized Losses on Liquidated Loans
The Principal Distribution Amount for any distribution date is intended to
include the Scheduled Principal Balance of each asset that became a liquidated
loan during the related Prepayment Period. A Realized Loss will be incurred on a
liquidated loan in the amount, if any,
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by which the net liquidation proceeds from the liquidated loan are less than the
unpaid principal balance of the liquidated loan, plus accrued and unpaid
interest thereon, plus amounts reimbursable to the servicer for previously
unreimbursed Servicing Advances. To the extent that the amount of the Realized
Loss is in excess of interest collected on the nondefaulted assets in excess of
certain interest payments due to be distributed on the offered certificates and
any portion of this interest required to be paid to a servicer other than [Asset
Seller] as servicing compensation ("Excess Interest"), then the amount of this
shortfall will be allocated to the subordinated certificates as a Writedown
Amount. See " --Allocation of Writedown Amounts".
Allocation of Writedown Amounts
Any Writedown Amount on a distribution date will be allocated to reduce to
zero the certificate principal balance of a class, as adjusted for write-downs,
in the following order:
. first, to the class B-2 certificates;
. second, to the class B-1 certificates;
. third, to the class M-2 certificates; and
. fourth, to the class M-1 certificates.
Distributions
Available Distribution Amount
The Available Distribution Amount for a distribution date will include
. monthly payments of principal and interest due on the assets during
the related Collection Period, regardless of whether these payments
were actually collected from the obligors or advanced by the servicer
and unscheduled payments received with respect to the assets during
the related Prepayment Period, including principal prepayments,
proceeds of repurchases, net liquidation proceeds and net insurance
proceeds, less
. if [Asset Seller] is not the servicer, Servicing Fees for the related
Collection Period, amounts required to reimburse the servicer for
previously unreimbursed Advances in accordance with the pooling and
master servicing agreement, amounts required to reimburse National
Mortgage or the servicer for reimbursable expenses in accordance with
the pooling and master servicing agreement and amounts required to
reimburse any party for an overpayment of a Repurchase Price for an
asset.
Distributions
Distributions will be made on each distribution date to holders of record
on the preceding record date. Distributions on a class of certificates will be
allocated among the certificates of the class in proportion to their percentage
interests.
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Interest
On each distribution date, holders of the class A certificates will be
entitled to receive, to the extent of the Available Distribution Amount:
. interest accrued on their class during the related Interest Accrual
Period at the then-applicable pass-through rate on the certificate
principal balance of their class immediately prior to the distribution
date (the "Interest Distribution Amount"), plus
. any interest amounts remaining unpaid from a previous distribution
date, plus interest accrued on this amount during the related Interest
Accrual Period, at the then applicable pass-through rate.
On each distribution date, holders of the subordinated certificates will be
entitled to receive, to the extent of the Available Distribution Amount and on a
subordinated basis as described under " -- Priority of Distributions":
. interest accrued on their class during the related Interest Accrual
Period at the then-applicable pass-through rate on the certificate
principal balance immediately following the most recently preceding
distribution date, reduced by all Writedown Amounts allocated on that
distribution date, of their class immediately prior to the
distribution date (the "Interest Distribution Amount"), plus
. any interest amounts remaining unpaid from a previous distribution
date, plus interest accrued on this amount during the related Interest
Accrual Period, at the then applicable pass-through rate.
Interest Accrual Period shall mean, with respect to each distribution date:
. for the class A-1 certificates, the period commencing on the 15th day
of the preceding month through the 14th day of the month in which this
distribution date is deemed to occur, except that the first Interest
Accrual Period for the class A-1 certificates will be the period from
the closing date through _______ 14, 1999, and
. for the other classes of offered certificates, the calendar month
preceding the month in which the distribution date occurs.
Interest on the class A-1 certificates will be calculated on the basis of a 360-
day year and the actual number of days elapsed in the applicable Interest
Accrual Period. Interest on the other classes of offered certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The pass-through rate for the classes of offered certificates on any
distribution date will be the per annum rates set forth on the cover page of
this prospectus supplement.
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In addition, on each distribution date, to the extent of the Available
Distribution Amount and on a subordinated basis as described under " -- Priority
of Distributions" the holders of the subordinated certificates will be entitled
to receive
. interest accrued during the related Interest Accrual Period at the
applicable pass-through rate on any related Writedown Amount (the
class' "Writedown Interest Distribution Amount"), plus
. any interest amounts remaining unpaid from a previous distribution
date, plus interest accrued on this amount during the related Interest
Accrual Period at the then applicable pass-through rate (the class'
"Carryover Writedown Interest Distribution Amount"). See " -- Realized
Losses on Liquidated Loans."
[Floating Rate Determination
Generally, the Floating Rate Determination Date for any Interest Accrual
Period is the second London banking day prior to the Interest Accrual Period.
For the initial Interest Accrual Period the Floating Rate Determination Date is
the closing date. On each Floating Rate Determination Date, the servicer will
determine the arithmetic mean of the LIBOR quotations for one-month Eurodollar
deposits ("One-Month LIBOR") for the succeeding Interest Accrual Period on the
basis of the Reference Banks' offered LIBOR quotations provided to the servicer
as of 11:00 a.m., London time, on the Floating Rate Determination Date. With
respect to a Floating Rate Determination Date, Reference Banks means leading
banks engaged in transactions in Eurodollar deposits in the international
Eurocurrency market with an established place of business in London, whose
quotations appear on the Bloomberg Screen US0001M Index page on the Floating
Rate Determination Date in question and which have been designated as such by
the servicer and are able and willing to provide these quotations to the
servicer on each Floating Rate Determination Date; and Bloomberg Screen US0001M
Index Page means the display designated as page US0001M on the Bloomberg
Financial Markets Commodities News, or another page as may replace this page on
that service for the purpose of displaying LIBOR quotations of major banks. If
any Reference Bank should be removed from the Bloomberg Screen US0001M Index
Page or in any other way fails to meet the qualifications of a Reference Bank,
the servicer may, in its sole discretion, designate an alternative Reference
Bank.
. On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding Interest Accrual Period will be established by the servicer
as follows:
. if, on any Floating Rate Determination Date, two or more of the
Reference Banks provide offered One-Month LIBOR quotations on the
Bloomberg Screen US0001M Index Page, One-Month LIBOR for the next
applicable Interest Accrual Period will be the arithmetic mean of the
offered quotations, rounding the arithmetic mean, if necessary, to the
nearest five decimal places.
. if, on any Floating Rate Determination Date, only one or none of the
Reference Banks provides offered quotations, One-Month LIBOR for the
next applicable Interest Accrual Period will be the higher of:
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. One-Month LIBOR as determined on the previous Floating Rate
Determination date, and
. the Reserve Interest Rate.
The Reserve Interest Rate will be the rate per annum that the servicer
determines to be either
. the arithmetic mean, rounding the arithmetic mean upwards if necessary
to the nearest five decimal places, of the one-month Eurodollar
lending rate that New York City banks selected by the servicer are
quoting, on the relevant Floating Rate Determination Date, to the
principal London offices of at least two leading banks in the London
interbank market, or
. in the event that the servicer can determine no arithmetic mean, the
lowest one-month Eurodollar lending rate that the New York City banks
selected by the servicer are quoting on the Floating Rate
Determination Date to leading European banks.
If, on any Floating Rate Determination Date, the servicer is required but is
unable to determine the Reserve Interest Rate in the manner provided, One-Month
LIBOR for the next applicable Interest Accrual Period will be One-Month LIBOR as
determined on the previous Floating Rate Determination Date.
One-Month LIBOR for an Interest Accrual Period shall not be based on One-
Month LIBOR for the previous Interest Accrual Period for two consecutive
Floating Rate Determination Dates. If One-Month LIBOR for an Interest Accrual
Period would be based on One-Month LIBOR for the previous Floating Rate
Determination Date for the second consecutive Floating Rate Determination Date,
the servicer shall select an alternative index over which the servicer has no
control used for determining one-month Eurodollar lending rates that is
calculated and published or otherwise made available by an independent third
party.
The establishment of One-Month LIBOR, or an alternative index, by the
servicer and the servicer's subsequent calculation of the pass-through rate on
the class A-1 certificates for the relevant Interest Accrual Period, in the
absence of manifest error, will be final and binding.
This table provides you with monthly One-Month LIBOR rates on the last day
of the related calendar month beginning in 1995, as published by Bloomberg. The
following does not purport to be a prediction of the performance of One-Month
LIBOR in the future.
<TABLE>
<CAPTION>
MONTH 1999 1998 1997 1996 1995
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January.................................. 4.94% 5.60% 5.44% 5.44% 6.09%
February................................. 4.96 5.69 5.44 5.31 6.13
March.................................... 4.94 5.69 5.69 5.44 6.13
April.................................... 4.90 5.66 5.69 5.44 6.06
May...................................... 5.66 5.69 5.43 6.06
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
June..................................... 5.66 5.69 5.47 6.13
July..................................... 5.66 5.63 5.46 5.88
August................................... 5.63 5.66 5.44 5.88
September................................ 5.38 5.66 5.43 5.88
October.................................. 5.25 5.65 5.38 5.83
November................................. 5.62 5.97 5.56 5.98
December................................. 5.06 5.72 5.50 5.69]
</TABLE>
Principal
The Principal Distribution Amount for any distribution date will equal the
sum of the following amounts:
. the sum of the principal components of all monthly payments scheduled
to be made on the Due Date occurring during the related Collection
Period on the assets that were outstanding at the opening of business
on this Due Date, regardless of whether such monthly payments were
received by the servicer from the obligors, not including any monthly
payments due on liquidated loans or repurchased assets;
. the sum of the amounts of all principal prepayments received by the
servicer on the assets during the related Prepayment Period;
. the Scheduled Principal Balance of any asset that became a liquidated
loan during the related Prepayment Period; and
. the Scheduled Principal Balance of any asset that was purchased or
repurchased by the servicer, [Asset Seller] or National Mortgage
during the related Prepayment Period.
The Class A Principal Distribution Amount for any distribution date will
equal
. prior to the Cross-over Date, the Principal Distribution Amount,
. on any distribution date as to which the Principal Distribution Tests
are not met, the Principal Distribution Amount, or
. on any other distribution date, the class A percentage of the
Principal Distribution Amount.
The Class M-1 Principal Distribution Amount for any distribution date will
equal
. as long as any class A certificates remain outstanding and prior to
the Cross-over Date, zero,
. on any distribution date as to which the Principal Distribution Tests
are not met and any class A certificates remain outstanding, zero,
S-14
<PAGE>
. on any distribution date as to which the Principal Distribution Tests
are not met and the class A certificates have been retired, the
Principal Distribution Amount, or
. on any other distribution date, the class M-1 percentage of the
Principal Distribution Amount.
The Class M-2 Principal Distribution Amount for a distribution date will
equal
. as long as any class A certificates or any class M-1 certificates
remain outstanding and prior to the Cross-over Date, zero;
. on any distribution date as to which the Principal Distribution Tests
are not met and any class A certificates or any class M-1 certificates
remain outstanding, zero,
. on any distribution date as to which the Principal Distribution Tests
are not met and the class A certificates and the class M-1
certificates have been retired, the Principal Distribution Amount, or
. on any other distribution date, the class M-2 percentage of the
Principal Distribution Amount.
The Class B-1 Principal Distribution Amount for any distribution date will
equal
. as long as any class A certificates or any class M certificates remain
outstanding and prior to the Cross-over Date, zero,
. on any distribution date as to which the Principal Distribution Tests
are not met and any class A certificates or any class M certificates
remain outstanding, zero,
. on any distribution date as to which the Principal Distribution Tests
are not met and the class A certificates and the class M certificates
have been retired, the Principal Distribution Amount, or
. on any other distribution date, the class B-1 percentage of the
Principal Distribution Amount.
The Class B-2 Principal Distribution Amount for any distribution date will
equal
. as long as any class A certificate, any class M certificates or any
class B-1 certificates remain outstanding and prior to the Cross-over
Date, zero,
. on any distribution date as to which the Principal Distribution Tests
are not met and any class A certificates, any class M certificate or
any class B-1 certificates remain outstanding, zero,
S-15
<PAGE>
. on any distribution date as to which the Principal Distribution Tests
are not met and the class A certificates, the class M certificates and
the class B-1 certificates have been retired, the Principal
Distribution Amount, or
. on any other distribution date, the class B-2 percentage of the
Principal Distribution Amount.
For any distribution date, if the Principal Distribution Amount for a class
exceeds the certificate principal balance of that class, less any Principal
Distribution Amounts remaining unpaid from previous distribution dates, with
respect to this class and distribution date, then these amounts shall be
allocated to the Principal Distribution Amount of the relatively next junior
class of certificates. If the class A, class, class M and class B certificates
have not been reduced to zero on or before a distribution date, then amounts
then allocable to the Class B-2 Principal Distribution Amount shall be allocated
first to the Class B-1 Principal Distribution Amount, next to the Class M-2
Principal Distribution Amount, next to the Class M-1 Principal Distribution
Amount, next to the Class A Principal Distribution Amount, and finally to the
Class B-2 Principal Distribution Amount, to the extent that allocation of these
amounts to the Class B-2 Principal Distribution Amount would reduce the class B-
2 certificate principal balance below the Class B-2 Floor Amount.
The principal distribution percentage for any class is the percentage
derived from the fraction, which shall not be greater than 1, the numerator of
which is the certificate principal balance of the class, as adjusted for write-
downs, immediately prior to the related distribution date, and the denominator
is the sum of the aggregate certificate principal balances, as adjusted for
write-downs, of all other classes of certificate immediately prior this
distribution date.
Priority of Distributions
On each distribution date the Available Distribution Amount will be
distributed in the following amounts and in the following order of priority:
(1) first, concurrently, to each class of the class A certificates, their
Interest Distribution Amount for that distribution date pro rata among the class
A certificates based on their respective Interest Distribution Amounts and then
any Interest Distribution Amounts remaining unpaid from any previous
distribution date, plus interest on this carryover amount, if any, for that
distribution date, pro rata among the classes of class A certificates based on
their respective carryover amounts;
(2) second, to the class M-1 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(3) third, to the class M-2 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
S-16
<PAGE>
(4) fourth, to the class B-1 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(5) fifth, to the class B-2 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(6) sixth, concurrently, to each class of the class A certificates, any
Principal Distribution Amounts remaining unpaid previous distribution dates, to
be allocated among the class A certificates pro rata based on their respective
unpaid Principal Distribution Amounts;
(7) seventh, to the class A certificates, the Class A Principal
Distribution Amount, allocated in the following sequential order:
. first, to the class A-1 certificates in reduction of its
certificate principal balance, until reduced to zero;
. second, to the class A-2 certificates in reduction of its
certificate principal balance, until reduced to zero;
. third, to the class A-3 certificates in reduction of its
certificate principal balance, until reduced to zero;
. fourth, to the class A-4 certificates in reduction of its
certificate principal balance, until reduced to zero; and
. fifth, to the class A-5 certificates in reduction of its
certificate principal balance, until reduced to zero;
provided, however, that on any distribution date on which the Pool Scheduled
Principal Balance is less than the aggregate certificate principal balance of
the class A certificates immediately prior to the related distribution date, the
Class A Principal Distribution Amount will be allocated among the class A
certificates pro rata based upon their respective certificate principal
balances.
(8) eighth, to the class M-1 certificates, any related Writedown Interest
Distribution Amount for the related distribution date, any related Carryover
Writedown Interest Distribution Amount for the related distribution date, any
related Principal Distribution Amounts remaining unpaid from previous
distribution dates, and any related Principal Distribution Amount until the
class M-1 certificate principal balance is reduced to zero;
(9) ninth, to the class M-2 certificates, any related Writedown Interest
Distribution Amount for the related distribution date, any related Carryover
Writedown Distribution Amount for the related distribution date, any related
Principal Distribution Amounts remaining unpaid from previous distribution
dates, and any related Principal Distribution Amount until the class M-2
certificate principal balance is reduced to zero;
S-17
<PAGE>
(10) tenth, to the class B-1 certificates, any related Writedown Interest
Distribution Amount for the related distribution date, any related Carryover
Writedown Interest Distribution Amount for the related distribution date, any
related Principal Distribution Amounts remaining unpaid from previous
distribution dates, and any related Principal Distribution Amount until the
class B-1 certificate principal balance is reduced to zero;
(11) eleventh, to the class B-2 certificates, any related Writedown
Interest Distribution Amount for the related distribution date, any related
Carryover Writedown Interest Distribution Amount for the related distribution
date, any related Principal Distribution Amounts remaining unpaid from previous
distribution dates, and any related Principal Distribution Amount until the
class B-2 certificate principal balance is reduced to zero;
(12) twelfth, if [Asset Seller] is the servicer, to the servicer in the
following sequential order:
(i) the Servicing Fee with respect to the related distribution date;
and
(ii) any Servicing Fees from previous distribution dates remaining
unpaid;
(13) thirteenth, to the class X certificates, in the following sequential
order:
(i) the current Class X Strip Amount; and
(ii) any Class X Strip Amounts from previous distribution dates
remaining unpaid; and
(14) finally, any remainder to the class R certificates.
The Cross-over Date will be the later to occur of
. the distribution date occurring in _________ and
. the first distribution date on which the percentage equivalent of a
fraction, which shall not be greater than 1, the numerator of which is
the aggregate certificate principal balance as adjusted for write-
downs of the subordinated certificates for the related distribution
date and the denominator of which is the Pool Scheduled Principal
Balance on the related distribution date, equals or exceeds ____ times
the percentage equivalent of a fraction, which shall not be greater
than 1, the numerator of which is the initial aggregate certificate
principal balance as adjusted for write-downs of the subordinated
certificates and the denominator of which is the Pool Scheduled
Principal Balance as of the Cut-off Date.
The Principal Distribution Tests are met in respect of a distribution date
if the following conditions are satisfied:
S-18
<PAGE>
. the Average Sixty Day Delinquency Ratio as of the related distribution
date does not exceed ___%; the Average Thirty-Day Delinquency Ratio as
of the related distribution date does not exceed ___%;
. the Cumulative Realized Losses as of the related distribution date do
not exceed a specified percentage of the original Pool Scheduled
Principal Balance, depending on the year in which the related
distribution date occurs; and
. the Current Realized Loss Ratio as of the related distribution date
does not exceed ___%.
The Average Sixty-Day Delinquency Ratio and the Average Thirty-Day
Delinquency Ratio are, in general, the ratios of the average of the aggregate
principal balances of assets delinquent 60 days or more and 30 days or more,
respectively, for the preceding three Collection Periods to the average Pool
Scheduled Principal Balance for these periods. Cumulative Realized Losses are,
in general, the aggregate Realized Losses incurred in respect of liquidated
loans since the Cut-off Date. The Current Realized Loss Ratio is, in general,
the ratio of the aggregate Realized Losses incurred on liquidated loans for the
periods specified in the pooling and master servicing agreement to an average
Pool Scheduled Principal Balance specified in the pooling and master servicing
agreement.
With respect to any distribution date the Class B-2 Floor Amount will mean
. ____% of the Pool Scheduled Principal Balance as of the Cut-off Date,
if the class A, class M and class B-1 certificates have not been
reduced to zero immediately prior to the related distribution date,
and
. zero, if the class A, class M and class B-1 certificates have been
reduced to zero immediately prior to the related distribution date.
Subordination of the Subordinated Certificates
The primary credit support for the class A certificates is the
subordination of the subordinated certificates, effected by the allocation of
Writedown Amounts as described in this prospectus supplement and by the
preferential application of the Available Distribution Amount to the class A
certificates relative to the subordinated certificates to the extent described
in this prospectus supplement. See " -- Distributions -- Priority of
Distributions" in this prospectus supplement.
The Asset Pool
General
The certificates represent the entire beneficial ownership interest in NMSC
trust 1999- ___. This trust will be established by the pooling and master
servicing agreement dated as of
S-19
<PAGE>
_________ 1, 1999, among National Mortgage, the servicer and the trustee.
National Mortgage will acquire the assets from [Asset Seller] under a sales
agreement on the closing date. [Asset Seller] will have funded the origination
of each asset. Each asset not originated directly in [Asset Seller]'s name will
have been assigned to [Asset Seller] immediately after its origination. You will
find a description of [Asset Seller]'s general practices with respect to the
origination of certain assets in this prospectus supplement under "Underwriting
Guidelines."
The pooling and master servicing agreement requires the servicer to
maintain or cause to be maintained standard hazard insurance policies with
respect to each mortgaged property. Generally, no other insurance will be
maintained with respect to the manufactured homes, the mortgaged properties or
the assets. See "The Trusts -- Hazard Insurance on the Mortgage Loans --
Standard Hazard Insurance Policies" in the prospectus.
National Mortgage will convey to the trustee the assets and all rights to
receive payments due after _________ 1, 1999 (the "Cut-off Date"), including
scheduled payments due after the Cut-off Date but received prior to this date,
and prepayments and other unscheduled collections on the assets received on or
after the Cut-off Date. The right to payments that were due on or prior to the
Cut-off Date but which are received later will not be conveyed to National
Mortgage by [Asset Seller], and these payments will be the property of [Asset
Seller] when collected. The servicer will retain physical possession of the
contract documents. Except to the extent required to service a mortgage loan,
the trustee will maintain physical possession of the mortgage loan documents.
See " -- Conveyance of Assets" in this prospectus supplement.
Fixed Rate Assets
The assets will consist of ________ Fixed Rate Assets having an aggregate
Scheduled Principal Balance as of the Cut-off Date of approximately
$______________. A total of _______ Fixed Rate Assets, representing
approximately ____% of the Fixed Rate Assets, are step-up rate loans. The
remainder of the Fixed Rate Assets are Level Payment Loans. [Step-up rate loans
are assets that provide for periodic increases of [0.50%, 0.75%, 1.00%, 1.25% or
1.50]% in the applicable asset rates at the end of intervals of twelve months
during the first five years following origination (the "Step-up Periods"), after
which the asset rates are fixed. The total amount and the principal portion of
each monthly payment on any step-up rate loan during any period is determined on
a basis that would cause the asset to be fully amortized over its term if the
asset were to bear interest during its entire term at the asset rate applicable
during this period and as if the asset were to provide for level payments over
its entire term based on the asset rate. In addition to interest rate
adjustments during their Step-up Periods, some step-up rate loans will
experience a one-time increase in their asset rates with respect to their final
monthly payments. The statistical information concerning the Fixed Rate Assets
sets forth only the asset rates borne by these assets as of the Cut-off Date.]
See "The Trust -- The Assets" in the prospectus.
[Except in the case of the step-up rate loans during their Step-up
Periods,] each Fixed Rate Asset bears interest at a fixed annual percentage rate
and provides for level payments over the term of the asset that fully amortize
the principal balance of the asset. All of the Fixed Rate
S-20
<PAGE>
Assets are actuarial obligations. The portion of each monthly payment for any
Fixed Rate Asset allocable to principal is equal to the total amount of the
monthly payment less the portion allocable to interest. The portion of each
monthly payment due in a particular month that is allocable to interest is a
precomputed amount equal to one month's interest on the principal balance of the
Fixed Rate Asset, which principal balance is determined by reducing the initial
principal balance by the principal portion of all monthly payments that were due
in prior months, regardless of whether the monthly payments were made in a
timely fashion, and all prior partial principal prepayments. Thus, each
scheduled monthly payment on an asset will be applied to interest and to
principal in accordance with the precomputed allocation regardless of whether
the monthly payment was received in advance of or subsequent to its Due Date.
See "Servicing of the Assets --Collection and Other Servicing Procedures" in
this prospectus supplement.
As of the Cut-off Date, approximately _____% of the Fixed Rate Assets were
_____________. As of the Cut-off Date, approximately _____% of the Fixed Rate
Assets were mortgage loans.
As of the Cut-off Date, each Fixed-Rate Asset had an asset rate of at least
________% per annum and not more than _____% per annum. The weighted average
asset rate of the Fixed-Rate Assets was approximately ____% per annum[, without
giving effect to any subsequent increase in the asset rates of the step-up rate
loans.] The Fixed Rate Assets had remaining terms to stated maturity as of the
Cut-off Date of at least ___ months but not more than 360 months and original
terms to stated maturity of at least ___ months but not more than 360 months.
Each Fixed Rate Asset was originated on or after ___________. As of the Cut-off
Date, the Fixed Rate Assets had a weighted average original term to stated
maturity of approximately ____ months, and a weighted average remaining term to
stated maturity of approximately ____ months. The remaining term to stated
maturity of an asset is calculated as the number of monthly payments scheduled
to be made on the asset over its term less the number of monthly payments made
or scheduled to have been made on or before the Cut-off Date. The average
Scheduled Principal Balance of the Fixed Rate Assets as of the Cut-off Date was
approximately $_________ and the Scheduled Principal Balance of the Fixed Rate
Assets as of the Cut-off Date ranged from $______ to $_______.
Approximately ________% of the Fixed Rate Assets have Loan-to-Value Ratios
greater than 95%. [Asset Seller] computes each Loan-to-Value Ratio by
determining the ratio of the principal amount of the mortgage or contract to the
purchase price of the home, including taxes, insurance and any land
improvements, and the amount of any prepaid finance charges or closing costs
that are financed. [Asset Seller] computes each Loan-to-Value Ratio by
determining the ratio of the principal amount of the mortgage loan to either
. the sum of the appraised value of the land and improvements, and the
amount of any prepaid finance charges or closing costs that are
financed, or
. the sum of the purchase price of the home, including taxes, insurance
and any land improvements, the appraised value of the land and the
amount of any prepaid finance charges or closing costs that are
financed.
S-21
<PAGE>
The Fixed Rate Assets are secured by mortgaged properties, located in ___
states. Approximately [greater than10]% and [greater than10]% of the Fixed Rate
------------ ------------
Assets were secured as of the Cut-off Date by mortgaged properties located in
______ and _______, respectively. As of the Cut-off Date, no more than
approximately ____%, ____% and ____% of the Fixed Rate Assets were secured by
mortgaged properties which were used, repossessed or transferred to an assignee
of the original obligor, respectively, at the time the related assets were
originated.
Adjustable Rate Assets
The asset pool will consist of ___ adjustable rate assets having an
aggregate Scheduled Principal Balance as of the Cut-off Date of approximately
$________.
Each adjustable rate asset has an asset rate that adjusts annually based on
__________, and provides for [level] payments over the term of the asset that
fully amortize the principal balance of the asset. All of the adjustable rate
assets are actuarial obligations.
Each adjustable rate asset has an annual cap of ___% per annum. The
weighted average lifetime cap of the adjustable rate assets as of the Cut-off
Date was approximately ___% per annum. The adjustable rate assets had Gross
Margins as of the Cut-off Date of at least ___% per annum but not more than ___%
per annum, with a weighted average Gross Margin of approximately ___% per annum.
The portion of each monthly payment for any adjustable rate asset allocable to
principal is equal to the total amount of the monthly payment less the portion
allocable to interest. The portion of each monthly payment due in a particular
month that is allocable to interest is a precomputed amount equal to one month's
interest on the principal balance of the adjustable rate asset, which principal
balance is determined by reducing the initial principal balance by the principal
portion of all monthly payments that were due in prior months, regardless of
whether the Monthly Payments were made in a timely fashion, and all prior
partial principal prepayments. Thus, each scheduled monthly payment on an asset
will be applied to interest and to principal in accordance with the precomputed
allocation regardless of whether the monthly payment was received in advance of
or subsequent to its Due Date. As of the Cut-off Date all of the adjustable
rate assets were mortgage loans. See "Servicing of the Assets -- Collection and
Other Servicing Procedures" in this prospectus supplement.
As of the Cut-off Date, each adjustable rate asset had an asset rate of at
least ____% per annum and not more than ____% per annum. The weighted average
asset rate of the adjustable rate assets was approximately ____% per annum,
without giving effect to any subsequent adjustment in the asset rates of the
adjustable rate assets. The adjustable rate assets had remaining terms to
stated maturity as of the Cut-off Date of at least ____ months but not more than
____ months and original terms to stated maturity of ____ months. Each
adjustable rate asset was originated on or after ____________. As of the Cut-
off Date, the adjustable rate assets had a weighted average original term to
stated maturity of approximately ______ months, and a weighted average remaining
term to stated maturity of approximately ____ months. The remaining term to
stated maturity of an asset is calculated as the number of monthly payments
scheduled to be made on the asset over its term less the number of monthly
payments made or scheduled to have been made on or before the Cut-off Date. The
average Scheduled Principal
S-22
<PAGE>
Balance of the adjustable rate assets as of the Cut-off Date was approximately
$________ and the Scheduled Principal Balance of the adjustable rate assets as
of the Cut-off Date ranged from $________ to $________. Approximately ____% of
the adjustable rate assets have Loan-to-Value Ratios greater than 95%.
The adjustable rate assets are secured by mortgaged properties located in
____ states. Approximately [greater than 10]%, [greater than 10]%, [greater than
------------- ------------ ------------
10]%, [greater than 10]% and [greater than 10]% of the adjustable rate assets
------------ ------------
were secured as of the Cut-off Date by mortgaged properties located in
__________, __________, __________, __________ and __________, respectively.
Selected Data
It is possible that some of the assets may be repaid in full or in part, or
otherwise removed from the asset pool. In this event, other assets may be
transferred to the trust. Consequently, the actual asset pool may vary slightly
from the presentation in this prospectus supplement.
Whenever reference is made to a percentage of the assets, or to a
percentage of the Scheduled Principal Balance of the assets, the percentage is
calculated based on the Scheduled Principal Balances of the assets as of the
Cut-off Date. In addition, numbers in any columns in these tables may not sum
exactly to the total number at the bottom of the column due to rounding.
Fixed Rate Assets
Geographic Distribution of Mortgage assets -- Fixed Rate Assets
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Fixed Rate
Fixed Rate Scheduled Asset Pool
Geographic Location Assets Principal Balance By SPB
- ------------------- ---------- ----------------- --------------
<S> <C> <C> <C>
Alabama.................... _____ _________ ____
Arizona.................... _____ _________ ____
Arkansas................... _____ _________ ____
California................. _____ _________ ____
Colorado................... _____ _________ ____
Delaware................... _____ _________ ____
Florida.................... _____ _________ ____
Georgia.................... _____ _________ ____
Idaho...................... _____ _________ ____
Illinois................... _____ _________ ____
Indiana.................... _____ _________ ____
Kansas..................... _____ _________ ____
Kentucky................... _____ _________ ____
Louisiana.................. _____ _________ ____
Maine...................... _____ _________ ____
Maryland................... _____ _________ ____
</TABLE>
S-23
<PAGE>
<TABLE>
<S> <C> <C> <C>
Michigan................... _____ _________ ____
Minnesota.................. _____ _________ ____
Mississippi................ _____ _________ ____
Missouri................... _____ _________ ____
Montana.................... _____ _________ ____
Nevada..................... _____ _________ ____
New Jersey................. _____ _________ ____
New Mexico................. _____ _________ ____
New York................... _____ _________ ____
North Carolina............. _____ _________ ____
Ohio....................... _____ _________ ____
Oklahoma................... _____ _________ ____
Oregon..................... _____ _________ ____
Pennsylvania............... _____ _________ ____
South Carolina............. _____ _________ ____
Tennessee.................. _____ _________ ____
Texas...................... _____ _________ ____
Utah....................... _____ _________ ____
Virginia................... _____ _________ ____
Washington................. _____ _________ ____
West Virginia.............. _____ _________ ____
Wisconsin.................. _____ _________ ____
WyOMIng....................
Total................. $ %
===== ========= ====
</TABLE>
_________________
Based on the mailing address of the obligor on the related Fixed Rate Asset as
of the Cut-off Date.
Distribution of Original Fixed Rate Asset Amounts
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Fixed Rate Asset Amount Assets Principal Balance Pool By SPB
- -------------------------------- ---------- ------------------ ----------------
<S> <C> <C> <C>
$4,999 or less.................. _____ _________ _________
$5,000 - $ 9,999............... _____ _________ _________
$10,000 - $14,999............... _____ _________ _________
$15,000 - $19,999............... _____ _________ _________
$20,000 - $24,999............... _____ _________ _________
$25,000 - $29,999............... _____ _________ _________
$30,000 - $34,999............... _____ _________ _________
$35,000 - $39,999............... _____ _________ _________
$40,000 - $44,999............... _____ _________ _________
$45,000 - $49,999............... _____ _________ _________
</TABLE>
S-24
<PAGE>
<TABLE>
<S> <C> <C> <C>
$50,000 - $54,999............... _____ _________ _________
$55,000 - $59,999............... _____ _________ _________
$60,000 - $64,999............... _____ _________ _________
$65,000 - $69,999............... _____ _________ _________
$70,000 - $74,999............... _____ _________ _________
$75,000 - $79,999............... _____ _________ _________
$80,000 - $84,999............... _____ _________ _________
$85,000 - $89,999............... _____ _________ _________
$90,000 - $94,999............... _____ _________ _________
$95,000 - $99,999............... _____ _________ _________
$100,000 or more............... _____ _________ _________
Total .................... $ %
===== ========= =========
</TABLE>
The highest original Fixed Rate Asset amount was $_________, which
represents approximately _____% of the aggregate principal balance of the Fixed
Rate Assets at origination. The average original principal amount of the Fixed
Rate Assets was approximately $______ as of the Cut-off Date.
Distribution of Original Loan-to-Value Ratios of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
- ------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
50% or less........... _____ _________ ____
51% - 55%............ _____ _________ ____
56% - 60%............ _____ _________ ____
61% - 65%............ _____ _________ ____
66% - 70%............ _____ _________ ____
71% - 75%............ _____ _________ ____
76% - 80%............ _____ _________ ____
81% - 85%............ _____ _________ ____
86% - 90%............ _____ _________ ____
91% - 95%............ _____ _________ ____
96% - 100%............ _____ _________ ____
101%- 110%............ _____ _________ ____
Total.......... $ %
===== ========= ====
</TABLE>
The weighted average original Loan-to-Value Ratio of the Fixed Rate Assets
was approximately ____% as of the Cut-off Date. Rounded to nearest 1%.
S-25
<PAGE>
Fixed Rate Asset Rates
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
- ---------- ----------- ----------------- -----------------
<S> <C> <C> <C>
6.000 - 6.999%.......... _____ _________ _________
7.000 - 7.999%.......... _____ _________ _________
8.000 - 8.999%.......... _____ _________ _________
9.000 - 9.999%.......... _____ _________ _________
10.000 - 10.999%.......... _____ _________ _________
11.000 - 11.999%.......... _____ _________ _________
12.000 - 12.999%.......... _____ _________ _________
13.000 - 13.999%.......... _____ _________ _________
14.000 - 14.999%.......... _____ _________ _________
Total ..................... $ %
===== ========= =========
</TABLE>
The weighted average Fixed Rate Asset Rate was approximately _____1% per
annum as of the Cut-off Date. This table reflects the Fixed Rate Asset Rates of
the step-up rate loans as of the Cut-off Date and does not reflect any
subsequent increases in the Rates of the step-up rate loans.
Year of Origination of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
- ------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
1996................................. _____ _________ ____
1997................................. _____ _________ ____
1998................................. _____ _________ ____
1999................................. _____ _________ ____
Total................................ $ %
===== ========= ====
</TABLE>
The weighted average seasoning of the Fixed Rate Assets was approximately
___ months as of the Cut-off Date.
S-26
<PAGE>
Remaining Terms to Maturity, in months, of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
1 - 60 months....................... _____ _________ ____
61 - 96 months....................... _____ _________ ____
97 - 120 months....................... _____ _________ ____
121 - 156 months....................... _____ _________ ____
157 - 180 months....................... _____ _________ ____
181 - 216 months....................... _____ _________ ____
217 - 240 months....................... _____ _________ ____
241 - 300 months....................... _____ _________ ____
301 - 360 months....................... _____ _________ ____
Total.............................. $ %
===== ========= ====
</TABLE>
The weighted average remaining term to maturity of the Fixed Rate Assets
was approximately ____ months as of the Cut-off Date.
S-27
<PAGE>
Original Terms to Maturity, in months, of Fixed Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Term to Maturity Assets Principal Balance Pool By SPB
- ------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
1 - 60 months .......... _____ _________ ____
61 - 96 months .......... _____ _________ ____
97 - 120 months ......... _____ _________ ____
121 - 156 months ......... _____ _________ ____
157 - 180 months ......... _____ _________ ____
181 - 216 months ......... _____ _________ ____
217 - 240 months ......... _____ _________ ____
241 - 300 months ......... _____ _________ ____
301 - 360 months ......... _____ _________ ____
Total ................... $ %
===== ========= ====
</TABLE>
The weighted average original term to maturity of the Fixed Rate Assets was
approximately ___ months as of the Cut-off Date.
Adjustable Rate Assets
Geographic Distribution of Assets - Adjusted Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Geographic Location Assets Principal Balance Pool By SPB
- ------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
Arizona.................. _____ _________ ____
California............... _____ _________ ____
Colorado................. _____ _________ ____
Florida.................. _____ _________ ____
Georgia.................. _____ _________ ____
Idaho.................... _____ _________ ____
Kentucky................. _____ _________ ____
New Mexico............... _____ _________ ____
North Carolina........... _____ _________ ____
Oregon................... _____ _________ ____
South Carolina........... _____ _________ ____
Tennessee................ _____ _________ ____
Virginia................. _____ _________ ____
Washington............... _____ _________ ____
Total.................... $ %
===== ========= ====
</TABLE>
Based on the mailing address of the obligor on the related adjustable rate
asset as of the Cut-off Date.
S-28
<PAGE>
Distribution of Original Adjustable Rate Asset Amounts
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Adjustable Rate Asset Amount Assets Principal Balance Pool By SPB
- ------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
$45,000 - $49,999.................... _____ _________ ______
$55,000 - $59,999.................... _____ _________ ______
$60,000 - $64,999.................... _____ _________ ______
$65,000 - $69,999.................... _____ _________ ______
$70,000 - $74,999.................... _____ _________ ______
$75,000 - $79,999.................... _____ _________ ______
$80,000 - $84,999.................... _____ _________ ______
$85,000 - $89,999.................... _____ _________ ______
$90,000 - $94,999.................... _____ _________ ______
$95,000 - $99,999.................... _____ _________ ______
$100,000 or more..................... _____ _________ ______
Total $ %
===== ========= ======
</TABLE>
The highest original adjustable rate asset amount was $__________, which
represents approximately _____% of the aggregate principal balance of the
adjustable rate assets at origination. The average original principal amount of
the adjustable rate assets was approximately $_______ as of the Cut-off Date.
Distribution of Original Loan-to-Value Ratios of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
- ---------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
51% -- 55% _____ _________ ____
66% -- 70% _____ _________ ____
71% -- 75% _____ _________ ____
76% -- 80% _____ _________ ____
81% -- 85% _____ _________ ____
86% -- 90% _____ _________ ____
91% -- 95% _____ _________ ____
96% -- 100% _____ _________ ____
101% -- 105% _____ _________ ____
Total $ %
===== ========= ====
</TABLE>
The weighted average original Loan-to-Value Ratio of the Adjustable Assets
was approximately _____% as of the Cut-off Date. Rounded to nearest 1%.
S-29
<PAGE>
Current Asset Rates of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
- ---------- ---------- ----------------- -----------------
<S> <C> <C> <C>
7.000% - 7.999%......... _____ _________ ____
8.000% - 8.999%......... _____ _________ ____
9.000% - 9.999.......... _____ _________ ____
Total $ %
===== ========= ====
</TABLE>
The weighted average adjustable rate asset Rate was approximately _____%
per annum as of the Cut-off Date. This table reflects the Asset Rates of the
adjustable rate assets as of the Cut-off Date and does not reflect any
subsequent adjustments in the Asset Rates of the adjustable rate assets.
Distribution of Gross Margins of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Gross Margin Assets Principal Balance Pool By SPB
- ------------ ---------- ----------------- -----------------
<S> <C> <C> <C>
3.250% - 3.500%...... _____ _________ ____
4.500% - 4.750%...... _____ _________ ____
Total............. $ %
===== ========= ====
</TABLE>
The weighted average Gross Margin of the adjustable rate assets was
approximately ____% per annum as of the Cut-off Date.
Maximum Asset Rates of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Maximum Asset Rates Assets Principal Balance Pool By SPB
- ------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
13.000% to 13.625%....... _____ _________ ____
14.000% to 14.625%....... _____ _________ ____
Total................. $ %
===== ========= ====
</TABLE>
The weighted average maximum Asset Rate of the adjustable rate assets was
approximately ______% per annum as of the Cut-Off Date.
S-30
<PAGE>
Year of Origination of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
- ------------------- ------ ----------------- -----------
<S> <C> <C> <C>
1997................. _____ _________ ____
1998................. _____ _________ ____
Total............. $ %
===== ========= ====
</TABLE>
The weighted average seasoning of the adjustable rate assets was
approximately ___ months as of the Cut-off Date.
Remaining Terms to Maturity, in months, of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ------ ----------------- -----------
<S> <C> <C> <C>
348 - 360 months........... _____ _________ ____
Total................... $ %
===== ========= ====
</TABLE>
The weighted average remaining term to maturity of the adjustable rate
assets was approximately ____ months as of the Cut-off Date.
Original Terms to Maturity, in months, of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Terms to Maturity Assets Principal Balance Pool By SPB
- -------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
360 months................ _____ _________ ____
Total.................... $ %
===== ========= ====
</TABLE>
The weighted average original term to maturity of the adjustable rate
assets was approximately ___ months as of the Cut-off Date.
S-31
<PAGE>
Date of Next Asset Rate Adjustment of Adjustable Rate Assets
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Date of Next Asset Rate Adjustment Assets Principal Balance Pool By SPB
- ---------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
August 1, 1999.................... _____ _________ ____
August 15, 1999................... _____ _________ ____
October 1, 1999................... _____ _________ ____
November 1, 1999.................. _____ _________ ____
December 1, 1999.................. _____ _________ ____
January 1, 2000................... _____ _________ ____
Total $ %
===== ========= ====
</TABLE>
Underwriting Guidelines
The mortgage assets were underwritten by [Asset Seller] and were
underwritten and originated substantially in accordance with its guidelines
[Description of Underwriting Policies from Asset Seller].
Conveyance of Assets
On the date of issuance of the certificates [or on each Subsequent Transfer
Date], National Mortgage will transfer to the trustee, without recourse, all of
its right, title and interest in and to the assets, including all principal and
interest received on or with respect to the assets, not including principal and
interest due on the assets on or before the Cut-off Date and any other amounts
collected on the assets before the Cut-off Date other than early collections of
Monthly Payments that were due after the Cut-off Date, and all rights under the
standard hazard insurance policies maintained with respect to the mortgaged
properties. [The pooling and master servicing agreement permits the trust to
purchase Subsequent Assets on one or more dates through the close of business on
________ (each, a "Subsequent Transfer Date").] The asset schedule will
identify the Scheduled Principal Balance of each asset, the amount of each
monthly payment due on each asset, and the asset rate on each asset, in each
case as of the Cut-off Date. Prior to the conveyance of the assets to the
trustee, [Asset Seller]'s operations department will complete a review of all of
the mortgage asset files, including the certificates of title to, or other
evidence of a perfected security interest in, the mortgaged properties to check
the accuracy of the asset schedule delivered to the trustee. The trustee will
complete a review of the mortgage asset files to check the accuracy of the
mortgage asset schedule.
National Mortgage will represent and warrant only that:
. the information set forth in the asset schedule was true and correct
as of the date or dates on which the information was furnished;
. National Mortgage is the owner of, or holder of a first-priority
security interest in, each asset;
S-32
<PAGE>
. National Mortgage acquired its ownership of, or security interest in,
each asset in good faith without notice of any adverse claim;
. except for the sale of the assets to the trustee, National Mortgage
has not assigned any interest or participation in any asset that has
not been released; and
. National Mortgage has the full right to sell the trust estate to the
trustee.
The servicer, on behalf of the certificateholders, will hold the original
and copies of documents and instruments relating to each asset and the security
interest in the asset and any asset property relating to each asset. In order
to provide notice of the assignment of the assets to the trustee, UCC-1
financing statements identifying the trustee as the secured party or purchaser
and identifying all the assets as collateral will be filed in the appropriate
offices in the _________________. Despite these filings, if a subsequent
purchaser were able to take physical possession of the asset without notice of
the assignment of the asset to the trustee, the trustee's interest in the
contracts could be defeated. To provide some protection against this
possibility, in addition to filing UCC-1 financing statements, within one week
after the initial delivery of the certificates or after each Subsequent Transfer
Date, as applicable, the assets will be stamped or otherwise marked to reflect
their assignment to the trustee. The trustee, on behalf of the
certificateholders, will hold the original mortgage notes and mortgages, and
copies of documents and instruments relating to each mortgage loan. See "Legal
Aspects of the Mortgage Loans" in the prospectus.
[Asset Seller] will make representations and warranties regarding the
assets in the sales agreement. These representations and warranties are
detailed in the prospectus under the heading "Sale and Servicing of the Mortgage
assets --- Representations and Warranties."
Under the terms of the pooling and master servicing agreement and the sales
agreement, and subject to [Asset Seller]'s option to effect a substitution as
described in the next paragraph, [Asset Seller] will be obligated to repurchase
any asset for its Repurchase Price within 90 days after [Asset Seller]'s
discovery, or receipt of written notice from the trustee or the servicer, of a
breach of any representation or warranty made by [Asset Seller] in the sales
agreement that materially and adversely affects the trustee's interest in any
asset, if the breach has not been cured by the 90th day. The Repurchase Price
for any asset will be the unpaid principal balance of the asset at the close of
business on the date of repurchase, plus accrued and unpaid interest thereon to
the next Due Date for the asset following the repurchase. Prior to being
distributed to certificateholders, this Repurchase Price will be used to
reimburse the servicer for any previously unreimbursed Advances made by the
servicer in respect of the repurchased asset and, if the repurchaser is the
servicer, the Repurchase Price may be remitted net of reimbursement amounts.
In lieu of repurchasing an asset as specified in the preceding paragraph,
during the two-year period following the date of the initial issuance of the
certificates, [Asset Seller] may, at its option, substitute a qualified
substitute asset for any asset to be replaced. A qualified substitute asset is
any asset that, on the date of substitution,
S-33
<PAGE>
. has an unpaid principal balance not greater than, and not more than
$10,000 less than, the unpaid principal balance of the replaced asset,
. has an asset rate not less than, and not more than one percentage
point in excess of, the asset rate of the replaced asset,
. has a net rate at least equal to the net rate of the replaced asset,
. has a remaining term to maturity not greater than, and not more than
one year less than, that of the replaced asset,
. has a Loan-to-Value Ratio as of the first day of the month in which
the substitution occurs equal to or less than the Loan-to-Value Ratio
of the replaced asset as of such date, in each case, using the
appraised value at origination, and after taking into account the
monthly payment due on this date, and
. complies with each representation and warranty in Section _____ of the
pooling and master servicing agreement and in the sales agreement.
In the event that more than one asset is substituted for a replaced asset, the
unpaid principal balances may be determined on an aggregate basis, and the asset
rate, net rate and term on a weighted average basis, provided that no qualified
substitute asset may have an original term to maturity beyond the latest
original term to maturity of any asset assigned to the trust on the closing
date. In the case of a trust for which a REMIC election has been made, a
qualified substitute asset also shall satisfy the following criteria as of the
date of its substitution for a replaced asset:
. the asset shall not be 30 or more days delinquent,
. the asset file for such asset shall not contain any material
deficiencies in documentation, and shall include an executed contract
or mortgage note, as applicable, and, if it is a Land Secured Contract
or a mortgage loan, a recorded mortgage;
. the Loan-to-Value Ratio of the asset must be 125% or less either on
the date of origination of the asset, or, if any of the terms of such
asset were modified other than in connection with a default or
imminent default on such asset, on the date of such modification, or
on the date of the substitution, based on an appraisal conducted
within the 60 day period prior to the date of the substitution, if
applicable;
. no property securing such asset may be the subject of foreclosure,
bankruptcy, or insolvency proceedings; and
. such asset, if a mortgage asset, must be secured by a valid first lien
on the related real property or mortgaged property.
S-34
<PAGE>
In addition, any replaced asset that is a mortgage loan may only be
replaced by another mortgage loan.
[Asset Seller] will deposit cash into the certificate account in the
amount, if any, by which the aggregate of the unpaid principal balances of any
replaced assets exceeds the aggregate of the unpaid principal balances of the
assets being substituted for the replaced assets. Also, if it is discovered
that the actual Scheduled Principal Balance of an asset is less than the
Scheduled Principal Balance identified for the asset on the asset schedule,
[Asset Seller] may, at its option, deposit the amount of the discrepancy into
the certificate account instead of repurchasing the asset. Any deposit will be
treated as a partial principal prepayment.
In addition, [Asset Seller] is required to indemnify National Mortgage and
its assignees, including the trust, against losses and damages they incur as a
result of breaches of [Asset Seller]'s representations and warranties. [Asset
Seller]'s obligation to repurchase or substitute for an asset affected by a
breach of a representation or warranty and to indemnify National Mortgage and
its assignees for losses and damages caused by a breach constitute the sole
remedies available to the trustee and the certificateholders for a breach of a
representation or warranty under the pooling and master servicing agreement or
the sales agreement with respect to the assets.
[Conveyance of Subsequent Assets and Pre-Funding Account
A Pre-Funding Account will be established by the trustee and funded by
National Mortgage on the closing date to provide the trust with funds to
purchase Subsequent Assets. The Subsequent Assets will be purchased by the
trust during the Pre-Funding Period, which will begin on the closing date and
end on ______ __, _____. The Pre-Funded Amount will initially equal the
difference between the aggregate certificate principal balance of the offered
certificates on the closing date and the aggregate Scheduled Principal Balance
of the initial assets as of the Cut-Off Date. In the event that the trust is
unable to acquire sufficient qualifying assets by _______, any amounts remaining
in the Pre-Funding Account will be applied as a partial principal prepayment to
certificateholders entitled to the payment on the first date distributions are
made. The Pre-Funding Account will be part of the trust but not part of the
Pooling REMIC or the Issuing REMIC. Any investment income earned on amounts on
deposit in the Pre-Funding Account will be paid to National Mortgage and will
not be available for distribution to certificateholders.
Under the pooling and master servicing agreement, the trust will be
obligated to purchase Subsequent Assets from National Mortgage during the Pre-
Funding Period, if available. Subsequent Assets will be transferred to the
trust pursuant to subsequent transfer instruments between National Mortgage and
the trust. Each Subsequent Asset, if it is a mortgage asset, will have been
underwritten in accordance with National Mortgage's standard underwriting
criteria. In connection with the purchase of Subsequent Assets on each
Subsequent Transfer Date, the trust will be required to pay to National Mortgage
from amounts on deposit in the Pre-Funding Account a cash purchase price of 100%
of the Scheduled Principal Balance of the Subsequent
S-35
<PAGE>
Assets as of the related Cut-Off Date. Any conveyance of Subsequent Assets on a
Subsequent Transfer Date must satisfy conditions including, but not limited to:
. each Subsequent Asset must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the
pooling and master servicing agreement;
. National Mortgage will not select Subsequent Assets in a manner that
it believes is adverse to the interests of the certificateholders;
. each Subsequent Asset must not be more than 30 days delinquent as of
its Cut-off Date;
. as a result of the purchase of the Subsequent Assets, the certificates
will not receive from _______ or ________ a lower credit rating than
the rating assigned at the initial issuance of the certificates; and
. an independent accountant will provide a letter stating whether or not
the characteristics of the Subsequent Assets conform to the
characteristics described in this prospectus supplement.
Following the end of the Pre-Funding Period, the asset pool must satisfy the
following criteria:
. the weighted average asset rate must not be less than ____% or more
than ____%;
. the weighted average remaining term to stated maturity must not be
less than ____ months or more than ____ months;
. the weighted average Loan-to-Value Ratio must not be greater than
____%;
. not less than ____% of the asset pool, by Scheduled Principal Balance,
must be attributable to loans to purchase new assets;
. not more than ____%, ____% and ____% of the assets located in
_______________, ______________, or any other individual state,
respectively, and
. not less than ____% of the assets will be either [Land Secured
Contracts] or [mortgage loans.]
Information regarding Subsequent Assets comparable to the disclosure
regarding the initial assets provided in this prospectus supplement will be
filed on a report on Form 8-K with the SEC within 15 days following the end of
the Pre-Funding Period.]
Maturity and Prepayment Considerations
The assets had terms to maturity at origination ranging from ___ months to
360 months, but may be prepaid in full or in part at any time. The prepayment
experience of the assets, including prepayments due to liquidations of defaulted
assets, will affect the weighted average
S-36
<PAGE>
life of each class of the certificates. Based on [Asset Seller]'s experience
with the portfolio of Mortgage assets it services, [Asset Seller] anticipates
that a number of assets will be liquidated or prepaid in full prior to their
respective maturities. A number of factors, including homeowner mobility,
general and regional economic conditions and prevailing interest rates may
influence prepayments. In addition, any repurchases of assets on account of
breaches of representations and warranties will have the same effect as
prepayments of the assets and accordingly will affect the life of the
certificates. Natural disasters may also influence prepayments. Most of the
Assets contain provisions that prohibit the obligors from selling an underlying
mortgaged property without the prior consent of the holder of the asset. These
provisions may not be enforceable in some states. The servicer's policy is to
permit most sales of mortgaged properties without accelerating the assets where
the proposed buyer meets [Asset Seller]'s then-current underwriting standards
and either enters into an assumption agreement or executes a new note, contract
or other form of indebtedness for the unpaid balance of the existing asset. The
execution of a new contract or mortgage note and mortgage would have the same
effect as a prepayment of the existing asset in full. See "Certain Legal Aspects
of Mortgage Loans" in the prospectus.
Weighted Average Lives of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the assets on the weighted average life of each class of the
offered certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced with respect to the assets.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average lives of the
offered certificates will be affected by the rate at which principal on the
assets is paid. Principal payments on assets may be in the form of scheduled
amortization or prepayments --- for this purpose, the term prepayment includes
any voluntary prepayment by an obligor, the receipt of Liquidation Proceeds upon
disposition of the property securing any defaulted asset and the receipt of the
Repurchase Price for any asset upon its repurchase by [Asset Seller] as a result
of any breaches of its representations and warranties. Prepayments on contracts
and mortgage loans may be measured relative to a prepayment standard or model.
The [prepayment model] (the "[[prepayment model]]") is based on an assumed rate
of prepayment each month of the then unpaid principal balance of a pool of new
assets. A prepayment assumption of 100% [prepayment model] assumes constant
prepayment rates of ___% per annum of the then unpaid principal balance of the
assets in the first month of the life of the contracts and mortgage loans and an
additional ____% per annum in each month thereafter until the 24th month.
Beginning in the 24th month and in each month thereafter during the life of all
of the contracts and mortgage loans, 100% [prepayment model] assumes a constant
prepayment rate of ____% per annum each month.
As used in the following tables "0% [[prepayment model]]" assumes no
prepayments on the assets; "100% [prepayment model]" assumes the assets will
prepay at rates equal to 100% of the [prepayment model] assumed prepayment
rates; "200% [prepayment model]" assumes the
S-37
<PAGE>
assets will prepay at rates equal to 200% of the [prepayment model] assumed
prepayment rates; and so on.
There is no assurance, however, that the rate of prepayments of the assets
will conform to any level of the [prepayment model], and no representation is
made that the assets will prepay at the prepayment rates shown or any other
prepayment rate. National Mortgage makes no representations as to the
appropriateness of the [prepayment model].
Modeling Assumptions and [prepayment model] Tables
The asset prepayment tables (the "[prepayment model] Tables") were prepared
based upon the assumptions that there are no delinquencies on the assets and
that there will be a sufficient Available Distribution Amount to distribute all
accrued interest and the Principal Distribution Amount due (collectively, the
"Modeling Assumptions").
The percentages and weighted average lives in the following tables were
determined assuming that
. scheduled interest and principal payments on the assets will be
received each month on their Due Dates and full prepayments on and
liquidations of the assets will be received on the last day of each
month, commencing in ________ 1999, and will include 30 days of
interest thereon,
. the servicer exercises the right of optional termination at the
earliest possible date,
. the assets have the characteristics set forth in the two tables
provided,
. the initial certificate principal balance and pass-through rate of
each class of the offered certificates are as described in this
prospectus supplement,
. no Due Date Interest Shortfalls will arise in connection with
prepayments in full or liquidations of the assets,
. no losses will be experienced on any assets included in the asset
pool,
. the closing date for the issuance of the certificates will be
_________, 1999,
. cash distributions will be received by the holders of the certificates
on ________ 15, 1999 and on the 15th day of each month until
retirement of the certificates,
. 1 year CMT is assumed to be ____% per annum, and One-Month LIBOR is
assumed to be ____% per annum, and
. the assets will prepay monthly at the percentages of [prepayment
model] indicated in the [prepayment model] Tables.
S-38
<PAGE>
No representation is made that the assets will experience delinquencies or
losses at the respective rates assumed or at any other rates.
Assumed Fixed Rate Asset Characteristics
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to
As of the Asset Maturity Seasoning
Cut-off-Date Rate (Months) (Months)
----------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Level Pay Assets
1 ................................ ____________ ____________ ____________ ____________
2 ................................ ____________ ____________ ____________ ____________
3 ................................ ____________ ____________ ____________ ____________
4 ................................ ____________ ____________ ____________ ____________
5 ................................ ____________ ____________ ____________ ____________
</TABLE>
Step-Up Rate Assets
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to Months to Months to Months to First Step Second Step Third Step
As of the Asset Maturity Seasoning First Second Third Rate Rate Rate
Cut-off-Date Rate (Months) (Months) Step Step Step Step Step Step
----------------- ------ ----------- --------- -------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 .......... ----------------- ------ ----------- --------- -------- --------- --------- ---------- ---------- ---------
2 .......... ----------------- ------ ----------- --------- -------- --------- --------- ---------- ---------- ---------
3 .......... ----------------- ------ ----------- --------- -------- --------- --------- ---------- ---------- ---------
</TABLE>
- ----------
* Not applicable.
Assumed Adjustable Rate Asset Characteristics
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to Months to Lifetime Periodic Rate
As of the Asset Maturity Seasoning Gross Next Rate Rate Rate Frequency
Cut-off-Date Rate (Months) (Months) Margin Change Cap Cap Index Months
----------------- ------ ----------- --------- -------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 .......... $---------------- -----% ----------- --------- -------% --------- --------% --------% 1 year CMT ---------
</TABLE>
There will be discrepancies between the assets actually included in the
trust and the assumptions made as to the characteristics of the assets in
preparing the [prepayment model] Tables. There is no assurance that prepayment
of the assets will conform to any of the constant percentages of [prepayment
model] described in the [prepayment model] Tables or any other constant rate.
Among other things, the [prepayment model] Tables assume that the assets prepay
at the indicated constant percentages of [prepayment model], even though the
assets may vary substantially as to asset rates and original terms to maturity.
Variations in actual prepayment experience for the assets will increase or
decrease the percentages of initial principal balances and weighted average
lives shown in the [prepayment model] Tables. Assuming no prepayments, the
step-up rate loans and the Adjustable Rate Loans will cause the Weighted Average
Net Asset Rate for the assets to rise from approximately _____% per annum at the
Cut-
S-39
<PAGE>
off Date to a maximum of approximately _____% per annum, as the asset rates on
the step-up rate loans and the Adjustable Rate Loans increase. Weighted Average
Net Asset Rate means for any distribution date, a rate equal to
. the weighted average of the asset rates applicable to the scheduled
monthly payments that were due in the related Collection Period on
outstanding assets, less
. the Servicing Fee Rate.
The [prepayment model] Tables indicate the weighted average life of each
class of the offered certificates and set forth the percentage of the initial
certificate principal balance of each class of the offered certificates that
would be outstanding after each of the dates shown assuming prepayments of the
assets occur at various percentages of [prepayment model]. The weighted average
life of each class set forth in the [prepayment model] Tables has been
determined by multiplying the amount of each principal payment on the class by
the number of years from the date of delivery of the certificates of the class
to the related distribution date, summing the results and dividing the sum by
the total principal to be paid on the certificates of the class. See "Maturity
and Prepayment Considerations" in the prospectus.
Please make your investment decisions on a basis that includes your
determination as to anticipated prepayment rates based on your own assumptions
as to the matters discussed in this prospectus supplement.
S-40
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class A-1 Certificates at the following Class A-2 Certificates at the following
Percentages of [prepayment model] Percentages of [prepayment model]
------------------------------------------- -------------------------------------------
0% 100% 150% 200% 250 % 300% 0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent.......... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2000........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2001........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2002........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2003........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2004........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2005........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2006........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2007........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2008........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2009........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2010........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2011........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2012........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2013........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2014........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2015........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2016........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2017........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2018........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2019........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2020........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2021........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2022........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2023........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2024........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2025........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2026........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2027........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2028........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2029........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
Avg Life In Years:....... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
</TABLE>
These [prepayment model] Tables have been prepared based on the
Modeling Assumptions, including the assumptions regarding the
characteristics and performance of the assets, which will differ from their
actual characteristics and performance, and should be read in conjunction
with these assumptions.
S-41
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class A-3 Certificates at the following Class A-4 Certificates at the following
percentages of [prepayment model] percentages of [prepayment model]
------------------------------------- -----------------------------------
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
---- ---- ---- ---- ---- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent.......... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2000........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2001........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2002........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2003........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2004........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2005........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2006........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2007........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2008........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2009........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2010........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2011........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2012........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2013........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2014........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2015........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2016........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2017........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2018........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2019........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2020........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2021........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2022........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2023........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2024........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2025........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2026........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2027........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2028........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2029........... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
Avg Life In Years:....... ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
<CAPTION>
Class A-5 Certificates at the following
percentages of [prepayment model]
-----------------------------------
0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percent.......... ___ ___ ___ ___ ___ ___
_____ 15, 2000........... ___ ___ ___ ___ ___ ___
_____ 15, 2001........... ___ ___ ___ ___ ___ ___
_____ 15, 2002........... ___ ___ ___ ___ ___ ___
_____ 15, 2003........... ___ ___ ___ ___ ___ ___
_____ 15, 2004........... ___ ___ ___ ___ ___ ___
_____ 15, 2005........... ___ ___ ___ ___ ___ ___
_____ 15, 2006........... ___ ___ ___ ___ ___ ___
_____ 15, 2007........... ___ ___ ___ ___ ___ ___
_____ 15, 2008........... ___ ___ ___ ___ ___ ___
_____ 15, 2009........... ___ ___ ___ ___ ___ ___
_____ 15, 2010........... ___ ___ ___ ___ ___ ___
_____ 15, 2011........... ___ ___ ___ ___ ___ ___
_____ 15, 2012........... ___ ___ ___ ___ ___ ___
_____ 15, 2013........... ___ ___ ___ ___ ___ ___
_____ 15, 2014........... ___ ___ ___ ___ ___ ___
_____ 15, 2015........... ___ ___ ___ ___ ___ ___
_____ 15, 2016........... ___ ___ ___ ___ ___ ___
_____ 15, 2017........... ___ ___ ___ ___ ___ ___
_____ 15, 2018........... ___ ___ ___ ___ ___ ___
_____ 15, 2019........... ___ ___ ___ ___ ___ ___
_____ 15, 2020........... ___ ___ ___ ___ ___ ___
_____ 15, 2021........... ___ ___ ___ ___ ___ ___
_____ 15, 2022........... ___ ___ ___ ___ ___ ___
_____ 15, 2023........... ___ ___ ___ ___ ___ ___
_____ 15, 2024........... ___ ___ ___ ___ ___ ___
_____ 15, 2025........... ___ ___ ___ ___ ___ ___
_____ 15, 2026........... ___ ___ ___ ___ ___ ___
_____ 15, 2027........... ___ ___ ___ ___ ___ ___
_____ 15, 2028........... ___ ___ ___ ___ ___ ___
_____ 15, 2029........... ___ ___ ___ ___ ___ ___
Avg Life In Years:....... ___ ___ ___ ___ ___ ___
</TABLE>
These [prepayment model] Tables have been prepared based on the
Modeling Assumptions, including the assumptions regarding the
characteristics and performance of the assets, which will differ from their
actual characteristics and performance, and should be read in conjunction
with these assumptions.
S-42
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class M-1 Certificates at the following Class M-2 Certificates at the following
Percentages of [prepayment model] Percentages of [prepayment model]
----------------------------------------- -------------------------------------------
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2001 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2002 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2003 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2004 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2005 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2006 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2007 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2008 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2009 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2010 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2011 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2012 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2013 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2014 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2015 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2016 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2017 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2018 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2019 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2020 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2021 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2022 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2023 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2024 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2025 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2026 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2027 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2028 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
_____ 15, 2029 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
Avg Life In Years: ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
</TABLE>
These [prepayment model] Tables have been prepared based on the
Modeling Assumptions, including the assumptions regarding the
characteristics and performance of the assets, which will differ from their
actual characteristics and performance, and should be read in conjunction
with these assumptions.
S-43
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class B-1 Certificates at the following
Percentages of [prepayment model]
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------
0% 100% 150% 200% 250% 300%
Initial Percent........... ___ ___ ___ ___ ___ ___
_________ 15,2000......... ___ ___ ___ ___ ___ ___
_________ 15,2001......... ___ ___ ___ ___ ___ ___
_________ 15,2002......... ___ ___ ___ ___ ___ ___
_________ 15,2003......... ___ ___ ___ ___ ___ ___
_________ 15,2004......... ___ ___ ___ ___ ___ ___
_________ 15,2005......... ___ ___ ___ ___ ___ ___
_________ 15,2006......... ___ ___ ___ ___ ___ ___
_________ 15,2007......... ___ ___ ___ ___ ___ ___
_________ 15,2008......... ___ ___ ___ ___ ___ ___
_________ 15,2009......... ___ ___ ___ ___ ___ ___
_________ 15,2010......... ___ ___ ___ ___ ___ ___
_________ 15,2011......... ___ ___ ___ ___ ___ ___
_________ 15,2012......... ___ ___ ___ ___ ___ ___
_________ 15,2013......... ___ ___ ___ ___ ___ ___
_________ 15,2014......... ___ ___ ___ ___ ___ ___
_________ 15,2015......... ___ ___ ___ ___ ___ ___
_________ 15,2016......... ___ ___ ___ ___ ___ ___
_________ 15,2017......... ___ ___ ___ ___ ___ ___
_________ 15,2018......... ___ ___ ___ ___ ___ ___
_________ 15,2019......... ___ ___ ___ ___ ___ ___
_________ 15,2020......... ___ ___ ___ ___ ___ ___
_________ 15,2021......... ___ ___ ___ ___ ___ ___
_________ 15,2022......... ___ ___ ___ ___ ___ ___
_________ 15,2023......... ___ ___ ___ ___ ___ ___
_________ 15,2024......... ___ ___ ___ ___ ___ ___
_________ 15,2025......... ___ ___ ___ ___ ___ ___
_________ 15,2026......... ___ ___ ___ ___ ___ ___
_________ 15,2027......... ___ ___ ___ ___ ___ ___
_________ 15,2028......... ___ ___ ___ ___ ___ ___
_________ 15,2029......... ___ ___ ___ ___ ___ ___
Avg Life In Years:........ ___ ___ ___ ___ ___ ___
<CAPTION>
Class B-2 Certificates at the following
Percentages of [prepayment model]
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------
0% 100% 150% 200% 250% 300%
Initial Percent........... ___ ___ ___ ___ ___ ___
_________ 15,2000......... ___ ___ ___ ___ ___ ___
_________ 15,2001......... ___ ___ ___ ___ ___ ___
_________ 15,2002......... ___ ___ ___ ___ ___ ___
_________ 15,2003......... ___ ___ ___ ___ ___ ___
_________ 15,2004......... ___ ___ ___ ___ ___ ___
_________ 15,2005......... ___ ___ ___ ___ ___ ___
_________ 15,2006......... ___ ___ ___ ___ ___ ___
_________ 15,2007......... ___ ___ ___ ___ ___ ___
_________ 15,2008......... ___ ___ ___ ___ ___ ___
_________ 15,2009......... ___ ___ ___ ___ ___ ___
_________ 15,2010......... ___ ___ ___ ___ ___ ___
_________ 15,2011......... ___ ___ ___ ___ ___ ___
_________ 15,2012......... ___ ___ ___ ___ ___ ___
_________ 15,2013......... ___ ___ ___ ___ ___ ___
_________ 15,2014......... ___ ___ ___ ___ ___ ___
_________ 15,2015......... ___ ___ ___ ___ ___ ___
_________ 15,2016......... ___ ___ ___ ___ ___ ___
_________ 15,2017......... ___ ___ ___ ___ ___ ___
_________ 15,2018......... ___ ___ ___ ___ ___ ___
_________ 15,2019......... ___ ___ ___ ___ ___ ___
_________ 15,2020......... ___ ___ ___ ___ ___ ___
_________ 15,2021......... ___ ___ ___ ___ ___ ___
_________ 15,2022......... ___ ___ ___ ___ ___ ___
_________ 15,2023......... ___ ___ ___ ___ ___ ___
_________ 15,2024......... ___ ___ ___ ___ ___ ___
_________ 15,2025......... ___ ___ ___ ___ ___ ___
_________ 15,2026......... ___ ___ ___ ___ ___ ___
_________ 15,2027......... ___ ___ ___ ___ ___ ___
_________ 15,2028......... ___ ___ ___ ___ ___ ___
_________ 15,2029......... ___ ___ ___ ___ ___ ___
Avg Life In Years:........ ___ ___ ___ ___ ___ ___
</TABLE>
These [prepayment model] Tables have been prepared based on the Modeling
Assumptions, including the assumptions regarding the characteristics and
performance of the assets, which will differ from their actual characteristics
and performance, and should be read in conjunction with these assumptions.
[Pre-Funding
The certificates will be prepaid in part on the first distribution date
after the Pre-Funding Period if any Pre-Funding Amount remains in the Pre-
Funding Account on this distribution date. These amounts will be treated as a
partial principal prepayment. It is expected that substantially all of the Pre-
Funded Amount will be used to acquire Subsequent Assets. It is unlikely,
however, that the aggregate Scheduled Principal Balance of the Subsequent Assets
purchased by the trust will be identical to the Pre-Funded Amount, and
consequently, certificateholders will likely receive some prepayment of
principal.]
S-44
<PAGE>
Factors Affecting Prepayments
The rate of principal payments on pools of assets is influenced by a
variety of economic, geographic, social and other factors, including the
prevailing level of interest rates from time to time and the rate at which
owners of Mortgage assets sell their assets or default on their loans. Other
factors affecting prepayment of assets include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in the mortgaged
properties.
In general, if prevailing interest rates fall significantly below the
interest rates on the assets in your pool, these assets are likely to experience
higher prepayment rates than if prevailing interest rates remained at or above
the rates borne by these assets, because the obligors may refinance and obtain
new loans with lower interest rates and lower monthly payments. Conversely, if
prevailing interest rates rise above the interest rates on these assets, the
rate of prepayment would be expected to decrease because new loans would bear
higher interest rates and require higher monthly payments.
The assets may be prepaid by the obligors at any time without imposition of
any prepayment fee or penalty. In addition, defaults on assets leading to
repossession, and foreclosure in the mortgage loans, and the ultimate
liquidation of the related mortgaged properties, may occur with greater
frequency during their early years. Prepayments, liquidations and repurchases
of the assets will result in distributions of principal to certificateholders of
amounts that would otherwise have been distributed over the remaining terms of
the assets. See "Yield on the Offered Certificates" in this prospectus
supplement.
[Asset Seller], as seller under the sales agreement, may be required to
repurchase assets if it breaches its representations and warranties contained in
the sales agreement, including those relating to the qualification of the assets
for REMIC purposes. Any repurchase of an asset will have the same effect as a
prepayment in full of the asset and will affect your yield to maturity. See "The
Asset Pool -- Conveyance of Contracts" in this prospectus supplement.
The servicer has the option to terminate the trust, thereby causing the
retirement of all outstanding certificates, on any distribution date on or after
the distribution date on which the sum of the certificate principal balance of
the certificates is less than ___% of the sum of their original certificate
principal balance. If the servicer does not exercise its optional termination
rights within 90 days after becoming eligible to do so, the trustee shall
solicit bids for the purchase of all assets, REO properties and repo properties
remaining in the trust. This purchase, if consummated, would likewise cause the
retirement of all outstanding certificates. See "The Trust" in this prospectus
supplement.
Yield on the Offered Certificates
Distributions of interest on the offered certificates, other than the class
A-1 certificates, on any distribution date will include interest accrued thereon
through the last day of the month preceding the month in which this distribution
date occurs. Because interest will not be distributed on the certificates until
the 15th day, or, if this day is not a business day, then on the next succeeding
business day, of the month following the month in which this interest accrues,
S-45
<PAGE>
the effective yield to the holders of the classes of offered certificates will
be lower than the yield otherwise produced by the pass-through rate and purchase
price.
The yield to maturity of, and the amount of distributions on, each class of
the offered certificates will be related to the rate and timing of principal
payments on the assets. The rate of principal payments on the assets will be
affected by the amortization schedules of the assets and by the rate of
principal prepayments, including for this purpose payments resulting from
refinancings, liquidations of the assets due to defaults, casualties,
condemnations and repurchases by or on behalf of National Mortgage or [Asset
Seller], as the case may be. No assurance can be given as to the rate of
principal payments or on the prepayments on the assets.
Delinquencies on assets could produce payment delays and could lead to
repossessions of assets and foreclosures in the case of mortgage loans.
Repossession of assets or foreclosure on a real property or mortgaged property
and the subsequent resale of the home securing assets or a property securing a
mortgage loan may produce net liquidation proceeds that are less than the
Scheduled Principal Balance of the related asset plus interest accrued and the
expenses of sale. This shortfall upon repossession and disposition of an asset
or foreclosure on a real property or mortgaged property would result in a
Realized Loss on the asset.
The timing of changes in the rate of prepayments and defaults on the assets
may affect an investor's actual yield to maturity significantly, even if the
average rate of principal payments and defaults experienced over time is
consistent with an investor's expectations. In general, the earlier a
prepayment of principal of or a default on an asset, the greater will be the
effect on the investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments or defaults occurring at a rate higher --
- - or lower --- than the rate anticipated by the investor during the period
immediately following the issuance of the certificates would not be fully offset
by a subsequent like reduction --- or increase --- in the rate of principal
payments or defaults.
If a purchaser of certificates of a class calculates its anticipated yield
based on an assumed rate of default and an assumed amount of Realized Losses
that are lower than the default rate and amount of Realized Losses actually
incurred and the amount of Realized Losses actually incurred is not entirely
covered by Excess Interest or by the subordination of the certificates of
classes subordinated to the purchaser's class, the purchaser's actual yield to
maturity will be lower than that so calculated. The timing of Realized Losses
on liquidated loans will also affect an investor's actual yield to maturity,
even if the rate of defaults and severity of losses are consistent with an
investor's expectations. There can be no assurance that the delinquency or
repossession experience set forth in this prospectus supplement under the
heading "Servicing of the Assets -- Delinquency and Loan Loss/Repossession
Experience" will be representative of the results that may be experienced with
respect to the assets. There can be no assurance as to the delinquency,
repossession, foreclosure or loss experience with respect to the assets.
If the purchaser of a certificate offered at a discount from its Parity
Price calculates its anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually experienced on the
assets, the actual yield to maturity will be lower than that so
S-46
<PAGE>
calculated. Similarly, if the purchaser of a certificate offered at a premium
above its Parity Price calculates its anticipated yield to maturity based on an
assumed rate of payment of principal that is slower than that actually
experienced on the assets, the actual pre-tax yield to maturity will be lower
than that so calculated. Parity Price is the price at which a security will
yield its coupon.
Generally, a class A certificate will not receive principal until each
class of class A certificates with a lower numerical designation has been paid
in full. The allocation of distributions will have the effect of amortizing the
class A-1, class A-2, class A-3, class A-4 and class A-5 certificates,
particularly the class A-1 certificates, at a faster rate than the rate at which
the certificates would have been amortized if the Principal Distribution Amount
were required to be allocated among the classes of the certificates pro rata
prior to the Cross-over Date.
The holders of the offered subordinated certificates will not be entitled
to receive any distributions of principal on any distribution date unless either
the Cross-over Date has occurred and the Principal Distribution Tests are
satisfied for this distribution date or the certificate principal balance of the
class A certificates has been reduced to zero. Further, payments of principal
will be made on the class B-2 certificates only if tests with respect to the
class B-2 Floor Amount are met. It is not possible to predict with certainty
the timing of the date, if any, on which the Cross-over Date will occur, or
whether the Principal Distribution Tests will be met as to any distribution
date. A high level of Realized Losses or delinquencies could result in the
Principal Distribution Tests not being met for one or more distribution dates.
This would delay the amortization of the offered subordinated certificates,
particularly the class B-2 certificates, beyond what would otherwise be the
case.
While partial prepayments of principal on the assets are applied on Due
Dates for the assets, obligors are not required to pay interest on the assets
after the date of a full prepayment of principal. As a result, full prepayments
of assets in advance of their Due Dates during the Collection Period will reduce
the amount of interest received from obligors during that Collection Period to
less than one month's interest on all the assets. If a sufficient number of
assets are prepaid in full during the Prepayment Period in advance of their
respective Due Dates, then interest payable on all of the assets during the
related Collection Period may be less than the interest payable on all of the
certificates with respect to the Collection Period. If the level of Due Date
Interest Shortfalls was large enough, these shortfalls could result in a
Writedown Amount being allocated to the subordinated certificates. A Writedown
Amount is, with respect to each distribution date, the amount, if any, by which
the aggregate certificate principal balance of all the certificates, after all
distributions have been made on the certificates on that distribution date,
exceeds the Pool Scheduled Principal Balance of the assets for the next
distribution date. See "Description of the Offered Certificates" in this
prospectus supplement.
[Investors in the class A-1 certificates should understand that the pass-
through rate of the class A-1 certificates will not exceed the Weighted Average
Net Asset Rate. Investors in this class should also consider the risk that
lower than anticipated levels of One-Month LIBOR could result in actual yields
to investors that are lower than anticipated yields.]
S-47
<PAGE>
[Investors in the class A-1 certificates should understand that the timing
of changes in the level of One-Month LIBOR may affect the actual yields to
investors even if the average level is consistent with the investor's
expectations. Each investor must make an independent decision as to the
appropriate One-Month LIBOR assumption to be used in deciding whether to
purchase a class A-1 certificate. ]
Because the pass-through rate on the offered subordinated certificates may
vary on the basis of the Weighted Average Net Asset Rate, the pass-through rate
and the yield on these certificates could be affected by disproportionate
collections of principal in respect of assets with different asset rates,
including obligor prepayments and collections resulting from liquidations and
repurchases of assets. Accordingly:
. the yield to maturity of the class M-1 certificates will be lower than
that which would otherwise result if all or a substantial portion of the
assets with net rates higher than _____% per annum prepaid prior to
those with net rates lower than _____% per annum,
. the yield to maturity of the class M-2 certificates will be lower than
that which would otherwise result if all or a substantial portion of the
assets with net rates higher than _____% per annum prepaid prior to
those with net rates lower than _____% per annum,
. the yield to maturity of the class B-1 certificates will be lower than
that which would otherwise result if all or a substantial portion of the
assets with net rates higher than _____% per annum prepaid prior to
those with net rates lower than _____% per annum, and
. the yield to maturity of the class B-2 certificates will be lower than
that which would otherwise result if all or a substantial portion of the
assets with net rates higher than _____% per annum prepaid prior to
those with net rates lower than _____% per annum.
The aggregate amount of distributions and the yield to maturity of the
offered certificates will also be affected by early payments of principal on the
assets resulting from any purchases of assets not conforming to representations
and warranties of [Asset Seller] and by the exercise by the servicer of its
option to purchase the assets and other assets of the trust, thereby effecting
early retirement of any outstanding classes of offered certificates. If the
servicer does not exercise its optional termination right within 90 days after
it first becomes eligible to do so, the trustee shall solicit bids for the
purchase of all assets, REO Properties and Repo Properties remaining in the
trust. The trustee shall sell these assets, REO Properties and Repo Properties
only if the net proceeds to the trust from the sale would at least equal the
Termination Price The net proceeds from the sale will be distributed first to
the servicer to reimburse it for all previously unreimbursed Liquidation
Expenses paid and Advances made by, and not previously reimbursed to, it with
respect to the assets and second to the Holders of the certificates and the
servicer. Accordingly, it is possible that your certificates could be redeemed
at a price less than their outstanding principal amount plus accrued and unpaid
interest.
If the net proceeds from the sale would not at least equal the Termination
Price, the trustee shall decline to sell the assets, REO Properties and Repo
Properties and shall not be under
S-48
<PAGE>
any obligation to solicit any further bids or otherwise negotiate any further
sale of the assets, REO Properties and Repo Properties.
The Trust
General
The certificates will be issued pursuant to the pooling and master
servicing agreement. This summary of the provisions of the pooling and master
servicing agreement does not purport to be complete. Reference is made to the
prospectus for important information in addition to that set forth in this
prospectus supplement regarding the terms and conditions of the offered
certificates. A copy of the pooling and master servicing agreement relating to
the certificates, in the form in which it was executed by National Mortgage, the
servicer and the trustee, without exhibits, will be filed with the SEC in a
Current Report on Form 8-K within 15 days after the closing date.
The trust created pursuant to the pooling and master servicing agreement
will consist of the assets, including all rights to receive payments due on the
assets after the Cut-off Date; assets as from time to time are identified as
deposited in any account held for the benefit of certificateholders, including
the certificate account and the distribution account; any asset, real property
or mortgaged property acquired on behalf of certificateholders by repossession,
foreclosure or by deed in lieu of foreclosure; the rights of the trustee to
receive the proceeds of any standard hazard insurance policies maintained with
respect to the mortgaged properties in accordance with the pooling and master
servicing agreement and of any FHA insurance maintained with respect to the
assets; and certain rights of National Mortgage relating to the enforcement of
representations and warranties made by [Asset Seller] relating to the assets.
The Trustee
The trustee is _______________________________________. Any notices to the
trustee relating to the certificates or the pooling and master servicing
agreement should be sent to
_______________________________________________________________________.
Investors may contact the trustee's corporate trust office by telephone to
ascertain the certificate principal balance of each class of offered
certificates and the then current pass-through rate applicable to each class of
the offered certificates. The telephone number currently maintained by the
trustee for the purpose of reporting this information is (___) ___________.
National Mortgage will file a Current Report on Form 8-K with the SEC within 15
days following the closing date. This Current Report on Form 8-K will specify
the initial principal amount of each class of the certificates.
The trustee may resign at any time, in which event National Mortgage will
be obligated to appoint a successor trustee. National Mortgage may also remove
the trustee if the trustee ceases to be eligible to continue as such under the
pooling and master servicing agreement or if the trustee becomes insolvent. In
these circumstances, National Mortgage will also be obligated
S-49
<PAGE>
to appoint a successor trustee. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
The pooling and master servicing agreement requires the trustee to
maintain, at its own expense, an office or agency where certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the trustee and the Certificate Registrar in respect of the
certificates pursuant to the pooling and master servicing agreement may be
served.
Optional Termination
The servicer may terminate the trust by purchasing all assets, REO
Properties and Repo Properties remaining in the trust on any distribution date
(the "Call Option Date") occurring on or after the distribution date on which
the sum of the Certificate Balance of the certificates is less than [10]% of the
sum of the original certificate principal balance of the certificates. The
trust also may be terminated and the certificates retired on any distribution
date upon the servicer's determination, based on an opinion of counsel, that the
REMIC status of either the Pooling REMIC or the Issuing REMIC has been lost or
that a substantial risk exists that this status will be lost for the then
current taxable year. See "Description of the Certificates -- Optional
Redemption or Termination" in the prospectus.
The Termination Price will equal the greater of
. the sum of
. any Liquidation Expenses incurred by the servicer in respect of any
asset that has not yet been liquidated,
. all amounts required to be reimbursed or paid to the servicer in respect
of previously unreimbursed Advances, and
. the sum of
. the aggregate unpaid principal balance of the assets, plus
accrued and unpaid interest thereon at the asset rates borne by
your assets through the end of the Interest Accrual Period in
respect of the date of the terminating purchase, plus
. the lesser of
. the aggregate unpaid principal balance of each asset that
had been secured by any REO Property or Repo Property
remaining in the trust, plus accrued interest thereon at
the asset rates borne by assets through the end of the
month preceding the month of the terminating purchase, and
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. the current appraised value of any REO Property or Repo
Property, net of Liquidation Expenses to be incurred in
connection with the disposition of this property
estimated in good faith by the servicer, the appraisal
to be conducted by an appraiser mutually agreed upon by
the servicer and the trustee, plus all previously
unreimbursed P&I Advances made in respect of the REO
Property or Repo Property, and
. the aggregate fair market value of the assets of the trust, as
determined by the servicer, plus all previously unreimbursed P&I
Advances made with respect to the assets.
The fair market value of the assets of the trust as determined for purposes of a
terminating purchase shall be deemed to include accrued interest at the
applicable asset rate on the unpaid principal balance of each asset, including
any asset that has become a REO Property or a Repo Property, which REO Property
or Repo Property has not yet been disposed of by the servicer, through the end
of the month preceding the month of the terminating purchase. Accordingly, it is
possible that your certificates could be redeemed by an optional termination at
a price less than their outstanding principal amount plus accrued and unpaid
interest. The basis for a valuation shall be furnished by the servicer to the
certificateholders upon request. See "Description of the Certificates --
Optional Redemption or Termination" in the prospectus.
On the date of any termination of the trust, the Termination Price shall be
distributed first to the servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by and not previously
reimbursed to the servicer with respect to the assets and second to the
certificateholders in accordance with the distribution priorities set forth
under " -- Distributions -- Priority of Distributions" in this prospectus
supplement. The Termination Price shall be deemed to be a principal prepayment
in full, together with related interest, received during the related Prepayment
Period for purposes of determining the allocation of the distributions. Upon
the termination of the trust and payment of all amounts due on the certificates
and all administrative expenses associated with the trust, any remaining assets
of the REMICs shall be sold and the proceeds distributed pro rata to the holders
of the class R certificates. See "Description of the Certificates -- Optional
Redemption or Termination" in the prospectus.
Auction Sale
If the servicer does not exercise its optional termination right within 90
days after it first becomes eligible to do so, the trustee shall solicit bids
for the purchase of all assets, REO Properties and Repo Properties remaining in
the trust. The trustee shall sell the assets, REO Properties and Repo
Properties only if the net proceeds to the trust from the sale would at least
equal the Termination Price, and the net proceeds from the sale will be
distributed first to the servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by, and not previously
reimbursed to, it with respect to the assets and second to the
certificateholders and the servicer in accordance with the distribution
priorities set forth under "Description of the Offered Certificateholders --
Distributions -- Priority of Distributions" in
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<PAGE>
this prospectus supplement. Accordingly, it is possible that your certificates
could be redeemed by reason of an auction sale at a price less than their
outstanding principal amount plus accrued and unpaid interest. If the net
proceeds from the sale would not at least equal the Termination Price, the
trustee shall decline to sell the assets, REO Properties and Repo Properties and
shall not be under any obligation to solicit any further bids or otherwise
negotiate any further sale of the assets, REO Properties and Repo Properties.
Termination of the Agreement
The pooling and master servicing agreement will terminate upon the last
action required to be taken by the trustee on the final distribution date
following the later of the purchase by the servicer of all assets and all
property acquired in respect of any asset remaining in the trust estate, as
described under " -- Optional Termination" and "Auction Sale" in this prospectus
supplement and the final payment or other liquidation, or any related advance,
of the last asset remaining in the trust estate or the disposition of all
property acquired upon repossession or foreclosure on any mortgaged property.
Upon presentation and surrender of the certificates, the trustee shall
cause to be distributed, to the extent of available funds, to the
certificateholders on the final distribution date the amounts due them in
accordance with the pooling and master servicing agreement. The amount
remaining on deposit in the certificate account, other than amounts retained to
meet claims, after all required distributions have been made to the holders of
the offered certificates and the X certificates, or to the Termination Account,
will be paid to the class R certificateholders pro rata, based upon the holders'
respective percentage interests, in accordance with the provisions of the
pooling and master servicing agreement.
Voting Rights
The voting rights of the trust will be allocated [0.5]% to the class R
certificates, [0.5]% to the class X certificates and [99]% to the other
certificates in proportion to their respective certificate principal balances.
For a description of the limited matters on which the certificateholders may
vote, see "The Pooling and Master Servicing Agreements" in the prospectus.
Reports to Certificateholders
The trustee will furnish the certificateholders with monthly statements
prepared by the servicer (each, a "Remittance Report") containing information
with respect to principal and interest distributions on the certificates and
Realized Losses on the assets. Any financial information contained in these
reports will not have been examined or reported upon by an independent public
accountant. Copies of the monthly statements and any annual reports prepared by
the servicer evidencing the status of its compliance with the provisions of a
pooling and master servicing agreement will be furnished to related
certificateholders upon request addressed to the trustee.
A Remittance Report for a distribution date will identify the following
items
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. the Available Distribution Amount for the related distribution date,
. the Interest Distribution Amount and the carryover amounts, as well as
any Writedown Interest Distribution Amount and any Carryover Writedown
Interest Distribution Amount, for each class of the certificates for
the related distribution date, and the amount of interest of each
category to be distributed on each class based upon the Available
Distribution Amount for the related distribution date,
. the amount to be distributed on the related distribution date on each
class of the certificates to be applied to reduce the certificate
principal balance of each class, separately identifying any portion of
the amount attributable to prepayments, and the aggregate of any
Principal Distribution Amounts remaining unpaid from previous
distribution dates for each class of the certificates for the related
distribution date, and the amount to be distributed to reduce any
Principal Distribution Amounts remaining unpaid from previous
distribution dates on each class based upon the Available Distribution
Amount for the related distribution date,
. the aggregate amount of P&I Advances required to be made by the
servicer with respect to the related distribution date,
. the amount of any Realized Losses incurred on the assets during the
related Prepayment Period and in the aggregate since the Cut-off Date
and the amount of any Writedown Amount to be allocated to any class of
the subordinated certificates,
. the certificate principal balance of each class of the certificates and
the certificate principal balance as adjusted for write-downs of each
class of the subordinated certificates after giving effect to the
distributions to be made, and any Writedown Amounts to be allocated, on
the related distribution date,
. the aggregate Interest Distribution Amount remaining unpaid, if any,
and the aggregate carryover amount remaining unpaid, if any, for each
class of certificates, after giving effect to the distributions to be
made on the related distribution date,
. the aggregate Writedown Interest Distribution Amount remaining unpaid,
if any, and the aggregate Carryover Writedown Interest Distribution
Amount remaining unpaid, if any, for each class of certificates, after
giving effect to the distributions to be made on the related
distribution date,
. the aggregate of any Principal Distribution Amounts remaining unpaid
from previous distribution dates, if any, for each class of
certificates, after giving effect to the distributions to be made on
the related distribution date,
. the amount of the aggregate Servicing Fee in respect of the related
distribution date,
. the aggregate number and the aggregate of the unpaid principal balances
of outstanding assets that are delinquent one month --- 30 to 59
days --- as of the end of the related
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<PAGE>
Prepayment Period, delinquent two months --- 60 to 89 days --- as of
the end of the related Prepayment Period, delinquent three months
--- 90 days or longer --- as of the end of the related Prepayment
Period and as to which repossession, foreclosure or other comparable
proceedings have been commenced as of the end of the related Prepayment
Period,
. the aggregate number and the aggregate unpaid principal balance of
outstanding contracts and outstanding mortgage loans, stated
separately, for which the obligor is also a debtor, whether voluntary
or involuntary, in a proceeding under the Bankruptcy Code; and the
aggregate number and the aggregate Unpaid Principle Balance of
outstanding contracts and outstanding mortgage loans for which the
obligor is also a debtor, whether voluntary or involuntary, in a
proceeding under the Bankruptcy Code, stated separately, that are
delinquent one month --- 30 to 59 days --- as of the end of the related
Prepayment Period, delinquent two months --- 60 to 89 days --- as of
the end of the related Prepayment Period, and delinquent three months
--- 90 days or longer --- as of the end of the related Prepayment
Period,
. [the Pre-Funded Amount, if any, in the Pre-Funding Account on the
related distribution date, the amount of funds, if any, used to
purchase Subsequent Assets during the Pre-Funding Period and the amount
of funds, if any allocated as a prepayment of principal at the end of
the Pre-Funding Period,] and
. any other information required to be provided to certificateholders by
the REMIC Provisions.
In the case of information furnished pursuant to the second and third
bullet points, the amounts shall be expressed, with respect to any certificate,
as a dollar amount per $1,000 denomination.
Servicing of the Assets
The Servicer
_______________ is incorporated in the state of ____________. The servicer
is primarily engaged in the business of underwriting, originating, pooling,
selling and servicing [Asset Type]. The servicer's principal offices are
located at _________________________ _______________________________________,
telephone (___) ___-____.
Servicing Portfolio
The servicer services all of the assets it originates or purchases ---
except for some asset portfolios which it sells on a servicing-released basis --
- - collecting loan payments, insurance premiums and other payments from borrowers
and remitting principal and interest payments to the holders of the
certificates. The following table shows the composition of the servicer's
servicing portfolio of assets, secured by a lien on the real estate, on the
dates indicated.
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<PAGE>
Asset Servicing Portfolio
<TABLE>
<CAPTION>
At _________ 30, At ______ 31,
------------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- --------- --------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Total Number of Serviced
Assets
[Asset Seller] Originated.......................
Acquired Portfolios.............................
Aggregate Outstanding Principal Balance
of Serviced Assets
[Asset Seller] Originated.......................
Acquired Portfolios.............................
Average Outstanding Principal Balance
per Serviced Asset
[Asset Seller] Originated.......................
Acquired Portfolios.............................
Weighted Average Interest Rate of Serviced
Assets
[Asset Seller] Originated.......................
Acquired Portfolios.............................
</TABLE>
Delinquency and Loan Loss/Repossession Experience
The following tables set forth information concerning the delinquency
experience and the loan loss and repossession experience of the portfolio
of assets, serviced by the servicer, in each case for each of the
servicer's fiscal years from ____ through ____. Because delinquencies,
losses and repossessions are affected by a variety of economic, geographic
and other factors, there can be no assurance that the delinquency and loss
experience of the assets will be comparable to that set forth.
Delinquency Experience
<TABLE>
<CAPTION>
At _________ 30, At ______ 31,
------------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- --------- --------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
[Loan Seller] Originated..................
Acquired Portfolios.......................
Number of Delinquent Assets
[Loan Seller] Originated:
30 to 59 days past due....................
60 to 89 days past due....................
90 days or more past due..................
Total Number of Assets Delinquent.........
Acquired Portfolios:
30-59 days past due.......................
60-89 days past due.......................
90 days or more past due..................
Total Number of Assets Delinquent.........
Total Delinquencies as a Percentage of Serviced
Assets, by Number of Assets
[Loan Seller] Originated..................
Acquired Portfolios.......................
</TABLE>
______________
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<PAGE>
Assets that are already the subject of repossession or foreclosure procedures
are not included in "delinquent assets" for purposes of this table. The period
of delinquency is based on the number of days payments are contractually past
due, assuming 30-day months. Consequently, a payment due on the first day of a
month is not 30 days delinquent until the first day of the following month.
Loan Loss/Repossession Experience
<TABLE>
<CAPTION>
At or for the
Six Months
At _________ 30, At ______ 31,
------------------------------------------------------ ----------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- --------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Total Number of Serviced Assets at Period End......
Average Number of Serviced Assets During Period.....
Number of Serviced Assets Repossessed...............
Serviced Assets Repossessed as a Percentage of Total
Serviced Assets (1).............................
Serviced Assets Repossessed as a Percentage of Average
Number of
Serviced Assets.................................
Average Outstanding Principal Balance of Assets
[Loan Seller] Originated........................
Acquired Portfolios.............................
Net Losses from Asset Liquidations (2):
Total Dollars
[Loan Seller] Originated........................
Acquired Portfolios.............................
As a Percentage of Average Outstanding Principal
Balance of Assets(3)
[Loan Seller] Originated........................
Acquired Portfolios.............................
</TABLE>
Percentages expressed in the six month tables are annualized.
(1) Total number of serviced assets repossessed during the applicable period
expressed as a percentage of the total number of serviced assets at the end
of the applicable period.
(2) Net losses represent all losses incurred on servicer-serviced portfolios.
Such amounts include estimates of net losses with respect to certain
defaulted assets. The length of the accrual period for the amount of
accrued and unpaid interest included in the calculation of the net loss
varies depending upon the period in which the loss was charged and whether
the asset was owned by an entity other than the servicer.
(3) Total net losses incurred on assets liquidated during the applicable period
expressed as a percentage of the average outstanding principal balance of
all assets.
The servicer owns few of the assets in the foregoing tables, and
accordingly does not maintain loan loss reserves or charge-off loans. The policy
with respect to the vast majority of loans reflected in these tables, which the
servicer services primarily for the accounts of securitization trusts, is to
reflect credit loss only when an REO Property or a Repo Property has been
finally disposed of and not before. In most cases, disposition occurs shortly
after the asset becomes 90 days delinquent; however it may occur before this
time and it may occur later. This policy exists because only at the final
disposition of the collateral does the servicer know with certainty the amount
of the loss, if any, for reporting purposes.
Macroeconomic and social conditions likely are responsible for the trend to
some extent as well, although it is difficult to say for certain. For example,
the U.S. economy has witnessed a general increase in consumer credit over the
past several years, and credit also has been made more generally available to
all economic classes than in the past. Finally, there seems to be an increased
willingness on the part of consumers to seek the protection of federal
bankruptcy laws.
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<PAGE>
The data in the foregoing tables are presented for illustrative purposes
only, and there is no assurance that the delinquency, loan loss and repossession
experience of the assets will be similar to that set forth. The delinquency,
loan loss and repossession experience of assets historically has been sharply
affected by downturns in regional or local economic conditions. For instance, a
downturn was experienced in areas dependent on the oil and gas industry in the
1980s, causing increased levels of delinquencies, repossessions and loan losses
on assets in the affected areas. The asset pool consists primarily of
contracts. Regional and local economic conditions are often volatile, and no
predictions can be made regarding their effects on future economic losses upon
repossessions or as to the levels of losses that will be incurred as a result of
any repossessions of or foreclosures on assets. See "Risk Factors -- You May
Experience A Loss On Your Investment If Losses And Delinquencies On Assets in
The Trust Are High" in this prospectus supplement.
Collection and Other Servicing Procedures
The servicer will administer, service and make collections on the assets,
exercising the degree of care that the servicer exercises with respect to
similar contracts serviced by the servicer.
[Except for the step-up rate loans during their Step-up Periods], each
Fixed Rate Asset bears interest at a fixed annual percentage rate and provides
for level payments over the term of the asset that fully amortize the principal
balance of the asset. All payments received on the assets --- other than
payments allocated to items other than principal and interest or payments
sufficient to pay the outstanding principal balance of and all accrued and
unpaid interest on the assets --- will be applied when received first to any
previously unpaid scheduled monthly payments, and then to the currently due
monthly payment, in the chronological order of occurrence of the Due Dates for
the monthly payments. Any payments on an asset that exceed the amount necessary
to bring the asset current are applied to the partial prepayment of principal of
the asset if the servicer determines, based on specific directions from the
obligor as to the payment or on a course of dealing with the obligor, that the
obligor intended the payment as a partial principal prepayment. If the servicer
cannot determine the obligor's intent with respect to any excess payment, the
servicer will apply the excess payment as an early payment of scheduled monthly
payments for subsequent Due Dates to the extent the excess payment is an
integral multiple of the obligor's scheduled monthly payment, and will apply the
remainder of the excess payment as a partial principal prepayment.
Servicing Compensation and Payment of Expenses
On each distribution date, the servicer will be entitled to receive a
monthly Servicing Fee equal to _____% per annum (the "Servicing Fee Rate")
multiplied by the aggregate Scheduled Principal Balance of the assets at the
beginning of the related Collection Period, without giving effect to any
principal prepayments, net liquidation proceeds and Repurchase Prices received
(or Realized Losses incurred, during the related Prepayment Period). If [Asset
Seller] is the servicer, the Servicing Fee in respect of a distribution date
will be paid pursuant to clause (12) under "Description of the Offered
Certificates -- Distributions" in this prospectus supplement and
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<PAGE>
only to the extent of funds available pursuant to clause (12), except that it
may retain its Servicing Fee out of collections on the assets to the extent that
the amount already on deposit in the certificate account for the related
distribution date will allow the full distribution of all amounts required to be
distributed pursuant to clauses (1) through (11) under "Description of the
Offered Certificates -- Distributions -- Priority of Distributions" in this
prospectus on the related distribution date. If [Asset Seller] is not the
servicer, the Servicing Fee in respect of each asset may be retained by the
servicer at the time of the related collection on the asset or may be withdrawn
from the certificate account at a later time, in which case the amount will not
be part of the Available Distribution Amount.
The Servicing Fee provides compensation for customary third-party servicing
activities to be performed by the servicer for the trust and for additional
administrative services performed by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records with
respect to each asset. Administrative services performed by the servicer on
behalf of the trust include calculating distributions to certificateholders and
providing related data processing and reporting services for certificateholders
and on behalf of the trustee. Expenses incurred in connection with servicing of
the assets and paid by the servicer from its monthly Servicing Fee include,
without limitation, payment of fees and expenses of accountants, payment of all
fees and expenses incurred in connection with the enforcement of contracts or
mortgage loans, except Liquidation Expenses, and payment of expenses incurred in
connection with distributions and reports to certificateholders. The servicer
will be reimbursed out of the Liquidation Proceeds of a defaulted asset for all
reasonable, out-of-pocket Liquidation Expenses incurred by it in repossessing,
foreclosing on and liquidating the related mortgaged property.
As part of its servicing fees, the servicer will also be entitled to
retain, as compensation for the additional services provided in connection with
the pooling and master servicing agreement, any late payment fees made by
obligors, extension fees paid by obligors for the extension of scheduled
payments and assumption fees paid in connection with permitted assumptions of
assets by purchasers of the mortgaged properties, as well as investment earnings
on funds in the certificate account.
Advances
On or prior to the business day preceding each distribution date, the
servicer will either
. deposit from its own funds the related aggregate P&I Advance into the
certificate account,
. cause appropriate entries to be made in the records of the certificate
account that funds in the certificate account that are not part of the
Available Distribution Amount for the related distribution date have
been used to make the aggregate P&I Advance,
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<PAGE>
. if the certificate account is maintained by the trustee, instruct the
trustee to use investment earnings on the certificate account to
defray the servicer's P&I Advance obligation, or
. make or cause to be made the aggregate P&I Advance through any
combination of the methods described.
Any funds held for future distribution and used in accordance with the second
bullet point must be restored by the servicer from its own funds or from early
payments collected on the assets when they become part of a future Available
Distribution Amount. The aggregate required P&I Advance for a distribution date
is the sum of delinquent scheduled monthly payments due in the related
Collection Period, exclusive of all Non-Recoverable Advances.
P&I Advances are intended to maintain a regular flow of scheduled interest
and principal payments to certificateholders rather than to guarantee or insure
against losses.
The servicer will also be obligated to make advances ("Servicing
Advances"), to the extent the servicer deems the Advances recoverable out of
Liquidation Proceeds of, or from collections on, the related contract or
mortgage loan, in respect of Liquidation Expenses and taxes and insurance
premiums not paid by an obligor on a timely basis.
The servicer may reimburse itself for Servicing Advances out of collections
of the late payments in respect of which the Advances were made and, upon the
determination that a Non-recoverable Advance has been made in respect of an
asset or upon an asset becoming a liquidated loan, out of Funds in the
certificate account for unreimbursed amounts advanced by it in respect of the
asset. In addition, the servicer may reimburse itself out of funds in the
certificate account for unreimbursed amounts advanced by it in respect of P&I
Advances.
Successors to Servicer, Delegation of Duties
Any entity with which the servicer is merged or consolidated, or any entity
resulting from any merger, conversion or consolidation to which the servicer is
a party, or any entity succeeding to the business of the servicer, will be the
successor to the servicer under the pooling and master servicing agreement so
long as each rating agency has delivered to the trustee a letter to the effect
that the successorship will not result in a downgrading of the rating then
assigned by the rating agency to any class of the certificates. The servicer
may delegate computational, data processing, collection and foreclosure,
including repossession, duties under the pooling and master servicing agreement
without any notice to or consent from National Mortgage or the trustee, provided
that the servicer will remain fully responsible for the performance of these
duties.
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<PAGE>
Use of Proceeds
Substantially all of the net proceeds to be received from the sale of the
certificates will be used to purchase the assets and to pay other expenses
connected with pooling the assets and issuing the certificates.
Underwriting
National Mortgage [and Asset Seller] have entered into an underwriting
agreement dated _________ __, 1999 with __________________ and _________________
(the "Underwriters"), for whom ______________________ is acting as
representative (the "Representative"). In the underwriting agreement, National
Mortgage has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase, the principal amount of the offered certificates set forth
opposite each of their names:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
[Underwriter].... $_________ $_________ $_________ $__________ $_________
[Underwriter].... $_________ $_________ $_________ $__________ $_________
Total.......... $_________ $_________ $_________ $__________ $_________
<CAPTION>
Class M-1 Class M-2 Class B-1 Class B-2
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
[Underwriter]................ $_________ $_________ $__________ $_________
[Underwriter]................ $_________ $_________ $__________ $_________
Total...................... $_________ $_________ $__________ $_________
</TABLE>
The underwriting agreement provides that there are conditions precedent to
the obligations of the several Underwriters and that the Underwriters will be
obligated to purchase all of the offered certificates if any of the offered
certificates are purchased. In the event of default by any Underwriter, the
underwriting agreement provides that, in some circumstances, the purchase
commitments of the nondefaulting Underwriter may be increased or the
underwriting agreement may be terminated.
National Mortgage has been advised by the Representative that the several
Underwriters propose to offer the offered certificates to the public initially
at the respective public offering prices set forth on the cover page of this
prospectus supplement, and to dealers at such prices less a concession not in
excess of the amount set forth for each class. The Underwriters and dealers may
allow a discount not in excess of the amount set forth for each class to other
dealers. After the initial public offering of the offered certificates, the
public offering prices and concessions and discounts to dealers may be changed
by the Representative.
S-60
<PAGE>
<TABLE>
<CAPTION>
Concession Discount
(Percent of (Percent of
Principal Principal
Amount) Amount)
----------- -----------
<S> <C> <C>
Class A-1............................. _____% _____%
Class A-2............................. _____% _____%
Class A-3............................. _____% _____%
Class A-4............................. _____% _____%
Class A-5............................. _____% _____%
Class M-1............................. _____% _____%
Class M-2............................. _____% _____%
Class B-1............................. _____% _____%
Class B-2............................. _____% _____%
</TABLE>
The Underwriters and any dealers that participate with the Underwriters in
the distribution of the offered certificates may be deemed to be underwriters,
and any discounts, concessions or commissions received by them, and any profit
on the resale of the offered certificates purchased by them, may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Act").
National Mortgage [and Asset Seller] have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Act, or contribute to payments which the Underwriters may be required to make.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the offered
certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the offered
certificates originally sold by syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the offered certificates to be higher than it would otherwise be in the
absence of these transactions. These transactions, if commenced, may be
discontinued at any time.
National Mortgage estimates that its expenses in connection with the
issuance and offering of the certificates will be approximately $________. This
information concerning National Mortgage's fees and expenses is an approximation
and may be changed by future contingencies.
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<PAGE>
Legal Matters
Legal matters will be passed upon for National Mortgage by Hunton &
Williams, Richmond, Virginia, and for the Underwriters by
________________________________. The material federal income tax consequences
of the offered certificates will be passed upon for National Mortgage by Hunton
& Williams.
ERISA Considerations
Fiduciaries of employee benefit plans and certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans, and collective investment funds in which such plans, accounts, annuities
or arrangements are invested, that must follow the requirements of ERISA or
corresponding provisions of the Code (collectively, "Plans"), persons acting on
behalf of a Plan, or persons using the assets of a Plan ("Plan Investors")
should carefully review with their legal advisors whether the purchase or
holding of any certificates could result in unfavorable consequences for the
Plan or its fiduciaries under the Plan Asset Regulations or the prohibited
transaction rules of ERISA or the Code. Prospective investors should be aware
that, although exceptions from the application of the Plan Asset Regulations and
the prohibited transaction rules exist, there can be no assurance that any such
exception will apply with respect to the acquisition of a certificate. See
"ERISA Considerations" in the prospectus.
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit certain
transactions that involve
. a Plan that must follow the requirements of ERISA and any party in
interest or disqualified person with respect to the Plan and
. plan assets.
The Plan Asset Regulations define plan assets to include not only securities,
such as the certificates, held by a Plan but also the underlying assets of the
issuer of any equity securities (the "Look-Through Rule"), unless one or more
exceptions specified in the regulations are satisfied. The offered certificates
will be treated as equity securities for purposes of the Plan Asset Regulations.
The Look-Through Rule would not apply to the offered certificates if one or more
of the exceptions specified in the Plan Asset Regulations are satisfied.
However, based on the information available to the Underwriters at the time of
the printing of the prospectus, there can be no assurance that either the
Publicly Offered Exception or the Insignificant Participation Exception will
apply to the initial or any subsequent purchases of the offered certificates.
See "ERISA Considerations" in the prospectus.
The U.S. Department of Labor has granted an administrative exemption to
_____________________________ (Prohibited Transaction Exemption ____; Exemption
Application No. ____, ____Fed. Reg. ____ (____), referred to in this prospectus
supplement as the "Exemption") from certain of the prohibited transaction rules
of ERISA and the related
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<PAGE>
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
passs-through trusts that consist of receivables, loans, and other obligations
and that meet the conditions and requirements of the Exemption.
Among the general conditions that must be satisfied for the Exemption to
apply are the following
. the acquisition of the certificates by a Plan is on terms, including the
price for the certificates, that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party,
. the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the related trust,
. the certificates acquired by the Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from either Moody's Investors Service, Inc., Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.,
Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co. (collectively, the
"Exemption Rating Agencies"),
. the trustee of the related trust must not be an affiliate of any other
member of the Restricted Group,
. the sum of all payments made to and retained by the Underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates,
. the sum of all payments made to and retained by National Mortgage
pursuant to the assignment of the loans to the trust represents not more
than the fair market value of such loans, and
. the sum of all payments made to and retained by the servicer represents
not more than reasonable compensation for such person's services under
any servicing agreement and reimbursement of the servicer's reasonable
expenses.
The Exemption defines the term reasonable compensation by reference to DOL
Regulation (S) 2550.408c-2, 29 C.F.R. (S) 2550.480c-2, which states that whether
compensation is reasonable depends upon the particular facts and circumstances
of each case. Each fiduciary of a Plan considering the purchase of an offered
certificate should satisfy itself that all amounts paid to or retained by the
Underwriters, National Mortgage and the servicer represent reasonable
compensation for purposes of the Exemption. In addition, it is a condition to
application of the Exemption that 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 Act. Furthermore, in order for its certificates to qualify under the
Exemption, a trust must meet the following requirements:
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<PAGE>
. the corpus of the trust must consist solely of assets of the type that
have been included in other investment pools;
. certificates in such other investment pools must have been rated in one
of the three highest rating categories of S&P, Moody's, D&P or Fitch for
at least one year prior to the Plan's acquisition of certificates; and
. certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
The Exemption does not apply to Plans sponsored by National Mortgage, the
Underwriters, [Asset Seller], the trustee, the servicer and any obligor with
respect to assets included in the trust constituting more than five percent of
the aggregate unamortized principal balance of the assets in the trust, or any
affiliate of such parties (the "Restricted Group"). Moreover, the Exemption
provides certain Plan fiduciaries relief from certain self-dealing/conflict of
interest prohibited transactions only if, among other requirements,
. in the case of an acquisition in connection with the initial issuance of
certificates, at least 50% of each class of certificates in which Plans
have invested is acquired by persons independent of the Restricted Group
and at least 50% of the aggregate interest in the trust is acquired by
persons independent of the Restricted Group,
. such fiduciary or its affiliate is an obligor with respect to five
percent or less of the fair market value of the obligations contained in
the trust,
. the Plan's investment in certificates of any class does not exceed 25%
of all of the certificates of that class outstanding at the time of the
acquisition, and
. immediately after the acquisition, no more than 25% of the assets of the
Plan with respect to which such 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 Exemption may apply to the acquisition and holding of the class A
certificates by Plans provided that all conditions to application of the
Exemption are met. Based upon information provided to National Mortgage by
members of the Restricted Group, National Mortgage expects that the conditions
set forth in the second, third and fourth bullet points of the fifth paragraph
of this section will be satisfied with respect to the class A certificates.
Prospective investors should be aware, however, that even if all of the
conditions specified in the Exemption are met, the scope of the relief provided
by the Exemption might not cover all acts that might be construed as prohibited
transactions. However, one or more alternative exemptions may be available with
respect to certain prohibited transactions to which the Exemption is not
applicable, depending in part upon the class of certificate to be acquired, the
type of Plan fiduciary that is making the decision to acquire such certificate
and the circumstances under which such decision is made, including, but not
limited to,
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. PTCE 96-23, regarding investment decisions by in-house asset managers,
. PTCE 95-60, regarding investments by insurance company general accounts,
. PTCE 91-38, regarding investments by bank collective investment funds,
. PTCE 90-1, regarding investments by insurance company pooled separate
accounts, or
. PTCE 84-14, regarding investment decisions made by a qualified plan
asset manager.
Before purchasing class A certificates, a Plan that must follow the
fiduciary responsibility provisions of ERISA or described in Section 4975(e)(1)
of the Code should consult with its counsel to determine whether the conditions
to application of the Exemption or any other exemptions would be met. In
addition, any Plan Investor contemplating an investment in the class A
certificates should note that the duties and obligations of the trustee and the
servicer are limited to those expressly set forth in the pooling and master
servicing agreement, and such specified duties and obligations may not comport
with or satisfy the provisions of ERISA setting forth the fiduciary duties of
Plan fiduciaries.
Because the offered subordinated certificates are Subordinated Securities,
and the class B certificates are not expected to be rated in one of the three
highest rating categories by the Rating Agencies, the Exemption will not apply
to the purchase, sale or holding of the offered subordinate certificates.
Accordingly, the offered subordinated certificates will not be offered for sale,
and are not transferable, to Plan Investors unless such Plan Investor provides
[Asset Seller] and the trustee with a Benefit Plan Opinion, or the circumstances
described in clause (ii) below are satisfied. A Benefit Plan Opinion is an
Opinion of Counsel to the effect that the purchase of an offered subordinated
certificate will not (A) cause the assets of the trust to be regarded as Plan
Assets for purposes of the Plan Asset Regulations, (B) give rise to a fiduciary
duty under ERISA on the part of [Asset Seller], the servicer or the trustee or
(C) be treated as, or result in, a prohibited transaction under Sections 406 or
407 of ERISA or Section 4975 of the Code. Unless this opinion is delivered,
each person acquiring an offered subordinated certificate will be deemed to
represent to the trustee, [Asset Seller] and the servicer that either (i) such
person is not a Plan Investor that must follow ERISA or Section 4975 of the Code
or (ii) such person is an insurance company that is purchasing an offered
subordinated certificate with funds from its general account and the provisions
of Prohibited Transaction Class Exemption 95-60 will apply to exempt the
acquisition and holding of the offered subordinated certificate and the
transactions in connection with the servicing, management and operation of the
trust from the Prohibited Transaction Rules of ERISA and the Code.
Ratings
It is a condition to the issuance of the certificates that each class of
offered certificates obtain the following ratings by _____ and ______:
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<PAGE>
<TABLE>
<CAPTION>
[Rating Agencies]
<S> <C> <C>
Class A-1 _____ _____
Class A-2 _____ _____
Class A-3 _____ _____
Class A-4 _____ _____
Class A-5 _____ _____
Class M-1 _____ _____
Class M-2 _____ _____
Class B-1 _____ _____
Class B-2 _____ _____
</TABLE>
The ratings on asset-backed pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying assets to which they are entitled. Rating opinions address the
structural, legal and issuer-related aspects associated with the securities,
including the nature of the underlying assets. Ratings on pass-through
certificates do not represent any assessment of the likelihood that principal
prepayments will be made by borrowers with respect to the underlying assets or
of the degree to which the rate of prepayments might differ from that originally
anticipated. As a result, the ratings do not address the possibility that
holders of the offered certificates purchased at a premium might suffer a lower
than anticipated yield in the event of rapid prepayments of the assets or in the
event that the trust is terminated prior to the Final Scheduled distribution
date for the certificates.
A security rating is not a recommendation to buy, sell or hold securities
and may be revised or withdrawn at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
National Mortgage will request _______ and _______ to rate the offered
certificates. There can be no assurance as to whether any rating agency not
requested to rate the offered certificates will nonetheless issue a rating and,
if so, what the rating would be. A rating assigned to the offered certificates
by a rating agency that has not been requested by National Mortgage to do so may
be lower than the rating assigned by a rating agency pursuant to National
Mortgage's request.
Legal Investment Considerations
[If pre-funding account is used, classes become mortgage related securities for
SMMEA after pre-funded amount is reduced to zero.] [Certificates will not be
SMMEA if junior lien assets are in the trust.] The class A certificates and the
class M-1 certificates will constitute mortgage related securities for purposes
of the Secondary Mortgage Market Enhancement Act of 1984 for so long as they are
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations. As mortgage related securities,
the class A certificates and the class M-1 certificates will be legal
investments for entities to the extent provided in SMMEA, unless there are state
laws overriding SMMEA. A number of states have enacted legislation
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overriding the legal investment provisions of SMMEA. See "Legal Investment
Considerations" in the prospectus.
The class M-2 and class B certificates will not constitute mortgage related
securities for purposes of SMMEA because they are not rated in one of the two
highest rating categories by a nationally recognized statistical rating
organization. These are significant interpretive uncertainties in determining
the appropriate characterization of the class M-2 and class B certificates under
various legal investment restrictions, and thus the ability of investors that
face legal restrictions to purchase the class M-2 and class B certificates. Any
financial institution regulated by the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration, any state insurance commission or any other federal or state
agency with similar authority should review any applicable rules, guidelines and
regulations prior to purchasing any certificates. Financial institutions should
review and consider the applicability of the Federal Financial Institutions
Examination Counsel Supervisory Policy Statement on the Selection of Securities
Dealers and Unsuitable Investment Practices, to the extent adopted by their
respective federal regulators, which, among other things, sets forth guidelines
for investing in certain types of mortgage related securities and prohibits
investment in high-risk mortgage securities.
National Mortgage makes no representations as to the proper
characterization of any class of the offered certificates for legal investment
or other purposes, or as to the legality of investment by particular investors
in any class of the offered certificates under applicable legal investment
restrictions. Accordingly, all institutions that must observe legal investment
laws and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the offered certificates constitute legal investments under
SMMEA or must follow investment, capital or other restrictions. See "Legal
Investment Considerations" in the prospectus.
S-67
<PAGE>
Prospectus
National Mortgage Securities Corporation
Depositor
Pass-Through Certificates
Asset-Backed Notes
Issuable in Series
Consider carefully the Your securities
risk factors beginning on
page 1 in this prospectus . will evidence an ownership interest in
or be secured by the property of your
trust and will be paid only from your
trust's assets,
Your securities will . will be rated in one of the four highest
represent obligations of rating categories by at least one
your trust only and will nationally recognized rating
not represent interests organization, and
in or obligations of
National Mortgage or any . will be issued as part of a designated
of its affiliates. series that may include one or more
Unless expressly provided classes of securities and credit
in the accompanying enhancement.
prospectus supplement,
your securities are not Your trust may include
insured or guaranteed by
any person. . various types of one- to four-family
residential first and junior lien
mortgage loans, multifamily residential
mortgage loans, cooperative apartment
loans or manufactured housing
conditional sales contracts and
installment loan agreements, or
beneficial interests in these items,
This prospectus may be . pass-through or participation
used to offer and sell certificates issued or guaranteed by
any series of securities Ginnie Mae, Fannie Mae or Freddie Mac,
only if accompanied by
the prospectus supplement . pass-through or participation
for that series. certificates or other mortgage-backed
securities issued or guaranteed by
private entities, and
. funding agreements secured by any of the
above described assets.
Investors
. will receive interest and principal
payments from collections on their
trust's assets but have no entitlement
to payments from other assets of
National Mortgage.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
September 20, 1999
<PAGE>
Important Notice About Information Presented in This
Prospectus And The Accompanying Prospectus Supplement
We provide information to you about your investment in two separate
documents that progressively provide more detail: this prospectus, which
provides general information, some of which may not apply to your series of
securities and the accompanying prospectus supplement, which will describe the
specific terms of your series of securities, including:
. the timing of interest and principal payments,
. statistical and other information about the specific assets of your
trust,
. information about credit enhancement for each class,
. the ratings for each class, and
. the method for selling your securities.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. Your securities are not offered in any state where the offer is
not permitted.
We have included cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The table of contents included in the
accompanying prospectus supplement provides the pages on which these captions
are located.
ii
<PAGE>
Risk Factors
You should consider the following risk factors in deciding whether to purchase
the securities.
The timing and amount Prepayment
of prepayments on your
securities could Prepayment levels are affected by
reduce your yield to a variety of economic, geographic, tax,
maturity legal, and other factors, including
. the extent of prepayments on the
underlying mortgage loans in your trust,
. how payments of principal are allocated
among the classes of securities of a
series as specified in the prospectus
supplement,
. if any party has an option to terminate
your trust or redeem the securities
early, the effect of the exercise of the
option,
. the rate and timing of defaults and
losses on the assets in your trust,
. the extent that amounts in any pre-
funding account have not been used to
purchase additional assets for your
trust, and
. repurchases of assets in your trust as a
result of material breaches of
representations and warranties made by
National Mortgage, the master servicer
or the seller.
The assets included in your trust generally
may be prepaid at any time. When interest
rates decline, home buyers are more likely to
prepay so that they may obtain lower
alternative financing on their homes. In this
event, you may not be able to reinvest the
proceeds of prepayments in another investment
of similar credit risk and yield. Conversely,
prepayments are likely to decline if interest
rates rise and you could reinvest prepayment
proceeds in investments of similar credit
risk and higher yield.
Yield
In general, if you purchased your securities
at a price greater than their original
principal amount, your investment will become
less valuable if prepayments are higher than
you anticipate and will become more valuable
if prepayments are lower than you anticipate.
Conversely, if you purchased your securities
at a price less than their initial principal
amount, your investment will become more
valuable if prepayments are higher than you
anticipate and will become less valuable if
prepayments are lower than you anticipate.
Your securities' sensitivity to prepayments
will be magnified by any disproportionate
allocation of principal or interest. You
could fail to recover your initial investment
if
<PAGE>
your securities receive a disproportionate
amount of principal or interest, and if
prepayments occur differently than you
anticipate.
The yield to maturity on certain classes of
securities including securities with
disproportionate allocations of interest,
securities with an interest rate which
fluctuates inversely with an index or certain
other classes in a series, may be more sensitive
to the rate of prepayment on the mortgage loans
than other classes of securities and to the
occurrence of an early retirement of the
securities.
Your securities will be Your securities will be payable solely from the
obligations of your assets of your trust, including any credit
trust only, and not of support, and will not have any claims against
any other party the assets of any other trust or recourse to any
other party. Your securities will not represent
an interest in or obligation of National
Mortgage, the master servicer, the seller, any
of their affiliates, or any other person.
Neither your securities nor the underlying trust
assets will be guaranteed or insured by any
governmental agency or instrumentality, by
National Mortgage, the master servicer, the
seller, any of their affiliates, or any other
person, unless identified as guaranteed or
insured in the accompanying prospectus
supplement. Although payment of principal and
interest on agency securities will be guaranteed
by Ginnie Mae, Fannie Mae or Freddie Mac, the
securities of any series collateralized by
agency securities will not be guaranteed.
The payment performance The mortgage assets backing your securities may
of your securities include mortgage loans or manufactured housing
will be related to the installment sales contracts. Certain mortgage
payment performance of assets may have a greater likelihood of
your trust assets and delinquency, foreclosure, and loss. In the event
there may be greater that the mortgaged properties fail to provide
risk of loss adequate security for the mortgage assets
associated with included in your trust, resulting losses not
certain types of trust covered by credit support will be allocated to
assets the securities in the manner described in the
prospectus supplement. We cannot assure you that
the values of the mortgaged properties have
remained or will remain at the appraised values
on the dates of origination of the mortgage
assets. You should consider the following risks
associated with mortgage assets included in your
trust.
Negatively Amortizing Loans
In the case of mortgage loans that are subject
to negative amortization, their principal
balances could be increased to an
<PAGE>
amount at or above the value of the underlying
mortgaged properties. This would increase the
likelihood of default. To the extent that losses
are not covered by credit support, your trust
will bear the risk of loss resulting from
default by obligors and will look primarily to
the value of the mortgaged properties for
recovery of the outstanding principal and unpaid
interest on the defaulted mortgage assets.
Buydown Mortgage Assets
Some mortgage assets are subject to temporary
buydown plans in which the monthly payments made
by the obligor during the early years of the
mortgage asset will be less than the scheduled
monthly payments on the mortgage asset. The
difference will be made up from an amount
contributed by the obligor, the seller of the
mortgaged property or another source and placed
in a custodial account, investment earnings on
the amount, if any, contributed by the obligor,
or additional buydown funds to be contributed
over time by the obligor's employer or another
source. Generally, the obligor under each
buydown mortgage asset will be qualified at the
lower monthly payment. Accordingly, the
repayment of a buydown mortgage asset is
dependent on the ability of the obligor to make
larger monthly payments after the buydown funds
are depleted and, for some buydown mortgage
assets, during the initial buydown period. If an
obligor is not able to make larger monthly
payments there could be losses on the mortgage
asset. If these losses are not covered by credit
support, they could adversely affect your yield
to maturity.
Balloon Loans
Certain mortgage assets, particularly those
secured by multifamily properties, may not be
fully amortizing -- or may not amortize at all
-- over their terms to maturity and will require
substantial payments of principal at their
stated maturity. Mortgage assets of this type
involve a greater degree of risk than fully
amortizing loans because the ability of an
obligor to make a balloon payment typically will
depend upon his ability either to refinance
fully the loan or to sell the mortgaged property
at a price sufficient to permit him to make the
balloon payment. The ability of an obligor to
accomplish either of these goals will be
affected by a number of factors, including the
value of the mortgaged property, the level of
mortgage rates, the obligor's equity in the
mortgaged property, prevailing general economic
conditions, the availability of credit for loans
secured by comparable real properties and, in
the case of multifamily properties, the
financial condition and operating history of the
obligor and the mortgaged property, tax
<PAGE>
laws and rent control laws.
Adjustable Rate Mortgage Assets
The interest rates on adjustable rate mortgage
assets will adjust periodically, generally after
an initial period during which the interest rate
is fixed. They will equal the sum of an index,
for example, one-month LIBOR, and a margin. When
an index adjusts, the amount of an obligor's
monthly payment will change. As a result,
obligors on adjustable rate mortgage assets may
be more likely to default on their obligations
than obligors on mortgage assets bearing
interest at fixed rates. In addition, some
adjustable rate mortgage assets allow the
obligor to elect to convert his mortgage asset
to a fixed rate mortgage asset. The seller of
convertible mortgage assets may be required to
repurchase a convertible mortgage assets if the
obligor elects conversion. This repurchase of a
convertible mortgage asset will have the same
effect on you as a repayment in full of the
mortgage asset. If your trust includes
convertible mortgage assets with this repurchase
obligation, your securities may experience a
higher rate of prepayment than would otherwise
be the case.
Non-Recourse Obligations
Some or all of the mortgage assets included in
your trust, particularly mortgage assets secured
by multifamily properties, may be nonrecourse
assets or assets for which recourse may be
restricted or unenforceable. As to those
mortgage assets, recourse in the event of
obligor default will be limited to the specific
real property and other assets, if any, that
were pledged to secure the mortgage asset.
However, even with respect to those mortgage
assets that provide for recourse against the
obligor and its assets generally, there can be
no assurance that enforcement of the recourse
provisions will be practicable, or that the
other assets of the obligor will be sufficient
to permit a recovery in excess of the
liquidation value of the mortgaged property.
Multifamily Loans
Mortgage loans made on the security of
multifamily properties may entail risks of
delinquency, foreclosure, and loss that are
greater than similar risks associated with loans
made on the security of single family
properties. The ability of an obligor to repay a
loan secured by an income-producing property
typically is dependent upon the successful
operation of the property rather than upon the
existence of independent income or assets of the
borrower. Accordingly, the value of an income-
producing property is related to the net
operating income derived from the
<PAGE>
property. If the net operating income of the
property is reduced, for example, if rental or
occupancy rates decline or real estate tax rates
or other operating expenses increase, the
obligor's ability to repay the loan may be
impaired. In addition, the risk of default,
foreclosure and loss for a pool of mortgage
assets secured by multifamily properties may be
greater than for a pool of mortgage assets
secured by single family properties because the
pool of mortgage assets secured by multifamily
properties is likely to consist of a smaller
number of loans with higher principal balances.
Non-Conforming Loans
Non-conforming mortgage loans are mortgage
assets that do not qualify for purchase by
government sponsored agencies such as Fannie Mae
and Freddie Mac. This is due primarily to credit
characteristics that to not satisfy Fannie Mae
and Freddie Mac guidelines, including obligors
whose creditworthiness and repayment ability do
not satisfy Fannie Mae and Freddie Mac
underwriting standards and obligors who may have
a record of derogatory credit items.
Accordingly, non-conforming mortgage assets are
likely to experience rates of delinquency,
foreclosure and loss that are higher, and that
may be substantially higher, than mortgage loans
originated in accordance with Fannie Mae or
Freddie Mac standards. The principal differences
between conforming mortgage assets and non-
conforming mortgage assets include the
applicable loan-to-value ratios, the credit and
income histories of the obligors, the
documentation required for approval of the
mortgage assets, the types of properties
securing the mortgage loans, the loan sizes and
the mortgagors' occupancy status. The interest
rates charged on non-conforming mortgage assets
are often higher than those charged on
conforming mortgage assets. The combination of
different underwriting criteria and higher rates
of interest may also lead to higher delinquency,
foreclosure and losses on non-conforming
mortgage assets.
High LTV Loans
Mortgage assets with original combined loan-to-
value ratios in excess of 80% and as high as
125% and not insured by primary mortgage
insurance policies are designated by National
Mortgage as high LTV loans. High LTV loans with
combined loan-to-value ratios in excess of 100%
may have been originated with a limited
expectation of recovering any amounts from the
foreclosure of the mortgaged property and are
underwritten with an emphasis on the
creditworthiness of the obligor. If high LTV
loans go into
<PAGE>
foreclosure and are liquidated, there may not be
sufficient amounts recovered from the mortgaged
property unless the value of the property
increases or the principal amount of all liens
have been reduced so that the combined loan-to-
value ratio of the mortgage loan becomes less
than 100%. Any losses, to the extent not covered
by credit enhancement, may affect the yield to
maturity of your securities.
Junior Lien Mortgage Assets
Your trust may contain mortgage assets secured
by junior liens and the senior liens may not be
included in your trust. A decline in residential
real estate values could reduce the value of a
mortgaged property securing a junior lien
mortgage asset to below that of all liens on the
mortgaged property. Because mortgage assets
secured by junior liens are subordinate to the
rights under senior liens, a decline would
adversely affect the position of the junior
lienholder before having any affect on the
position of the senior lienholder. Interest
rates, the condition of the mortgaged property
and other factors may also reduce the value of
the mortgaged property. As a result, the
loan-to-value ratio may rise. This increase will
reduce the likelihood that, in the event of a
default by the obligor, liquidation or other
proceeds will be sufficient to repay amounts
owing on the junior lien mortgage asset.
Other factors may influence the prepayment rate
of junior lien mortgage assets. These include
the amounts of, and interest on, the senior
mortgage loan and the use of senior lien
mortgage loans as long-term financing for home
purchases and junior lien mortgage loans as
shorter-term financing. Accordingly, junior lien
mortgage assets may experience a higher rate of
prepayments than senior lien mortgage loans. Any
future limitations on the rights of obligors to
deduct interest payments on junior lien mortgage
assets for federal income tax purposes may
increase the rate of prepayments on junior lien
mortgage assets.
Varying underwriting Mortgage assets included in your trust will have
standards of mortgage been purchased by National Mortgage from
asset sellers may mortgage asset sellers. These mortgage assets
present a greater risk generally will have been originated in
of loss accordance with underwriting standards
acceptable to National Mortgage and generally
described in this prospectus and in the
accompanying prospectus supplement. In some
cases, particularly those involving various
mortgage asset sellers, National Mortgage may
not be able to establish the underwriting
standards used in the origination of the
mortgage assets. To the extent the mortgage
<PAGE>
assets cannot be re-underwritten or the
underwriting criteria cannot be verified, the
mortgage assets might suffer losses greater than
they would had they been underwritten according
to identified standards. These losses, to the
extent not covered by credit support, may
adversely affect the yield to maturity of your
securities.
Failure of the mortgage Each mortgage asset seller will make
asset seller to representations and warranties in respect of the
repurchase or replace mortgage assets sold by it. In the event of a
a mortgage asset may breach of a mortgage asset seller's
result in losses representation or warranty that materially
adversely affects your interests, the mortgage
asset seller will be obligated to cure the
breach, repurchase or replace the mortgage
asset. A mortgage asset seller may not have the
resources to honor its obligation to cure,
repurchase or replace any mortgage asset as to
which such a breach of a representation or
warranty arises. A mortgage asset seller's
failure or refusal to honor its repurchase
obligation could lead to losses that, to the
extent not covered by credit support, may
adversely affect the yield to maturity of your
securities.
In instances where a mortgage asset seller is
unable or disputes its obligation to repurchase
affected mortgage assets, the master servicer
may negotiate and enter into settlement
agreements that may provide for the repurchase
of only a portion of the affected mortgage
assets. A settlement could lead to losses on the
mortgage assets, which would be borne by the
securities. Neither National Mortgage nor the
master servicer will be obligated to purchase a
mortgage asset if a mortgage asset seller
defaults on this obligation. We cannot assure
you that mortgage asset sellers will carry out
their repurchase obligations. A default by a
mortgage asset seller is not a default by
National Mortgage or by the master servicer. Any
affected mortgage asset not repurchased or
substituted for shall remain in your trust and
losses shall be allocated first to the reduction
of credit support and next to the classes of
securities. A mortgage asset seller's
representations and warranties will have been
made as of the cut-off date, which is prior to
the initial issuance of your securities. A
substantial period of time may have elapsed
between these dates. Accordingly, the mortgage
asset seller's repurchase and substitution
obligation does not attach to events occurring
on or after the cut-off date. The occurrence of
events during this period could lead to losses
that, to the extent not covered by credit
support, may adversely affect the yield to
maturity of your securities.
Regional economic An investment in the securities may be affected
by a decline in
<PAGE>
downturns and the real estate values and changes in obligors'
decline in the value financial condition. Downturns in regional or
of mortgaged local economic conditions will affect the
properties could frequency of delinquency and the amount of losses
result in losses on the assets in your trust. If residential real
estate values decline and the balances of the
mortgage assets in your trust exceed the value of
the mortgaged properties, the rates of
delinquencies, foreclosures and losses will
increase. High LTV loans are at greater risk
because they have less equity than mortgaged
properties with low loan-to-value ratios.
Delinquencies, foreclosures and losses due to
declining values of mortgaged properties,
especially high LTV loans, likely will cause
losses and, to the extent not covered by credit
support, likely will adversely affect your yield
to maturity. Localities within the United States
periodically will experience weaker regional
economic conditions and housing markets.
Consequently, loans secured by mortgaged
properties located in these areas likely will
experience higher rates of loss and delinquency
than will be experienced on mortgage loans
generally. For example, a region's economic
condition and housing market may be adversely
affected by natural disasters or civil
disturbances such as earthquakes, hurricanes,
floods, fires, eruptions or riots. The mortgage
assets underlying your securities may be
concentrated in these regions, and this
concentration presents risk considerations in
addition to those generally present for asset-
backed securities.
State law may limit the Substantial delays can be encountered in
master servicer's connection with the liquidation of defaulted
ability to foreclose mortgage assets and corresponding delays in the
on assets in a manner receipt of proceeds could occur. An action to
that maximizes your foreclose on a mortgaged property is regulated by
return state statutes, rules and judicial decisions and
is subject to many of the delays and expenses of
other lawsuits. In some states an action to
obtain a deficiency judgment is not permitted
following a nonjudicial sale of a mortgaged
property. In the event of a default by an
obligor, these restrictions may impede the
ability of the servicer to foreclose on or sell
the mortgaged property or to obtain sufficient
liquidation proceeds. The servicer will be
entitled to deduct from liquidation proceeds all
expenses reasonably incurred in attempting to
recover amounts due on the liquidated mortgage
asset and not yet repaid, including payments to
prior lienholders, accrued servicing fees, legal
fees and costs of legal action, real estate
taxes, and maintenance and preservation expenses.
In the event that any mortgaged properties fail
to provide adequate security for the mortgage
assets and insufficient funds are available from
any applicable credit support, you could
experience
<PAGE>
a loss on your investment.
Liquidation expenses do not vary directly with
the outstanding principal balance of the mortgage
asset at the time of default. Assuming that the
master servicer takes the same steps in realizing
upon defaulted mortgage assets, the amount
realized after expenses of liquidation would be
less as a percentage of the outstanding principal
balance of smaller principal balance mortgage
assets than would be the case with larger
principal balance mortgage assets.
Contesting the The steps necessary to create and perfect a
trustee's security security interest in manufactured homes differ
interest in from state to state. Because of the expense
manufactured homes involved, the master servicer will not take any
could reduce or delay steps toname National Mortgage or the trustee, on
distributions behalf of your trust,as the lien-holders of any
manufactured home. As a consequence,a person may
contest the security interest of the trustee.
Whether successful or unsuccessful, any contest
of the security interest could reduce or delay
distributions to you.
The mortgaged Under various federal, state and local
properties are subject environmental laws, ordinances and regulations,
to environmental risks a current or previous owner of real property may
and the cost of repair be liable for the costs of removal or remediation
may increase losses on of hazardous or toxic substances on, under or in
the mortgage assets the property.These laws often impose liability on
owners and operators or property whether or not
they knew of, or were responsible for, the
presence of hazardous or toxic substances. A
lender also risks liability on foreclosure of the
mortgage on this property. The presence of
hazardous or toxic substances may adversely
affect the owner's or operator's ability to sell
the property. Mortgage assets contained in your
trust may be secured by mortgaged properties in
violation of environmental laws, ordinances or
regulations. The master servicer and servicer
generally are prohibited from foreclosing on a
mortgaged property unless they have taken
adequate steps to ensure environmental
compliance. However, to the extent the master
servicer or servicer forecloses on mortgaged
property that is subject to environmental law
violations, and to the extent a mortgage asset
seller does not provide adequate representations
and warranties against these violations or is
unable to honor its obligations, your trust could
experience losses which, to the extent not
covered by credit support, could adversely affect
the yield to maturity of your securities.
Your ability to resell A secondary market for your securities may not
your securities will be develop. If a secondary market does develop, it
might not continue or it might
<PAGE>
limited not be sufficiently liquid to allow you to resell
your securities. Your securities will not be
listed on any trading exchange. Also, ERISA plans
and investors subject to legal investment
restrictions may be prohibited from purchasing
your securities, if noted in the accompanying
prospectus supplement.
Book-entry registration Because transfers and pledges of securities
may affect the registered in the name of a nominee of Depository
liquidity of your Trust Company can be effected only through book
securities entries at DTC through participants, the
liquidity of the secondary market for DTC
registered securities may be reduced to the
extent that some investors are unwilling to hold
securities in book entry form in the name of DTC
and the ability to pledge DTC registered
securities may be limited due to the lack of a
physical certificate. Beneficial owners of DTC
registered securities may, in certain cases,
experience delay in the receipt of payments of
principal and interest because payments will be
forwarded by the trustee to DTC. DTC will then
forward payment to the participants, who will
thereafter forward payment to beneficial owners.
In the event of the insolvency of DTC or a
participant in whose name DTC registered
securities are recorded, the ability of
beneficial owners to obtain payment of principal
and interest on DTC registered securities may be
impaired.
The failure to comply A failure by an originator to comply with federal
with consumer or state consumer protection laws could create
protection laws may liabilities on behalf of your trust. These
create liabilities on liabilities could include a reduction in the
your trust amount payable under the mortgage assets, the
inability to foreclose on the mortgaged property,
or liability of your trust to an obligor. Each
originator will warrant that the origination of
each mortgage asset materially complied with all
requirements of law and that there exists no
right of rescission, set-off, counterclaim or
defense in favor of the obligor under any
mortgage asset and that each mortgage asset is
enforceable against the obligor in accordance
with its terms. A breach of any warranty that
materially and adversely affects your trust's
interest in any mortgage asset would create an
obligation on the part of the originator to
repurchase or substitute for the mortgage asset
unless the breach is cured. However, the failure
of an originator to repurchase the defective
asset or pay the liability could expose your
trust to losses.
<PAGE>
Credit enhancement may Credit enhancement is intended to reduce the
not cover all losses effect on your securities of delinquent payments
on your securities or losses on the underlying trust assets.
Regardless of the form of credit enhancement,
the amount of coverage will be limited in amount
and in most cases will be subject to periodic
reduction in accordance with a schedule or
formula. Furthermore, credit support may provide
only very limited coverage as to a variety of
types of losses or risks, and may provide no
coverage as to other types of losses or risks. In
the event losses exceed the amount of coverage
provided by any credit enhancement or losses of a
type not covered by credit enhancement occur,
these losses will be borne by the holders of the
securities.
The subordination of The fact that some classes are paid after your
other classes to your class of securities does not protect you from all
class will not protect risks of loss. If losses cannot be absorbed by
you from all losses the subordinated securities or other items of
credit enhancement, like a reserve fund, then you
may have losses on your securities.
You will experience The acquisition of the mortgage assets by
delays or reductions National Mortgage is intended to be a sale.
of distributions on However, in the event that a mortgage asset
your securities if the seller or one of its affiliates becomes
transfer of assets to insolvent, a court may decide that this
your trust is not acquisition was a loan rather than a sale. This
considered a sale in could delay or reduce distributions to you.
the event of bankruptcy Likewise, if an affiliate of National Mortgage
becomes insolvent, a court might decide to
consolidate the assets and liabilities of
National Mortgage and its affiliates. This also
could delay or reduce distributions to you.
Exercise of the Your trust may be subject to optional termination
optional termination prior to the retirement of your securities.
right or optional Additionally, your securities may be repurchased
redemption right will in whole or in part in the manner described in
affect the yield to the accompanying prospectus supplement. The
maturity on your exercise of this right may effect an early
securities retirement of the securities of your series. Upon
the optional termination of your trust or the
repurchase of your securities you will receive
the redemption or termination price set forth in
the prospectus supplement. After these events,
the securities of your series may be retired,
held or resold by the party that elected to
terminate your trust or redeem your securities.
The accompanying prospectus supplement sets forth
the details concerning an optional termination or
repurchase.
If one or more REMIC elections are made for your
trust, then your
<PAGE>
trust also may be terminated and your securities
retired upon the master servicer's determination,
based upon an opinion of counsel, that the REMIC
status of the trust has been lost or that a
substantial risk exists that such status will be
lost.
The termination of your trust and the early
retirement of securities may adversely affect
your yield.
You may have income for Securities purchased at a discount and securities
tax purposes prior to purchased at a premium that are deemed to have
your receipt of cash original issue discount may incur tax liabilities
prior to a holder's receiving the related cash
payments.
In addition, holders of REMIC residual
certificates will be required to report on their
federal income tax returns as ordinary income
their pro rata share of the taxable income of the
REMIC, regardless of the amount or timing of
their receipt of cash payments, as described in
"Federal Income Tax Consequences." Accordingly,
holders of offered securities that constitute
REMIC residual certificates may have taxable
income and tax liabilities arising from their
investment during a taxable year in excess of the
cash received during that year. The requirement
that holders of REMIC residual certificates
report their pro rata share of the taxable income
and net loss will continue until the outstanding
balances of all classes of securities of the
series have been reduced to zero, even though
holders of REMIC residual certificates have
received full payment of their stated interest
and principal. The holder's share of the REMIC
taxable income may be treated as excess inclusion
income to the holder, which:
. generally, will not be subject to offset by
losses from other activities,
. for a tax-exempt holder, will be treated as
unrelated business taxable income, and
. for a foreign holder, will not qualify for
exemption from withholding tax.
Individual holders of REMIC residual certificates
may be limited in their ability to deduct
servicing fees and other expenses of the REMIC.
In addition, REMIC residual certificates are
subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC
residual certificates, the taxable income arising
in a given year on a REMIC residual certificate
will not be equal to the taxable income
associated with investment in a corporate bond or
stripped instrument having similar cash flow
<PAGE>
characteristics and pre-tax yield. Therefore, the
after-tax yield on the REMIC residual certificate
may be significantly less than that of a
corporate bond or stripped instrument having
similar cash flow characteristics.
See "Federal Income Tax Consequences" in this
prospectus.
ERISA plans that invest If you are buying the securities on behalf of an
in the securities must individual retirement account, Keogh plan or
follow technical employee benefit plan, special rules may apply
benefit plan to you. However, due to the complexity of
regulations regulations that govern these plans, if you are
subject to the Employment Retirement Income
Security Act of 1974, as amended, we suggest that
you consult with your counsel regarding any
consequences under ERISA of the acquisition,
ownership and disposition of the securities.
See "ERISA Considerations" in this prospectus.
The ratings provided by Your securities will be rated in one of the four
the rating agencies do highest rating categories by one or more rating
not purport to address agencies. A rating is not a recommendation to
all risks contained in buy, sell or hold your securities and may be
your investment revised or withdrawn at any time. You may obtain
further details with respect to any rating on
your securities from the rating agency that
issued the rating. A rating generally is based on
the credit quality of the underlying assets, and
will represent only an assessment of the
likelihood of receipt by you of payments. The
rating is not an assessment of the prepayment
experience, and does not rate the possibility
that you may fail to recover your initial
investment if you purchase your securities at a
premium. Security ratings assigned to the
securities representing a disproportionate
entitlement to principal or interest on the
assets should be evaluated independently of
similar security ratings assigned to other kinds
of securities. In the event any rating is reduced
or withdrawn, the liquidity or the market value
of the security may be adversely affected.
<PAGE>
Description of the Securities
General
The securities will be issued from time to time in series. Each series of
certificates will be issued pursuant to a pooling and master servicing agreement
among National Mortgage Securities Corporation, a Virginia corporation
("National Mortgage"), the master servicer and the trustee. Each series of
notes will be issued pursuant to an indenture between an issuer and the
indenture trustee. The issuer of a series of notes will be either National
Mortgage or an owner trust established by it for the sole purpose of issuing the
series of notes pursuant to an owner trust agreement between National Mortgage
and the owner trustee. The master servicer and any trustee, indenture trustee
and owner trustee, if any, will be named in the accompanying prospectus
supplement. The provisions of each agreement will vary depending on the nature
of the securities to be issued and the nature of the trust. Forms of pooling
and master servicing agreement, indenture and owner trust agreement have been
filed as exhibits to the registration statement of which this prospectus is a
part.
National Mortgage will assign and transfer to the trust for the benefit of
the holders of the securities the trust assets, the asset proceeds account, and
possibly a reserve fund or other funds, the insurance policies, trust asset sale
agreement or agreements, the servicing agreement or agreements and any
additional assets. See "The Trusts" and "The Agreements" in this prospectus.
The following summaries describe the material provisions common to each series
of securities. These summaries do not purport to be complete and are subject to
and qualified by the accompanying prospectus supplement and the provisions of
the agreements. When particular provisions or terms used in the agreement are
referred to, the actual provisions, including definitions of terms, are
incorporated by reference.
The trust agreement or indenture for a series will generally provide that
securities may be issued up to a maximum aggregate principal amount. Each
series will consist of one or more classes and may include
. one or more classes of senior securities entitled to certain
preferential rights to distributions of principal and interest,
. one or more classes of subordinated securities,
. one or more classes representing an interest only in a specified
portion of interest payments on the Assets in the related trust and
that may have no principal balance, a nominal principal balance or a
notional principal balance ("Strip Class"),
. one or more classes representing an interest only in payments of
principal on the assets ("Principal Only Class"),
<PAGE>
. one or more classes upon which interest will accrue but will not be
distributed until certain other classes of that series have received
their final distribution ("Compound Interest Class" and "Capital
Appreciation Class" and, collectively "Accretion Classes"),
. one or more classes entitled to distributions from specified portions
of the assets in the related trust, and
. one or more classes entitled to fixed or targeted principal payments
under certain conditions ("PAC Classes") and companion classes thereto
("Companion Classes").
Each series as to which a real estate mortgage investment conduit (a
"REMIC") election has been or is to be made will consist of one or more classes
of REMIC regular certificates, which may consist of certificates of the types
specified in the preceding sentence, and one, but no more than one, class of
residual certificates for each REMIC (the "Residual Certificates"). A Residual
Certificate is a certificate evidencing a residual interest in a REMIC. A REMIC
is a real estate mortgage investment conduit as defined in the Internal Revenue
Code of 1986, as amended (the "Code"). In addition, the ownership of the equity
of a trust relating to a series of notes will be represented by equity
certificates issued under the owner trust agreement. Any equity certificate
will be subordinate to the notes of the same series.
National Mortgage may sell to investors one or more classes of a series of
securities in transactions not requiring registration under the Securities Act
of 1933. The offered securities of each series will be rated on issuance by a
nationally-recognized statistical securities rating organization, like Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Fitch IBCA, Inc., and Duff & Phelps Credit
Rating Co.
The securities will be issued in fully registered certificated or book-
entry form in the authorized denominations for each class specified in the
related prospectus supplement. The securities of each series in certificated
form may be transferred or exchanged at the corporate trust office of the
trustee or such other office specified in the related prospectus supplement
without the payment of any service charge, other than any tax or other
governmental charge payable in connection with such transfer. The trustee will
make distributions of principal and interest to each class of securities in
certificated form by check mailed to each person in whose name a security is
registered as of the close of business on the record date specified in the
related prospectus supplement at the address appearing on the books and records
of the Trust, except that the final distributions in retirement of each class of
securities in certificated form will be made only upon presentation and
surrender of such securities at the corporate trust office of the Trustee or
such other office specified in the related prospectus supplement. Under certain
circumstances, if so provided in the related agreement and described in the
related prospectus supplement, distributions of principal and interest may be
made to certain holders of a class of securities by wire transfer of
"immediately available" or "next day" funds. Distributions with respect to
securities in book-entry form will be made as set forth below.
<PAGE>
Book-Entry Procedures
The prospectus supplement for a series may specify that some classes
of securities initially will be issued as book-entry securities in the
authorized denominations specified in the prospectus supplement. Each book-entry
class will be represented by a single security registered in the security
register in the name of a nominee of the depository, which is expected to be The
Depository Trust Company (together with any successor or other depository
selected by National Mortgage). No person acquiring a book-entry security (a
"Beneficial Owner") will be entitled to receive a definitive certificate
representing its security.
DTC performs services for its Participants, some of whom, including
their representatives, own DTC. Participants means the participating
organizations that utilize the services of DTC, including securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the book-entry
certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of book-entry securities will be
subject to the rules, regulations and procedures governing DTC and Depository
Participants as in effect from time to time.
A Beneficial Owner's ownership of a book-entry security will be
reflected in the records of the brokerage firm, bank, thrift institution or
other financial intermediary (any of the foregoing, a "Financial Intermediary")
that maintains such Beneficial Owner's account for such purpose. In turn, the
Financial Intermediary's ownership of a book-entry security will be reflected in
the records of DTC, or of a participating firm that acts as agent for the
Financial Intermediary whose interest in turn will be reflected in the records
of DTC, if the Beneficial Owner's Financial Intermediary is not a direct
Depository Participant. Therefore, the Beneficial Owner must rely on the
procedures of its Financial Intermediary or Intermediaries and of DTC in order
to evidence its beneficial ownership of a book-entry security, and beneficial
ownership of a book-entry security may only be transferred by compliance with
the procedures of Financial Intermediaries and Depository Participants.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Depository Participants") and facilitates
the clearance and settlement of securities transactions between Depository
Participants in securities through electronic book-entry changes in accounts of
Depository Participants, thereby eliminating the need for physical movement of
certificates. Depository Participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include other
organizations. Indirect access to the DTC system is also available to others
like banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Depository Participant, either directly or
indirectly ("indirect participants").
<PAGE>
Distributions of principal and interest on the book-entry securities
will be made to DTC. DTC will be responsible for crediting the amount of these
distributions to the accounts of the applicable Depository Participants in
accordance with DTC's normal procedures. Each Depository Participant will be
responsible for disbursing these payments to the Beneficial Owners of the book-
entry securities that it represents and to each Financial Intermediary for which
it acts as agent. Each Financial Intermediary will be responsible for disbursing
funds to the Beneficial Owners of the book-entry securities that it represents.
As a result of the foregoing procedures, Beneficial Owners of the book-entry
securities may experience some delay in their receipt of payments.
While the offered securities are outstanding, except if the offered
securities are subsequently issued in certificated, fully-registered form, under
the rules, regulations and procedures creating and affecting DTC and its
operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the offered securities and
is required to receive and transmit distributions of principal of, and interest
on, the offered securities. Unless and until the offered securities are issued
in certificated form, Beneficial Owners who are not Participants may transfer
ownership of the offered securities only through Participants by instructing
Participants to transfer the offered securities, by book-entry transfer, through
DTC for the account of the purchasers of securities, which account is maintained
with the purchasers' respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of the offered securities
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Because transactions in book-entry securities
can be effected only through DTC, participating organizations, indirect
participants and banks, the ability of a Beneficial Owner of a book-entry
certificate to pledge a certificate to persons or entities that are not
Depository Participants, or otherwise to take actions in respect of a security,
may be limited due to the lack of a physical certificate representing the
security. Issuance of the book-entry securities in book-entry form may reduce
the liquidity of your securities in the secondary trading market because
investors may be unwilling to purchase book-entry securities for which they
cannot obtain physical certificates.
The book-entry securities will be issued in fully-registered,
certificated form to Beneficial Owners of book-entry securities or their
nominees, rather than to DTC or its nominee, only if
. National Mortgage advises the trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities
as depository with respect to the book-entry securities and
National Mortgage is unable to locate a qualified successor
within 30 days, or
. National Mortgage, at its option, elects to terminate the book-
entry system maintained through DTC.
Upon the occurrence of either event described in the preceding sentence, the
trustee is required to notify DTC, which in turn will notify all Beneficial
Owners of book-entry securities through Depository Participants, of the
availability of certificated securities. Upon surrender of DTC of
<PAGE>
the certificates representing the book-entry securities and receipt of
instructions for re-registration, the trustee will reissue the book-entry
securities as certificated securities to the Beneficial Owners of the book-entry
securities. Upon issuance of certificated securities to Beneficial Owners, they
will be transferable directly, and not exclusively on a book-entry basis, and
registered holders will deal directly with the trustee with respect to
transfers, notices and distributions.
DTC has advised National Mortgage and the trustee that, unless and until
the offered securities are issued in certificated, fully-registered form under
the circumstances described, DTC will take any action permitted to be taken by a
securityholder under the related trust agreement or indenture only at the
direction of one or more Participants to whose DTC accounts the securities are
credited. DTC has advised National Mortgage that DTC will take this action with
respect to any percentage interests of the offered securities only at the
direction of and on behalf of Participants with respect to percentage interests
of the offered securities. DTC may take action, at the direction of the related
Participants, with respect to some offered securities which conflict with
actions taken with respect to other offered securities.
Neither National Mortgage, the servicer nor the trustee will have any
liability for any aspect of the records relating to or payment made on account
of beneficial ownership interests of the book-entry securities held by DTC, or
for maintaining, supervising or reviewing any records relating to beneficial
ownership interests.
Allocation of Collections from the Assets
The prospectus supplement will specify the available distribution amount,
which in general will be equal to the amount of principal and interest paid on
the assets with respect to the due date in the current month and the amount of
principal prepaid during the preceding month, net of applicable servicing,
administrative, guarantee and other fees, insurance premiums, the costs of any
other credit enhancement and amounts required to reimburse any unreimbursed
advances. The available distribution amount will be allocated among the classes
of securities of your series -- including any securities not offered through
this prospectus -- in the proportion and order of application found in the
pooling and master servicing agreement or indenture and described in the
accompanying prospectus supplement. The available distribution amount may be
allocated so that amounts paid as interest on the assets may be distributed as
principal on the securities and amounts paid as principal on the assets may be
distributed as interest on the securities.
A class of securities entitled to distributions of interest may receive
interest at a specified rate, which may be fixed or adjustable. The classes of
securities within a series may have the same or different security interest
rates. The accompanying prospectus supplement will specify the security
interest rate, or the method for determining the security interest rate, for
each applicable class, and the method of determining the amount to be
distributed on any Strip Classes on each distribution date. Residual
Certificates may or may not have a security interest rate. In addition to
representing entitlement to regular distributions of principal and interest, if
any, that are allocated to the Residual Certificates, Residual Certificates also
generally will represent
<PAGE>
entitlement to regular distributions of principal and interest, if any, that are
allocated to the Residual Certificates, Residual Certificates also generally
will represent entitlement to receive amounts remaining in the distribution
account on any distribution date after allocation of scheduled distributions to
all other outstanding classes of securities of that series and after all
required deposits have been made into any related reserve funds. Strip Classes
may have a notional principal amount, which is a fictional principal balance
used solely for determining the class' amount of distributions and other rights.
A notional principal amount is determined by reference to the principal amount
of the assets, a subset of the assets, or one or more classes of securities.
Interest distributions on the securities generally will include interest accrued
through the accounting date preceding the distribution date. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months, or
on the basis of actual elapsed days, as specified in the related prospectus
supplement.
With respect to a series that includes one or more classes of
subordinated securities, the senior securities will generally not bear any
Realized Losses on the related assets in the related trust, until the
subordinated securities of that series have borne Realized Losses up to a
specified subordination amount or loss limit or until the principal amount of
the subordinated securities has been reduced to zero, either through the
allocation of Realized Losses, distributions of principal, or both.
Distributions of interest may be reduced to the extent the amount of interest
due on the assets exceeds the amount of interest collected or advanced, which
may be due to Due Date Interest Shortfall or Soldiers' and Sailors' Shortfall on
the assets. Soldiers' and Sailors' Shortfall means a shortfall in respect of an
asset resulting from application of the federal Soldiers' and Sailors' Civil
Relief Act of 1940, as amended. With respect to a series that includes a class
of subordinated securities, any shortfall may result in a reallocation of
amounts otherwise distributable to less senior securities for distribution to
more senior securities.
Realized Loss means
. the amount of any loss realized by a trust in respect of any
related liquidated loan, which may be a special hazard loss or a
fraud loss, which shall generally equal the unpaid principal
balance of the liquidated loan, plus accrued and unpaid interest
on such liquidated loan, plus amounts reimbursable to the
servicer for previously unreimbursed Servicing Advances, minus
net liquidation proceeds in respect of the liquidated loan, or
. the amount of any principal cramdown in connection with any asset
that was the subject of a principal cramdown in bankruptcy during
the calendar month immediately preceding the month in which the
related distribution date occurs (a "Prepayment Period")
preceding a distribution date. The amount of any principal
cramdown is the amount by which the unpaid principal balance of
the asset exceeds, as applicable, depending upon the type of
principal cramdown that was applied to the asset, either the
portion of the unpaid principal balance that remains secured by
the manufactured home or mortgaged property after taking the
principal cramdown into account or the unpaid principal balance
after taking into account the permanent forgiveness of debt
ordered by the bankruptcy court in connection with the principal
cramdown, or
<PAGE>
. any other amount of a loss realized by a trust in respect of any
asset, which has been allocated to the asset in accordance with
its terms as described in the prospectus supplement -- for
example, losses realized on a funding agreement or allocated to a
mortgage security included in a trust.
Due Date Interest Shortfall means, for any asset that is prepaid in
full or liquidated on other than a Due Date for the asset, the difference
between the amount of interest that would have accrued on the asset through the
day preceding the first Due Date after the prepayment in full or liquidation had
the asset not been prepaid in full or liquidated, net of any other
administrative fees payable out of such interest had it accrued and been paid,
and the amount of interest that actually accrued on the asset prior to the
prepayment in full or liquidation, net of an allocable portion of any other
administrative fees payable from interest payments on the asset during the
period commencing on the second day of the calendar month preceding the month in
which the distribution date occurs and ending on the first day of the month in
which the distribution date occurs (each, a "Collection Period").
Principal and interest distributable on a class of securities may be
distributed among the securities of a class pro rata in the proportion that the
outstanding principal or notional amount of each security of the class bears to
the aggregate outstanding principal or notional amount of all securities of the
class, or in another manner as may be detailed in the related prospectus
supplement. Interest distributable on a class of securities will be allocated
among the securities of the class pro rata in the proportion that the
outstanding principal or notional amount of each security of the class bears to
the aggregate outstanding principal or notional amount of all securities of the
class, or in another manner as may be detailed in the related prospectus
supplement.
The final scheduled distribution date for each class of securities
will be the date on which the last distribution of the principal thereof is
scheduled to occur, assuming no prepayments of principal with respect to the
assets included in the trust for that series, as defined in the prospectus
supplement.
Valuation of Mortgage Assets
The mortgage assets and other assets included in the trust will have
an initial aggregate asset value at least equal to 100% of the initial principal
amount of the securities. The asset value of any mortgage asset in the trust
will generally equal
. the scheduled principal balance of the mortgage asset, or
. the lesser of the present value of the stream of remaining
regularly scheduled payments of principal and interest due on
such mortgage asset -- after taking into account charges for
servicing, administration, insurance and related matters --
discounted at a discount rate, if any, and the scheduled
principal balance of the mortgage asset multiplied by the
applicable asset value percentage.
<PAGE>
The asset value percentage will be the percentage limitation that, based
upon the scheduled net payments on the mortgage assets included in the trust, is
intended to assure the availability of sufficient funds to make scheduled
distributions on the securities in the event of substantial principal
prepayments on the mortgage assets. In each case asset value will be determined
after the subtraction of applicable servicing, master servicing, administrative
and guarantee fees, and insurance premiums and the addition, if the related
prospectus supplement so specifies, of any reinvestment income on the amounts on
deposit in the accounts held by the trust. The asset value of an asset that has
been liquidated or purchased from the trust pursuant to the related sale
agreement shall be zero.
Optional Redemption or Termination
To the extent and under the circumstances specified in the related
prospectus supplement, the securities of any series may be redeemed, and/or the
trust terminated, prior to their final scheduled distribution date at the option
of National Mortgage, the issuer, the master servicer, securities administrator,
the servicer or another party, or parties, specified in the prospectus
supplement. A redemption or termination may be accomplished by the purchase of
the outstanding series of securities or the purchase of the assets of the trust.
The right to redeem the securities generally will be conditioned upon
. the passage of a certain date specified in the prospectus supplement,
or
. the asset value or scheduled principal balance of the mortgage assets
in the trust, or the outstanding principal balance of a specified
class of securities at the time of purchase aggregating less than a
percentage specified in the prospectus supplement, of the initial
asset value of the mortgage assets in the trust or the initial
principal balance of the applicable class of securities.
In the event the option to redeem any series is exercised, the purchase
price to be paid with respect to each security will generally equal 100% of its
then outstanding principal amount, plus accrued and unpaid interest thereon at
the applicable security interest rate, net of any unreimbursed advances and
unrealized losses allocated to such security. Notice of the redemption of the
securities of any series will be given to related securityholders as provided in
the related pooling agreement or indenture.
Maturity And Prepayment Considerations
Generally, all of the mortgage loans that are assets of a trust and the
mortgage loans underlying the other mortgage assets included in a trust for a
series will consist of first lien residential or multifamily mortgages or deeds
of trust. However, if so specified in the prospectus supplement, certain or all
of the mortgage loans that are assets of the trust and the mortgage loans
underlying the other mortgage assets included in the trust for a series may
consist of second or junior lien, residential or multifamily mortgages or deeds
of trust.
The prepayment experience on the mortgage assets will affect
<PAGE>
. the average life of the securities and each class thereof issued by
the related trust,
. the extent to which the final distribution for each class occurs prior
to its final scheduled distribution date, and
. the effective yield on each class of such securities.
Because prepayments will be passed through to the holders of securities as
distributions or payments of principal on such securities, it is likely that the
actual final distributions on the classes of securities of a series will occur
prior to their respective final scheduled distribution dates. Accordingly, in
the event that the mortgage assets of a trust experience significant
prepayments, the actual final distributions on the securities of the related
series may occur materially before their respective final scheduled distribution
dates
Prepayments on mortgages are commonly measured relative to a prepayment
standard or model, such as the FHA prepayment experience, the single monthly
mortality prepayment model, the constant prepayment rate model, or some other
prepayment assumption model. The prospectus supplement for a series may contain
a table setting forth percentages of the original principal amount of each class
of securities of such series anticipated to be outstanding after each of the
dates shown in the table. It is unlikely that the prepayment of the mortgage
assets of any trust will conform to any of the percentages of the prepayment
assumption model described in any table set forth in the related prospectus
supplement.
FHA has compiled statistics relating to one- to four-family, fixed rate
level payment mortgage loans insured by the FHA under the National Housing Act
of 1934, as amended, at various interest rates, all of which permit assumption
by the new buyer if the home is sold. Such statistics indicate that while some
of such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities.
Moreover, although each of the FHA Loans included in the FHA statistics is
assumable, it is likely that a number of mortgage loans included in a trust and
a number of mortgage loans backing other mortgage assets will include "due-on-
sale" clauses which allow the holder of the mortgage loan to demand payment in
full of the remaining principal balance of the mortgage loan upon sale or
certain other transfers of the underlying mortgaged property. The resulting
acceleration of mortgage payments upon transfer of the underlying mortgaged
property is another factor affecting prepayment rates that is not reflected in
the FHA statistics. See "Certain Legal Aspects of Mortgage Assets -- `Due-on-
Sale' Clauses" in this prospectus.
No assurance can be given as to the rate of principal payments or
prepayments on the mortgage loans. The rate of principal payments on mortgage
loans included in a trust (or mortgage loans underlying other mortgage assets)
will be affected by the amortization schedules of the mortgage loans and by the
rate of principal prepayments -- including for this purpose payments resulting
from refinancings, liquidations due to defaults, casualties, condemnations, and
purchases by or on behalf of National Mortgage, the servicer or the master
servicer, as the case may be. The rate of principal prepayments on pools of
mortgages is influenced by a variety of economic, geographic, tax, legal and
other factors. In general, however, if prevailing interest
<PAGE>
rates fall significantly below the interest rates on the mortgage loans included
in a trust-- or mortgage loans underlying other mortgage assets --, such
mortgage loans are likely to be the subject of higher principal prepayments than
if prevailing rates remain at or above the rates borne by such mortgage loans.
It should also be noted that certain mortgage assets in the trust for a
series may be backed by mortgage loans with different interest rates.
Accordingly, the prepayment experience of such mortgage assets will to some
extent be a function of the mix of interest rates of the underlying mortgage
loans. For example, the stated certificate rate on certain mortgage
certificates may be up to 3% less than the stated interest rate on the
underlying mortgage loans. Other factors affecting the prepayment of mortgage
loans included in a trust -- or mortgage loans underlying other mortgage assets
- -- include changes in borrowers' housing needs, job transfers, unemployment,
borrowers' net equity in the mortgaged properties and servicing decisions.
Yield Considerations
Distributions of interest on the securities generally will include interest
accrued through the accounting date, which is, for any distribution date, the
last day of the preceding calendar month for securities that pay interest at a
fixed rate, and the 14th day of the same calendar month for securities that pay
at a floating rate. Your effective yield will be lower than the yield otherwise
produced by the applicable security interest rate and purchase price for your
securities, because distributions to you will not be made until the distribution
date following the accounting date, which causes a delay in distributions.
The yield to maturity of any security will be affected by the rate and
timing of payment of principal of the underlying mortgage assets. If the
purchaser of a security offered at a discount from its Parity Price, which is
the price at which a security will yield its coupon, after giving effect to any
payment delay, calculates the anticipated yield to maturity of a security based
on an assumed rate of payment of principal that is faster than that actually
received on the underlying mortgage assets, the actual yield to maturity will be
lower than that so calculated. Similarly, if the purchaser of a security
offered at a premium over its Parity Price calculates the anticipated yield to
maturity of a security based on an assumed rate of payment of principal that is
slower than that actually received on the underlying mortgage assets, the actual
yield to maturity will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage assets may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of principal on an
asset, the greater will be the effect on a related investor's yield to maturity.
As a result, the effect on an investor's yield 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 securities would not
be fully offset by a subsequent like reduction --- or increase --- in the rate
of principal payments. Because the rate of principal payments on the underlying
assets affects the weighted average life and other characteristics of any class
of securities, prospective investors are urged to consider their own estimates
as to the
<PAGE>
anticipated rate of future prepayments on the underlying contracts and mortgage
loans and the suitability of the applicable securities to their investment
objectives. See "Maturity and Prepayment Considerations" in this prospectus.
The yield on your securities also will be affected by Realized Losses or
shortfalls allocated to your securities. If Realized Losses and shortfalls are
not absorbed by securities subordinated to your securities or other items of
credit support, like a reserve fund, then you may have losses or delays in
payment on your securities. Losses on your securities will, in turn, reduce
distributions to you. Delays in payment will interrupt the timely distribution
of amounts owed to you. Losses or delays in payment will reduce your yield.
The Trusts
General
National Mortgage will pledge or sell, assign and transfer to your trust:
. single family or multifamily mortgage loans, manufactured housing
installment sales contracts, agency securities, private mortgage-
backed securities, or funding agreements,
. the asset proceeds account for the series,
. if applicable, a reserve fund and other funds and accounts for the
series,
. if applicable, a pre-funding account,
. if applicable, rights to additional assets,
. if applicable, all proceeds that may become due under insurance
policies for the series,
. if applicable, National Mortgage's rights under the servicing and
sales agreements, and
. all payments on these items, having an aggregate initial unpaid
principal balance at least equal to 100% of the original principal
amount of the securities.
Mortgage loans and manufactured housing installment sales contracts are
called "mortgage assets." Agency securities, private mortgage-backed securities
and funding agreements are called "financial assets." Mortgage assets and
financial assets, together with other items deposited in your trust, are called
"trust assets."
The trust assets for your series will be assigned and transferred to your
trust for the sole benefit of securityholders, except that some credit
enhancement items required by the rating agencies may also be assigned to trusts
for other series of securities or may secure other series of securities issued
by National Mortgage. Particular assets that might be assigned to trusts for
<PAGE>
other series or that secure other notes may include pool insurance policies,
special hazard insurance policies, mortgagor bankruptcy insurance, reserve funds
and additional assets.
Assignment of Trust Assets
In connection with the issuance of certificates, National Mortgage will
cause the trust assets to be sold, assigned and transferred to the trustee,
together with all principal and interest paid on the trust assets from the cut-
off date under a pooling and master servicing agreement. The trustee will, in
exchange for the trust assets, deliver to the order of National Mortgage
certificates of a series in authorized denominations registered in the names
National Mortgage requests, representing the beneficial ownership interest in
the trust assets. In connection with the issuance of notes by an issuer that is
an owner trust, National Mortgage will cause the Trust Assets to be sold,
assigned and transferred to the owner trustee, together with all principal and
interest paid on the trust assets from the cut-off date pursuant to a
contribution agreement between the issuer and National Mortgage. The issuer,
which can be either an owner trust or National Mortgage, will pledge all of its
rights in and to the trust assets to the trustee pursuant to an indenture. The
issuer will direct the trustee to deliver notes of a series secured by a first
priority security interest in the trust assets. The notes will be issued in
authorized denominations registered in the names requested by National Mortgage.
Each pool of trust assets will constitute a trust or trusts held by the trustee
for the benefit of the holders of the series of securities. Each mortgage
asset and financial asset included in your trust will be identified in a
schedule appearing as an exhibit to the pooling and master servicing agreement
or indenture. This schedule will include information as to the scheduled
principal balance of each mortgage asset and financial asset as of the cut-off
date and its interest rate, original principal balance and other information.
In addition, necessary steps will be taken by National Mortgage to have the
trustee -- for an offering of certificates -- or the issuer -- for an offering
of notes -- become the registered owner of each financial asset included in your
trust and to provide for all payments on each financial asset to be made
directly to your trustee. National Mortgage will deliver or cause to be
delivered to your trustee or the issuer the mortgage note endorsed to the order
of the trustee or the issuer, evidence of recording of the security instrument,
an assignment of each security instrument in recordable form naming the trustee
or the issuer as assignee, and certain other original documents evidencing or
relating to each mortgage loan. Within one year following the settlement date,
National Mortgage will cause the assignments of the mortgage loans to be
recorded in the appropriate public office for real property records wherever
necessary to protect the trustee's interest in the mortgage loans. In lieu of
recording the assignments of mortgage loans in a particular jurisdiction,
National Mortgage may deliver or cause to be delivered an opinion of local
counsel to the effect that recording is not required to protect the right, title
and interest of the trustee or the issuer in the mortgage loans. The original
mortgage documents will be held by the trustee, the issuer or a custodian,
except to the extent released to a servicer or the master servicer from time to
time in connection with servicing the mortgage loan. The servicer or the master
servicer, on behalf of the securityholders, will hold the original documents and
copies of documents and instruments concerning your trust's assets.
<PAGE>
National Mortgage will make certain representations and warranties in the
pooling and master servicing agreement or contribution agreement with respect to
the trust assets, including representations that it either is the owner of the
trust assets or has a first priority perfected security interest in the trust
assets. In addition, the seller of the mortgage may make certain
representations and warranties with respect to the trust assets in the sales
agreement. See "Sale and Servicing of Mortgage Assets -- Representations and
Warranties" in this prospectus.
National Mortgage's right to enforce representations and warranties of a
seller, servicer or master servicer will be assigned or made to the trustee
under the pooling and master servicing agreement or indenture. To the extent
that a seller, servicer or master servicer makes representations and warranties
regarding the characteristics of the trust assets, National Mortgage will
generally not also make these representations and warranties. In the event that
the representations and warranties of National Mortgage or the seller are
breached, and the breach or breaches adversely affect your interests in your
trust's assets, National Mortgage or the seller will be required to cure the
breach or, in the alternative, to substitute new trust assets, or to repurchase
the affected trust assets, generally at a price equal to the unpaid principal
balance of these trust assets, together with accrued and unpaid interest at the
asset's rate. In addition, in the event a servicer or the master servicer
breaches its representations and warranties and this breach adversely affects
your interests, the servicer or the master servicer generally will be required
to cure this breach or to repurchase the trust asset for the purchase price, net
of any unreimbursed advances of principal made by the servicer or the master
servicer and any outstanding servicing fees. Neither National Mortgage nor any
servicer or master servicer will be obligated to substitute trust assets or to
repurchase trust assets if a seller, master servicer or servicer defaults upon
its obligation to do so, and no assurance can be given that sellers, master
servicers or servicers will perform their obligations.
The Trust Assets
Your prospectus supplement describes the type of trust assets that will be
transferred to your trust. The trust assets may include
. Ginnie Mae certificates,
. Freddie Mac certificates,
. Fannie Mae certificates,
. mortgage-backed securities of private issuers,
. mortgage loans, which may include single family residential loans,
balloon loans, multifamily loans, high LTV loans and junior lien
mortgage loans,
. manufactured housing retail installment sales contracts,
. other assets evidencing interests in loans secured by residential
property, and
<PAGE>
. funding agreements with finance companies that are secured by mortgage
certificates, mortgage loans or other similar assets.
Ginnie Mae certificates are mortgage pass-through certificates as to which
the timely payment of principal and interest is guaranteed by Government
National Mortgage Association, a wholly owned corporate instrumentality of the
United States within HUD. Ginnie Mae's guaranty obligations are backed by the
full faith and credit of the United States. The mortgage loans underlying
Ginnie Mae certificates may consist of loans insured by FHA and secured by
mortgages on one- to four-family residential properties or multi-family
residential properties, loans partially guaranteed by VA, and other mortgage
loans eligible for inclusion in mortgage pools underlying Ginnie Mae
certificates.
Freddie Mac certificates are mortgage pass-through certificates as to which
the Federal Home Loan Mortgage Corporation has guaranteed the timely payment of
interest and, generally, the ultimate collection of principal. Freddie Mac is a
federally chartered corporation whose obligations are not guaranteed by the
United States or any of its agencies or instrumentalities. Each Freddie Mac
certificate will represent an undivided interest in a group of mortgage loans or
participations in mortgage loans secured by a first lien on one-to-four family
residential properties or multi-family residential properties.
Fannie Mae certificates are mortgage pass-through certificates as to which
the Federal National Mortgage Association has guaranteed the timely payment of
principal and interest. Fannie Mae is a federally chartered and privately owned
corporation whose obligations are not guaranteed by the United States or any of
its agencies or instrumentalities. Each Fannie Mae certificate will represent
an undivided interest in a pool of mortgage loans formed by Fannie Mae. Each
mortgage loan will be secured by a first lien on one- to four-family residential
properties or multifamily residential properties.
Although payment of principal and interest on the Ginnie Mae certificates,
Freddie Mac certificates and Fannie Mae certificates, if any, assigned to your
trust is guaranteed by Ginnie Mae, Freddie Mac and Fannie Mae, respectively,
your securities do not represent an obligation of or an interest in National
Mortgage or any of its affiliates and are not guaranteed or insured by Ginnie
Mae, Freddie Mac, Fannie Mae, National Mortgage or any of their affiliates, or
any other person.
The mortgage loans included in your trust will be secured by first or
junior liens on one-family, two- to four-family residential property and may
also include multifamily residential loans, high LTV loans, and cooperative
loans evidenced by promissory notes secured by a lien or the shares issued by
private, non-profit, cooperative housing corporations and on proprietary leases
or occupancy agreements granting exclusive rights to occupy specific cooperative
dwellings. Regular monthly installments of principal and interest on each
mortgage loan or contract paid by the obligor will be collected by the servicer
or master servicer and ultimately remitted to the trustee.
The mortgaged property securing mortgage assets may consist of
<PAGE>
. detached homes,
. units having a common wall,
. units located in condominiums, and
. other types of homes or units set forth in the accompanying prospectus
supplement including but not limited to multifamily residential
complexes and cooperative units evidenced by a stock certificate.
Each detached or attached home will be constructed on land owned in fee
simple by the obligor or on land leased by the obligor for a term at least one
year greater than the term of the applicable mortgage asset. Attached homes may
consist of duplexes, triplexes and fourplexes or townhouses. The mortgage
assets included in your trust may be secured by mortgaged properties that are
owner-occupied, are owned by investors or serve as second residences or vacation
homes.
The mortgage assets included in your trust may provide for
. the payment of interest and full repayment of principal in level
monthly payments with a fixed rate of interest computed on the
declining principal balance,
. may provide for periodic adjustments to the rate of interest to equal
the sum of a fixed margin and an index,
. may consist of mortgage assets for which funds have been provided to
reduce the obligor's monthly payments during the early period of the
mortgage assets,
. may provide for the one-time reduction of the asset rate,
. may provide for
. monthly payments during the first year that are at least
sufficient to pay interest due, and
. an increase in the monthly payment in subsequent years at a
predetermined rate resulting in full repayment over a shorter
term than the initial amortization schedule,
. may include graduated payment mortgage assets, which allow for
payments during a portion of their term which are or may be less than
the amount of interest due on the unpaid principal balance of the
mortgage assets, and which unpaid interest will be added to the
principal balance and will be paid, together with accrued interest, in
the later years,
<PAGE>
. may include mortgage assets on which only interest is payable until
maturity, as well as mortgage assets that provide for the amortization
of principal over a certain period, although all remaining principal
is due at the end of a shorter period,
. may include mortgage assets that provide for obligor payments to be
made on a bi-weekly basis, and
. may include such other types of mortgage assets as are described in
the accompanying prospectus supplement.
Your trust may contain contracts secured by manufactured homes. These
contracts typically will provide for regular monthly payments that will amortize
their principal amount over the term of the contract, typically ten to twenty
years. Interest may be fixed or adjustable based upon an index. Unless the
manufactured home is affixed to the real estate, the security interest in the
manufactured home will be governed by state motor vehicle titling laws or the
state's Uniform Commercial Code. Manufactured homes may consist of either
"single-wide" or "double-wide" units. Additional information about the contracts
and manufactured homes included in your trust is contained in the accompanying
prospectus supplement.
Your trust also may include other trust assets consisting of conventional
mortgage pass-through certificates or collateralized mortgage obligations
representing interests in the types of mortgage assets described in this
section, more fully described in the accompanying prospectus supplement.
Repurchase of Converted Mortgage Assets
Your trust may include mortgage assets that are convertible from adjustable
interest rates to fixed interest rates. Generally, the converted mortgage assets
will be purchased from your trust at a purchase price equal to their unpaid
principal balance, plus 30 days of accrued interest. A servicer or the master
servicer will be obligated to deposit the amount of the purchase price in an
account established for this purpose and the purchase price will be treated as a
prepayment of the mortgage asset. An obligation of a servicer or the master
servicer to repurchase converted mortgage assets may be supported by cash,
letters of credit, third party guarantees or other similar arrangements.
Substitution of Trust Assets
National Mortgage or the seller may, within three months of the settlement
date, deliver to the trustee other trust assets in substitution for any one or
more trust assets initially included in your trust. In general, substitute trust
assets must, on the date of substitution,
. have an unpaid principal balance not greater than, and not more than
$10,000 less than, the unpaid principal balance of the deleted trust
asset,
. have an asset rate not less than, and not more than one percentage
point in excess of, the asset rate of the deleted trust asset,
<PAGE>
. have a net asset rate equal to the net asset rate of the deleted trust
asset,
. have a remaining term to maturity not greater than, and not more than
one year less than, that of the deleted trust asset, and
. comply with each representation and warranty relating to the trust
assets and, if the seller is effecting the substitution, comply with
each representation and warranty set forth in the transfer agreement
conveying the trust assets to National Mortgage.
In addition, only like-kind collateral may be substituted. If mortgage
assets are being substituted, the substitute mortgage asset must have a loan-to-
value ratio as of the first day of the month in which the substitution occurs
equal to or less than the loan-to-value ratio of the deleted mortgage asset on
this date, using the value at origination, and after taking into account the
payment due on this date. Further, no adjustable-rate loan may be substituted
unless the deleted mortgage asset is an adjustable-rate loan, in which case, the
substituted mortgage asset must also
. have a minimum lifetime asset rate that is not less than the minimum
lifetime asset rate on the deleted mortgage asset,
. have a maximum lifetime asset rate that is not less than the maximum
lifetime asset rate on the deleted mortgage asset,
. provide for a lowest possible net asset rate that is not lower than
the lowest possible net asset rate for the deleted mortgage asset and
a highest possible net asset rate that is not lower than the highest
possible net asset rate for the deleted mortgage asset,
. have a gross margin not less than the gross margin of the deleted
mortgage asset,
. have a periodic rate cap equal to the periodic rate cap on the deleted
mortgage asset,
. have a next interest adjustment date that is the same as the next
interest adjustment date for the deleted mortgage asset or occurs not
more than two months prior to the next interest adjustment date for
the deleted mortgage asset, and
. not be a mortgage asset convertible from an adjustable rate to a fixed
rate unless the deleted mortgage asset is so convertible.
In the event that more than one mortgage asset is substituted for a deleted
mortgage asset, one or more of the foregoing characteristics may be applied on a
weighted average basis as described in the pooling and master servicing
agreement or indenture.
Funding Agreements
National Mortgage may enter into a funding agreement with a limited-purpose
finance subsidiary or affiliate of an operating company. This finance company
will be authorized to engage in any business activities other than the financing
and sale of mortgage-related assets.
<PAGE>
Pursuant to a funding agreement
. National Mortgage will lend a finance company a portion of the
proceeds from the sale of your securities and the finance company will
pledge to National Mortgage trust assets having an aggregate unpaid
principal balance or asset value equal to at least the amount of the
loan, and
. the finance company will agree to repay this loan by causing payments
on your trust's assets to be made to the trustee, as assignee of
National Mortgage, in amounts as are necessary to pay accrued interest
on this loan and to amortize the principal amount of the loan.
A finance company need not provide additional collateral to secure the loan
pursuant to a funding agreement subsequent to the issuance of your securities.
Unless National Mortgage, a servicer, the master servicer or another
organization designated in the accompanying prospectus supplement exercises its
option to terminate your trust and retire your securities, or a finance company
defaults, the finance company's loan may not be prepaid other than as a result
of prepayments on the pledged trust assets. If the finance company attempts to
prepay its loan, the loan would only be deemed prepaid in full if the finance
company paid National Mortgage an amount sufficient to enable National Mortgage
to purchase other trust assets comparable in yield and maturity to the finance
company's trust assets pledged under the funding agreement. The trustee then
could either
. purchase such other trust assets and substitute them for the trust
assets pledged by the finance company, to the extent that this
purchase and substitution did not adversely affect the tax treatment
of your securities, or
. deposit the amount of the finance company's prepayment in the asset
proceeds account.
In the event of a default under a funding agreement, the trustee will have
recourse to the finance company for the benefit of the securityholders,
including the right to foreclose upon the trust assets securing that funding
agreement. The participating finance companies will be limited-purpose finance
entities. It is unlikely that a defaulting finance company will have any
significant assets except those pledged to your trust and those that secure
other securities. The trustee has no recourse to assets pledged to secure other
securities except to the limited extent that funds generated by those assets
exceed the amount required to pay those securities and are released from the
lien securing the other securities and returned to a finance company. For that
reason, you should make your investment decisions on the basis that your
securities have rights only to the trust assets of your trust.
In the event of a default under a funding agreement and the sale by the
trustee of the trust assets securing the obligations of the finance company
under the funding agreement, the trustee may distribute principal in an amount
equal to the unpaid principal balance of the trust assets so
<PAGE>
liquidated ratably among all classes of securities within your series, or in
another manner noted in the accompanying prospectus supplement.
Pre-Funding
If specified in the accompanying prospectus supplement, a portion of the
issuance proceeds of your securities (the "Pre-Funded Amount"}) will be
deposited in an account to be established with the trustee, which will be used
to acquire additional trust assets from time to time during the time period
specified in the prospectus supplement (the "Pre-Funding Period"}). Prior to the
investment of the Pre-Funded Amount in additional trust assets, the Pre-Funded
Amount may be invested in one or more eligible investments. Any eligible
investment must mature no later than the business day prior to the next
distribution date.
During any Pre-Funding Period, National Mortgage will be obligated, subject
only to availability, to transfer to your trust additional trust assets from
time to time during the Pre-Funding Period. Additional trust assets will be
required to satisfy eligibility criteria more fully set forth in the prospectus
supplement. This eligibility criteria will be consistent with the eligibility
criteria of the trust assets included in your trust on the settlement date, but
exceptions may expressly be stated in the prospectus supplement.
Use of a Pre-Funding Account with respect to any issuance of securities
will be conditioned upon the following:
. the Pre-Funding Period will not exceed three months from the
settlement date,
. the additional assets to be acquired during the Pre-Funding Period
will satisfy the same underwriting standards, representations and
warranties as the trust assets included in the trust on the settlement
date, although additional criteria may also be required to be
satisfied, as described in the prospectus supplement ,
. the Pre-Funded Amount will not exceed 25% of the principal amount of
the securities issued,
. the Pre-Funded Amount will not exceed 25% of the scheduled principal
balance of the trust assets, inclusive of the Pre-Funded Amount, as of
the cut-off date, and
. the Pre-Funded Amount shall be invested in eligible investments.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the purchase of additional trust assets by the end of the
Pre-Funding Period, the securityholders then entitled to receive distributions
of principal will receive a prepayment of principal in an amount equal to the
related Pre-Funded Amount remaining in the Pre-Funding Account on the first
distribution date following the end of the Pre-Funding Period. Any prepayment of
principal would have an adverse effect on the yield to maturity of securities
purchased at a premium, and would expose securityholders to the risk that
alternative investments of equivalent value may not be available at a later
time.
<PAGE>
Information regarding additional assets acquired by your trust during the
Pre-Funding Period comparable to the disclosure regarding the assets in the
prospectus supplement will be filed on a Current Report in Form 8-K within
fifteen days following the end of the Pre-Funding Period.
Asset Proceeds Account
Payments on the mortgage assets will be remitted to the servicer custodial
account or master servicer custodial account and then to the asset proceeds
account for your series, net of amounts required to pay servicing fees and
amounts included in any reserve fund. All payments received on financial assets
will be remitted to the asset proceeds account. All or a portion of the amounts
in the asset proceeds account, together with reinvestment income, if payable to
you, will be available for the payment of master servicing and administrative
fees and distributions of principal and interest on your securities in
accordance with the allocations set forth in the accompanying prospectus
supplement.
Reserve Fund or Accounts
National Mortgage may deposit or cause to be deposited cash, certificates
of deposit or letters of credit in reserve funds or accounts. These accounts may
be used by the trustee to make distributions of principal or interest on your
securities to the extent funds are not otherwise available, if so provided in
the pooling and master servicing agreement or indenture and described in the
accompanying prospectus supplement. The reserve funds will be maintained in
trust but may or may not constitute trust assets of your trust. National
Mortgage may have certain rights on a distribution date to cause the trustee to
make withdrawals from the reserve fund and to pay these amounts in accordance
with the instructions of National Mortgage, as specified in the accompanying
prospectus supplement, to the extent that these funds are no longer required to
be maintained for you.
Financial Guarantee Insurance Policy
If specified in the accompanying prospectus supplement, your series of
securities may have the benefit of one or more financial guarantee insurance
policies provided by one or more insurers. Financial guarantee insurance may
guarantee timely distributions of interest and full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the accompanying prospectus supplement. A copy of the
financial guarantee insurance policy for your securities, if any, will be filed
with the SEC as an exhibit to a Current Report on Form 8-K within 15 days of
issuance of your securities.
Mortgage Insurance on the Mortgage Assets
Conventional mortgage loans included in your trust may be covered by
primary mortgage insurance policies or one or more mortgage pool insurance
policies or any combination. In lieu of mortgage insurance policies, additional
trust assets may be delivered to the trustee to secure the timely payment of
principal and interest on the mortgage loans. FHA loans and VA loans
<PAGE>
included in your trust will be covered by FHA insurance or VA guarantees and may
be covered by a pool insurance policy.
Conventional mortgage loans that have initial loan-to-value ratios of
greater than 80% will, to the extent specified in the accompanying prospectus
supplement, be covered by primary mortgage insurance policies. PMI policies will
provide coverage on at least the amount of the mortgage loan in excess of 75% of
the original fair market value of the mortgaged properties, and will remain in
force until the principal balance of the mortgage loan is reduced to 80% of its
original fair market value or, with the consent of the master servicer and
mortgage insurer, after the policy has been in effect for more than two years if
the loan-to-value ratio of the mortgage loan has declined to 80% or less based
upon its current fair market value. The initial loan-to-value ratio of any
mortgage loan represents the ratio of the principal amount of the mortgage loan
outstanding at the origination divided by the fair market value of the mortgaged
property. The fair market value of the mortgaged property securing a mortgage
loan is the lesser of the purchase price paid by the obligor or the appraised
value of the mortgaged property at origination. Some mortgage loans also may be
covered by PMI and some PMI will, subject to their provisions, provide full
coverage against any loss sustained by reason of nonpayments by the obligors.
The pool insurance policy or policies for any series of securities will
generally be designed to provide coverage for all conventional mortgage loans
that are not covered by full coverage insurance policies. However, the mortgage
insurance policies will not insure against some losses sustained in the event of
a personal bankruptcy of the obligor under a mortgage asset. See "Certain Legal
Aspects of Mortgage Assets -- Anti-Deficiency Legislation and Other Limitations
on Lenders" in this prospectus.
The mortgage insurance policies will not provide coverage against hazard
losses. Each mortgage loan will be covered by a standard hazard insurance policy
but these policies typically will exclude from coverage physical damage
resulting from a number of causes and, even when the damage is covered, may
afford recoveries that are significantly less than full replacement cost of the
losses. Further, to the extent that mortgage loans are covered by a special
hazard insurance policy, the special hazard insurance policy will not cover all
risks, and the coverage of the policy will be limited. Not all hazard risks will
be covered and losses may reduce distributions to you.
To the extent necessary to restore or prevent a reduction of the rating
assigned by a rating agency, a servicer or the master servicer will use its
reasonable best efforts to replace a mortgage insurance policy with a new
mortgage insurance policy issued by an insurer whose claims paying ability is
acceptable to each rating agency.
Primary Mortgage Insurance
Each PMI policy covering mortgage assets in your trust will be issued by a
mortgage insurer under its master policy. National Mortgage and the trustee, as
assignee of the lender under each mortgage asset, generally will be the insureds
or assignees of record, as their interests may appear, under each PMI policy.
The servicer or master servicer will cause a PMI policy to be maintained in full
force and effect on each mortgage asset requiring this insurance and to act
<PAGE>
on behalf of the insured concerning all actions required to be taken by the
insured under each PMI policy.
The amount of a claim for benefits under a PMI policy will consist of the
insured portion of the unpaid principal amount of the covered mortgage asset and
accrued and unpaid interest and reimbursement of some 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 are 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 asset,
. amounts expended but not approved by the mortgage insurer,
. claim payments previously made by the mortgage insurer, and
. unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a PMI
policy, the insured will generally be required to, in the event of default by
the obligor
. advance or discharge
. all hazard insurance premiums and
. as necessary and approved in advance by the mortgage
insurer,
* real estate property taxes,
* all expenses required to preserve, repair and prevent
waste to the mortgaged property so as to maintain the
mortgaged property in at least as good a condition as
existed at the effective date of the PMI policy,
ordinary wear and tear excepted,
* property sales expenses,
* any outstanding liens on the mortgaged property, and
* foreclosure costs, including court costs and reasonable
attorneys' fees,
. in the event of any physical loss or damages to the mortgaged
property, have restored and repaired the mortgaged property to at
least as good a condition as existed at the effective date of the PMI
policy, ordinary wear and tear excepted, and
<PAGE>
. tender to the mortgage insurer good and merchantable title to and
possession of the mortgaged property.
The PMI policy may not reimburse the insured for attorneys' fees on a
foreclosed mortgage asset in excess of 3% of the unpaid balance of that mortgage
asset. As a result, legal expenses in excess of this reimbursement limitation
may be charged as a loss on your securities.
Other provisions and conditions of each PMI policy generally will provide
that:
. no change may be made in the terms of the mortgage asset without the
consent of the mortgage insurer,
. written notice must be given to the mortgage insurer within 10 days
after the insured becomes aware that an obligor is delinquent in the
payment of a sum equal to the aggregate of two scheduled payments due
under the mortgage asset or that any proceedings affecting the
obligor's interest in the mortgaged property have been commenced, and
then the insured must report monthly to the mortgage insurer the
status of any affected mortgage loan until the mortgage loan is
brought current, such proceedings are terminated or a claim is filed,
. the mortgage insurer will have the right to purchase the mortgage loan
at any time subsequent to the 10 days' notice described in the
immediately preceding bullet point and prior to the commencement of
foreclosure proceedings, at a price equal to the unpaid principal
balance of the mortgage loan plus accrued and unpaid interest and
reimbursable amounts expended by the insured for the real estate taxes
and hazard insurance on the mortgaged property for a period not
exceeding 12 months and less the sum of any claim previously paid
under the policy and any due and unpaid premium with respect to the
policy,
. the insured must commence proceedings at certain times specified in
the policy and diligently proceed to obtain good and merchantable
title to and possession of the mortgaged property,
. the insured must notify the mortgage insurer of the institution of any
proceedings, provide it with copies of documents relating thereto,
notify the mortgage insurer of the price specified in the third bullet
point at least 15 days prior to the sale of the mortgaged property by
foreclosure, and bid this amount unless the mortgage insurer specifies
a lower or higher amount,
. the insured may accept a conveyance of the mortgaged property in lieu
of foreclosure with written approval of the mortgage insurer, provided
that the ability of the insured to assign specified rights to the
mortgage insurer are not impaired or the specified rights of the
mortgage insurer are not adversely affected,
. the insured agrees that the mortgage insurer has issued the policy in
reliance upon the correctness and completeness of the statements
contained in the application for the
<PAGE>
policy and in the appraisal, plans and specifications and other
exhibits and documentation submitted therewith or at any time
thereafter,
. under some policies, the mortgage insurer will not pay claims
involving or arising out of dishonest, fraudulent, criminal or
knowingly wrongful acts -- including error or omission -- by some
persons, or claims involving or arising out of the negligence of
persons if this negligence is material either to the acceptance of the
risk or to the hazard assumed by the mortgage insurer, and
. the insured must comply with other notice provisions in the policy.
As noted below, a seller and the servicer of mortgage assets must represent
and warrant that each mortgage insurance policy is the valid and binding
obligation of the mortgage insurer and that each mortgage insurance application
was complete and accurate in all material respects when made. See "Sale and
Servicing of Mortgage Assets -- Representations and Warranties" in this
prospectus.
Generally, the mortgage insurer will be required to pay to the insured
either the insured percentage of the loss or, at its option under some of the
PMI policies, the sum of the delinquent scheduled payments plus any advances
made by the insured, both to the date of the claim payment, and thereafter,
scheduled payments in the amount that would have become due under the mortgage
asset if it had not been discharged plus any advances made by the insured until
the earlier of the date the mortgage asset would have been discharged in full if
the default had not occurred, or an approved sale. Any rents or other payments
collected or received by the insured that are derived from or are in any way
related to the mortgaged property will be deducted from any claim payment.
Pool Insurance
If any mortgage asset is not covered by a full coverage insurance policy or
other credit enhancement, National Mortgage may obtain a pool insurance policy
to cover loss by reason of default by the obligors of the mortgage assets
included in your trust to the extent not covered by a PMI policy. The master
servicer must maintain the pool insurance policies, if any, for your series and
to present or cause the servicers to present claims to the insurer on behalf of
National Mortgage, the trustee and you.
The amount of the pool insurance policy, if any, is specified in the
accompanying prospectus supplement. A pool insurance policy will not be a
blanket policy against loss, because claims may only be made for particular
defaulted mortgage assets and only upon satisfaction of certain conditions.
The pool insurance policy generally will provide that before the payment of
any claim the insured will be required
. to advance hazard insurance premiums on the mortgaged property
securing the defaulted mortgage asset,
<PAGE>
. to advance, as necessary and approved in advance by the related
insurer,
. real estate property taxes,
. all expenses required to preserve and repair the mortgaged
property, to protect the mortgaged property from waste, so that
the mortgaged property is in at least as good a condition as
existed on the date when coverage under the pool insurance policy
with respect to the mortgaged property first became effective,
ordinary wear and tear excepted,
. property sales expenses,
. any outstanding liens on the mortgaged property, and
. foreclosure costs including court costs and reasonable attorneys'
fees, and
. if there has been physical loss or damage to the mortgaged property,
to restore the mortgaged property to its condition -- ordinary wear
and tear excepted -- as of the issue date of the pool insurance
policy.
It will be a condition precedent to the payment of claims under the pool
insurance policy that the insured maintain a PMI policy acceptable to the pool
insurer on all mortgage assets that have original loan-to-value ratios in excess
of 80%. If these conditions are satisfied, the pool insurer will pay to the
insured the amount of the loss, which will equal
. the amount of the unpaid principal balance of the mortgage asset
immediately prior to the approved sale of the mortgaged property,
. the amount of the accumulated unpaid interest on the mortgage asset to
the date of claim settlement at the contractual rate of interest, and
. reimbursable amounts advanced by the insured described above, less
payments such as the proceeds of any prior approved sale and any
primary insurance policies.
The pool insurance policy may not reimburse the insured for attorneys' fees
on a foreclosed mortgage asset in excess of 3% of the unpaid balance of that
mortgage asset. As a result, legal expenses in excess of the reimbursement
limitation may be charged as a loss against your securities. An approved sale is
. a sale of the mortgaged property acquired by the insured because of a
default by the obligor, to which the pool insurer has given prior
approval,
. a foreclosure or trustee's sale of the mortgaged property at a price
exceeding the minimum amount specified by the pool insurer,
. the acquisition of the mortgaged property under the PMI policy by the
mortgage insurer, or
<PAGE>
. the acquisition of the mortgaged property by the pool insurer.
If the pool insurer elects to take title to the mortgaged property, the
insured must, as a condition precedent to the payment of a loss, provide the
pool insurer with good and merchantable title to the mortgaged property. If any
property securing a defaulted mortgage asset is damaged and the proceeds, if
any, from the standard hazard insurance policy or the applicable special hazard
insurance policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the pool insurance policy, the servicer or
the master servicer of the mortgage asset will not be required to expend its own
funds to restore the damaged mortgaged property unless it determines and the
master servicer agrees that the restoration will increase the proceeds to your
trust on liquidation of the mortgage asset after reimbursement of the servicer
or the master servicer for its expenses and that these expenses will be
recoverable by it through liquidation proceeds or insurance proceeds.
The pool insurance policies will generally not insure -- and many primary
insurance policies may not insure -- against loss sustained by reason of a
default arising from, among other things,
. fraud or negligence in the origination or servicing of a mortgage
asset, including misrepresentation by the obligor or the originator,
. failure to construct mortgaged property in accordance with plans and
specifications and
. a claim regarding a defaulted mortgage asset occurring when the
servicer of the mortgage asset, at the time of default or later, was
not approved by the mortgage insurer.
A failure of coverage attributable to one of the foregoing events might
result in a breach of the seller's or servicer's representations and warranties.
This occurrence might give rise to an obligation on the part of the seller or
servicer to purchase the defaulted mortgage asset if the breach cannot be cured.
In addition, if a terminated servicer has failed to comply with its obligation
to purchase a mortgage loan upon which coverage under a pool insurance policy
has been denied on the grounds of fraud, dishonesty or misrepresentation - or if
the servicer has no such obligation -- the master servicer may be obligated to
purchase the mortgage asset. See "Sale and Servicing of Mortgage Assets --
General" and " -- Maintenance of Insurance Policies; Claims Thereunder and Other
Realization Upon Defaulted Mortgage Assets" in this prospectus.
The original amount of coverage under any pool insurance policy assigned to
your trust will be reduced over the life of your securities by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the pool insurer upon disposition of all foreclosed mortgaged property. The
amount of claims paid includes some expenses incurred by the servicer or the
master servicer of the defaulted mortgage asset, as well as accrued interest on
delinquent mortgage assets to the date of payment of the claim.
<PAGE>
The net amounts realized by the pool insurer will depend primarily on the
market value of the mortgaged property securing the defaulted mortgage asset.
The market value of the mortgaged property will be determined by a variety of
economic, geographic, environmental and other factors and may be affected by
matters that were unknown and could not reasonably be anticipated at the time
the original loan was made.
If aggregate net claims paid under a pool insurance policy reach the
original policy limit, coverage under the pool insurance policy will lapse and
any further losses may affect adversely distributions to you. In addition,
unless the servicer or master servicer determine that an advance on a delinquent
mortgage asset is recoverable from the proceeds of the liquidation of the same
mortgage asset or otherwise, neither the servicer nor the master servicer must
make the advance because the advance would not be ultimately recoverable to it
from either the pool insurance policy or from any other source. See "Sale and
Servicing of Mortgage Assets -- Advances" in this prospectus.
The original amount of coverage under the pool insurance policy assigned to
your trust also may be reduced or canceled to the extent each rating agency
confirms that the reduction or cancellation will not result in the lowering of
the rating of your securities.
A pool insurance policy may insure against losses on the mortgage assets
assigned to trusts for other series of securities or that secure other mortgage-
backed securities issued by National Mortgage or one of its affiliates.
However, the extension of coverage -- and corresponding assignment of the pool
insurance policy -- to any other series or other securities does not result in
the downgrading of the credit rating of your securities.
Standard Hazard Insurance Policies
The servicer must maintain a standard hazard insurance policy covering each
mortgaged property, to the extent described in the accompanying prospectus
supplement. The coverage amount of each standard hazard insurance policy will be
at least equal to the lesser of the outstanding principal balance of the
mortgage asset, or the full replacement value of the improvements on the
mortgaged property. All amounts collected by the servicer or master servicer
under any standard hazard insurance policy -- less amounts to be applied to the
restoration or repair of the mortgaged property and other amounts necessary to
reimburse the servicer or master servicer for previously incurred advances or
approved expenses, which may be retained by the servicer or master servicer --
will be deposited to the custodial account or the asset proceeds account.
The standard hazard insurance policies will provide for coverage at least
equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
mortgaged property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to customary conditions and
exclusions. Because the mortgage assets' standard hazard insurance policies will
be underwritten by different insurers and will cover mortgaged property located
in various states, these policies will not contain identical terms and
conditions. The basic terms generally will be determined by
<PAGE>
state law and generally will be similar. Most policies typically will not cover
any physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement -- including
earthquakes, landslides and mudflows--, nuclear reaction, 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 intended to be all-inclusive. When mortgaged properties are located
in a flood area identified by HUD pursuant to the National Flood Insurance Act
of 1968 the servicer or master servicer, as the case may be, will cause to be
maintained flood insurance.
The standard hazard insurance policies covering mortgaged properties
typically will contain a "coinsurance" clause which, in effect, will require the
insured at all times to carry insurance of a specified percentage -- generally
80% to 90% -- of the full replacement value of the dwellings, structures and
other improvements on the mortgaged property in order to recover the full amount
of any partial loss. If the insured's coverage falls below this percentage, the
clause will provide that the insurer's liability in the event of partial loss
will not exceed the greater of the actual cash value -- the replacement cost
less physical depreciation -- of the dwellings, structures and other
improvements damaged or destroyed or the proportion of the loss, without
deduction for depreciation, as the amount of insurance carried bears to the
specified percentage of the full replacement cost of the dwellings, structures
and other improvements.
Any losses incurred with respect to mortgage assets due to uninsured risks
- -- including earthquakes, mudflows and floods -- or insufficient hazard
insurance proceeds may reduce the value of the assets included in your trust to
the extent these losses are not covered by the special hazard insurance policy
and could affect distributions to you.
The master servicer will not require that a standard hazard or flood
insurance policy be maintained for 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, a cooperative and the related borrower on a cooperative note do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
the obligor's cooperative dwelling or the cooperative's building could
significantly reduce the value of the collateral securing the cooperative note.
Special Hazard Insurance Policy
A special hazard insurance policy may be obtained with respect to the
mortgage assets included in your trust. A special hazard insurance policy
generally will protect you from
. loss by reason of damage to mortgaged property underlying defaulted
mortgage assets included in your trust caused by certain hazards --
including vandalism and earthquakes and, except where the obligor is
required to obtain flood insurance, floods and mudflows -- not covered
by the standard hazard insurance policies, and
<PAGE>
. loss from partial damage to the mortgaged property securing the
defaulted mortgage assets caused by reason of the application of the
coinsurance clause contained in the applicable standard hazard
insurance policies.
Any special hazard insurance policy, however, will not cover losses
occasioned by war, nuclear reaction, nuclear or atomic weapons, insurrection or
normal wear and tear. Coverage under the special hazard insurance policy will
be at least equal to the amount specified in the accompanying prospectus
supplement.
The special hazard insurance policy will provide that when there has been
damage to mortgaged property securing a defaulted mortgage asset and this damage
is not covered by the standard hazard insurance policy maintained by the obligor
or the servicer or master servicer, the special hazard insurer will pay the
lesser of
. the cost of repair of the mortgaged property, or
. upon transfer of the property to it, the unpaid principal balance of
the mortgage asset at the time of the acquisition of the mortgaged
property, plus accrued interest to the date of claim settlement --
excluding late charges and penalty interest --, and certain other
expenses.
No claim may be validly presented under a special hazard insurance policy
unless
. hazard insurance on the mortgaged property securing the defaulted
mortgage asset has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid, all
of which must be approved in advance as necessary by the insurer, and
. the insured has acquired title to the mortgaged property as a result
of default by the obligor.
If the sum of the unpaid principal amount plus accrued interest and certain
expenses is paid by the special hazard insurer, the amount of further coverage
under the special hazard insurance policy will be reduced by this amount less
any net proceeds from the sale of the mortgaged property. Any amount paid as
the cost of repair of the mortgaged property will reduce coverage by this
amount.
The master servicer will maintain the special hazard insurance policy in
full force and effect. The master servicer also is required to present claims,
on behalf of the trustee, for all losses not otherwise covered by the standard
hazard insurance policies and take all reasonable steps necessary to permit
recoveries on these claims. See "Sale and Servicing of Mortgage Assets" in this
prospectus.
Partially or entirely in lieu of a special hazard insurance policy,
National Mortgage may deposit or cause to be deposited cash, securities, a
certificate of deposit, a letter of credit or any other instrument acceptable to
each rating agency in an amount and for a term acceptable to each
<PAGE>
rating agency. This deposit will be credited to a special hazard fund or similar
fund, including a fund that may also provide coverage for mortgagor bankruptcy
losses, and the trustee will be permitted to draw on the fund to recover losses
that would otherwise be covered by a special hazard insurance policy. A special
hazard insurance policy or special hazard fund may insure against losses on
mortgage loans assigned to trusts for other series of securities or that secure
other mortgage-backed securities obligations issued by National Mortgage or one
of its affiliates. However, the extension of coverage -- and the corresponding
assignment of the special hazard insurance policy -- to any other series or
other securities does not result in the downgrading of the credit rating of any
outstanding securities of your series. National Mortgage may also elect to
insure against special hazard losses by the delivery of additional assets to
your trust rather than through a special hazard insurance policy or special
hazard fund.
Mortgagor Bankruptcy Insurance on the Mortgage Assets
In the event of a personal bankruptcy of an obligor, the bankruptcy court
may establish the value of the mortgaged property of the obligor at an amount
less than the then outstanding principal balance of the mortgage asset secured
by the mortgaged property. The amount of the secured debt could be reduced to
this value, and the holder of the mortgage asset would become an unsecured
creditor to the extent the outstanding principal balance of mortgage asset
exceeds the value so assigned to the mortgaged property by the bankruptcy court.
In addition, other modifications of the terms of a mortgage asset can result
from a bankruptcy proceeding. See "Certain Legal Aspects of Mortgage Assets --
Anti-Deficiency Legislation and Other Limitations on Lenders" in this
prospectus.
Losses resulting from a bankruptcy proceeding affecting mortgage assets may
be covered by mortgagor bankruptcy insurance or any other instrument that will
not result in a down-grading of the credit rating of your securities by any
rating agency. The amount and term of any mortgagor bankruptcy insurance, which
will be specified in the accompanying prospectus supplement, must be acceptable
to each rating agency rating your securities. Subject to the terms of the
mortgagor bankruptcy insurance, the issuer may have the right to purchase any
mortgage asset if a payment or drawing has been made or may be made for an
amount equal to the outstanding principal amount of the mortgage asset plus
accrued and unpaid interest. In the alternative, partially or entirely in lieu
of mortgagor bankruptcy insurance, to the extent specified in the accompanying
prospectus supplement, National Mortgage may deposit or cause to be deposited
cash, securities, a certificate of deposit, a letter of credit or any other
instrument acceptable to each rating agency rating your securities in an initial
amount acceptable to each rating agency. This deposit will be credited to a
mortgagor bankruptcy fund or similar fund or account, including a fund or
account that may also provide coverage for special hazard losses, and the
trustee will be able to draw on the fund or account to recover losses that would
be insured against by mortgagor bankruptcy insurance. The mortgagor bankruptcy
fund or account may or may not constitute a part of your trust. The amount of
the mortgagor bankruptcy insurance or deposit may be reduced as long as any
reduction will not result in a reduction of the credit rating of any securities
in your series. The mortgagor bankruptcy insurance or any mortgagor bankruptcy
fund may insure against losses on mortgage assets assigned to trusts for other
series of securities or that secure other mortgage-backed securities issued by
National
<PAGE>
Mortgage or one of its affiliates. However, the extension of coverage
- -- and corresponding assignment of the mortgagor bankruptcy insurance or
mortgagor bankruptcy fund -- to any other series or securities does not result
in the downgrading of the credit rating of any securities of your series.
National Mortgage may elect to deposit or cause to be deposited additional
assets to your trust in lieu of obtaining mortgagor bankruptcy insurance or
establishing a mortgagor bankruptcy fund.
Other Insurance
If the trust assets for your series include multifamily mortgage loans, the
obligors generally will be required to maintain additional types of insurance,
including but not limited to boiler explosion insurance and business
interruption insurance. These insurance policies, if any, will be described in
the accompanying prospectus supplement.
Delivery of Additional Assets
Rather than providing pool insurance, special hazard insurance, mortgagor
bankruptcy insurance or other insurance, National Mortgage may assign to your
trust non-recourse guaranties of the timely payment of principal and interest on
trust assets included in your trust secured by other assets satisfactory to each
rating agency rating your series. National Mortgage may also assign or
undertake to deliver such other assets to your trust by other means. Other
assets may consist of additional mortgage assets, additional financial assets,
letters of credit or other eligible investments.
Investment of Funds
Funds deposited in or remitted to the asset proceeds account, any reserve
fund and any other funds and accounts for a series are to be invested by the
trustee, as directed by National Mortgage, in certain investments approved by
the rating agencies rating your series. Eligible investments may include
. obligations of the United States or any of its agencies, provided the
obligations are backed by the full faith and credit of the United
States,
. within certain limitations, securities bearing interest or sold at a
discount issued by any corporation, which are rated in the rating
category required to support the then highest rating assigned to any
class of securities in your series,
. commercial paper which is then rated in the commercial paper rating
category required to support the then highest rating assigned to any
class of securities in your series,
. demand and time deposits, certificates of deposit, bankers'
acceptances and federal funds sold by any depository institution or
trust company incorporated under the laws of the United States or of
any state, provided that either the senior debt obligations or
commercial paper of the depository institution or trust company -- or
provided that
<PAGE>
either the senior debt obligations or commercial paper of the parent
company of the depository institution or trust company --are then
rated in the security rating category required to support the then
highest rating assigned to any class of securities in your series,
. demand and time deposits and certificates of deposit issued by any
bank or trust company or savings and loan association and fully
insured by the FDIC,
. guaranteed reinvestment agreements issued by any insurance company,
corporation or other entity acceptable to each rating agency rating
your series, and
. certain repurchase agreements of United States government securities.
Eligible investments will include only obligations or securities that
mature on or before the date when the asset proceeds account, reserve fund and
other funds or accounts for your series are required or may be anticipated to be
required to be applied. Any income, gain or loss from investments for your
series will be credited or charged to the appropriate fund or account for your
series. Reinvestment income from permitted investments may be payable to the
master servicer or the servicers as additional servicing compensation. In that
event, these monies will not accrue for your benefit.
If a reinvestment agreement is obtained, the trustee will invest funds
deposited in the asset proceeds account and the reserve fund, if any, for your
series pursuant to the terms of the reinvestment agreement.
Sale and Servicing of the Mortgage Assets
General
If your series includes mortgage assets, one or more servicers will provide
customary servicing functions pursuant to separate servicing agreements, which
will be assigned to the trustee. The master servicer is deemed to be a servicer
for purposes of this discussion to the extent it is directly servicing mortgage
assets in your trust. The servicers may be entitled to withhold their servicing
fees and other fees and charges from remittances of payments received on the
mortgage assets they service.
Each servicer generally will be approved by Fannie Mae or Freddie Mac as a
servicer of mortgage loans and must be approved by the master servicer, if any.
In determining whether to approve a servicer, the master servicer will review
the credit of the servicer, including capitalization ratios, liquidity,
profitability and other similar items that indicate financial ability to perform
its obligations. In addition, the master servicer's mortgage servicing
personnel will review the servicer's servicing record and will evaluate the
ability of the servicer to conform with required servicing procedures.
Generally, the master servicer will not approve a servicer unless the servicer
has serviced conventional mortgage loans for a minimum of two years and
maintains a loan servicing portfolio of at least $500,000,000. Servicers
approved by the master servicer fall into three general categories: commercial
banks, mortgage banks and thrift institutions. The
<PAGE>
master servicer generally will not approve a commercial bank as a servicer
unless the commercial bank maintains a capitalization ratio of at least 6%. The
master servicer generally will not approve a mortgage bank as a servicer unless
the mortgage bank has stockholders' equity of at least $1,000,000 or at least
.20% of its loan servicing portfolio, whichever is greater. The master servicer
generally will not approve a thrift institution as a servicer unless the thrift
institution maintains a capitalization ratio of at least 3% and a liquidity
ratio of at least 5%. Once a servicer is approved, the master servicer will
continue to monitor on a regular basis the financial position and servicing
performance of the servicer.
The duties to be performed by the servicers include collection and
remittance of principal and interest payments on the mortgage assets,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the obligors and are considered to be
recoverable under the applicable insurance policies or from proceeds of
liquidation of the mortgage assets. Each servicer also will provide necessary
accounting and reporting services to enable the master servicer to provide
required information to National Mortgage and the trustee. Each servicer is
entitled to a periodic servicing fee equal to a specified percentage of the
outstanding principal balance of each mortgage asset serviced by it. With the
consent of the master servicer, some servicing obligations of a servicer may be
delegated to another person approved by the master servicer.
The master servicer will administer and supervise the performance by the
servicers of their duties and responsibilities, and maintain special hazard
insurance, mortgagor bankruptcy insurance and pool insurance, if required. The
master servicer will be entitled to receive a portion of the interest payments
on the mortgage assets included in your trust to cover its fees as master
servicer or securities administrator, as the case may be. The master Servicer
or the trustee may terminate a servicer who has failed to comply with its
covenants or breached one of its representations. Upon termination of a
servicer by the master servicer, the master servicer will assume certain
servicing obligations of the terminated servicer, or, at its option, may appoint
a substitute servicer acceptable to the trustee to assume the servicing
obligations of the terminated servicer.
If the mortgage assets are covered by a pool insurance policy and a
terminated servicer has failed to comply with its obligation to purchase a
mortgage asset where mortgage insurance coverage has been denied on the grounds
of fraud or misrepresentation, the master servicer is obligated to purchase the
mortgage asset, subject to limitations, if any, described in the accompanying
prospectus supplement. If required by the rating agencies, the master servicer
may secure its performance of this obligation through cash, a letter of credit
or another instrument acceptable to the rating agencies. Alternatively, a pool
insurer may agree to waive its right to deny a claim under its pool insurance
policy resulting from a loss sustained by reason of a default arising from
fraud, dishonesty or misrepresentation in connection with the mortgage asset,
subject to the limitations applicable to the master servicer's obligation to
purchase the mortgage asset. To the extent there are limitations on the master
servicer's obligation to purchase mortgage assets included in your trust upon
which mortgage insurance coverage has
<PAGE>
been denied on the grounds of fraud or misrepresentation, payments to you could
be affected if a servicer and the master servicer fail to honor their
obligations.
Representations and Warranties
National Mortgage generally will acquire mortgage assets from asset
sellers, or will enter into a funding agreement with a finance company
affiliated with an asset seller secured by mortgage assets acquired from this
asset seller. An asset seller or an affiliate may act as a servicer of mortgage
assets included in your trust or an unrelated party may act as servicer. The
asset seller will make or will assign its rights in representations and
warranties concerning the mortgage assets. In addition, the servicer -- which
may be the asset seller -- will make representations and warranties concerning
the mortgage assets serviced by the servicer. An asset seller and the servicer
each will represent and warrant, among other things, as follows:
. that each mortgage asset has been originated in material compliance
with all applicable laws, rules and regulations,
. that no mortgage asset is more than 89 days delinquent as of the cut-
off date,
. that each mortgage insurance policy is the valid and binding
obligation of the mortgage insurer,
. that each mortgage insurance application was complete and accurate in
all material respects when made,
. that each security instrument constitutes a good and valid first lien
or junior lien, as the case may be, on the mortgaged property, and
. that the obligor holds good and marketable title to the mortgaged
property.
The asset seller is required to submit to the trustee with each mortgage
asset a mortgagee title insurance policy, title insurance binder, preliminary
title report, or satisfactory evidence of title insurance. If a preliminary
title report is delivered initially, the asset seller is required to deliver a
final title insurance policy or satisfactory evidence of the existence of a
policy.
In the event the asset seller or the servicer breaches a representation or
warranty made with respect to a mortgage asset or if any principal document
executed by the obligor concerning a mortgage asset is found to be defective in
any material respect and the breaching party cannot cure the breach or defect
within the required time, the trustee may require the breaching party to
purchase the mortgage asset from your trust upon deposit with the trustee of
funds equal to the then unpaid principal balance of the mortgage asset plus
accrued interest at the asset rate through the end of the month in which the
purchase occurs. This sum will be net of any unreimbursed advances of principal
made by the servicer and any outstanding servicing fees owed to the servicer
with respect to this mortgage asset. In the event of a breach by the asset
seller of a representation or warranty with respect to any mortgage asset or the
delivery by the asset seller to the trustee of a materially defective document
with respect to a mortgage asset, the asset seller
<PAGE>
may, under certain circumstances, rather than repurchasing the affected mortgage
asset, substitute a mortgage asset having characteristics substantially similar
to those of the defective one. See "The Trusts -- The Trust Assets --
Substitution of Trust Assets" in this prospectus.
Neither an asset seller's nor a servicer's obligation to purchase a
mortgage asset will be guaranteed by the master servicer or National Mortgage.
If the asset seller or a servicer defaults upon its obligation to purchase a
mortgage asset and no one elects to assume this obligation, distributions to you
could be reduced. See "The Trusts -- Assignment of Trust Assets" in this
prospectus.
Origination of the Mortgage Assets
If the accompanying prospectus supplement states that any class of
securities issued by your trust is SMMEA-eligible, then each mortgage asset
included in your trust will be originated by a savings and loan association,
savings bank, commercial bank, credit union, insurance company, or similar
institution which is supervised and examined by a federal or state authority, or
by a mortgagee approved by HUD. In originating a mortgage asset, the originator
will follow its credit approval process in order to assess the prospective
obligor's ability to repay and the adequacy of the mortgaged property as
collateral. Each originator's mortgage credit approval process for residential
loans follows a standard procedure which is intended to comply with applicable
federal and state laws and regulations. The originator generally will review a
detailed application of the prospective obligor designed to provide pertinent
credit information, including a current balance sheet describing assets and
liabilities and a statement of income and expenses, credit history with
merchants and lenders, any record of bankruptcy, employment history, current and
anticipated salary and deposit verification from financial institutions.
The mortgage assets may have been originated under a "limited
documentation" underwriting program, where the credit approval procedures may be
minimal. Under "limited documentation" programs, income and employment
verifications generally need not be furnished -- other than the year-to-date
paycheck stubs or a W-2 for employed individuals and tax returns for two years
for self-employed individuals -- and deposit verifications are only required for
substantial accounts listed on application forms for such programs.
Participation in a limited documentation program generally is limited to
individuals with no adverse credit history and to loans secured by owner-
occupied residences with original loan-to-value ratios not in excess of 80%.
An appraisal generally will be required to be made on each residence to be
financed. This appraisal generally will be made by an appraiser who, at the
time the appraisal was conducted, met the minimum qualifications of Fannie Mae
or Freddie Mac for appraisers of conventional residential mortgage loans. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost of
replacing the residence.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the originator whether the prospective obligor has
sufficient monthly income available to meet the obligor's monthly obligations on
the proposed loan and other expenses related to the
<PAGE>
residence -- like property taxes, hazard and, if applicable, primary mortgage
insurance maintenance fees --and other financial obligations and monthly living
expenses. Each originator's lending guidelines for conventional single-family
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond 10 months -- including those
mentioned above and other fixed obligations, like car payments -- would equal no
more than specified percentages of the obligor's gross income. These guidelines
will be applied only to the payments to be made during the first year of the
loan. Other credit considerations may cause an originator to depart from these
guidelines. When two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The underwriting practices described in the accompanying prospectus
supplement may provide more information than those described in general in this
prospectus. Some originators may permit the obligor's credit standing and
ability to repay the loan to be less stringent than the underwriting standards
generally acceptable to Fannie Mae and Freddie Mac. In these instances, the
underwriting standards are primarily intended to evaluate the value and adequacy
of the mortgaged property as collateral for the mortgage assets.
Payments on Mortgage Assets
Each servicer will be required to establish and maintain one or more
separate, insured custodial accounts into which the servicer will deposit on a
daily basis payments of principal and interest received with respect to mortgage
assets serviced by it. These amounts will include principal prepayments,
insurance proceeds and liquidation proceeds, any advances by the servicer, and
proceeds of any mortgage assets withdrawn from your trust for defects in
documentation, breach of representations or warranties or otherwise.
To the extent deposits in each custodial account are required to be insured
by the FDIC, if at any time the sums in any custodial account exceed the limits
of insurance on the account, the servicer will be required within one business
day to withdraw such excess funds from this account and remit these amounts to a
servicer custodial account, which shall be a custodial account maintained by the
trustee, or to the trustee or the master servicer for deposit in either the
asset proceeds account for your series or the master servicer custodial account,
which shall be a custodial account maintained by the master servicer. The
amount on deposit in any servicer custodial account, master servicer custodial
account or asset proceeds account will be invested in or collateralized by
permitted investments.
On each remittance date, which will be identified in the accompanying
prospectus supplement, each servicer will be required to remit to the servicer
custodial account or the master servicer custodial account amounts representing
scheduled installments of principal and interest on the mortgage assets received
or advanced by the servicer that were due during the applicable due period,
principal prepayments, insurance proceeds or guarantee proceeds, and the
proceeds of liquidations of mortgaged property, including funds paid by the
servicer for any mortgage assets withdrawn from your trust received during the
applicable Prepayment Period, with interest to the date of prepayment or
liquidation -- subject to certain limitations--, less applicable
<PAGE>
servicing fees, insurance premiums and amounts representing reimbursement of
advances made by the servicer. On or before the distribution date, the trustee
will withdraw from the servicer custodial account or the master servicer
custodial account and remit to the asset proceeds account those amounts
allocable to the available distribution for the distribution date. In addition,
there will be deposited in the asset proceeds account for your series advances
of principal and interest made by the servicer, the master servicer or the
trustee and any insurance, guarantee or liquidation proceeds -- including
amounts paid in connection with the withdrawal of defective mortgage assets from
your trust -- to the extent these amounts were not deposited in the custodial
account or received and applied by the servicer.
Prior to each distribution date -- or the next preceding business day if
this day is not a business day--, the master servicer will furnish to the
trustee a statement setting forth required information concerning the mortgage
assets included in you trust.
Advances
Each servicer will be required to advance funds to cover, to the extent
that these amounts are deemed to be recoverable from any subsequent payments
from the same mortgage asset
. delinquent payments of principal and interest on the mortgage assets,
. delinquent payments of taxes, insurance premiums, and other escrowed
items, and
. foreclosure costs, including reasonable attorneys' fees.
The failure of a servicer to make advances constitutes a default for which the
servicer will be terminated. Upon a default by the servicer, the master
servicer or the trustee may be required to make advances to the extent necessary
to make required distributions on your securities, provided that this party
deems the amounts to be recoverable. Alternatively, National Mortgage may
obtain an endorsement to the pool insurance policy that obligates the mortgage
insurer to advance delinquent payments of principal and interest. The pool
insurer would only be obligated under an endorsement to the extent the obligor
fails to make a payment and the servicer and the master servicer fail to make a
required advance. The master servicer may agree to reimburse the pool insurer
for any sums the pool insurer pays under an endorsement.
The advance obligation of the trustee, the master servicer or the pool
insurer may be further limited to an amount specified by the rating agencies
rating your securities. Any advances by the servicers, the master servicer, the
trustee or the pool insurer, as the case may be, must be deposited into the
custodial account or servicer custodial account or into the asset proceeds
account and will be due not later than the distribution date to which the
delinquent payment relates. Amounts advanced by the servicers, the master
servicer or the trustee, as the case may be, will be reimbursable out of future
payments on the mortgage assets, insurance proceeds, additional assets,
liquidation proceeds of the mortgage assets for which these amounts were
advanced. If an advance made by a servicer, the master servicer or the trustee
later proves to be unrecoverable, the servicer, the master servicer or the
trustee, as the case may be, will be
<PAGE>
entitled to reimbursement from funds in the asset proceeds account prior to the
distribution of payments to you.
Any advances made by a servicer, the master servicer or the trustee are
intended to enable the trustee to make timely payment of the scheduled
distributions of principal and interest on your securities. However, neither
the master servicer, the trustee nor any servicer will insure or guarantee your
securities or the mortgage assets included in your trust.
Collection and Other Servicing Procedures
Each servicer must make reasonable efforts to collect all payments called
for under the mortgage assets in your trust and follow the collection procedures
as it normally would follow with respect to mortgage loans serviced for Fannie
Mae or, if applicable, other mortgage loans similar to mortgage assets in your
trust that it owns.
The note or security instrument used in originating a conventional mortgage
asset may contain a "due-on-sale" clause. The servicer will be required to use
reasonable efforts to enforce "due-on-sale" clauses with respect to any note or
security instrument containing this clause, provided that the coverage of any
applicable insurance policy will not be adversely affected. In any case in
which mortgaged properties have been or are about to be conveyed by the obligor
and the due-on-sale clause has not been enforced or the note is by its terms
assumable, the servicer will be authorized, on behalf of the trustee, to enter
into an assumption agreement with the person to whom the mortgaged properties
have been or are about to be conveyed, if the person meets certain loan
underwriting criteria, including the criteria necessary to maintain the coverage
provided by the applicable mortgage insurance policies or otherwise required by
law. In the event that the servicer enters into an assumption agreement in
connection with the conveyance of a mortgaged property, the servicer, on behalf
of the trustee as holder of the note, will release the original obligor from
liability upon the mortgage asset and substitute the new obligor. In no event
can the assumption agreement permit a decrease in the asset rate or an increase
in the term of the mortgage asset. Fees collected for entering into an
assumption agreement will be retained by the servicer as additional servicing
compensation.
Each servicer will, to the extent permitted by law, establish and maintain
a custodial escrow account or accounts into which obligors will deposit amounts
sufficient to pay taxes, assessments, PMI premiums, standard hazard insurance
premiums and other comparable items. Some servicers may provide insurance
coverage acceptable to the master servicer against loss occasioned by the
failure to escrow insurance premiums rather than causing escrows to be made.
Withdrawals from the escrow account maintained for obligors may be made to
effect timely payment of taxes, assessments, PMI premiums, standard hazard
premiums or comparable items, to reimburse the servicer for maintaining PMI and
standard hazard insurance, to refund to obligors amounts determined to be
overages, to pay interest to obligors on balances in the escrow account, if
required, to repair or otherwise protect the mortgaged properties and to clear
and terminate this account. The servicer will be responsible for the
administration of the escrow account and will make advances to this account when
a deficiency exists.
<PAGE>
Maintenance of Insurance Policies; Insurance Claims and Other Realization upon
Defaulted Mortgage Assets
The servicer will maintain a standard hazard insurance policy on each
mortgaged property in full force and effect as long as the coverage is required
and will pay the premium on a timely basis. The servicer will maintain a PMI
policy for each single-family mortgage asset with a loan-to-value ratio in
excess of 80% included in your trust unless insurance is waived by the master
servicer or is otherwise not required.
The master servicer may be required to maintain any special hazard
insurance policy, any mortgagor bankruptcy insurance and any pool insurance
policy in full force and effect throughout the term of your trust, subject to
payment of premiums by the trustee. The master servicer will be required to
notify the trustee to pay from amounts in your trust the premiums for any
special hazard insurance policy, any mortgagor bankruptcy insurance and any pool
insurance policy for your series on a timely basis. Premiums may be payable on
a monthly basis in advance, or on any other payment schedule acceptable to the
insurer. In the event that the special hazard insurance policy, the mortgagor
bankruptcy insurance or the pool insurance policy for your series is canceled or
terminated for any reason -- other than the exhaustion of total policy
coverage --, the master servicer will obtain from another insurer a comparable
replacement policy with a total coverage equal to the then existing
coverage -- or a lesser amount if the master servicer confirms in writing with
the rating agencies that the lesser amount will not impair the rating on your
securities -- of the special hazard insurance policy, the mortgagor bankruptcy
insurance or the pool insurance policy. However, if the cost of a replacement
policy or bond is greater than the cost of the policy or bond that has been
terminated, then the amount of the coverage will be reduced to a level such that
the applicable premium will not exceed the cost of the premium for the policy or
bond that was terminated.
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 this insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to this borrower's cooperative dwelling or this
cooperative's building could significantly reduce the value of the collateral
securing the cooperative loan to the extent not covered by other credit support.
The servicer or the master servicer, as the case may be, will present
claims to the insurer under any insurance policy applicable to the mortgage
assets and to take reasonable steps as are necessary to permit recovery under
the insurance policies.
If any mortgaged property securing a defaulted mortgage asset is damaged
and the proceeds, if any, from the standard hazard insurance policy or any
special hazard insurance policy are insufficient to restore the damaged
mortgaged property to the condition to permit
<PAGE>
recovery under the mortgage insurance policy, the servicer will not be required
to expend its own funds to restore the damaged mortgaged property unless it
determines that these expenses will be recoverable to it through liquidation
proceeds or insurance proceeds.
Each servicer will make representations concerning each mortgage asset that
it services, including, among other things, that the related title insurance,
standard hazard insurance, flood insurance and mortgage insurance policies are
legal and valid obligations of the respective insurers and that the applications
submitted for this insurance, as well as the application for the inclusion of a
mortgage asset under a pool insurance policy, are accurate and complete in all
material respects. If any of these representations proves to be incorrect and
the servicer fails to cure it, the servicer will be obligated to purchase the
affected mortgage asset at a price equal to its unpaid principal balance, plus
accrued and uncollected interest on that unpaid principal balance to the date on
which the purchase is made. For instance, if it is determined that coverage
under a mortgage insurance policy is not available on a defaulted mortgage asset
because of fraud or misrepresentation in the application, a servicer will be
obligated to purchase the defaulted mortgage asset. Upon termination for cause
of a servicer by the master servicer, the master servicer will assume the
servicing obligations of a terminated servicer, or the master servicer, at its
option, may appoint a substitute servicer acceptable to the trustee to assume
the servicing obligations of the terminated servicer.
If a servicer fails to comply with its obligation to purchase a mortgage
asset as to which coverage under a mortgage insurance policy has been denied on
the grounds of fraud or misrepresentation -- or if the servicer has no such
obligation --, the master servicer will purchase the mortgage asset, up to an
aggregate amount and for the time period specified in the accompanying
prospectus supplement. The master servicer may provide a fund, insurance policy
or other security to support its obligation. To the extent that a servicer or
master servicer fails, or is not required to, repurchase mortgage assets with
respect to which coverage under a mortgage insurance policy has been denied on
the grounds of fraud or misrepresentation, distributions to you could be
reduced.
The obligation of the master servicer to assume other unfulfilled past
obligations of a terminated servicer may be limited to the extent this
limitation does not result in a downgrading of the credit rating of any
securities of your series. As and to the extent required by the rating
agencies, some of the obligations of the master servicer will be secured by
cash, letters of credit, insurance policies or other instruments in an amount
acceptable to the rating agencies.
If recovery under a mortgage insurance policy or from additional assets is
not available and the servicer or the master servicer is not obligated to
purchase a defaulted mortgage asset, the servicer or the master servicer
nevertheless will be obligated to follow standard practice and procedures to
realize upon the defaulted mortgage asset. In this regard, the servicer or the
master servicer will sell the mortgaged property pursuant to foreclosure,
trustee's sale or, in the event a deficiency judgment is available against the
obligor or other person, proceed to seek recovery of the deficiency against the
appropriate person. To the extent that the proceeds of any liquidation
proceedings are less than the unpaid principal balance or asset value of the
defaulted mortgage
<PAGE>
asset, there will be a reduction in the value of the assets of your trust such
that you may not receive distributions of principal and interest on your
securities in full.
Evidence as to Servicing Compliance
Within 90 days of the end of each of its fiscal years each servicer must
provide the master servicer or the securities administrator with a copy of its
audited financial statements for the year and a statement from the firm of
independent public accountants that prepared the financial statements to the
effect that, in preparing these statements, it reviewed the results of the
servicer's servicing operations in accordance with the Uniform Single-Audit
Procedures for mortgage banks developed by the Mortgage Bankers Association. In
addition, each servicer will be required to deliver an officer's certificate to
the effect that it has fulfilled its obligations during the preceding fiscal
year or identifying any ways in which it has failed to fulfill its obligations
during the fiscal year and the steps that have been taken to correct such
failure. The master servicer or the securities administrator will be required
to promptly make available to the trustee any compliance reporting that it
receives from a servicer.
Each year the master servicer will review each servicer's performance and
the status of any fidelity bond and errors and omissions policy required to be
maintained by the servicer.
Financial Assets
Financial assets included in your trust will be registered in the name of
the trustee. All distributions on financial assets will be made directly the
trustee, who will deposit these distributions as they are received into a trust
account for the benefit of securityholders.
If the trustee does not receive any distribution on a financial asset,
following a cure period the trustee or securities administrator will request the
issuer or guarantor to make the missing payment promptly. If the issuer or
guarantor does not comply, the trustee or securities administrator may take
legal action, if it is deemed appropriate under the circumstances. Reasonable
legal fees and expenses incurred by these actions will be reimbursable out of
the proceeds of the action prior to any proceeds being distributed to you. If
the result of a legal action of this nature is insufficient to reimburse the
trustee or securities administrator for legal fees and expenses, the trustee may
withdraw an amount equal to unreimbursed legal fees and expenses from the trust
account, which may result in a loss to securityholders.
The Agreements
The following discussion describes the material provisions of the pooling
and master servicing agreement -- with respect to a series of certificates --
and the master servicing agreement and indenture -- with respect to a series of
notes --, including the related standard terms to be incorporated by reference
in these documents. When particular provisions or terms used in the agreement
are referred to, the actual provisions are incorporated by reference as part of
these discussions.
<PAGE>
Master Servicer or Securities Administrator
The pooling and master servicing agreement or master servicing agreement,
as applicable, will designate a person to act as master servicer or securities
administrator with respect to each series. The master servicer or securities
administrator will be responsible under the applicable agreement for providing
general administrative services to a trust including, among other things
. oversight of payments received on mortgage assets,
monitoring the amounts on deposit in various trust accounts,
. calculation of the amounts payable to securityholders on each
distribution
date,
. preparation of periodic reports to the trustee(s) or the
securityholders with respect to the foregoing matters,
. preparation of federal and state tax and information returns, and
. preparation of reports, if any, required under the Securities Exchange
Act.
In addition, with respect to a trust that includes single or multi-family
mortgage loans, the master servicer will be required to supervise and administer
the performance of one or more servicers, to make advances of delinquent
payments of principal and interest on the mortgage loans to the limited extent
described herein under the heading "Sale and Servicing of Mortgage Assets --
Advances," if such amounts are not advanced by a servicer, and to perform the
servicing obligations of a terminated servicer. The master servicer's
obligations to act as a servicer following the termination of a servicing
agreement will not, however, require the master servicer to purchase mortgage
loans from the trust due to a breach by the servicer of a representation or
warranty under its servicing agreement, purchase from the trust any converted
mortgage loan or advance payments of principal and interest on a delinquent
mortgage loan in excess of the master servicer's independent advance obligation
under the pooling and master servicing agreement or master servicing agreement.
The master servicer may delegate its responsibilities under an agreement;
however, it will remain responsible and liable thereunder.
The master servicer or securities administrator for a series may resign
from its obligations and duties under the pooling and master servicing agreement
or master servicing agreement with respect to such series, but no such
resignation will become effective until the trustee or a successor master
servicer or securities administrator has assumed the master servicer's or
securities administrator's obligations and duties. If specified in the
prospectus supplement for a series, National Mortgage may appoint a stand-by
master servicer, which will assume the obligations of the master servicer upon a
default by the master servicer.
The Trustee
The trustee under each pooling and master servicing agreement or indenture
will be named in the related prospectus supplement. The trustee must be a
corporation or a national
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banking association organized under the laws of the United States or any state
and authorized under the laws of the jurisdiction in which it is organized to
have corporate trust powers. It must also have combined capital and surplus of
at least $50,000,000 and be subject to regulation and examination by state or
federal regulatory authorities. Although the trustee may not be an affiliate of
National Mortgage or the master servicer, either National Mortgage or the master
servicer may maintain normal banking relations with the trustee if the trustee
is a depository institution.
The trustee may resign at any time, in which event National Mortgage will
be obligated to appoint a successor trustee. National Mortgage will also remove
the trustee if the trustee ceases to be eligible to continue as such under the
applicable agreement or if the trustee becomes insolvent. The trustee may also
be removed at any time by the holders of securities entitled to at least 51% of
the voting rights of such series. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
The owner trustee under an owner trust agreement will be named in the
related prospectus supplement.
Amendment
The pooling and master servicing agreement, master servicing agreement
and/or indenture may be amended by the parties thereto with the consent of the
holders of outstanding securities holding at least 66% of the voting rights of a
series unless otherwise specified in the related prospectus supplement. Voting
rights with respect to any series may be allocated to specific classes of
securities without regard to such classes outstanding principal balance. For
example, Strip Securities or Residual Certificates may be allocated a certain
percentage of the voting rights of a series even though such classes may not
have any, or any significant amount of, principal balance outstanding. No
amendment however may
. reduce in any manner or delay the timing of payments on the mortgage
assets or distributions to the securityholders, or
. reduce the percentage of securityholders required to authorize an
amendment to the pooling and master servicing agreement, master
servicing agreement or indenture
unless each holder of a security affected by such amendment consents. The
agreements may also be amended by the parties thereto without the consent of
securityholders, for the purpose of, among other things,
. curing any ambiguity,
. correcting or supplementing any inconsistent provisions,
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. modifying, eliminating or adding to any of its provisions to such
extent as shall be necessary or appropriate to maintain the
qualification of the trust as a REMIC under the Code, if applicable,
or
. adding any other provisions with respect to matters or questions
arising under the agreements or matters arising with respect to the
trust which are not covered by the related agreement and which shall
not be inconsistent with the current provisions of the agreement,
provided that any such action shall not adversely affect in any
material respect the interests of any securityholder.
Any such amendment or supplement shall be deemed not to adversely affect in
any material respect any securityholder if there is delivered to the trustee
written notification from each rating agency that rated the applicable
securities to the effect that such amendment or supplement will not cause that
rating agency to reduce the then current rating assigned to such securities.
Events of Default
Events of default under the pooling and master servicing agreement or
master servicing agreement in respect of a series will include
. any default in the performance or breach of any covenant or warranty of the
master servicer under the pooling and master servicing agreement or master
servicing agreement with respect to such series which continues unremedied
for a specified period after the giving of written notice of such failure
to the master servicer or securities administrator by the trustee or by the
holders of securities entitled to at least 25% of the aggregate voting
rights
. any failure by the master servicer to make required advances with
respect to delinquent mortgage loans in a trust, and
. certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings regarding the master
servicer, if any, and certain actions by or on behalf of the master
servicer or securities administrator indicating its insolvency or
inability to pay its obligations.
In addition, events of default under the indenture for a series will
consist of
. a default for five days or more in the payment of any principal of or
interest on any note of such series,
. failure to perform any other covenant of the issuer or the trust in
the indenture which continues for a period of thirty days after notice
thereof is given in accordance with the procedures described in the
related prospectus supplement, or
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. any representation or warranty made by the issuer or the trust in the
indenture or in any certificate or other writing delivered pursuant
thereto or in connection therewith with respect to or affecting such
series having been incorrect in a material respect as of the time
made, and such breach is not cured within thirty days after notice
thereof is given in accordance with the procedures described in the
related prospectus supplement.
Rights Upon Event of Default
So long as an event of default with respect to the pooling and master
servicing agreement or master servicing agreement remains unremedied, the
trustee may, and at the direction of the holders of a series entitled to a
certain percentage of the voting rights, as specified in the pooling and master
servicing agreement or the master servicing agreement, the trustee shall,
terminate all of the rights and obligations of the master servicer under the
applicable agreement except that the trustee may elect not to terminate the
master servicer for its failure to make advances. Upon termination, the trustee
will succeed to all the responsibilities, duties and liabilities of the master
servicer under such agreement (except that if the trustee is to so succeed the
master servicer but is prohibited by law from obligating itself to make advances
regarding delinquent mortgage loans, then the trustee will not be so obligated)
and will be entitled to similar compensation arrangements. In the event that
the trustee would be obligated to succeed the master servicer but is unwilling
or unable so to act, it may appoint or, if the holders of securities
representing a certain percentage of the voting rights, as specified in the
pooling and master servicing agreement or the master servicing agreement, so
request in writing, it shall appoint, or petition a court of competent
jurisdiction for the appointment of, a mortgage loan servicing or other housing
and home finance institution with a net worth of at least $15,000,000 to act as
successor to the master servicer under the applicable agreement or may provide
cash, a letter of credit, a standby master servicing agreement or another
arrangement consistent with the then-current rating of the securities of the
related series. The trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the master servicer under the applicable agreement.
If an event of default with respect to the notes of any series at the time
outstanding occurs and is continuing, the trustee or the holders of a majority
of the then aggregate outstanding amount of the notes of such series may declare
the principal amount (or, if the notes of that series are Accretion Classes, the
portion of the principal amount as may be specified in the terms of that series,
as provided in the accompanying prospectus supplement) of all the notes of such
series to be due and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the holders of a majority in
aggregate outstanding amount of the related notes.
If following an event of default with respect to any series of notes, the
notes of such series have been declared to be due and payable, the trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the notes of such series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of such series as they would
have become due if there
<PAGE>
had not been such a declaration. In addition, the trustee may not sell or
otherwise liquidate the collateral securing the notes of a series following an
event of default, unless
. the holders of 100% of the then aggregate outstanding amount of the
notes of such series consent to such sale,
. the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the
outstanding notes of such series at the date of such sale or
. the trustee determines that such collateral would not be sufficient on
an ongoing basis to make all payments on such notes as such payments
would have become due if such notes had not been declared due and
payable, and the trustee obtains the consent of the holders of 66 2/3%
of the then aggregate outstanding amount of the notes of such series.
In the event that the trustee liquidates the collateral in connection with
an event of default, the indenture provides that the trustee will have a prior
lien on the proceeds of any such liquidation for unpaid fees and expenses. As a
result, upon the occurrence of such an event of default, the amount available
for payments to the noteholders would be less than would otherwise be the case.
However, the trustee may not institute a proceeding for the enforcement of its
lien except in connection with a proceeding for the enforcement of the lien of
the indenture for the benefit of the noteholders after the occurrence of such an
event of default.
In the event the principal of the notes of a series is declared due and
payable, as described above, the holders of any such notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No noteholder or holder of an equity certificate generally will have any
right under an owner trust agreement or indenture to institute any proceeding
with respect to such agreement unless
. such holder previously has given to the trustee written notice of
default and the continuance thereof,
. the holders of notes or equity certificates of any class evidencing
not less than 25% of the aggregate voting rights with respect of such
class have made written request upon the trustee to institute such
proceeding in its own name as trustee thereunder and have offered to
the trustee reasonable indemnity,
. the trustee has neglected or refused to institute any such proceeding
for 60 days after receipt of such request and indemnity and
. no direction inconsistent with such written request has been given to
the trustee during such 60 day period by the holders of a majority of
the outstanding principal balance of such class.
The trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the indenture, pooling and master servicing agreement or
master servicing agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any
<PAGE>
litigation thereunder or in relation thereto at the request, order or direction
of any of the holders of securities covered by such agreement, unless such
securityholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
Reports to Securityholders
The trustee will furnish the securityholders with monthly statements
containing information with respect to principal and interest distributions,
Realized Losses and the assets of the trust. Any financial information
contained in such reports will not have been examined or reported upon by an
independent public accountant. Copies of such monthly statements and any annual
reports prepared by a servicer or the master servicer or securities
administrator with respect to compliance with the provisions of a servicing
agreement, master servicing agreement or pooling and master servicing agreement,
as applicable, will be furnished to securityholders upon request addressed to
National Mortgage at 909 East Main Street, 7th Floor, Richmond, Virginia 23219-
3002.
Termination
The pooling and master servicing agreement or the indenture, and the
respective obligations and responsibilities created thereby, shall terminate
upon the distribution to securityholders of all amounts required to be paid
pursuant to such agreement following
. the purchase of all the mortgage assets in the trust and the related
mortgaged properties or manufactured homes acquired in respect
thereof, if the related prospectus supplement so provides, or
. the later of the final payment or other liquidation of the last
mortgage asset remaining in the trust or the disposition of all
mortgaged properties acquired in respect thereof.
In no event, however, will the trust created by any agreement continue
beyond the expiration of 21 years from the death of the survivor of certain
persons described in such agreement. Written notice of termination of the
pooling and master servicing agreement or indenture will be given to each
securityholder, and the final distribution will be made only upon surrender and
cancellation of the securities at the corporate trust office of the trustee or
its agent as set forth in the prospectus supplement.
Certain Legal Aspects of Mortgage Assets
General
The following discussion contains the material legal aspects of mortgage
loans that are general in nature. Because these legal aspects are governed by
applicable state law, which laws may differ substantially, these summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the mortgaged properties securing
the mortgage loans are situated. These summaries are qualified in their
entirety by
<PAGE>
reference to the applicable federal and state laws governing the mortgage loans.
In this regard, the following discussion does not reflect federal regulations
with respect to FHA loans or VA loans.
Mortgage Loans
The mortgage loans will be secured by either first or junior mortgages or
deeds of trust, depending upon the prevailing practice in the state in which the
underlying property is located. A mortgage creates a lien upon the real
property encumbered by the mortgage. It is not prior to the lien for real
estate taxes and assessments. Priority between mortgages depends on their terms
and, generally, on the order of filing with a state or county office. There are
two parties to a mortgage: the mortgagor, who is the obligor and owner of the
property; and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond evidencing the loan and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust formally has three parties: the obligor-property owner called the trustor
- -- similar to a mortgagor--; a lender called the beneficiary -- similar to a
mortgagee --; and a third-party grantee called the trustee. Under a deed of
trust, the obligor 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
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon the
obligor and any party having a subordinate interest in the real estate including
any holder of a junior encumbrance on the real estate. Delays in completion of
the foreclosure occasionally may result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not contested by
any of the parties defendant. However, 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 may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the mortgaged property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the mortgaged property to a third party upon any default by
the obligor under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, the trustee must record
a notice of default and send a copy to the obligor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other party
having a subordinate interest in the real estate, including any holder of a
junior
<PAGE>
encumbrance on the real estate. If the deed of trust is not reinstated within
any applicable cure period, a notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property. When the beneficiary's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time-
consuming.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the mortgaged property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the mortgaged property
at the foreclosure sale. Rather, it is common for the lender to purchase the
mortgaged property from the trustee or receiver for an amount which may be as
great as the unpaid principal balance of the note, accrued and unpaid interest
and the expenses of foreclosure. Thereafter, subject to the right of the
obligor in some states to remain in possession during the redemption period, the
lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the mortgaged property suitable for sale. The lender commonly will obtain the
services of a real estate broker and pay the broker a commission in connection
with the sale of the mortgaged property. Depending upon market conditions, the
ultimate proceeds of the sale of the mortgaged property may not equal the
lender's investment therein. Any loss may be reduced by the receipt of
insurance proceeds. See "The Trust -- Mortgage Insurance on the Mortgage
Assets" and "The Trust -- Hazard Insurance on the Mortgage Assets" in this
prospectus.
Mortgaged properties that are acquired through foreclosure generally must
be sold by the trustee by the end of the third taxable year beginning after
foreclosure occurs in order to satisfy federal income tax requirements. See
"Federal Income Tax Consequences" in this prospectus.
Junior Mortgages
Some of the mortgage loans may be secured by junior mortgages or deeds of
trust, which are junior to senior mortgages or deeds of trust which are not part
of your trust. Your rights as the holder of a junior deed of trust or a junior
mortgage are subordinate in lien priority and in payment priority to those of
the holder of the senior mortgage or deed of trust, including the prior rights
of the senior mortgagee or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the mortgagor, to cause a foreclosure
on the property. Upon completion of the foreclosure proceedings by the holder
of the senior mortgage or the sale pursuant to the deed of trust, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
<PAGE>
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends these sums, these sums
generally will have priority over all sums due under the junior mortgage.
Manufactured Housing Installment Sales Contracts
Under the laws of most states, manufactured housing constitutes personal
property and is subject to the motor vehicle registration laws of the
jurisdiction where the home is located. In a few states, where certificates of
title are not required for manufactured homes, security interests are perfected
by the filing of a financing statement under Article 9 of the UCC, which has
been adopted by all states. Generally, financing statements are effective for
five years and must be renewed at the end of each five years. The certificate
of title laws provide that ownership of motor vehicles and manufactured housing
shall be evidenced by a certificate of title issued by the motor vehicles
department or a similar organization of the state. In states that have enacted
certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion as to
become a fixture, generally is perfected by the recording of this interest on
the certificate of title to the unit in the appropriate motor vehicle
registration office or by delivery of the required documents and payment of a
fee to this office, depending on state law.
The master servicer or servicer will be required to make this notation or
deliver the required documents and fees, and to obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home is located. In the event the master servicer or servicer
fails to effect this notation or delivery, or files the security interest under
the wrong law -- for example, under a motor vehicle title statute rather than
under the UCC, in a few states --, the trustee may not have a first priority
security interest in the manufactured home securing a contract. As manufactured
homes have become larger and often have been attached to their sites without any
apparent intention by the obligor to move them, courts in many states have held
that manufactured homes may, under certain circumstances, become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located. Generally,
contracts will contain provisions prohibiting the obligor from permanently
attaching the manufactured home to its site. If the obligor does not violate
this agreement, a security interest in the manufactured home will be governed by
the certificate of title laws or the UCC, and the notation of the security
interest on the certificate of title or the filing of a UCC financing statement
will be effective to maintain the priority of the security interest in the
manufactured home. If, however, a manufactured home is permanently attached to
its site, other parties could obtain an interest in the manufactured home that
is prior to the security interest originally retained by the seller and
transferred to National Mortgage.
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National Mortgage will assign or cause to be assigned a security interest
in the manufactured homes to the trustee, on behalf of the securityholders.
Neither National Mortgage, the master servicer, the servicer nor the trustee
will amend the certificates of title to identify the trustee, on behalf of the
securityholders, as the new secured party and, accordingly, National Mortgage or
the seller will continue to be named as the secured party on the certificates of
title. In most states, such assignment is an effective conveyance of the
security interest without amendment of any lien noted on the certificate of
title and the new secured party succeeds to the named party's rights as the
secured party. However, in some states there exists a risk that, in the absence
of an amendment to the certificate of title, this assignment of the security
interest might not be held effective against creditors of National Mortgage or
the seller.
In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the owner, or administrative error by state
recording officials, the notation of the lien of National Mortgage on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
a manufactured home or subsequent lenders who take a security interest in the
manufactured home. If there are any manufactured homes as to which National
Mortgage has failed to perfect or cause to be perfected the security interest
assigned to the trust, the security interest would be subordinate to, among
others, subsequent purchasers for value of manufactured homes and holders of
perfected security interests. There also exists a risk in not identifying the
trustee, on behalf of the securityholders, as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of
the trustee could be released.
In the event that the owner of a manufactured home moves it to a state
other than the state in which the manufactured home initially is registered,
under the laws of most states the perfected security interest in the
manufactured home would continue for four months after the relocation, until the
owner re-registers the manufactured home in the new state. If the owner
relocates a manufactured home to another state and re-registers the manufactured
home in the new state, and if National Mortgage did not take steps to re-perfect
its security interest in the new state, the security interest in the
manufactured home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a manufactured home;
accordingly, National Mortgage must surrender possession if it holds the
certificate of title to a manufactured home or, in the case of manufactured
homes registered in states that provide for notation of lien, National Mortgage
would receive notice of surrender if the security interest in the manufactured
home is noted on the certificate of title. Accordingly, National Mortgage would
have the opportunity to re-perfect its security interest in the manufactured
home in the state of relocation. In states that do not require a certificate of
title for registration of a manufactured home, re-registration could defeat
perfection. Similarly, when an obligor under a manufactured housing conditional
sales contract sells a manufactured home, the obligee must surrender possession
of the certificate of title or it will receive notice as a result of its lien
noted on it and accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract before release of
the lien. The master servicer or the servicer will be obligated to take such
steps, at its expense, as are necessary to maintain perfection of security
interests in the manufactured homes.
<PAGE>
Under the laws of most states, liens for repairs performed on a
manufactured home take priority even over a perfected security interest.
National Mortgage will obtain the representation of each seller that it has no
knowledge of any such liens with respect to any manufactured home securing a
contract. However, these liens could arise at any time during the term of a
contract. No notice will be given to the trustee or securityholders in the
event this type of lien arises.
Repossession with Respect to Contracts
Repossession of manufactured housing is governed by state law. A few
states have enacted legislation that requires that the debtor be given an
opportunity to cure its default -- typically 30 days to bring the account
current -- before repossession can commence. So long as a manufactured home has
not become so attached to real estate that it would be treated as a part of the
real estate under the law of the state where it is located, repossession of such
home in the event of a default by the obligor will generally be governed by the
UCC, except in Louisiana. Article 9 of the UCC provides the statutory framework
for the repossession of manufactured housing. While the UCC as adopted by the
various states may vary in certain small particulars, the general repossession
procedure established by the UCC is as follows:
. Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon
default without prior notice. Repossession may be effected either
through self-help -- peaceable retaking without court order --,
voluntary repossession or through judicial process, such as
repossession pursuant to court-issued writ of replevin. The self-help
and voluntary repossession methods are more commonly employed, and are
accomplished simply by retaking possession of the manufactured home.
In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate
state court, and the manufactured home must then be repossessed in
accordance with that order. Whether the method employed is self-help,
voluntary repossession or judicial repossession, the repossession can
be accomplished either by an actual physical removal of the
manufactured home to a secure location for refurbishment and resale or
by removing the occupants and their belongings from the manufactured
home and maintaining possession of the manufactured home on the
location where the occupants were residing. Various factors may affect
whether the manufactured home is physically removed or left on
location, such as the nature and term of the lease of the site on
which it is located and the condition of the unit. In many cases,
leaving the manufactured home on location is preferable, in the event
that the home is already set up, because the expenses of retaking and
redelivery will be saved. However, in those cases where the home is
left on location, expenses for site rentals will usually be incurred.
. Once repossession has been achieved, preparation for the subsequent
disposition of the manufactured home can commence. The disposition may
be by public or private sale provided the method, manner, time, place
and terms of the sale are commercially reasonable.
. Sale proceeds are to be applied first to repossession expenses --
expenses incurred in retaking, storage, preparing for sale to include
refurbishing costs and selling --
<PAGE>
and then to satisfaction of the indebtedness. While some states impose
prohibitions or limitations on deficiency judgments if the net
proceeds from resale do not cover the full amount of the indebtedness,
the remainder may be sought from the debtor in the form of a
deficiency judgment in those states that do not prohibit or limit
these judgments. The deficiency judgment is a personal judgment
against the debtor for the shortfall. Occasionally, after resale of a
manufactured home and payment of all expenses and indebtedness, there
is a surplus of funds. In that case, the UCC requires the party suing
for the deficiency judgment to remit the surplus to the debtor.
Because the defaulting owner of a manufactured home generally has very
little capital or income available following repossession, a
deficiency judgment may not be sought in many cases or, if obtained,
will be settled at a significant discount in light of the defaulting
owner's strained financial condition.
Louisiana Law
Any contract secured by a manufactured home located in Louisiana will be
governed by Louisiana law rather than Article 9 of the UCC. Louisiana laws
provide similar mechanisms for perfection and enforcement of security interests
in manufactured housing used as collateral for an installment sale contract or
installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently affixed to
real estate will nevertheless remain subject to the motor vehicle registration
laws unless the obligor and any holder of a security interest in the property
execute and file in the real estate records for the parish in which the property
is located a document converting the unit into real property. A manufactured
home that is converted into real property but is then removed from its site can
be converted back to personal property governed by the motor vehicle
registration laws if the obligor executes and files various documents in the
appropriate real estate records and all mortgagees under real estate mortgages
on the property and the land to which it was affixed file releases with the
motor vehicle commission.
As long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process -- repossession proceedings which must be
initiated through the courts but which involve minimal court supervision -- or a
civil suit for possession. In connection with a voluntary surrender, the
obligor must be given a full release from liability for all amounts due under
the contract. In executory process repossessions, a sheriff's sale -- without
court supervision -- is permitted, unless the obligor brings suit to enjoin the
sale, and the lender is prohibited from seeking a deficiency judgment against
the obligor unless the lender obtained an appraisal of the manufactured home
prior to the sale and the property was sold for at least two-thirds of its
appraised value.
Cooperative Loans
The mortgage loans may contain cooperative loans evidenced by promissory
notes secured by security interests in shares issued by private corporations
that are entitled to be treated as housing cooperatives under the Code and in
the related proprietary leases or occupancy
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agreements granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property which it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office. This
lien or title interest is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers.
It is expected that all cooperative apartments relating to the cooperative
loans are located in the State of New York. A corporation that is entitled to
be treated as a housing cooperative under the Code owns all the real property or
some interest in the real estate sufficient to permit it to own the building and
all separate dwelling units. The cooperative is directly responsible for
property management and, in most cases, payment of real estate taxes and hazard
and liability insurance. If there is a blanket mortgage or mortgages on the
cooperative apartment building and underlying land, as is generally the case, or
an underlying lease of the land, as is the case in some instances, the
cooperative, as property mortgagor, is also responsible for meeting these
mortgage or rental obligations. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the landlord is
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations arising under a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements arising under its land
lease, the holder of the land lease could terminate it and all subordinate
proprietary leases and occupancy agreements. Also, a 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 final payment
at maturity. The inability of the cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date, and the inability of
the cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. A foreclosure
by the holder of a blanket mortgage could eliminate or significantly diminish
the value of any collateral held by the lender who financed an individual
tenant-stockholder of cooperative shares or, in the case of the mortgage loans,
the collateral securing the cooperative loans. Similarly, the termination of
the land lease by its holder could eliminate or significantly diminish the value
of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the mortgage loans, the
collateral securing the cooperative loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares 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 such 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 occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary
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lease and in the 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.
Tax Aspects of Cooperative Ownership
In general, a "tenant-stockholder" -- as defined in Section 216(b)(2) of
the Code -- of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Section 216(b)(1) of the Code 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 Section 216(a) of the Code to
the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable year
in which such items are allowable as a deduction to the corporation, this
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders. By virtue of this
requirement, the status of a corporation for purposes of Section 216(b)(1) of
the Code 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 such section for any particular year. In the event that such a
cooperative fails to qualify for one or more years, the value of the collateral
securing any cooperative loans could be significantly impaired because no
deduction would be allowable to tenant-stockholders under Section 216(a) of the
Code with respect to those years. In view of the significance of the tax
benefits accorded tenant-stockholders of a corporation that qualifies under
Section 216(b)(1) of the Code, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement 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 by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be canceled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by the tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate the
lease or agreement in the event the borrower defaults in the performance of
covenants. Typically, the lender and the cooperative enter into a
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recognition agreement which establishes the rights and obligations of both
parties in the event of 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, in the event that 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 a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under the proprietary
lease or occupancy agreement or which have become liens on the shares relating
to 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.
Recognition agreements also provide that in the event the lender succeeds
to the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon its collateral for 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-stockholder.
In New York, lenders generally have realized upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the New York UCC
and the security agreement relating to those shares. Article 9 of the New York
UCC requires that a sale be conducted in a "commercially reasonable" manner.
Whether a 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 sale. Generally, a sale conducted according to the usual
practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the New York 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 corporation 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.
Consumer Protection Laws with respect to Mortgage Assets
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Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act, Regulation X, the Fair Housing Act and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to comply
with their provisions. In some cases, this liability may affect an assignee's
ability to enforce a contract. In particular, the originators' failure to
comply with certain requirements of the Federal Truth-in-Lending Act, as
implemented by Regulation Z, could subject both originators and assignees of
such obligations to monetary penalties and could result in obligors' rescinding
the contracts against either the originators or assignees.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Late charges will be retained by the master servicer or the
servicer as additional servicing compensation, and any inability to collect
these amounts will not affect payments to you.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting a seller -- and certain related
creditors and their assignees -- in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due.
The contracts in your trust may be subject to the requirements of the FTC
Rule. Accordingly, the trustee, as holder of the contracts, may be subject to
any claims or defenses that the purchaser of the manufactured home may assert
against the seller of the manufactured home, subject to a maximum liability
equal to the amounts paid by the obligor on the contract. If an obligor is
successful in asserting this claim or defense, and if the seller had or should
have had knowledge of such claim or defense, the master servicer will have the
right to require the seller to repurchase the contract because of a breach of
its representation and warranty that no claims or defenses exist that would
affect the obligor's obligation to make the required payments under the
contract. The seller would then have the right to require the originating
dealer to repurchase the contract from it and might also have the right to
recover from the dealer for any losses suffered by the seller with respect to
which the dealer would have been primarily liable to the obligor.
Rights of Reinstatement and Redemption
In some states, the obligor, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement or redemption
period, cure the default by paying the entire amount in arrears plus certain of
the costs and expenses incurred in enforcing the obligation. Certain state laws
control the amount of foreclosure expenses and costs, including attorneys'
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fees, which may be recovered by a lender. In some states, the obligor has the
right to reinstate the loan at any time following default until shortly before
the foreclosure sale.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the obligor and certain foreclosed junior encumbrancers are given a
statutory period in which to redeem the mortgaged property from the foreclosure
sale. Depending upon state law, the right of redemption may apply to sale
following judicial foreclosure, or to sale pursuant to a non-judicial power of
sale. Where the right of redemption is available, in some states statutory
redemption may occur only upon payment of the foreclosure purchase price,
accrued interest and taxes and certain of the costs and expenses incurred in
enforcing the obligation. In other states, redemption may be authorized if the
former obligor pays only a portion of the sums due. In some states, the right
to redeem is a statutory right and in others it is a contractual right. The
effect of a right of redemption is to diminish the ability of the lender to sell
the foreclosed mortgaged property, while such right of redemption is
outstanding. The exercise of a right of redemption would defeat the title of
any purchaser at a foreclosure sale, or of any purchaser from the lender
subsequent to judicial foreclosure or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to maintain
the property and pay the expenses of ownership until the redemption period has
run.
Leases and Rents
Multifamily mortgage loan transactions often provide for an assignment of
the leases and rents pursuant to which the obligor typically assigns its right,
title and interest, as landlord under each lease and the income derived
therefrom, to the lender while either obtaining a license to collect rents for
so long as there is no default or providing for the direct payment to the
lender. Local law, however, may require that the lender take possession of the
property and appoint a receiver before becoming entitled to collect the rents
under the lease.
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, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the obligor following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
obligor equal in most cases to the difference between the amount due to the
lender and greater of the net amount realized upon the foreclosure sale and the
market value of the mortgaged property.
Statutory provisions may limit any deficiency judgment against the former
obligor following a foreclosure sale to the excess of the outstanding debt over
the fair market value of the mortgaged property at the time of the sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former obligor as a result of
low or no bids at the foreclosure sale.
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
<PAGE>
before bringing a personal action against the obligor. In other states, the
lender has the option of bringing a personal action against the obligor on the
debt without first exhausting such security; however, in some of these states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and may be precluded from exercising remedies with respect to
the security. Consequently, the practical effect of the election requirement,
when applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the obligor.
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 obligor, for example, in the event of waste of the
mortgaged property.
Generally, lenders realize on cooperative shares and the accompanying
proprietary lease given to secure a cooperative loan under Article 9 of the UCC.
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.
In addition to anti-deficiency and related legislation, numerous 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 a secured
mortgage lender to realize upon its security and enforce a deficiency judgment.
For example, with respect to federal bankruptcy law, the filing of a petition
acts as a stay against the enforcement of remedies for collection of a debt.
In a Chapter 13 proceeding under the United States Bankruptcy Code, as
amended, as set forth in Title 11 of the United States Code (the "Bankruptcy
Code"), when a court determines that the value of a home is less than the
principal balance of the loan, the court may prevent a lender from foreclosing
on the home, and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for the
difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the periodic payments due under the
mortgage loan, change the rate of interest and alter the mortgage loan repayment
schedule. Court decisions have applied this relief to claims secured by the
debtor's principal residence. If a court relieves an obligor's obligation to
repay amounts otherwise due on a mortgage loan, the servicer will not be
required to advance these amounts, and any loss may reduce the amounts available
to be paid to you.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved
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financing. The bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. Other federal and state laws provide priority to
certain tax and other liens over the lien of the mortgage or deed of trust.
Numerous federal and some state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and the 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 laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all
branches of the military on active duty, including draftees and reservists in
military service,
. are entitled to have interest rates reduced and capped at 6% per annum
on obligations -- including mortgage loans -- incurred prior to the
commencement of military service for the duration of military service,
. may be entitled to a stay of proceedings on any kind of foreclosure or
repossession action in the case of defaults on these obligations entered
into prior to military service and
. may have the maturity of these obligations incurred prior to military
service extended, the payments lowered and the payment schedule
readjusted for a period of time after the completion of military
service.
However, these benefits are subject to challenge by creditors and if, in the
opinion of the court, the ability of a person to comply with these obligations
is not materially impaired by military service, the court may apply equitable
principles accordingly. If an obligor's obligation to repay amounts otherwise
due on a mortgage loan included in your trust is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, neither the servicer, the
master servicer nor the trustee will be required to advance these amounts, and
any loss may reduce the amounts available to you. Any shortfalls in interest
collections on mortgage loans included in your trust resulting from application
of the Soldiers' and Sailors' Civil Relief Act of 1940 generally will be
allocated to each class that is entitled to receive interest in proportion to
the interest that each class would have otherwise been entitled to receive in
respect of these mortgage loans had this interest shortfall not occurred.
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Environmental Considerations
The federal Comprehensive Environmental Response Compensation and Liability
Act, as amended, ("CERCLA") imposes strict liability on present and past
"owners" and "operators" of contaminated real property for the costs of clean-
up. A secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender have become
sufficiently involved in the management of such mortgaged property or the
operations of the borrower. This liability may exist even if the lender did not
cause or contribute to the contamination and regardless of whether the lender
has actually taken possession of a mortgaged property through foreclosure, deed
in lieu of foreclosure or otherwise. The magnitude of the CERCLA liability at
any given contaminated site is a function of the actions required to address
adequately the risks to human health and the environment posed by the particular
conditions at the site. As a result, such liability is not constrained by the
value of the property or the amount of the original or unamortized principal
balance of any loans secured by the property. Moreover, under certain
circumstances, liability under CERCLA may be joint and several -- i.e., any
liable party may be obligated to pay the entire cleanup costs regardless of its
relative contribution to the contamination. If a lender is found to be liable,
it is entitled to bring an action for contribution against other liable parties,
such as the present or past owners and operators of the property. The lender
nonetheless may have to bear a disproportionate share of the liability if such
other parties are defunct or without substantial assets.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "1996 Lender Liability Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
1996 Lender Liability Act offers protection to lenders by defining certain
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. A lender will be deemed to have participated in the
management of a mortgaged property, and will lose the secured creditor
exemption, if it actually participates in the operational affairs of the
property of the borrower. The 1996 Lender Liability Act provides that "merely
having the capacity to influence, or unexercised right to control" operations
does not constitute participation in management. A lender will lose the
protection of the secured creditor exemption if it exercises decision-making
control over the borrower's environmental compliance and hazardous substance
handling and disposal practices, or assumes day-to-day management of all
operational functions of the mortgaged property. The 1996 Lender Liability Act
also provides that a lender may continue to have the benefit of the secured
creditor exemption even if it forecloses on a mortgaged property, purchases it
at a foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
Many states have environmental clean-up statutes similar to CERCLA, and not
all those statutes provide for a secured creditor exemption. In addition,
underground storage tanks are commonly found on a wide variety of commercial and
industrial properties. Federal and state laws impose liability on the owners
and operators of underground storage tanks for any cleanup that may be required
as a result of releases from such tanks. These laws also impose certain
compliance obligations on the tank owners and operators, such as regular
monitoring for leaks
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and upgrading of older tanks. A lender may become a tank owner or operator, and
subject to compliance obligations and potential cleanup liabilities, either as a
result of becoming involved in the management of a site at which a tank is
located or, more commonly, by taking title to such a property. Federal and state
laws also obligate property owners and operators to maintain and, under some
circumstances, to remove asbestos-containing building materials and lead based
paint. As a result, the presence of these materials can increase the cost of
operating a property and thus diminish its value. In a few states, transfers of
some types of properties are conditioned upon cleanup of contamination prior to
transfer. In these cases, a lender that becomes the owner of a property through
foreclosure, deed in lieu of foreclosures or otherwise may be required to clean
up the contamination before selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action -- for example, actions based on nuisance or on toxic tort resulting
in death, personal injury or damage to property -- related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in these cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Under the laws of many states, contamination of a property may give rise to
a lien on the property for clean-up costs. In several states, such a lien has
priority over all existing liens, including those of existing security
instruments. In these states, the lien of a security instrument may lose its
priority to such a "superlien."
It is not expected that, at the time the mortgage loans were originated, it
is possible that no environmental assessment or a very limited environmental
assessment of the mortgaged property was conducted. No representations or
warranties are made by the asset seller or National Mortgage as to the absence
or effect of hazardous wastes or hazardous substances on any of the mortgaged
property. In addition, the servicers have not made any representations or
warranties or assumed any liability with respect to the absence or effect of
hazardous wastes or hazardous substances on any mortgaged property or any
casualty resulting from the presence or effect of hazardous wastes or hazardous
substances and any loss or liability resulting from the presence or effect of
such hazardous wastes or hazardous substances will reduce the amounts otherwise
available to pay to you.
Generally, the servicers are not permitted to foreclose on any mortgaged
property without the approval of the master servicer. The master servicer is
not permitted to approve foreclosure on any property which it knows or has
reason to know is contaminated with or affected by hazardous wastes or hazardous
substances. The master servicer is required to inquire of any servicer
requesting approval of foreclosure whether the property proposed to be
foreclosed upon is so contaminated. If a servicer does not foreclose on
mortgaged property, the amounts otherwise available to pay to you may be
reduced. A servicer will not be liable to the holders of the securities if it
fails to foreclose on mortgaged property that it reasonably believes may be so
contaminated or affected, even if such mortgaged property are, in fact, not so
contaminated or affected. Similarly, a servicer will not be liable to the
holders of the securities if based on its reasonable belief that no such
contamination or effect exists, the servicer forecloses on
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mortgaged property and takes title to the mortgaged property, and then the
mortgaged properties are determined to be contaminated or affected.
"Due-on Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
mortgage loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the obligor transfers its interest in the mortgaged
property. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in many
states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982 (the "Act"), which, after a 3-year
grace period, preempted state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in certain
loans -- which loans include the conventional mortgage loans -- made after the
effective date of the Act are enforceable within limitations identified in the
Act and its regulations.
By virtue of the Act, the mortgage lender generally may be permitted to
accelerate any conventional mortgage loan which contains a "due-on-sale" clause
upon transfer of an interest in the mortgaged property. With respect to any
mortgage loan secured by a residence occupied or to be occupied by the obligor,
this ability to accelerate will not apply to certain types of transfers,
including
. the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase,
. a transfer to a relative resulting from the death of an obligor, or a
transfer where the spouse or child(ren) becomes an owner of the
mortgaged property in each case where the transferee(s) will occupy the
mortgaged property,
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement agreement
by which the spouse becomes an owner of the mortgaged property,
. the creation of a lien or other encumbrance subordinate to the lender's
security instrument which does not relate to a transfer of rights of
occupancy in the mortgaged property, provided that the lien or
encumbrance is not created pursuant to a contract for deed,
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety, and
. other transfers set forth in the Act and its regulations.
As a result, a lesser number of mortgage loans which contain "due-on-sale"
clauses may extend to full maturity than earlier experience would indicate with
respect to single-family mortgage loans. The extent of the effect of the Act on
the average lives and delinquency rates of the
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mortgage loans, however, cannot be predicted. FHA and VA loans do not contain
due-on-sale clauses. See "Maturity and Prepayment Considerations" in this
prospectus.
Enforceability of Prepayment and Late Payment Fees
The standard form of note, mortgage and deed of trust used by lenders may
contain provisions obligating the obligor to pay a late charge if payments are
not timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from an obligor for delinquent payments. Certain states also limit the amounts
that a lender may collect from an obligor as an additional charge if the loan is
prepaid. The enforceability, under the laws of a number of states of provisions
providing for prepayment fees or penalties upon an involuntary prepayment is
unclear, and no assurance can be given that, at the time a prepayment fee or
penalty is required to be made on a mortgage loan in connection with an
involuntary prepayment, the obligation to make the payment will be enforceable
under applicable state law. The absence of a restraint on prepayment,
particularly with respect to mortgage loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of the
mortgage loans. Generally, late charges and prepayment fees -- to the extent
permitted by law and not waived by the servicers -- will be retained by the
servicers or master servicer as additional servicing compensation.
Equitable Limitations on Remedies
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the obligor from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
obligor's default and the likelihood that the obligor will be able to reinstate
the loan. In some cases, courts have substituted their judgment for the
lender's judgment and have required lenders to reinstate loans or recast payment
schedules to accommodate obligors who are suffering from temporary financial
disability. In other cases, courts have limited the right of lenders to
foreclose if the default under the security instrument is not monetary, like the
obligor failing to adequately maintain the mortgaged property or the obligor
executing a second mortgage or deed of trust affecting the mortgaged property.
Finally, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that obligors under the deeds of trust receive notices in addition to
the statutorily-prescribed minimum requirements. 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 or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protections to the obligor.
The mortgage loans may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the obligor, after
the applicable cure period. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default. However,
courts of any state, exercising equity jurisdiction, may refuse to
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allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Secondary Financing; Due-on-Encumbrance Provisions
Some of the mortgage loans may not restrict secondary financing, permitting
the obligor to use the mortgaged property as security for one or more additional
loans. Other of the mortgage loans may preclude secondary financing -- by
permitting the first lender to accelerate the maturity of its loan if the
obligor further encumbers the mortgaged property or in some other fashion -- or
may require the consent of the senior lender to any junior or substitute
financing. However, these provisions may be unenforceable in some jurisdictions
under certain circumstances.
Where the obligor encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. For example, the
obligor may have difficulty servicing and repaying multiple loans or acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the obligor and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent any existing junior lender is harmed
or the obligor is additionally burdened. In addition, if the obligor defaults
on the senior loan and/or any junior loan or loans, the existence of junior
loans and actions taken by junior lenders can impair the security available to
the senior lender and can interfere with, delay and in certain circumstances
even prevent the taking of action by the senior lender. In addition, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Certain Legal Aspects of the Financial Assets
Financial assets held by your trust will have legal characteristics
different from mortgage assets. Financial assets will represent interests in,
or will be secured by, mortgage loans or other mortgage assets held by another
trust. Each financial asset held by your trust will be registered in the name
of your trustee, or your trustee will be the beneficial owner of the financial
asset, if book-entry. Your interests in the underlying financial assets may
only be exercised through your trustee. The particular entitlements represented
by the financial assets in your trust, and the underlying mortgage assets in
each, will be detailed in your prospectus supplement.
The Depositor
National Mortgage Securities Corporation was incorporated in Virginia on
September 14, 1999, as a wholly owned, limited-purpose financing subsidiary of
National Mortgage Acceptance Corporation. National Mortgage's principal office
is located at 909 East Main Street, Richmond, Virginia 23219-3002, telephone
(804) 649-3952. National Mortgage was formed solely for the purpose of
facilitating the financing and sale of mortgage-related assets. It may not
engage in any business or investment activities other than issuing and selling
securities secured primarily by, or evidencing interests in, mortgage-related
assets and taking certain similar
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actions. National Mortgage's Articles of Incorporation, which has been filed as
an Exhibit to, and incorporated by reference into, the registration statement of
which this prospectus forms a part, limit National Mortgage's business to the
foregoing and place certain other restrictions on National Mortgage's
activities. National Mortgage has authorized capital stock consisting of 10,000
shares of Common Stock. All 10,000 of these authorized shares are held by
National Mortgage Acceptance Corporation.
National Mortgage does not have, nor is it expected in the future to have,
any significant assets.
Use of Proceeds
Substantially all of the net proceeds from the sale of each series of
securities will be applied by National Mortgage to purchase the trust assets
assigned to the trust underlying each series or to fund loans to finance
companies secured by the pledge of trust assets to the trust for each series.
Federal Income Tax Consequences
The following is the opinion of Hunton & Williams regarding the material
federal income tax consequences of the purchase, ownership, and disposition of
the securities. This opinion is based upon laws, regulations, rulings, and
decisions now in effect, all of which are subject to change. Because REMIC
status may be elected with respect to certain series, this discussion includes a
summary of the federal income tax consequences to holders of REMIC securities.
This opinion does not purport to deal with the federal income tax
consequences that may affect particular investors in light of their individual
circumstances, or with certain categories of investors that are given special
treatment under the federal income tax laws, such as banks, insurance companies,
thrift institutions, tax-exempt organizations, foreign investors, certain
regulated entities, real estate investment trusts ("REITs"), investment
companies, and certain other organizations that face special rules. This
opinion focuses primarily on investors who will hold the securities as capital
assets -- generally, property held for investment -- within the meaning of
Section 1221 of the Code, although much of this opinion is applicable to other
investors as well. You should note that, although final regulations under the
REMIC provisions of the Code (the "REMIC Regulations") have been issued by the
Treasury Department (the "Treasury"), no currently effective regulations or
other administrative guidance has been issued concerning certain provisions of
the Code that are or may be applicable to you, particularly the provisions
dealing with market discount and stripped debt securities. Although the
Treasury has issued final regulations dealing with original issue discount and
premium, those regulations do not address directly the treatment of REMIC
regular securities and certain other types of securities. Furthermore, the
REMIC regulations do not address many of the issues that arise in connection
with the formation and operation of a REMIC. Hence, definitive guidance cannot
be provided with respect to many aspects of the tax treatment of
securityholders, particularly residual securityholders. Moreover, this opinion
and the opinion referred to below are based on current law, and there can be no
assurance that the Internal Revenue Service (the "IRS") will not take positions
that would be materially adverse to investors. Finally, this opinion does not
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purport to address the anticipated state income tax consequences to investors of
owning and disposing of the securities. Consequently, you should consult your
own tax advisor in determining the federal, state, foreign, and any other tax
consequences to you of the purchase, ownership, and disposition of the
securities.
General
Many aspects of the federal income tax treatment of the securities will
depend upon whether an election is made to treat your trust, or one or more
segregated pools of trust assets, as a REMIC. The accompanying prospectus
supplement will indicate whether a REMIC election or elections will be made with
respect to your trust. For each series in which one or more REMIC elections are
to be made, Hunton & Williams, counsel to National Mortgage, will deliver a
separate opinion generally to the effect that, assuming timely filing of a REMIC
election or elections and compliance with the pooling and master servicing
agreement and certain other documents specified in the opinion, the trust -- or
one or more segregated pools of trust assets -- will qualify as one or more
REMICs (each, a "Series REMIC"). For each series with respect to which a REMIC
election is not to be made, Hunton & Williams will deliver a separate opinion
generally to the effect that the trust will be treated as (i) a FASIT under
Sections 860H through 860L of the Code, (ii) a grantor trust under subpart E,
Part I of subchapter J of the Code that will issue securities (the "Grantor
Trust securities"), (iii) a trust fund treated as a partnership for federal
income tax purposes that will issue securities (the "Partnership securities"),
or (iv) a trust fund treated either as a partnership or a disregarded entity for
federal income tax purposes that will issue notes (the "Debt securities"). Those
opinions will be based on existing law, but there can be no assurance that the
law will not change or that contrary positions will not be taken by the IRS.
REMIC Certificates
Each REMIC certificate will be classified as either a REMIC regular
certificate, which generally is treated as debt for federal income tax purposes,
or a Residual Certificate, which generally is not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect to
the taxable income or loss of the REMIC. The accompanying prospectus supplement
for each series of REMIC certificates will indicate which of the certificates of
the series will be classified as REMIC regular certificates and which will be
classified as Residual Certificates. REMIC certificates held by a thrift
institution taxed as a "domestic building and loan association" will constitute
a "regular or residual interest in a REMIC," as the case may be, within the
meaning of Section 7701(a)(19)(C)(xi) of the Code; REMIC certificates held by a
REIT will constitute "real estate assets" within the meaning of Section
856(c)(4)(A) of the Code; and interest on these certificates will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B), all in the same proportion that the related
REMIC's assets would so qualify. If 95% or more of the assets of a given Series
REMIC constitute qualifying assets for thrift institutions and REITs, the REMIC
certificates and income on them will be treated entirely as qualifying assets
and income for these purposes. REMIC regular and Residual Certificates held by
a financial institution to which Section 585 of the Code applies will be treated
as evidences of indebtedness for purposes of Section 582(c)(1) of the Code. The
REMIC regular certificates
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generally will be "qualified mortgages" within the meaning of Section 860G(a)(3)
of the Code with respect to other REMICs. REMIC regular certificates held by a
financial asset securitization investment trust (a "FASIT") will qualify for
treatment as "permitted assets" within the meaning of Section 860L(c)(1)(G) of
the Code. In the case of a series for which two or more Series REMICs will be
created, all Series REMICs will be treated as a single REMIC for purposes of
determining the extent to which the certificates and the income on them will be
treated as qualifying assets and income for such purposes. However, REMIC
certificates will not qualify as government securities for REITs and regulated
investment companies ("RICs") in any case.
Tax Treatment of REMIC Regular Certificates
Payments received by holders of REMIC regular certificates generally should
be accorded the same tax treatment under the Code as payments received on other
taxable corporate debt instruments. Except as described below for REMIC regular
certificates issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on REMIC regular certificates will
be treated as ordinary income to you and a principal payment on these
certificates will be treated as a return of capital to the extent that your
basis in the certificate is allocable to that payment. Holders of REMIC regular
certificates or Residual Certificates must report income from their certificates
under an accrual method of accounting, even if they otherwise would have used
the cash receipts and disbursements method. The trustee or the master servicer
will report annually to the IRS and to holders of record with respect to
interest paid or accrued and original issue discount, if any, accrued on the
certificates. The trustee or the master servicer will be the party responsible
for computing the amount of original issue discount to be reported to the REMIC
regular certificate holders each taxable year (the "Tax Administrator").
Under temporary Treasury regulations, holders of REMIC regular certificates
issued by "single-class REMICs" who are individuals, trusts, estates, or pass-
through entities in which such investors hold interests may be required to
recognize certain amounts of income in addition to interest and discount income.
A single-class REMIC, in general, is a REMIC that (i) would be classified as an
investment trust in the absence of a REMIC election or (ii) is substantially
similar to an investment trust. Under the temporary Treasury regulations, each
holder of a regular or residual interest in a single-class REMIC is allocated
(i) a share of the REMIC's "allocable investment expenses" -- i.e., expenses
normally allowable under Section 212 of the Code, which may include servicing
and administrative fees and insurance premiums -- and (ii) a corresponding
amount of additional income. Section 67 of the Code permits an individual,
trust or estate to deduct miscellaneous itemized expenses -- including Section
212 expenses -- only to the extent that such expenses, in the aggregate, exceed
2% of its adjusted gross income. Consequently, an individual, trust or estate
that holds a regular interest in a single-class REMIC -- either directly or
through a pass-through entity -- will recognize additional income with respect
to such regular interest to the extent that its share of allocable investment
expenses, when combined with its other miscellaneous itemized deductions for the
taxable year, fails to exceed 2% of its adjusted gross income. Any such
additional income will be treated as interest income. In addition, Code Section
68 provides that the amount of itemized deductions otherwise
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allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount -- $126,600, or $63,300 in the case of a separate
return by a married individual within the meaning of Code Section 7703 for
taxable year 1999 and adjusted for inflation each year thereafter -- will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, and (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The amount of such additional taxable income
recognized by holders who are subject to the limitations of either Section 67 or
Section 68 may be substantial and may reduce or eliminate the after-tax yield to
such holders of an investment in the certificates of an affected series. Where
appropriate, the prospectus supplement for a particular REMIC series will
indicate that the holders of certificates of this series may be required to
recognize additional income as a result of the application of the limitations of
either Section 67 or Section 68 of the Code. Non-corporate holders of REMIC
regular certificates evidencing an interest in a single-class REMIC also should
be aware that miscellaneous itemized deductions, including allocable investment
expenses attributable to such REMIC, are not deductible for purposes of the
alternative minimum tax ("AMT").
Original Issue Discount
Certain classes of REMIC regular certificates may be issued with "original
issue discount" within the meaning of Section 1273(a) of the Code. In general,
such original issue discount, if any, will equal the excess, if any, of the
"stated redemption price at maturity" of the REMIC regular certificate --
generally, its principal amount -- over its "issue price." Holders of REMIC
regular certificates as to which there is original issue discount should be
aware that they generally must include original issue discount in income for
federal income tax purposes on an annual basis under a constant yield accrual
method that reflects compounding. In general, original issue discount is
treated as ordinary income and must be included in income in advance of the
receipt of the cash to which it relates.
The amount of original issue discount required to be included in a REMIC
regular certificateholder's income in any taxable year will be computed in
accordance with Section 1272(a)(6) of the Code, which provides rules for the
accrual of original issue discount under a constant yield method for certain
debt instruments, such as the REMIC regular certificates, that are subject to
prepayment by reason of prepayments of underlying obligations. Under Section
1272(a)(6), the amount and rate of accrual of original issue discount on a REMIC
regular certificate generally is calculated based on (i) a single constant yield
to maturity and (ii) the prepayment rate for the related mortgage collateral and
the reinvestment rate on amounts held pending distribution that were assumed in
pricing the REMIC regular certificate (the "Pricing Prepayment Assumptions").
No regulatory guidance currently exists under Code Section 1272(a)(6).
Accordingly, until the Treasury issues guidance to the contrary, the Tax
Administrator will, except as otherwise provided, base its computations on Code
Section 1272(a)(6), existing final regulations that govern the accrual of
original issue discount on debt instruments, but that do not address directly
the treatment of instruments that are subject to Code Section 1272(a)(6) (the
"OID Regulations"), and certain other guidance, all as described below.
However, there can be no assurance that the methodology described below
represents the correct manner of calculating original issue discount on the
REMIC regular certificates. The Tax
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Administrator will account for income on certain REMIC regular certificates that
provide for one or more contingent payments as described in "Federal Income Tax
Consequences -- REMIC Certificates-- Interest Weighted Certificates and Non-VRDI
Certificates" in this prospectus. Prospective purchasers should be aware that
neither National Mortgage, the trustee, the master servicer, nor any servicer
will make any representation that the mortgage assets underlying a series will
in fact prepay at a rate conforming to the related Pricing Prepayment
Assumptions or at any other rate.
The amount of original issue discount on a REMIC regular certificate is an
amount equal to the excess, if any, of the certificate's "stated redemption
price at maturity" over its "issue price." Under the OID Regulations, a debt
instrument's stated redemption price at maturity is the sum of all payments
provided by the instrument other than "qualified stated interest" (the "Deemed
Principal Payments"). Qualified stated interest, in general, is stated interest
that is unconditionally payable in cash or property -- other than debt
instruments of the issuer -- at least annually at (i) a single fixed rate or
(ii) a variable rate that meets certain requirements set out in the OID
Regulations. See "Federal Income Tax Consequences -- REMIC Certificates --
Variable Rate Certificates" in this prospectus. Thus, in the case of any REMIC
regular certificate, the stated redemption price at maturity will equal the
total amount of all Deemed Principal Payments due on that certificate.
Since a certificate that is part of an Accretion Class generally will not
require unconditional payments of interest at least annually, the stated
redemption price at maturity of this certificate will equal the aggregate of all
payments due, whether designated as principal, accrued interest, or current
interest. The issue price of a REMIC regular certificate generally will equal
the initial price at which a substantial amount of certificates of the same
class is sold to the public.
The OID Regulations contain an aggregation rule (the "Aggregation Rule")
under which two or more debt instruments issued in connection with the same
transaction or related transactions -- determined based on all the facts and
circumstances -- generally are treated as a single debt instrument for federal
income tax accounting purposes if issued by a single issuer to a single holder.
The Aggregation Rule, however, does not apply if the debt instrument is part of
an issue (i) a substantial portion of which is traded on an established market
or (ii) a substantial portion of which is issued for cash -- or property traded
on an established market -- to parties who are not related to the issuer or
holder and who do not purchase other debt instruments of the same issuer in
connection with the same transaction or related transactions. In most cases,
the Aggregation Rule will not apply to REMIC regular certificates of different
classes because one or both of the exceptions to the Aggregation Rule will have
been met. Although the Tax Administrator currently intends to apply the
Aggregation Rule to all REMIC regular interests in a Series REMIC that are held
by a related Series REMIC, it generally will not apply the Aggregation Rule to
REMIC regular certificates for purposes of reporting to certificateholders.
Under a de minimis rule, a REMIC regular certificate will be considered to
have no original issue discount if the amount of original issue discount is less
than 0.25% of the certificate's stated redemption price at maturity
multiplied by the weighted average maturity
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("WAM") of all Deemed Principal Payments. For that purpose, the WAM of a REMIC
regular certificate is the sum of the amounts obtained by multiplying the amount
of each Deemed Principal Payment by a fraction, the numerator of which is the
number of complete years from the certificate's issue date until the payment is
made, and the denominator of which is the certificate's stated redemption price
at maturity. Although no Treasury regulations have been issued under the
relevant provisions of the 1986 Act, it is expected that the WAM of a REMIC
regular certificate will be computed using the Pricing Prepayment Assumptions. A
REMIC regular certificateholder will include de minimis original issue discount
in income on a pro rata basis as stated principal payments on the certificate
are received or, if earlier, upon disposition of the certificate, unless the
certificateholder makes an election to include in gross income all stated
interest, acquisition discount, original issue discount, de minimis original
issue discount, market discount, and de minimis market discount accruing on the
REMIC regular certificate, reduced by any amortizable premium or acquisition
premium accruing on the REMIC regular certificate, under the constant yield
method used to account for original issue discount (an "All OID Election").
REMIC regular certificates may bear interest under terms that provide for a
teaser rate period, interest holiday, or other period during which the rate of
interest payable on the certificates is lower than the rate payable during the
remainder of the life of the certificates ("Teaser Certificates"). Under
certain circumstances, a Teaser Certificate may be considered to have a de
minimis amount of original issue discount even though the amount of original
issue discount on the certificate would be more than de minimis as determined as
described above if the stated interest on a Teaser Certificate would be
qualified stated interest but for the fact that during one or more accrual
periods its interest rate is below the rate applicable for the remainder of its
term, the amount of original issue discount on such certificate that is measured
against the de minimis amount of original issue discount allowable on the
certificate is the greater of (i) the excess of the stated principal amount of
the certificate over its issue price ("True Discount") and (ii) the amount of
interest that would be necessary to be payable on the certificate in order for
all stated interest to be qualified stated interest.
The holder of a REMIC regular certificate generally must include in gross
income the sum, for all days during his taxable year on which he holds the REMIC
regular certificate, of the "daily portions" of the original issue discount on
such certificate. In the case of an original holder of a REMIC regular
certificate, the daily portions of original issue discount with respect to such
certificate generally will be determined by allocating to each day in any
accrual period the certificate's ratable portion of the excess, if any, of (i)
the sum of (a) the present value of all payments under the certificate yet to be
received as of the close of such period plus (b) the amount of any Deemed
Principal Payments received on the certificate during such period over (ii) the
certificate's "adjusted issue price" at the beginning of such period. The
present value of payments yet to be received on a REMIC regular certificate is
computed using the Pricing Prepayment Assumptions and the certificate's original
yield to maturity -- adjusted to take into account the length of the particular
accrual period, and taking into account Deemed Principal Payments actually
received on the certificate prior to the close of the accrual period. The
adjusted issue
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price of a REMIC regular certificate at the beginning of the first period is its
issue price. The adjusted issue price at the beginning of each subsequent period
is the adjusted issue price of the certificate at the beginning of the preceding
period increased by the amount of original issue discount allocable to that
period and reduced by the amount of any Deemed Principal Payments received on
the certificate during that period. Thus, an increased or decreased rate of
prepayments received with respect to a REMIC regular certificate will be
accompanied by a correspondingly increased or decreased rate of recognition of
original issue discount by the holder of such certificate.
The yield to maturity of a REMIC regular certificate is calculated based on
(i) the Pricing Prepayment Assumptions and (ii) any contingencies not already
taken into account under the Pricing Prepayment Assumptions that, considering
all of the facts and circumstances as of the issue date, are more likely than
not to occur. Contingencies, such as the exercise of "mandatory redemptions,"
that are taken into account by the parties in pricing the REMIC regular
certificate typically will be subsumed in the Pricing Prepayment Assumptions and
thus will be reflected in the certificate's yield to maturity. The Tax
Administrator's determination of whether a contingency relating to a class of
REMIC regular certificates is more likely than not to occur is binding on each
holder of a REMIC regular certificate of this class unless the holder explicitly
discloses on its federal income tax return that its determination of the yield
and maturity of the certificate is different from that of the Tax Administrator.
In many cases, REMIC regular certificates will be subject to optional
redemption before their stated maturity dates. Under the OID Regulations,
National Mortgage will be presumed to exercise its option to redeem for purposes
of computing the accrual of original issue discount if, and only if, by using
the optional redemption date as the maturity date and the optional redemption
price as the stated redemption price at maturity, the yield to maturity of the
certificate is lower than it would be if the certificate were not redeemed
early. If National Mortgage is presumed to exercise its option to redeem the
certificates, original issue discount on such certificates will be calculated as
if the redemption date were the maturity date and the optional redemption price
were the stated redemption price at maturity. In cases in which all of the
certificates of a particular series are issued at par or at a discount, National
Mortgage will not be presumed to exercise its option to redeem the certificates
because a redemption by National Mortgage would not lower the yield to maturity
of the certificates. If, however, some certificates of a particular series are
issued at a premium, National Mortgage may be able to lower the yield to
maturity of the certificates by exercising its redemption option. In
determining whether National Mortgage will be presumed to exercise its option to
redeem certificates when one or more classes of the certificates is issued at a
premium, the Tax Administrator will take into account all classes of
certificates that are subject to the optional redemption to the extent that they
are expected to remain outstanding as of the optional redemption date, based on
the Pricing Prepayment Assumptions. If, determined on a combined weighted
average basis, the certificates of such classes were issued at a premium, the
Tax Administrator will presume that National Mortgage will exercise its option.
However, the OID Regulations are unclear as to how the redemption presumption
rules should apply to instruments such as the certificates, and there can be no
assurance that the IRS will agree with the Tax Administrator's position.
A REMIC regular certificate having original issue discount may be acquired
subsequent to its issuance for more than its adjusted issue price. If the
subsequent holder's adjusted basis in
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such a certificate, immediately after its acquisition, exceeds the sum of all
Deemed Principal Payments to be received on the certificate after the
acquisition date, the certificate will no longer have original issue discount,
and the holder may be entitled to reduce the amount of interest income
recognized on the certificate by the amount of amortizable premium. See "Federal
Income Tax Consequences -- REMIC Certificates --Amortizable Premium" in this
prospectus. If the subsequent holder's adjusted basis in the certificate,
immediately after the acquisition, exceeds the adjusted issue price of the
certificate, but is less than or equal to the sum of the Deemed Principal
Payments to be received on the certificate after the acquisition date, the
amount of original issue discount on the certificate will be reduced by a
fraction, the numerator of which is the excess of the certificate's adjusted
basis immediately after its acquisition over the adjusted issue price of the
certificate and the denominator of which is the excess of the sum of all Deemed
Principal Payments to be received on the certificate after the acquisition date
over the adjusted issue price of the certificate. For that purpose, the adjusted
basis of a REMIC regular certificate generally is reduced by the amount of any
qualified stated interest that is accrued but unpaid as of the acquisition date.
Alternatively, the subsequent holder of a REMIC regular certificate having
original issue discount may make an All OID Election with respect to the
certificate.
The OID Regulations provide that a certificateholder generally may make an
All OID Election to include in gross income all stated interest, acquisition
discount, original issue discount, de minimis original issue discount, market
discount, and de minimis market discount that accrues on a REMIC regular
certificate under the constant yield method used to account for original issue
discount. The accrued amount is adjusted to reflect any amortizable premium or
acquisition premium accruing on the REMIC regular certificate. To make the All
OID Election, the holder of the certificate must attach a statement to its
timely filed federal income tax return for the taxable year in which the holder
acquired the certificate. The statement must identify the instruments to which
the election applies. An All OID Election is irrevocable unless the holder
obtains the consent of the IRS. If an All OID Election is made for a debt
instrument with market discount, the holder is deemed to have made an election
to include in income currently the market discount on all of the holder's other
debt instruments with market discount, as described in "Federal Income Tax
Consequences -- REMIC Certificates -- Market Discount" in this prospectus. In
addition, if an All OID Election is made for a debt instrument with amortizable
bond premium, the holder is deemed to have made an election to amortize the
premium on all of the holder's other debt instruments with amortizable premium
under the constant yield method. See "Federal Income Tax Consequences -- REMIC
Certificates -- Amortizable Premium" in this prospectus. You should be aware
that the law is unclear as to whether an All OID Election is effective for a
certificate that is subject to the contingent payment rules. See "Federal
Income Tax Consequences -- REMIC Certificates -- Original Issue Discount --
Interest Weighted Certificates and Non-VRDI Certificates" in this prospectus.
If the interval between the issue date of a current interest certificate
and the first distribution date (the "First Distribution Period") contains more
days than the number of days of stated interest that are payable on the first
distribution date, the effective interest rate received by you during the First
Distribution Period will be less than your certificate's stated interest rate,
making your certificate a Teaser Certificate. If the amount of original issue
discount on the
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certificate measured under the expanded de minimis test exceeds the de minimis
amount of original issue discount allowable on the certificate, the amount by
which the stated interest on the Teaser Certificate exceeds the interest that
would be payable on the certificate at the effective rate of interest for the
First Distribution Period would be treated as part of the certificate's stated
redemption price at maturity. Accordingly, the holder of a Teaser Certificate
may be required to recognize ordinary income arising from original issue
discount in the First Distribution Period in addition to any qualified stated
interest that accrues in that period.
Similarly, if the First Distribution Period is shorter than the interval
between subsequent distribution dates, the effective rate of interest payable on
a certificate during the First Distribution Period will be higher than the
stated rate of interest if a certificateholder receives interest on the first
distribution date based on a full accrual period. Unless the Pre-Issuance
Accrued Interest Rule described below applies, the certificate (a "Rate Bubble
Certificate") would be issued with original issue discount unless the amount of
original issue discount is de minimis. The amount of original issue discount on
a Rate Bubble Certificate attributable to the First Distribution Period would be
the amount by which the interest payment due on the first distribution date
exceeds the amount that would have been payable had the effective rate for that
Period been equal to the stated interest rate. However, under the "Pre-Issuance
Accrued Interest Rule," if, (i) a portion of the initial purchase price of a
Rate Bubble Certificate is allocable to interest that has accrued under the
terms of the certificate prior to its issue date ("Pre-Issuance Accrued
Interest") and (ii) the certificate provides for a payment of stated interest on
the First Distribution Date within one year of the issue date that equals or
exceeds the amount of the Pre-Issuance Accrued Interest, the certificate's issue
price may be computed by subtracting from the issue price the amount of Pre-
Issuance Accrued Interest. If the certificateholder opts to apply the Pre-
Issuance Accrued Interest Rule, the portion of the interest received on the
first distribution date equal to the Pre-Issuance Accrued Interest would be
treated as a return of such interest and would not be treated as a payment on
the certificate. Thus, where the Pre-Issuance Accrued Interest Rule applies, a
Rate Bubble Certificate will not have original issue discount attributable to
the First Distribution Period, provided that the increased effective interest
rate for that period is attributable solely to Pre-Issuance Accrued Interest, as
typically will be the case. The Tax Administrator intends to apply the Pre-
Issuance Accrued Interest Rule to each Rate Bubble Certificate for which it is
available if the certificate's stated interest otherwise would be qualified
stated interest. If, however, the First Distribution Period of a Rate Bubble
Certificate is longer than subsequent payment periods, the application of the
Pre-Issuance Accrued Interest Rule typically will not prevent disqualification
of the certificate's stated interest because its effective interest rate during
the First Distribution Period will be less than its stated interest rate. Thus,
a REMIC regular certificate with a long First Distribution Period typically will
be a Teaser Certificate, as discussed above. The Pre-Issuance Accrued Interest
Rule will not apply to any amount paid at issuance for such a Teaser Certificate
that is nominally allocable to interest accrued under the terms of such
certificate before its issue date. All amounts paid for such a Teaser
Certificate at issuance, regardless of how designated, will be included in the
issue price of such certificate for federal income tax accounting purposes.
It is not entirely clear how income should be accrued with respect to a
REMIC regular certificate, the payments on which consist entirely or primarily
of a specified nonvarying portion
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of the interest payable on one or more of the qualified mortgages held by the
REMIC (an "Interest Weighted Certificate"). Unless and until the IRS provides
contrary administrative guidance on the income tax treatment of an Interest
Weighted Certificate, the Tax Administrator will take the position that an
Interest Weighted Certificate does not bear qualified stated interest, and will
account for the income thereon as described in "Federal Income Tax
Consequences -- REMIC Certificates -- Interest Weighted Certificates and Non-
VRDI Certificates," in this prospectus. Some Interest Weighted Certificates may
provide for a relatively small amount of principal and for interest that can be
expressed as qualified stated interest at a very high fixed rate with respect to
that principal ("Superpremium Certificates"). Superpremium Certificates
technically are issued with amortizable premium. However, because of their close
similarity to other Interest Weighted Certificates it appears more appropriate
to account for Superpremium Certificates in the same manner as for other
Interest Weighted Certificates. Consequently, in the absence of further
administrative guidance, the Tax Administrator intends to account for
Superpremium Certificates in the same manner as other Interest Weighted
Certificates. However, there can be no assurance that the IRS will not assert a
position contrary to that taken by the Tax Administrator, and, therefore,
holders of Superpremium Certificates should consider making a protective
election to amortize premium on such certificates.
In view of the complexities and current uncertainties as to the manner of
inclusion in income of original issue discount on the REMIC regular
certificates, you should consult your tax advisor to determine the appropriate
amount and method of inclusion in income of original issue discount on your
certificates for federal income tax purposes.
Variable Rate Certificates
A REMIC regular certificate may pay interest at a variable rate (a
"Variable Rate Certificate"). A Variable Rate Certificate that qualifies as a
"variable rate debt instrument" as that term is defined in the OID Regulations
(a "VRDI") will be governed by the rules applicable to VRDIs in the OID
Regulations, which are described below. A Variable Rate Certificate qualifies as
a VRDI under the OID Regulations if (i) the certificate is not issued at a
premium to its noncontingent principal amount in excess of the lesser of (a)
.015 multiplied by the product of such noncontingent principal amount and the
WAM of the certificate or (b) 15% of such noncontingent principal amount (an
"Excess Premium"); (ii) stated interest on the certificate compounds or is
payable unconditionally at least annually at (a) one or more "qualified floating
rates," (b) a single fixed rate and one or more qualified floating rates, (c) a
single "objective rate," or (d) a single fixed rate and a single objective rate
that is a "qualified inverse floating rate"; (iii) the qualified floating rate
or the objective rate in effect during an accrual period is set at a current
value of that rate -- i.e., the value of the rate on any day occurring during
the interval that begins three months prior to the first day on which that value
is in effect under the certificate and ends one year following that day; and
(iv) the certificate does not provide for contingent principal payments.
Under the OID Regulations a rate is a qualified floating rate if variations
in the rate reasonably can be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the debt instrument is
denominated. A qualified
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floating rate may measure contemporaneous variations in borrowing costs for the
issuer of the debt instrument or for issuers in general. A multiple of a
qualified floating rate is considered a qualified floating rate only if the rate
is equal to either (a) the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35 or (b) the product of a
qualified floating rate and a fixed multiple that is greater than .65 but not
more than 1.35, increased or decreased by a fixed rate. If a REMIC regular
certificate provides for two or more qualified floating rates that reasonably
can be expected to have approximately the same values throughout the term of the
certificate, the qualified floating rates together will constitute a single
qualified floating rate. Two or more qualified floating rates conclusively will
be presumed to have approximately the same values throughout the term of a
certificate if the values of all rates on the issue date of the certificate are
within 25 basis points of each other.
A variable rate will be considered a qualified floating rate if it is
subject to a restriction or restrictions on the maximum stated interest rate (a
"Cap"), a restriction or restrictions on the minimum stated interest rate (a
"Floor"), a restriction or restrictions on the amount of increase or decrease in
the stated interest rate (a "Governor"), or other similar restriction only if:
(a) the Cap, Floor, Governor, or similar restriction is fixed throughout the
term of the related certificate or (b) the Cap, Floor, Governor, or similar
restriction is not reasonably expected, as of the issue date, to cause the yield
on the certificate to be significantly less or significantly more than the
expected yield on the certificate determined without such Cap, Floor, Governor,
or similar restriction, as the case may be. Although the OID Regulations are
unclear, it appears that a VRDI, the principal rate on which is subject to a
Cap, Floor, or Governor that itself is a qualified floating rate, bears interest
at an objective rate.
An objective rate is a rate -- other than a qualified floating rate -- that
(i) is determined using a single fixed formula, (ii) is based on objective
financial or economic information, and (iii) is not based on information that
either is within the control of the issuer -- or a related party -- or is unique
to the circumstances of the issuer or related party, such as dividends, profits,
or the value of the issuer's or related party's stock. That definition would
include, in addition to a rate that is based on one or more qualified floating
rates or on the yield of actively traded personal property, a rate that is based
on changes in a general inflation index. In addition, a rate would not fail to
be an objective rate merely because it is based on the credit quality of the
issuer. An objective rate is a qualified inverse floating rate if (i) the rate
is equal to a fixed rate minus a qualified floating rate and (ii) the variations
in the rate can reasonably be expected to inversely reflect contemporaneous
variations in the qualified floating rate (disregarding certain Caps, Floors,
and Governors).
If interest on a Variable Rate Certificate is stated at a fixed rate for an
initial period of less than one year followed by a variable rate that is either
a qualified floating rate or an objective rate for a subsequent period, and the
value of the variable rate on the issue date is intended to approximate the
fixed rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate. A variable rate conclusively will be
presumed to approximate an initial fixed rate if the value of the variable rate
on the issue date does not differ from the value of the fixed rate by more than
25 basis points.
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All interest payable on a Variable Rate Certificate that qualifies as a
VRDI and provides for stated interest unconditionally payable in cash or
property at least annually at a single qualified floating rate or a single
objective rate (a "Single Rate VRDI Certificate") is treated as qualified stated
interest. The amount and accrual of original issue discount on a Single Rate
VRDI Certificate is determined, in general, by converting such certificate into
a hypothetical fixed rate certificate and applying the rules applicable to fixed
rate certificates described under "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" in this prospectus to such hypothetical
fixed rate certificate. Qualified stated interest or original issue discount
allocable to an accrual period with respect to a Single Rate VRDI Certificate
also must be increased or decreased if the interest actually accrued or paid
during such accrual period exceeds or is less than the interest assumed to be
accrued or paid during such accrual period under the related hypothetical fixed
rate certificate.
Except as provided below, the amount and accrual of original issue discount
on a Variable Rate Certificate that qualifies as a VRDI but is not a Single Rate
VRDI Certificate (a "Multiple Rate VRDI Certificate") is determined by
converting such certificate into a hypothetical equivalent fixed rate
certificate that has terms that are identical to those provided under the
Multiple Rate VRDI Certificate, except that such hypothetical equivalent fixed
rate certificate will provide for fixed rate substitutes in lieu of the
qualified floating rates or objective rate provided for under the Multiple Rate
VRDI Certificate. A Multiple Rate VRDI Certificate that provides for a qualified
floating rate or rates or a qualified inverse floating rate is converted to a
hypothetical equivalent fixed rate certificate by assuming that each qualified
floating rate or the qualified inverse floating rate will remain at its value as
of the issue date. A Multiple Rate VRDI Certificate that provides for an
objective rate or rates is converted to a hypothetical equivalent fixed rate
certificate by assuming that each objective rate will equal a fixed rate that
reflects the yield that reasonably is expected for the Multiple Rate VRDI
Certificate. Qualified stated interest or original issue discount allocable to
an accrual period with respect to a Multiple Rate VRDI Certificate must be
increased or decreased if the interest actually accrued or paid during such
accrual period exceeds or is less than the interest assumed to be accrued or
paid during such accrual period under the hypothetical equivalent fixed rate
certificate.
The amount and accrual of original issue discount on a Multiple Rate VRDI
Certificate that provides for stated interest at either one or more qualified
floating rates or at a qualified inverse floating rate and in addition provides
for stated interest at a single fixed rate -- other than an initial fixed rate
that is intended to approximate the subsequent variable rate -- is determined
using the method described above for all other Multiple Rate VRDI Certificates
except that prior to its conversion to a hypothetical equivalent fixed rate
certificate, such Multiple Rate VRDI Certificate is treated as if it provided
for a qualified floating rate -- or a qualified inverse floating rate, rather
than the fixed rate. The qualified floating rate or qualified inverse floating
rate replacing the fixed rate must be such that the fair market value of the
Multiple Rate VRDI Certificate as of its issue date would be approximately the
same as the fair market value of an otherwise identical debt instrument that
provides for the qualified floating rate or qualified inverse floating rate,
rather than the fixed rate.
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REMIC regular certificates of certain series may provide for interest based
on a weighted average of the interest rates on some or all of the mortgage
assets or regular interests in a second REMIC held subject to the related
pooling and master servicing agreement ("Weighted Average Certificates"). Under
the OID Regulations, it appears that Weighted Average Certificates relating to a
REMIC whose assets consist exclusively of adjustable-rate loans bear interest at
an "objective rate," provided the adjustable-rate loans themselves bear interest
at qualified floating rates. However, under the OID Regulations, Weighted
Average Certificates relating to a REMIC whose assets do not bear interest at
qualified floating rates ("NOWA Certificates") do not bear interest at an
objective or a qualified floating rate and, consequently, do not qualify as
VRDIs. Accordingly, unless and until the IRS provides contrary administrative
guidance on the income tax treatment of NOWA Certificates, the Tax Administrator
intends to treat such certificates as debt obligations that provide for one or
more contingent payments, and will account for the income thereon as described
in "Federal Income Tax Consequences -- REMIC Certificates -- Interest Weighted
Certificates and Non-VRDI Certificates" in this prospectus.
REMIC regular certificates of certain series may provide for the payment of
interest at a rate determined as the difference between two interest rate
parameters, one of which is a variable rate and the other of which is a fixed
rate or a different variable rate ("Inverse Floater Certificates"). Under the
OID Regulations, Inverse Floater Certificates generally bear interest at
objective rates, because their rates either constitute "qualified inverse
floating rates" under those Regulations or, although not qualified floating
rates themselves, are based on one or more qualified floating rates.
Consequently, if such certificates are not issued at an Excess Premium and their
interest rates otherwise meet the test for qualified stated interest, the income
on such certificates will be accounted for under the rules applicable to VRDIs
described above. However, an Inverse Floater Certificate may have an interest
rate parameter equal to the weighted average of the interest rates on some or
all of the mortgage assets -- or other interest bearing assets -- held by the
related REMIC in a case where one or more of those rates is a fixed rate or
otherwise may not qualify as a VRDI. Unless and until the IRS provides contrary
administrative guidance on the income tax treatment of such Inverse Floater
Certificates, the Tax Administrator intends to treat such certificates as debt
obligations that provide for one or more contingent payments, and will account
for the income thereon as described in "Federal Income Tax Consequences -- REMIC
Certificates -- Interest Weighted Certificates and Non-VRDI Certificates" in
this prospectus.
Interest Weighted Certificates and Non-VRDI Certificates
The treatment of a NOWA Certificate, a Variable Rate Certificate that is
issued at an Excess Premium, any other Variable Rate Certificate that does not
qualify as a VRDI (each a "Non-VRDI Certificate") or an Interest Weighted
Certificate is unclear under current law. The OID Regulations contain provisions
(the "Contingent Payment Regulations") that address the federal income tax
treatment of debt obligations that provide for one or more contingent payments
("Contingent Payment Obligations"). Under the Contingent Payment Regulations,
any variable rate debt instrument that is not a VRDI is classified as a
Contingent Payment Obligation. However, the Contingent Payment Regulations, by
their terms, do not apply to REMIC regular interests and other instruments that
are subject to Section 1272(a)(6) of the Code. In the absence
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of further guidance, the Tax Administrator will account for Non-VRDI
Certificates, Interest Weighted Certificates, and other REMIC regular
certificates that are Contingent Payment Obligations in accordance with Code
Section 1272(a)(6) and the accounting methodology described in this paragraph.
Income will be accrued on such certificates based on a constant yield that is
derived from a projected payment schedule as of the settlement date. The
projected payment schedule will take into account the related Pricing Prepayment
Assumptions and the interest payments that are expected to be made on such
certificates based on the value of any relevant indices on the issue date. To
the extent that actual payments differ from projected payments for a particular
taxable year, appropriate adjustments to interest income and expense accruals
will be made for that year. In the case of a Weighted Average Certificate, the
projected payments schedule will be derived based on the assumption that the
principal balances of the mortgage assets that collateralize the certificate pay
down pro rata.
The method described in the foregoing paragraph for accounting for Interest
Weighted Certificates, Non-VRDI Certificates and any other REMIC regular
certificates that are Contingent Payment Obligations is consistent with Code
Section 1272(a)(6) and its legislative history. Because of the uncertainty with
respect to the treatment of such certificates under the OID Regulations,
however, there can be no assurance that the IRS will not assert successfully
that a method less favorable to certificateholders will apply. In view of the
complexities and the current uncertainties as to income inclusions with respect
to Non-VRDI Certificates, Interest Weighted Certificates, particularly with
respect to the method that should be used to account for the income on such
certificates, and any other REMIC regular certificates that are Contingent
Payment Obligations you should consult your tax advisor to determine the
appropriate amount and method of income inclusion on such certificates for
federal income tax purposes.
Anti-Abuse Rule
Because of concerns that taxpayers might be able to structure debt
instruments or transactions, or to apply the bright-line or mechanical rules of
the OID Regulations, in a way that produce unreasonable tax results, the OID
Regulations contain an anti-abuse rule. The anti-abuse rule provides that if a
principal purpose in structuring a debt instrument, engaging in a transaction,
or applying the OID Regulations is to achieve a result that is unreasonable in
light of the purposes of the applicable statutes, the IRS can apply or depart
from the OID Regulations as necessary or appropriate to achieve a reasonable
result. A result is not considered unreasonable under the regulations, however,
in the absence of a substantial effect on the present value of a taxpayer's tax
liability.
Market Discount
A subsequent purchaser of a REMIC regular certificate at a discount from
its outstanding principal amount -- or, in the case of a REMIC regular
certificate having original issue discount, its adjusted issue price -- will
acquire such certificate with "market discount." The purchaser generally will be
required to recognize the market discount -- in addition to any original issue
discount remaining with respect to the certificate -- as ordinary income. A
person who purchases a REMIC regular certificate at a price lower than the
remaining outstanding Deemed Principal
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Payments but higher than its adjusted issue price does not acquire the
certificate with market discount, but will be required to report original issue
discount, appropriately adjusted to reflect the excess of the price paid over
the adjusted issue price. See "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" in this prospectus. A REMIC regular
certificate will not be considered to have market discount if the amount of such
market discount is de minimis, i.e., less than the product of (i) 0.25% of the
remaining principal amount of the certificate --or in the case of a REMIC
regular certificate having original issue discount, the adjusted issue price of
such certificate-- multiplied by (ii) the WAM of the certificate determined as
for original issue discount remaining after the date of purchase. Regardless of
whether the subsequent purchaser of a REMIC regular certificate with more than a
de minimis amount of market discount is a cash-basis or accrual-basis taxpayer,
market discount generally will be taken into income as principal payments,
including, in the case of a REMIC regular certificate having original issue
discount, any Deemed Principal Payments, are received, in an amount equal to the
lesser of (i) the amount of the principal payment received or (ii) the amount of
market discount that has "accrued," but that has not yet been included in
income. The purchaser may make a special election, which generally applies to
all market discount instruments held or acquired by the purchaser in the taxable
year of election or thereafter, to recognize market discount currently on an
uncapped accrual basis (the "Current Recognition Election"). The IRS has set
forth in Revenue Procedure 92-67 the manner in which a Current Recognition
Election may be made. In addition, a purchaser may make an All OID Election with
respect to a REMIC regular certificate purchased with market discount. See
"Federal Income Tax Consequences -- REMIC Certificates -- Original Issue
Discount" in this prospectus.
Until the Treasury promulgates applicable regulations, the purchaser of a
REMIC regular certificate with market discount generally may elect to accrue the
market discount either: (i) on the basis of a constant interest rate; (ii) in
the case of a REMIC regular certificate not issued with original issue discount,
in the ratio of stated interest payable in the relevant period to the total
stated interest remaining to be paid from the beginning of such period; or (iii)
in the case of a REMIC regular certificate issued with original issue discount,
in the ratio of original issue discount accrued for the relevant period to the
total remaining original issue discount at the beginning of such period. The IRS
indicated in Revenue Procedure 92-67 the manner in which an election may be made
to accrue market discount on a REMIC regular certificate on the basis of a
constant interest rate. Regardless of which computation method is elected, the
Pricing Prepayment Assumptions must be used to calculate the accrual of market
discount.
A certificateholder who has acquired any REMIC regular certificate with
market discount generally will be required to treat a portion of any gain on a
sale or exchange of the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary income
as partial principal payments were received. Moreover, such certificateholder
generally must defer interest deductions attributable to any indebtedness
incurred or continued to purchase or carry the certificate to the extent they
exceed income on the certificate. Any such deferred interest expense, in
general, is allowed as a deduction not later than the year in which the related
market discount income is recognized. If a REMIC regular certificateholder makes
a Current Recognition Election or an All OID Election, the interest deferral
rule will not apply. Under the
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Contingent Payment Regulations, a secondary market purchaser of a Non-VRDI
Certificate or an Interest Weighted Certificate at a discount generally would
continue to accrue interest and determine adjustments on such certificate based
on the original projected payment schedule devised by the issuer of such
certificate. See "Federal Income Tax Consequences -- REMIC Certificates --
Interest Weighted Certificates and Non-VRDI Certificates" in this prospectus.
The holder of such a certificate would be required, however, to allocate the
difference between the adjusted issue price of the certificate and its basis in
the certificate as positive adjustments to the accruals or projected payments on
the certificate over the remaining term of the certificate in a manner that is
reasonable -- e.g., based on a constant yield to maturity.
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
For example, the treatment of a REMIC regular certificate subject to optional
redemption by National Mortgage that is acquired at a market discount is
unclear. It appears likely, however, that the market discount rules applicable
in such a case would be similar to the rules pertaining to original issue
discount. Due to the substantial lack of regulatory guidance with respect to the
market discount rules, it is unclear how those rules will affect any secondary
market that develops for a given class of REMIC regular certificates.
Prospective investors in REMIC regular certificates should consult their own tax
advisors as to the application of the market discount rules to those
certificates.
Amortizable Premium
A purchaser of a REMIC regular certificate who purchases the certificate at
a premium over the total of its Deemed Principal Payments may elect to amortize
such premium under a constant yield method that reflects compounding based on
the interval between payments on the certificates. The legislative history of
the 1986 Act indicates that premium is to be accrued in the same manner as
market discount. Accordingly, it appears that the accrual of premium on a REMIC
regular certificate will be calculated using the Pricing Prepayment Assumptions.
Under Treasury regulations, amortized premium generally would be treated as an
offset to interest income on a REMIC regular certificate and not as a separate
deduction item. If a holder makes an election to amortize premium on a REMIC
regular certificate, such election will apply to all taxable debt instruments,
including all REMIC regular interests, held by the holder at the beginning of
the taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such holder, and will be irrevocable without
the consent of the IRS. Purchasers who pay a premium for the REMIC regular
certificates should consult their tax advisors regarding the election to
amortize premium and the method to be employed.
Amortizable premium on a REMIC regular certificate that is subject to
redemption at the option of the trust generally must be amortized as if the
optional redemption price and date were the certificate's principal amount and
maturity date if doing so would result in a smaller amount of premium
amortization during the period ending with the optional redemption date. Thus, a
certificateholder would not be able to amortize any premium on a REMIC regular
certificate that is subject to optional redemption at a price equal to or
greater than the certificateholder's acquisition price unless and until the
redemption option expires. In cases where premium must be amortized on the basis
of the price and date of an optional redemption, the certificate will be
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treated as having matured on the redemption date for the redemption price and
then having been reissued on that date for that price. Any premium remaining on
the certificate at the time of the deemed reissuance will be amortized on the
basis of (i) the original principal amount and maturity date or (ii) the price
and date of any succeeding optional redemption, under the principles described
above.
Under the Contingent Payment Regulations, a secondary market purchaser of a
Non-VRDI Certificate or an Interest Weighted Certificate at a premium generally
would continue to accrue interest and determine adjustments on such certificate
based on the original projected payment schedule devised by the issuer of such
certificate. See "Federal Income Tax Consequences -- REMIC Certificates --
Interest Weighted Certificates and Non-VRDI Certificates" in this prospectus.
The holder of such a certificate would allocate the difference between its basis
in the certificate and the adjusted issue price of the certificate as negative
adjustments to the accruals or projected payments on the certificate over the
remaining term of the certificate in a manner that is reasonable -- e.g., based
on a constant yield to maturity.
Consequences of Realized Losses
Under Section 166 of the Code, both corporate holders of REMIC regular
certificates and noncorporate holders that acquire REMIC regular certificates in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their REMIC regular
certificates become wholly or partially worthless as the result of one or more
Realized Losses on the underlying assets. However, a noncorporate holder that
does not acquire a REMIC regular certificate in connection with its trade or
business will not be entitled to deduct a loss under Code Section 166 until its
REMIC regular certificate becomes wholly worthless -- i.e., until its
outstanding principal balance has been reduced to zero, and the loss will be
characterized as short-term capital loss.
Each holder of a REMIC regular certificate will be required to accrue
original issue discount income with respect to such certificate without giving
effect to any reduction in distributions attributable to a default or
delinquency on the underlying assets until a Realized Loss is allocated to such
certificate or until such earlier time as it can be established that any such
reduction ultimately will not be recoverable. As a result, the amount of
original issue discount reported in any period by the holder of a REMIC regular
certificate could exceed significantly the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC regular
certificate eventually will recognize a loss or a reduction in income
attributable to previously included original issue discount that, as a result of
a realized loss, ultimately will not be realized, the law is unclear with
respect to the timing and character of such loss or reduction in income.
Accordingly, you should consult with your tax advisor with respect to the
federal income tax consequences of Realized Losses on original issue discount.
The Tax Administrator will adjust the accrual of original issue discount on
REMIC regular certificates in a manner that it believes to be appropriate to
reflect Realized Losses. However, there can be no assurance that the IRS will
not contend successfully that a different
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method of accounting for the effect of realized losses is correct and that such
method will not have an adverse effect upon the holders of REMIC regular
certificates.
Gain or Loss on Disposition
If a REMIC regular certificate is sold, the certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and his adjusted basis in the certificate. The adjusted basis of a
REMIC regular certificate generally will equal the cost of the certificate to
the certificateholder, increased by any original issue discount or market
discount previously includable in the certificateholder's gross income with
respect to the certificate, and reduced by the portion of the basis of the
certificate allocable to payments on the certificate, other than qualified
stated interest, previously received by the certificateholder and by any
amortized premium. Similarly, a certificateholder who receives a scheduled or
prepaid principal payment with respect to a REMIC regular certificate will
recognize gain or loss equal to the difference between the amount of the payment
and the allocable portion of his adjusted basis in the certificate. Except to
the extent that the market discount rules apply and except as provided below,
any gain or loss on the sale or other disposition of a REMIC regular certificate
generally will be capital gain or loss. Such gain or loss will be long-term gain
or loss if the certificate is held as a capital asset for more than 12 months.
If the holder of a REMIC regular certificate is a bank, thrift, or similar
institution described in Section 582 of the Code, any gain or loss on the sale
or exchange of the REMIC regular certificate will be treated as ordinary income
or loss. In the case of other types of holders, gain from the disposition of a
REMIC regular certificate that otherwise would be capital gain will be treated
as ordinary income to the extent that the amount actually includable in income
with respect to the certificate by the certificateholder during his holding
period is less than the amount that would have been includable in income if the
yield on that certificate during the holding period had been 110% of a specified
United States Treasury borrowing rate as of the date that the certificateholder
acquired the certificate. Although the legislative history to the 1986 Act
indicates that the portion of the gain from disposition of a REMIC regular
certificate that will be recharacterized as ordinary income is limited to the
amount of original issue discount, if any, on the certificate that was not
previously includable in income, the applicable Code provision contains no such
limitation.
A portion of any gain from the sale of a REMIC regular certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable federal rate," which rate is computed and
published monthly by the IRS, at the time the taxpayer entered into the
conversion transaction,
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subject to appropriate reduction for prior inclusion of interest and other
ordinary income from the transaction.
Currently, the highest marginal individual income tax bracket is 39.6%. The
AMT rate for individuals is 26% with respect to AMT income up to $175,000 and
28% with respect to AMT income over $175,000. Because the highest marginal
federal tax rate on net capital gains for individuals is 28%, there is a
significant marginal tax rate differential between net capital gains and
ordinary income for individuals. The highest marginal corporate tax rate is 35%
for corporate taxable income over $10 million, and the marginal tax rate on
corporate net capital gains also is 35%.
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Tax Treatment of Residual Certificates
Overview. Residual Certificates will be considered residual interests in
the Series REMIC to which they relate. A REMIC is an entity for federal income
tax purposes consisting of a fixed pool of mortgages or other mortgage-backed
assets in which investors hold multiple classes of interests. To be treated as a
REMIC, the trust or one or more segregated pools of trust assets underlying a
series must meet certain continuing qualification requirements, and a REMIC
election must be in effect. See "Federal Income Tax Consequences -- REMIC
Certificates REMIC Qualification" in this prospectus. A Series REMIC generally
will be treated as a pass-through entity for federal income tax purposes --i.e.,
not subject to entity-level tax. All interests in a Series REMIC other than the
Residual Certificates must be regular interests -- i.e., REMIC regular
certificates. As described in "Federal Income Tax Consequences -- REMIC
Certificates -- Tax Treatment of REMIC Regular Certificates," a regular interest
generally is an interest whose terms are analogous to those of a debt instrument
and it generally is treated as such an instrument for federal income tax
purposes. REMIC regular certificates will generate interest and original issue
discount deductions for the REMIC. Each trust for which there is a REMIC
election must have one, and only one class of residual interests. As a residual
interest, a Residual Certificate represents the right to (i) stated principal
and interest on such certificate, if any, and (ii) its pro rata share of the
income generated by the REMIC assets in excess of the amount necessary to
service the regular interests and pay the REMIC's expenses. In a manner similar
to that employed in the taxation of partnerships, REMIC taxable income or loss
will be determined at the REMIC level, but passed through to the Residual
Certificateholders. Thus, REMIC taxable income or loss will be allocated pro
rata to the Residual Certificateholders, and each Residual Certificateholder
will report his share of REMIC taxable income or loss on his own federal income
tax return. Prospective investors in Residual Certificates should be aware that
the obligation to account for the REMIC's income or loss will continue until all
of the REMIC regular certificates have been retired, which may not occur until
well beyond the date on which the last payments on Residual Certificates are
made. In addition, because of the way in which REMIC taxable income is
calculated, a Residual Certificateholder may recognize "phantom" income -- i.e.,
income recognized for tax purposes in excess of income as determined under
financial accounting or economic principles -- which will be matched in later
years by a corresponding tax loss or reduction in taxable income, but which
could lower the yield to Residual Certificateholders due to the lower present
value of such loss or reduction.
A portion of the income of Residual Certificateholders in certain Series
REMICs will be treated unfavorably in three contexts: (i) it may not be offset
by current or net operating loss deductions; (ii) it will be considered
unrelated business taxable income ("UBTI") to tax-exempt entities; and (iii) it
is ineligible for any statutory or treaty reduction in the 30 % withholding tax
that may otherwise available to a foreign Residual Certificateholder.
Taxation of Residual Certificateholders. A Residual Certificateholder will
recognize his share of the related REMIC's taxable income or loss for each day
during his taxable year on which he holds the Residual Certificate. The amount
so recognized will be characterized as ordinary income or loss and generally
will not be taxed separately to the REMIC. If a Residual
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Certificate is transferred during a calendar quarter, REMIC taxable income or
loss for that quarter will be prorated between the transferor and the transferee
on a daily basis.
A REMIC generally determines its taxable income or loss in a manner similar
to that of an individual using a calendar year and the accrual method of
accounting. REMIC taxable income or loss will be characterized as ordinary
income or loss and will consist of the REMIC's gross income, including interest,
original issue discount, and market discount income, if any, on the REMIC's
assets, including temporary cash flow investments, premium amortization on the
REMIC regular certificates, income from foreclosure property, and any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC regular certificates, reduced by the REMIC's deductions, including
deductions for interest and original issue discount expense on the REMIC regular
certificates, premium amortization and servicing fees on such assets, the
administration expenses of the REMIC and the REMIC regular certificates, any tax
imposed on the REMIC's income from foreclosure property, and any bad debt
deductions with respect to the mortgage assets. However, the REMIC may not take
into account any items allocable to a "prohibited transaction." See "Federal
Income Tax Consequences -- REMIC Certificates -- REMIC-Level Taxes" in this
prospectus. The deduction of REMIC expenses by Residual Certificateholders who
are individuals is subject to certain limitations as described in "Federal
Income Tax Consequences -- REMIC Certificates -- Special Considerations for
Certain Types of Investors -- Individuals and Pass-Through Entities" in this
prospectus.
The amount of the REMIC's net loss with respect to a calendar quarter that
may be deducted by a Residual Certificateholder is limited to such
certificateholder's adjusted basis in the Residual Certificate as of the end of
that quarter -- or time of disposition of the Residual Certificate, if earlier,
determined without taking into account the net loss for that quarter. A Residual
Certificateholder's basis in its Residual Certificate initially is equal to the
price paid for such Certificate. This basis is increased by the amount of
taxable income recognized with respect to the Residual Certificate and
decreased, but not below zero, by the amount of distributions made and the
amount of net losses recognized with respect to that certificate. The amount of
the REMIC's net loss allocable to a Residual Certificateholder that is
disallowed under the basis limitation may be carried forward indefinitely, but
may be used only to offset income with respect to the related Residual
Certificate. The ability of Residual Certificateholders to deduct net losses
with respect to a Residual Certificate may be subject to additional limitations
under the Code, as to which certificateholders should consult their tax
advisors. A distribution with respect to a Residual Certificate is treated as a
non-taxable return of capital up to the amount of the Residual
Certificateholder's adjusted basis in his Residual Certificate. If a
distribution exceeds the adjusted basis of the Residual Certificate, the excess
is treated as gain from the sale of such Residual Certificate.
Although the law is unclear in certain respects, a Residual
Certificateholder effectively should be able to recover some or all of the basis
in his Residual Certificate as the REMIC recovers the basis of its assets
through either the amortization of premium on such assets or the allocation of
basis to principal payments received on such assets. The REMIC's initial
aggregate basis in its assets will equal the sum of the issue prices of all
Residual Certificates and REMIC regular certificates. In general, the issue
price of a REMIC regular certificate of a particular class
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is the initial price at which a substantial amount of the certificates of such
class is sold to the public. In the case of a REMIC regular certificate of a
class not offered to the public, the issue price is either the price paid by the
first purchaser of such certificate or the fair market value of the property
received in exchange for such certificate, as appropriate. The REMIC's aggregate
basis will be allocated among its assets in proportion to their respective fair
market values.
The assets of certain Series REMICs may have bases that exceed their
principal amounts. Except as indicated in "Federal Income Tax Consequences --
REMIC Certificates -- Treatment by the REMIC of Original Issue Discount, Market
Discount, and Amortizable Premium," the premium on such assets will be
amortizable under the constant yield method and the same prepayment assumptions
used in pricing the certificates. The amortized premium will reduce the REMIC's
taxable income or increase its tax loss for each year which will offset a
corresponding amount of the stated interest or other residual cash flow, if any,
allocable to the Residual Certificateholders. It should be noted, however, that
the law concerning the amortization of premium on trust assets is unclear in
certain respects. If the IRS were to contend successfully that part or all of
the premium on the REMIC's assets underlying certain Series REMICs is not
amortizable, the Residual Certificateholders would recover the basis
attributable to the unamortizable premium only as principal payments are
received on such assets or upon the disposition or worthlessness of their
Residual Certificates. The inability to amortize part or all of the premium
could give rise to timing differences between the REMIC's income and deductions,
creating phantom income. Because phantom income arises from timing differences,
it will be matched by a corresponding loss or reduction in taxable income in
later years, during which economic or financial income will exceed REMIC taxable
income. Any acceleration of taxable income, however, could lower the yield to a
Residual Certificateholder, since the present value of the tax paid on that
income will exceed the present value of the corresponding tax reduction in the
later years. The amount and timing of any phantom income are dependent upon (i)
the structure of the particular Series REMIC and (ii) the rate of prepayment on
the mortgage loans comprising or underlying the REMIC's assets and, therefore,
cannot be predicted without reference to a particular Series REMIC.
The assets of certain Series REMICs may have bases that are less than their
principal amounts. In such a case, a Residual Certificateholder will recover the
basis in his Residual Certificate as the REMIC recovers the portion of its basis
in the assets that is attributable to the residual interest. The REMIC's basis
in the assets is recovered as it is allocated to principal payments received by
the REMIC.
A portion of the REMIC's taxable income may be subject to special
treatment. That portion ("excess inclusion income") generally is any taxable
income beyond that which the Residual Certificateholder would have recognized
had the Residual Certificate been a conventional debt instrument bearing
interest at 120 % of the applicable long-term federal rate, based on quarterly
compounding, as of the date on which the Residual Certificate was issued. Excess
inclusion income generally is intended to approximate phantom income and may
result in unfavorable tax consequences for certain investors. See "Federal
Income Tax Consequences -- REMIC Certificates -- Taxation of Residual
Certificateholders -- Limitations on Offset or
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Exemption of REMIC Income" and "Federal Income Tax Consequences -- REMIC
Certificates -- Special Considerations for Certain Types of Investors" in this
prospectus.
Limitations on Offset or Exemption of REMIC Income. Generally, a Residual
Certificateholder's taxable income for any taxable year may not be less than
such Certificateholder's excess inclusion income for that taxable year. Excess
inclusion income is equal to the excess of REMIC taxable income for the
quarterly period for the Residual Certificates over the product of (i) 120% of
the long-term applicable federal rate that would have applied to the Residual
Certificates if they were debt instruments for federal income tax purposes on
the closing date and (ii) the adjusted issue price of such Residual Certificates
at the beginning of such quarterly period. For this purpose, the adjusted issue
price of a Residual Certificate at the beginning of a quarter is the issue price
of the Residual Certificate, increased by the amount of the daily accruals of
REMIC income for all prior quarters, decreased by any distributions made with
respect to such Residual Certificate prior to the beginning of such quarterly
period. If the Residual Certificateholder is an organization subject to the tax
on UBTI imposed by Code Section 511, the Residual Certificateholder's excess
inclusion income will be treated as UBTI. In addition, under Treasury
regulations yet to be issued, if a REIT or a RIC owns a Residual Certificate
that generates excess inclusion income, a pro rata portion of the dividends paid
by the REIT or the RIC generally will constitute excess inclusion income for its
shareholders. Finally, Residual Certificateholders that are foreign persons will
not be entitled to any exemption from the 30% withholding tax or a reduced
treaty rate with respect to their excess inclusion income from the REMIC. See
"Federal Income Tax Consequences -- REMIC Certificates -- Taxation of Certain
Foreign Holders of REMIC Certificates -- Residual Certificates" in this
prospectus.
Non-Recognition of Certain Transfers for Federal Income Tax Purposes. The
transfer of a "noneconomic residual interest" to a United States person will be
disregarded for tax purposes if a significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Certificate will
constitute a noneconomic residual interest unless, at the time the interest is
transferred, (i) the present value of the expected future distributions with
respect to the Residual Certificate equals or exceeds the product of the present
value of the anticipated excess inclusion income and the highest corporate tax
rate for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the REMIC
in amounts sufficient to satisfy the taxes on excess inclusion income as they
accrue. If a transfer of a residual interest is disregarded, the transferor
would continue to be treated as the owner of the Residual Certificate and thus
would continue to be subject to tax on its allocable portion of the net income
of the related REMIC. 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, -- i.e., the
transferor has "improper knowledge." A transferor is presumed not to have such
improper knowledge if (i) the transferor conducted, at the time of the transfer,
a reasonable investigation of the financial condition of the transferee and, as
a result of the investigation, the transferor found that the transferee had
historically paid its debts as they came due and found no significant evidence
to indicate that the transferee would not continue to pay its debts as they come
due and (ii) the transferee represents to the transferor that it understands
that, as the holder of a noneconomic residual interest, it may incur tax
liabilities in
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excess of any cash flows generated by the interest and that it intends to pay
the taxes associated with holding the residual interest as they become due. A
similar limitation exists with respect to transfers of certain residual
interests to foreign investors. See "Federal Income Tax Consequences -- REMIC
Certificates -- Taxation of Certain Foreign Holders of REMIC Certificates --
Residual Certificates" in this prospectus.
Ownership of Residual Certificates by Disqualified Organizations. The Code
contains three sanctions that are designed to prevent or discourage the direct
or indirect ownership of a REMIC residual interest, such as a Residual
Certificate, by the United States, any state or political subdivision, any
foreign government, any international organization, any agency or
instrumentality of any of the foregoing, any tax-exempt organization -- other
than a farmers' cooperative described in Section 521 of the Code -- that is not
subject to the tax on UBTI, or any rural electrical or telephone cooperative
(each a "Disqualified Organization"). A corporation is not treated as an
instrumentality of the United States or any state or political subdivision
thereof if all of its activities are subject to tax and, with the exception of
Freddie Mac, a majority of its board of directors is not selected by such
governmental unit.
First, REMIC status is dependent upon the presence of reasonable
arrangements designed to prevent a Disqualified Organization from acquiring
record ownership of a residual interest. Residual interests in Series REMICs are
not offered for sale to Disqualified Organizations. Furthermore, (i) residual
interests in Series REMICs will be registered as to both principal and any
stated interest with the trustee (or its agent) and transfer of a residual
interest may be effected only (A) by surrender of the old residual interest
instrument and reissuance by the trustee of a new residual interest instrument
to the new holder or (B) through a book entry system maintained by the trustee,
(ii) the applicable pooling and master servicing agreement will prohibit the
ownership of residual interests by Disqualified Organizations, and (iii) each
residual interest instrument will contain a legend providing notice of that
prohibition. Consequently, each Series REMIC should be considered to have made
reasonable arrangements designed to prevent the ownership of residual interests
by Disqualified Organizations.
Second, the Code imposes a one-time tax on the transferor of a residual
interest, including a Residual Certificate or interest in a Residual
Certificate, to a Disqualified Organization. The one-time tax equals the product
of (i) the present value of the total anticipated excess inclusions with respect
to the transferred residual interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions with respect to a transferred residual interest
must be based on (i) both actual prior prepayment experience and the prepayment
assumptions used in pricing the related REMIC's interests and (ii) any required
or permitted clean up calls or required qualified liquidation provided for in
the REMIC's organizational documents. The present value of anticipated excess
inclusions is determined using a discount rate equal to the applicable federal
rate that would apply to a debt instrument that was issued on the date the
Disqualified Organization acquired the residual interest and whose term ends on
the close of the last quarter in which excess inclusions are expected to accrue
with respect to the residual interest. Where a transferee is acting as an agent
for a Disqualified Organization, the transferee is subject to the one-time tax.
For that purpose, the term "agent" includes a broker, nominee, or other
middleman. Upon the request of such
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transferee or the transferor, the REMIC must furnish to the requesting party and
to the IRS information sufficient to permit the computation of the present value
of the anticipated excess inclusions. The transferor of a residual interest will
not be liable for the one-time tax if the transferee furnishes to the transferor
an affidavit that states, under penalties of perjury, that the transferee is not
a Disqualified Organization, and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The one-time tax
must be paid by April 15th of the year following the calendar year in which the
residual interest is transferred to a Disqualified Organization. The one-time
tax may be waived by the Secretary of the Treasury if, upon discovery that a
transfer is subject to the one-time tax, the Disqualified Organization promptly
disposes of the residual interest and the transferor pays such amounts as the
Secretary may require.
Third, the Code imposes an annual tax on any pass-through entity -- i.e.,
RIC, REIT, common trust, partnership, trust, estate or cooperative described in
Code Section 1381 -- that owns a direct or indirect interest in a residual
interest, if record ownership of an interest in the pass-through entity is held
by one or more Disqualified Organizations. The tax imposed equals the highest
corporate income tax rate multiplied by the share of any excess inclusion income
of the pass-through entity for the taxable year that is allocable to the
interests in the pass-through entity held by Disqualified Organizations. The
same tax applies to a nominee who acquires an interest in a residual interest on
behalf of a Disqualified Organization. For example, a broker that holds an
interest in a Residual Certificate in "street name" for a Disqualified
Organization is subject to the tax. The tax due must be paid by the fifteenth
day of the fourth month following the close of the taxable year of the pass-
through entity in which the Disqualified Organization is a record holder. Any
such tax imposed on a pass-through entity would be deductible against that
entity's ordinary income in determining the amount of its required
distributions. In addition, dividends paid by a RIC or a REIT are not considered
preferential dividends within the meaning of Section 562(c) of the Code solely
because the RIC or REIT allocates such tax expense only to the shares held by
Disqualified Organizations. A pass-through entity will not be liable for the
annual tax if the record holder of the interest in the pass-through entity
furnishes to the pass-through entity an affidavit that states, under penalties
of perjury, that the record holder is not a Disqualified Organization, and the
pass-through entity does not have actual knowledge that such affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a pass-through entity by Section 860E(c) of the Code.
The exception to this tax, otherwise available to a pass-through entity that is
furnished certain affidavits as described above, is not available to an electing
large partnership.
The pooling and master 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 such consent to a
proposed transfer only if it receives the following: (i) an affidavit from the
proposed transferee to the effect that it is not a Disqualified Organization and
is not acquiring
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the Residual Certificate as a nominee or agent for a disqualified organization
and (ii) 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.
The Code and the REMIC Regulations also require that reasonable
arrangements be made with respect to each REMIC to enable the REMIC to provide
the Treasury and the transferor with information necessary for the application
of the one-time tax described above. Consequently, the applicable pooling and
master servicing agreement will provide for an affiliate to perform such
information services as may be required for the application of the one-time tax.
If a Residual Certificateholder transfers an interest in a Residual Certificate
in violation of the relevant transfer restrictions and triggers the information
requirement, the affiliate may charge such Residual Certificateholder a
reasonable fee for providing the information.
Special Considerations for Certain Types of Investors
Dealers in Securities. Residual Certificateholders that are dealers in
securities should be aware that under Treasury regulations (the "Mark-to-Market
Regulations") relating to the requirement under Section 475 of the Code that
dealers in securities use mark-to-market accounting for federal income tax
purposes, dealers in securities are not permitted to mark to market any Residual
Certificates acquired on or after January 4, 1995. Prospective purchasers of
Residual Certificates should consult with their tax advisors regarding the
possible application of the Mark-to-Market Regulations.
Tax-Exempt Entities. Any excess inclusion income with respect to a Residual
Certificate held by a tax-exempt entity, including a qualified profit-sharing,
pension, or other employee benefit plan, will be treated as UBTI. Although the
legislative history and statutory provisions imply otherwise, the Treasury
conceivably could take the position that, under pre-existing Code provisions,
substantially all income on a Residual Certificate, including non-excess
inclusion income, is to be treated as UBTI. See "Federal Income Tax
Consequences -- REMIC Certificates -- Taxation of Residual Certificateholders"
in this prospectus.
Individuals and Pass-Through Entities. A Residual Certificateholder who is
an individual, trust, or estate will be able to deduct its allocable share of
the fees or expenses relating to servicing the assets assigned to a trust or
administering the Series REMIC under Section 212 of the Code only to the extent
that the amount of such fees or expenses, when combined with the
certificateholder's other miscellaneous itemized deductions for the taxable
year, exceeds 2% of the holder's adjusted gross income. That same limitation
will apply to individuals, trusts, or estates that hold Residual Certificates
indirectly through a grantor trust, a partnership, an S corporation, a common
trust fund, a REMIC, or a nonpublicly offered RIC. A nonpublicly offered RIC is
a RIC other than one whose shares are (i) continuously offered pursuant to a
public offering, (ii) regularly traded on an established securities market, or
(iii) held by no fewer than 500 persons at all times during the taxable year. In
addition, that limitation will apply to individuals, trusts, or estates that
hold Residual Certificates through any other person (i) that is not generally
subject to federal income tax and (ii) the character of whose income may affect
the character of the income generated by that person for its owners or
beneficiaries. In
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addition, Code Section 68 provides that the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds the applicable amount -- $126,600, or $63,300 in the case of a
separate return by a married individual within the meaning of Code Section 7703
for taxable year 1999 and adjusted for inflation each year thereafter -- will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. In some cases, the amount of additional income
that would be recognized as a result of the foregoing limitations by a Residual
Certificateholder who is an individual, trust, or estate could be substantial.
Non-corporate holders of REMIC Residual Certificates also should be aware that
miscellaneous itemized deductions, including allocable investment expenses
attributable to the related REMIC, are not deductible for purposes of the AMT.
Finally, persons holding an interest in a Residual Certificate indirectly
through an interest in a RIC, common trust fund or one of certain corporations
doing business as a cooperative generally will recognize a share of any excess
inclusion allocable to that Residual Certificate.
Employee Benefit Plans. See "Federal Income Tax Consequences -- Residual
Certificates -- Special Considerations for Certain Types of Investors -- Tax-
exempt Entities" and "ERISA Considerations" in this prospectus.
REITs and RICs. If the Residual Certificateholder is a REIT and the related
REMIC generates excess inclusion income, a portion of REIT dividends will be
treated as excess inclusion income for the REIT's shareholders, in a manner to
be provided by regulations. Thus, shareholders in a REIT that invests in
Residual Certificates could face unfavorable treatment of a portion of their
REIT dividend income for purposes of (i) using current deductions or net
operating loss carryovers or carrybacks, (ii) UBTI in the case of tax-exempt
shareholders, and (iii) withholding tax in the case of foreign shareholders.
Moreover, because Residual Certificateholders may recognize phantom income, a
REIT contemplating an investment in Residual Certificates should consider
carefully the effect of any phantom income upon its ability to meet its income
distribution requirements under the Code. The same rules regarding excess
inclusion will apply to a Residual Certificateholder that is a RIC, common trust
fund, or one of certain corporations doing business as a cooperative. See
"Federal Income Tax Consequences -- Residual Certificates -- Special
Considerations for Certain Types of Investors -- Foreign Residual
Certificateholders" and "Federal Income Tax Consequences -- REMIC
Certificates -- Taxation of Residual Certificateholders" in this prospectus.
A Residual Certificate held by a REIT will be treated as a real estate
asset for purposes of the REIT qualification requirements in the same proportion
that the REMIC's assets would be treated as real estate assets if held directly
by the REIT, and interest income derived from such Residual Certificate will be
treated as qualifying interest income for REIT purposes ("Qualifying REIT
Interest") to the same extent. If 95% or more of a REMIC's assets qualify as
real estate assets for REIT purposes, 100% of that REMIC's regular and residual
interests will be treated as real estate assets for REIT purposes, and all of
the income derived from such interests will be treated as Qualifying REIT
Interest. The REMIC Regulations provide that payments of principal and interest
on mortgage loans that are reinvested pending distribution to the holders of the
REMIC certificates constitute real estate assets for REIT purposes. Two REMICs
that are part of
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a tiered structure will be treated as one REMIC for purposes of determining the
percentage of assets of each REMIC that constitutes real estate assets. It is
expected that at least 95% of the assets of a Series REMIC will be real estate
assets throughout the REMIC's life. The amount treated as a real estate asset in
the case of a Residual Certificate apparently is limited to the REIT's adjusted
basis in the certificate. REITs should be aware that 100% of the interest income
derived by a REIT from a residual interest in such REMIC may not be treated as
Qualifying REIT Interest if the REMIC holds mortgage loans that provide for
interest that is contingent on mortgagor profits or property appreciation.
Significant uncertainty exists with respect to the treatment of a Residual
Certificate for purposes of the various asset composition requirements
applicable to RICs. A Residual Certificate should be treated as a "security,"
but will not be considered a "government security" for purposes of Section
851(b)(4) of the Code. Moreover, it is unclear whether a Residual Certificate
will be treated as a "voting security" under that Code section. Finally, because
the REMIC will be treated as the "issuer" of the Residual Certificate for
purposes of that Section, a RIC would be unable to invest more than 25% of the
value of its total assets in Residual Certificates of the same REMIC.
Partnerships. Partners in a partnership (other than an "electing large
partnership") that acquire a Residual Certificate generally must take into
account their allocable share of any income, including excess inclusion income,
that is produced by the Residual Certificate. The partnership itself is not
subject to tax on income from the Residual Certificate other than excess
inclusion income that is allocable to partnership interests owned by
Disqualified Organizations. For the treatment of an "electing large
partnership'" see "Federal Income Tax Consequences -- REMIC Certificates -- Tax
Treatment of Residual Certificates -- Ownership of Residual Certificates by
Disqualified Organizations" in this prospectus.
Foreign Residual Certificateholders. Certain adverse tax consequences may
be associated with the holding of certain Residual Certificates by a foreign
person or with the transfer of such Certificates to or from a foreign person.
See "Federal Income Tax Consequences -- REMIC Certificates -- Taxation of
Certain Foreign Holders of REMIC Certificates -- Residual Certificates" in this
prospectus.
Thrift Institutions, banks, and certain other financial institutions.
Residual Certificates will be treated as qualifying assets for thrift
institutions in the same proportion that the assets of the REMIC would be so
treated. However, if 95% or more of the assets of a given Series REMIC are
qualifying assets for thrift institutions, 100% of that REMIC's regular and
residual interests would be treated as qualifying assets. In addition, the REMIC
Regulations provide that payments of principal and interest on mortgage assets
that are reinvested pending their distribution to the holders of the REMIC
Certificates will be treated as qualifying assets for thrift institutions.
Moreover, two REMICs that are part of a tiered structure will be treated as one
REMIC for purposes of determining the percentage of assets of each REMIC that
constitutes qualifying assets for thrift institution purposes. It is expected
that at least 95% of the assets of any Series REMIC will be qualifying assets
for thrift institutions throughout the REMIC's life.
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The amount of a Residual Certificate treated as a qualifying asset for thrift
institutions, however, cannot exceed the holder's adjusted basis in that
Residual Certificate.
Generally, gain or loss arising from the sale or exchange of Residual
Certificates held by certain financial institutions will give rise to ordinary
income or loss, regardless of the length of the holding period for the Residual
Certificates. Those financial institutions include banks, mutual savings banks,
cooperative banks, domestic building and loan institutions, savings and loan
institutions, and similar institutions. See "Federal Income Tax Consequences --
REMIC Certificates -- Disposition of Residual Certificates" in this prospectus.
Disposition of Residual Certificates
A Residual Certificateholder will recognize gain or loss on the disposition
of his Residual Certificate equal to the difference between the amount
realized -- or the fair market value of any property -- received and his
adjusted basis in the Residual Certificate. If the holder has held the Residual
Certificate for more than 12 months, such gain or loss generally will be
characterized as long-term capital gain or loss. In the case of banks, thrifts,
and certain other financial institutions, however, gain or loss on the
disposition of a Residual Certificate will be treated as ordinary gain or loss,
regardless of the length of the holding period. See "Federal Income Tax
Consequences -- REMIC Certificates -- Special Considerations for Certain Types
of Investors" in this prospectus.
A special version of the wash sale rules will apply to dispositions of
Residual Certificates. Under that version, losses on dispositions of Residual
Certificates generally will be disallowed where, within six months before or
after the disposition, the seller of such a certificate acquires any residual
interest in a REMIC or any interest in a taxable mortgage pool that is
economically comparable to a Residual Certificate. Regulations providing for
appropriate exceptions to the application of the wash sale rules have been
authorized, but have not yet been promulgated.
Liquidation of the REMIC
A REMIC may liquidate without the imposition of entity-level tax only in a
qualified liquidation. A liquidation is considered qualified if the REMIC (i)
adopts a plan of complete liquidation, (ii) sells all of its non-cash assets
within 90 days of the date on which it adopts the plan, and (iii) distributes in
liquidation all sale proceeds plus its cash (other than amounts retained to meet
claims against it) to certificateholders within the 90-day period. Under the
REMIC Regulations, a plan of liquidation need not be in any special form.
Furthermore, if a REMIC specifies the first day in the 90-day liquidation period
in a statement attached to its final tax return, the REMIC will be considered to
have adopted a plan of liquidation on that date.
Treatment by the REMIC of Original Issue Discount, Market Discount, and
Amortizable Premium
Original Issue Discount. Generally, the REMIC's deductions for original
issue discount expense on its REMIC regular certificates will be determined in
the same manner as for
<PAGE>
determining the original issue discount income of the holders of such
certificates, as described in "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" in this prospectus, without regard to
the de minimis rule described therein.
Market Discount. In general, the REMIC will have market discount income
with respect to its qualified mortgages if the basis of the REMIC in such
mortgages is less than the adjusted issue prices of such mortgages. The REMIC's
aggregate initial basis in its qualified mortgages, and any other assets
transferred to the REMIC on the startup day, equals the aggregate of the issue
prices of the regular and residual interests in the REMIC. That basis is
allocated among the REMIC's qualified mortgages based on their relative fair
market values. Any market discount that accrues on the REMIC's qualified
mortgages will be recognized currently as an item of REMIC ordinary income. The
amount of market discount income to be recognized in any period is determined in
a manner generally similar to that used in the determination of original issue
discount, as if the qualified mortgages had been issued (i) on the date they
were acquired by the REMIC and (ii) for a price equal to the REMIC's initial
basis in the qualified mortgages. The Pricing Prepayment Assumptions are used to
compute the yield to maturity of the REMIC's qualified mortgages.
Premium. Generally, if the basis of the REMIC in its qualified mortgages
exceeds the unpaid principal balances of those mortgages the REMIC will be
considered to have acquired such mortgages at a premium equal to the amount of
such excess. As stated above, the REMIC's initial basis in its qualified
mortgages equals the aggregate of the issue prices of the regular and residual
interests in the REMIC. As described under "Federal Income Tax Consequences --
REMIC Certificates - Amortizable Premium," a REMIC that holds a qualified
mortgage as a capital asset generally may elect under Code Section 171 to
amortize premium on such mortgage under a constant interest method, to the
extent such mortgages were originated, or treated as originated, after September
27, 1985. The legislative history to the 1986 Act indicates that, while the
deduction for amortization of premium will not be subject to the limitations on
miscellaneous itemized deductions of individuals, it will be treated as interest
expense for purposes of other provisions in the 1986 Act limiting the
deductibility of interest for non-corporate taxpayers. Because substantially all
of the mortgagors on the mortgage loans that comprise or underlie the qualified
mortgages are expected to be individuals, Section 171 will not be available for
the amortization of premium on such mortgage loans to the extent they were
originated on or prior to September 27, 1985. Such premium may be amortizable
under more general provisions and principles of federal income tax law in
accordance with a reasonable method regularly employed by the holder of such
mortgage loans. The allocation of such premium pro rata among principal payments
should be considered a reasonable method; however, the IRS may argue that such
premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
REMIC-Level Taxes
Income from certain transactions by the REMIC, called prohibited
transactions, will not be part of the calculation of the REMIC's income or loss
that is includable in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC at a
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100% rate. In addition, net income from one prohibited transaction may not be
offset by losses from other prohibited transactions. Prohibited transactions
generally include: (i) the disposition of qualified mortgages other than
pursuant to (a) the repurchase of a defective mortgage, (b) the substitution for
a defective mortgage within two years of the closing date, (c) a substitution
for any qualified mortgage within three months of the closing date, (d) the
foreclosure, default, or imminent default of a qualified mortgage, (e) the
bankruptcy or insolvency of the REMIC, (f) the sale of an adjustable rate
mortgage loan the interest rate on which is convertible to a fixed rate of
interest upon such conversion for an amount equal to the mortgage loan's current
principal balance plus accrued but unpaid interest (and provided that certain
other requirements are met) or (g) a qualified liquidation of the REMIC; (ii)
the receipt of income from assets that are not the type of mortgages or
investments that the REMIC is permitted to hold; (iii) the receipt of
compensation for services by the REMIC; and (iv) the receipt of gain from
disposition of cash-flow investments other than pursuant to a qualified
liquidation of the REMIC. A disposition of a qualified mortgage or cash flow
investment will not give rise to a prohibited transaction, however, if the
disposition was (i) required to prevent default on a regular interest resulting
from a default on one or more of the REMIC's qualified mortgages or (ii) made to
facilitate a clean-up call. The REMIC Regulations define a clean-up call as the
redemption of a class of regular interests when, by reason of prior payments
with respect to those interests, the administrative costs associated with
servicing the class outweigh the benefits of maintaining the class. Under those
regulations, the redemption of a class of regular interests with an outstanding
principal balance of no more than 10% of the original principal balance
qualifies as a clean-up call. The REMIC Regulations also provide that the
modification of a mortgage loan generally will not be treated as a disposition
of that loan if it is occasioned by a default or a reasonably foreseeable
default, an assumption of the mortgage loan, the waiver of a due-on-sale or
encumbrance clause, or the conversion of an interest rate by a mortgagor
pursuant to the terms of a convertible adjustable rate mortgage loan.
In addition, a REMIC generally will be taxed at a 100% rate on any
contribution to the REMIC after the closing date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the closing date, (ii) is made to facilitate a clean-up call or a qualified
liquidation, (iii) is a payment in the nature of a guarantee, (iv) constitutes a
contribution by the holder of the Residual Certificates in the REMIC to a
qualified reserve fund, or (v) is otherwise permitted by Treasury regulations
yet to be issued. The structure and operation of each Series REMIC generally
will be designed to avoid the imposition of both the 100% tax on contributions
and the 100% tax on prohibited transactions.
To the extent that a REMIC derives certain types of income from foreclosure
property -- generally, income relating to dealer activities of the REMIC, it
will be taxed on such income at the highest corporate income tax rate. It is not
anticipated that any Series REMIC will receive significant amounts of such
income, although the relevant law is unclear.
The organizational documents governing the REMIC regular certificates and
Residual Certificates will be designed to prevent the imposition of the
foregoing taxes on the related Series REMIC in any material amounts. If any of
the foregoing taxes is imposed on a Series REMIC, the trustee will seek to place
the burden thereof on the person whose action or inaction
<PAGE>
gave rise to such taxes. To the extent that the trustee is unsuccessful in doing
so, the burden of such taxes will be borne by any outstanding subordinated class
of certificates before it is borne by a more senior class of certificates.
REMIC Qualification
The trust underlying a series, or one or more designated pools of assets
held by the trust, will qualify under the Code as a REMIC in which the REMIC
regular certificates and Residual Certificates will constitute the "regular
interests" and "residual interests," respectively, if a REMIC election is in
effect and certain tests concerning (i) the composition of the REMIC's assets
and (ii) the nature of the certificateholders' interests in the REMIC are met on
a continuing basis.
Asset Composition
In order for a trust, or one or more designated pools of assets held by a
trust, to be eligible for REMIC status, substantially all of the assets of the
trust must consist of "qualified mortgages" and "permitted investments" as of
the close of the third month beginning after the closing date and at all times
thereafter (the "Asset Qualification Test"). A REMIC will be deemed to satisfy
the Asset Qualification Test if no more than a de minimis amount of its assets
(i.e., assets with an aggregate adjusted basis that is less than 1% of the
aggregate adjusted basis of all the REMIC's assets) are assets other than
qualified mortgages and permitted investments. A qualified mortgage is any
obligation that is principally secured by an interest in real property,
including a regular interest in another REMIC, that is either transferred to the
REMIC on the closing date or purchased by the REMIC pursuant to a fixed price
contract within a three-month period thereafter. Under the REMIC regulations, a
qualified mortgage includes any obligation secured by manufactured housing that
qualifies as a single family residence under Section 25(e)(10) of the Code,
which requires that the housing (i) be used as a single family residence, (ii)
have a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches, and (iii) be customarily used at a fixed location. A qualified
mortgage also includes a qualified replacement mortgage, which is any property
that would have been treated as a qualified mortgage if it were transferred to
the REMIC on the closing date and that is received either in exchange for a
defective mortgage within a two-year period beginning on the closing date or in
exchange for any qualified mortgage within a three-month period beginning on
that date. The trust assets of each Series REMIC will be treated as qualified
mortgages.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. Cash flow investments are investments of
amounts received with respect to qualified mortgages for a temporary period not
to exceed thirteen months before distribution to holders of regular or residual
interests in the REMIC. Qualified reserve assets are intangible investment
assets other than REMIC residual interests that are part of a reasonably
required reserve (a "Qualified Reserve Fund") maintained by the REMIC to provide
for full payment of expenses of the REMIC or amounts due on the regular
interests in the event of defaults or delinquencies on qualified mortgages,
lower than expected returns on cash-flow investments, interest shortfalls on
qualified mortgages caused by prepayments of those mortgages or
<PAGE>
unanticipated losses or expenses incurred by the REMIC. A Qualified Reserve Fund
will be disqualified if more than 30% of the gross income from the assets in
such fund for the year is derived from the sale of property held for less than
three months, unless such sale was required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. To the extent
that the amount in a Qualified Reserve Fund exceeds a reasonably required
amount, it must be reduced "promptly and appropriately." Foreclosure property
generally is property acquired by the REMIC in connection with the default or
imminent default of a qualified mortgage. Property so acquired by the REMIC,
however, will not be qualifying foreclosure property if the foreclosure was
anticipated at the time that the related qualified mortgage was transferred to
the REMIC. Furthermore, foreclosure property may not be held beyond the end of
the third taxable year beginning after foreclosure occurs, unless it is
established to the satisfaction of the Secretary of the Treasury that an
extension of the three-year period is necessary for the orderly liquidation of
the foreclosure property. The Secretary of the Treasury may grant one or more
extensions, but any such extension shall not extend the grace period beyond the
end of the sixth taxable year beginning after the date such foreclosure property
is acquired.
Investors' Interests
In addition to the requirements of the Asset Qualification Test, the
various interests in a REMIC also must meet certain requirements. All of the
interests in a REMIC must be issued on the closing date, or within a specified
10-day period and belong to either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions are made pro rata. For each series REMIC with respect to which
REMIC certificates are issued, the REMIC regular certificates will constitute
one or more classes of regular interests in that REMIC, and the Residual
Certificates will constitute the single class of residual interests in that
REMIC.
If the interest payable on any REMIC regular interest is disproportionately
high relative to the specified principal amount of the interest, that interest
may be treated, in whole or in part, as a second residual interest, which could
result in the disqualification of the REMIC. Under the REMIC Regulations,
interest payments, or similar amounts, are considered disproportionately high if
the issue price of the REMIC regular interest exceeds 125% of its specified
principal amount. Under the REMIC Regulations, however, interest payable at a
disproportionately high rate will not cause a REMIC regular certificate to be
recharacterized as a residual interest if interest payments on the certificate
consist of a specified portion of the interest payments on qualified mortgages
and such portion does not vary during the period that the certificate is
outstanding. None of the REMIC regular certificates, will have an issue price
that exceeds 125% of their respective specified principal amounts unless
interest payments on those certificates consist of a specified nonvarying
portion of the interest payments on one or more of the REMIC's qualified
mortgages.
A REMIC interest qualifies as a regular interest if (i) it is issued on the
startup day with fixed terms, (ii) it is designated as a regular interest, (iii)
it entitles its holder to a specified principal amount, and (iv) if it pays
interest, such interest either (a) constitutes a specified
<PAGE>
nonvarying portion of the interest payable on one or more of the REMIC's
qualified mortgages, (b) is payable at a fixed rate with respect to the
principal amount of the regular interest, or (c) to the extent permitted under
the REMIC Regulations, is payable at a variable rate with respect to such
principal amount. Pursuant to the REMIC Regulations, the following rates are
permissible variable rates for REMIC regular interests: (i) a qualified floating
rate set at a current value as described in "Federal Income Tax Consequences --
REMIC Certificates -- Variable Rate Certificates" in this prospectus, without
regard to the rules in the OID Regulations limiting the use of Caps, Floors, and
Governors with respect to such a rate, (ii) a rate equal to the highest, lowest,
or average of two or more qualified floating rates -- e.g., a rate based on the
average cost of funds of one or more financial institutions, or (iii) a rate
equal to the weighted average of the interest rates on some or all of the
qualified mortgages held by the REMIC; provided, however, that the qualified
mortgages taken into account in determining the weighted average rate bear
interest at a fixed rate or a rate that would be a permissible variable rate for
a REMIC regular interest as described in this sentence. Under the REMIC
Regulations, the presence of a ceiling or Floor on the interest payable on a
variable rate interest will not prevent such interest from qualifying as a
regular interest. In addition, a qualifying variable rate may be expressed as a
multiple of, or a constant number of basis points more or less than, one of the
permissible types of variable rates described above. Finally, a limitation on
the amount of interest to be paid on a variable rate regular interest based on
the total amount available for distribution is permissible, provided that it is
not designed to avoid the restrictions on qualifying variable rates. The REMIC
Regulations also provide that the specified principal amount of a REMIC regular
interest may be zero if the interest associated with such regular interest
constitutes a specified nonvarying portion of the interest on one or more of the
REMIC's qualified mortgages.
The Code requires that certain arrangements be made with respect to all
REMICs. Those arrangements, which are intended to prevent acquisitions of REMIC
residual interests by certain organizations that are not subject to federal
income tax, are described in "Federal Income Tax Consequences -- REMIC
Certificates -- Taxation of Residual Certificateholders -- Ownership of Residual
Interests by Disqualified Organizations" in this prospectus. Series REMICs will
be structured to provide for such arrangements.
Consequences of Disqualification
If a Series REMIC fails to comply with one or more of the Code's ongoing
requirements for REMIC status during any taxable year, the Code provides that
its REMIC status may be lost for that year and thereafter. If REMIC status is
lost, the treatment of the former REMIC and the interests therein for federal
income tax purposes is uncertain. The former REMIC might be entitled to
treatment as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code, in which case no entity-level tax would be imposed on the former REMIC.
Alternatively, the REMIC regular certificates may continue to be treated as debt
instruments for federal income tax purposes, but the arrangement could be
treated as a Taxable Mortgage Pool, as described in "Federal Income Tax
Consequences -- REMIC Certificates -- Taxable Mortgage Pools" in this
prospectus. If a Series REMIC were treated as a Taxable Mortgage Pool, any
residual income of the REMIC -- i.e., interest and discount income from the
mortgage loans less interest and original issue discount expense allocable to
the REMIC regular certificates and any
<PAGE>
administrative expenses of the REMIC -- would be subject to corporate income tax
at the Taxable Mortgage Pool level. On the other hand, the arrangement could be
treated under Treasury regulations as a separate association taxable as a
corporation and the REMIC regular certificates would be treated as stock
interests therein, rather than debt instruments. In that case, none of the
payments made with respect to the REMIC regular certificates would be deductible
by the former REMIC. In the latter two cases, the Residual Certificates also
would be treated as stock interests in such Taxable Mortgage Pool or
association, respectively. The Code authorizes the Treasury to issue regulations
that address situations where a failure to meet the requirements for REMIC
status occurs inadvertently and in good faith. Such regulations have not yet
been issued. The conference report accompanying the 1986 Act indicates that
disqualification relief 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 of
time in which the requirements for REMIC status are not satisfied.
Taxable Mortgage Pools
Corporate income tax can be imposed on the net income of certain entities
issuing non-REMIC debt obligations secured by real estate mortgages ("Taxable
Mortgage Pools"). Any entity other than a REMIC, a FASIT, or a REIT will be
considered to be a Taxable Mortgage Pool if (i) substantially all of the assets
of the entity consist of debt obligations and more than 50% of such obligations
consist of real estate mortgages, (ii) such entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the debt
obligations on which the entity is the obligor, payments on such obligations
bear a relationship to payment on the obligations held by the entity.
Furthermore, a group of assets held by an entity can be treated as a separate
Taxable Mortgage Pool if the assets are expected to produce significant cash
flow that will support one or more of the entity's issues of debt obligations.
National Mortgage generally will structure offerings of Debt securities to avoid
the application of the Taxable Mortgage Pool rules.
<PAGE>
Taxation of Certain Foreign Holders of REMIC Certificates
REMIC Regular Certificates. Interest, including original issue discount,
paid on a REMIC regular certificate to a nonresident alien individual, foreign
corporation, or other non-United States person (a "foreign person") generally
will be treated as "portfolio interest" and, therefore, will not be subject to
any United States withholding tax, provided that (i) such interest is not
effectively connected with a trade or business in the United States of the
certificateholder, (ii) the trustee or other person who would otherwise be
required to withhold tax is provided with appropriate certification that the
beneficial owner of the certificate is a foreign person ("foreign person
certification") (iii) the foreign person is not a 10% shareholder within the
meaning of Section 871(h)(3)(B) of the Code or a controlled foreign corporation
as described under Section 881(c)(3)(C) of the Code, and (iv) the foreign person
is not a bank receiving interest on a loan made in the ordinary course of
business. If the certificateholder fails to meet the conditions listed above,
interest, including original issue discount, paid on the holders, certificates
may be subject to either a 30% withholding tax or 31% backup withholding. See
"Federal Income Tax Consequences -- REMIC Certificates -- Backup Withholding" in
this prospectus.
Residual Certificates. Amounts paid to Residual Certificateholders who are
foreign persons are treated as interest for purposes of the 30%, or lower treaty
rate, United States withholding tax. Under Treasury regulations, non-excess
inclusion income received by Residual Certificateholders who are foreign persons
generally qualifies as "portfolio interest" exempt from the 30% withholding tax
only to the extent that (i) the assets of the Series REMIC are mortgage
certificates that are issued in registered form, (ii) the mortgage assets
underlying the mortgage certificates were originated after July 18, 1984 and
(iii) the certificateholder meets the requirements listed under "Federal Income
Tax Consequences -- REMIC Certificates --Taxation of Certain Foreign Holders of
REMIC Certificates -- REMIC Regular Certificates" in this prospectus. Because
mortgage loans are not issued in registered form, amounts received by Residual
Certificateholders who are foreign persons will not be exempt from the 30%
withholding tax to the extent such amounts relate to mortgage loans held
directly, rather than indirectly through mortgage certificates, by the related
REMIC. If the portfolio interest exemption is unavailable, such amounts
generally 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 on debt instruments that have original
issue discount. However, the Code grants the Treasury authority to issue
regulations requiring that those amounts be taken into account earlier than
otherwise provided where necessary to prevent avoidance of tax -- i.e., where
the Residual Certificates, as a class, do not have significant value. Further, a
Residual Certificateholder will not be entitled to any exemption from the 30%
withholding tax or a reduced treaty rate on excess inclusion income.
Under the REMIC Regulations, a transfer of a Residual Certificate that has
"tax avoidance potential" will be disregarded for federal income tax purposes if
the transferee is a foreign person. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that, for each accrual of excess inclusion, the REMIC will
distribute to the transferee an amount that will equal at least 30% of the
excess inclusion, and that each such amount will be distributed no later than
the close of the calendar
<PAGE>
year following the calendar year of accrual (the "30% Test"). A transferor of a
Residual Certificate to a foreign person will be presumed to have had a
reasonable expectation that the Residual Certificate satisfies the 30% Test if
that test would be satisfied for all mortgage asset prepayment rates between 50%
and 200% of the Pricing Prepayment Assumption. See "Federal Income Tax
Consequences -- REMIC Certificates -- Original Issue Discount," in this
prospectus. If a foreign person transfers a Residual Certificate to a United
States person and the transfer, if respected, would permit avoidance of
withholding tax on accrued excess inclusion income, the transfer will be
disregarded for federal income tax purposes and distributions with respect to
the Residual Certificate will continue to be subject to 30% withholding as
though the foreign person still owned the Residual Certificate. Investors who
are foreign persons should consult their own tax advisors regarding the specific
tax consequences to them of owning and disposing of a Residual Certificate.
Effective for payments made after December 31, 2000, any foreign investor that
invokes the protection of an income tax treaty with respect to United States
withholding tax generally will be required to obtain a taxpayer identification
number from the IRS in advance and provide verification that such investor is
entitled to the protection of the relevant income tax treaty. Foreign tax-exempt
investors generally will be required to provide verification of their tax-exempt
status. Foreign investors are urged to consult with their tax advisors with
respect to these new withholding rules.
Backup Withholding
Under federal income tax law, a certificateholder may be subject to "backup
withholding" under certain circumstances. Backup withholding may apply to a
certificateholder who is a United States person if the certificateholder, among
other things, (i) fails to furnish his social certificate number or other
taxpayer identification number ("TIN") to the trustee, (ii) furnishes the
trustee an incorrect TIN, (iii) fails to report properly interest and dividends,
or (iv) under certain circumstances, fails to provide the trustee or the
certificateholder's certificates broker with a certified statement, signed under
penalties of perjury, that the TIN provided to the trustee is correct and that
the certificateholder is not subject to backup withholding. Backup withholding
may apply, under certain circumstances, to a certificateholder who is a foreign
person if the certificateholder fails to provide the trustee or the
certificateholder's certificates broker with a foreign person certification.
Backup withholding applies to "reportable payments," which include interest
payments and principal payments to the extent of accrued original issue
discount, as well as distributions of proceeds from the sale of REMIC regular
certificates or REMIC Residual Certificates. The backup withholding rate is 31%.
Backup withholding, however, does not apply to payments on a certificate made to
certain exempt recipients, such as tax-exempt organizations, and to certain
foreign persons. You should consult your tax advisors for additional information
concerning the potential application of backup withholding to payments received
by you with respect to a certificate.
Reporting and Tax Administration
REMIC Regular Certificates. Reports will be made at least annually to
holders of record of REMIC regular certificates, other than those with respect
to whom reporting is not required, and to the IRS as may be required by statute,
regulation, or administrative ruling with respect to
<PAGE>
(i) interest paid or accrued on the certificates, (ii) original issue discount,
if any, accrued on the certificates, and (iii) information necessary to compute
the accrual of any market discount or the amortization of any premium on the
certificates.
Residual Certificates. For purposes of federal income tax reporting and
administration, a Series REMIC generally will be treated as a partnership, and
the related Residual Certificateholders as its partners. A Series REMIC will
file an annual return on Form 1066 and will be responsible for providing
information to Residual Certificateholders sufficient to enable them to report
properly their shares of the REMIC's taxable income or loss, although it is
anticipated that such information actually will be supplied by the trustee or
the master servicer. The REMIC Regulations require reports to be made by a REMIC
to its Residual Certificateholders each calendar quarter in order to permit such
certificateholders to compute their taxable income accurately. A person that
holds a Residual Certificate as a nominee for another person is required to
furnish those quarterly reports to the person for whom it is a nominee within 30
days of receiving such reports. A REMIC is required to file all such quarterly
reports for a taxable year with the IRS as an attachment to the REMIC's income
tax return for that year. As required by the Code, a Series REMIC's taxable year
will be the calendar year.
Residual Certificateholders should be aware that their responsibilities as
holders of the residual interest in a REMIC, including the duty to account for
their shares of the REMIC's income or loss on their returns, continue for the
life of the REMIC, even after the principal and interest on their Residual
Certificates have been paid in full.
A Residual Certificateholder will be designated as the REMIC's tax matters
person ("TMP"). The TMP generally has responsibility for overseeing and
providing notice to the other Residual Certificateholders of certain
administrative and judicial proceedings regarding the REMIC's tax affairs,
although other holders of the Residual Certificates of the same series would be
able to participate in such proceedings in appropriate circumstances. National
Mortgage, the master servicer or an affiliate of either will acquire a portion
of the residual interest in each Series REMIC in order to permit it to be
designated as TMP for the REMIC or will obtain from the Residual
Certificateholders an irrevocable appointment to perform the functions of the
REMIC's TMP and will prepare and file the REMIC's federal and state income tax
and information returns.
Treasury regulations provide that a holder of a Residual Certificate is not
required to treat items on its return consistently with their treatment on the
REMIC's return if a holder owns 100% of the Residual Certificates for the entire
calendar year. Otherwise, each holder of a Residual Certificate is required to
treat items on its returns consistently with their treatment on the REMIC's
return, unless the holder of a Residual Certificate either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC. The IRS may assess a
deficiency resulting from a failure to comply with the consistency requirement
without instituting an administrative proceeding at the REMIC level. A Series
REMIC typically will not register as a tax shelter pursuant to Code Section 6111
because it generally will not 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
<PAGE>
be required to furnish the REMIC, in a manner to be provided in Treasury
regulations, with the name and address of such person and other specified
information.
New Withholding Regulations
The Treasury Department has issued new regulations which make certain
modifications to the withholding, backup withholding, and information reporting
rules described above. The new withholding regulations attempt to unify
certification requirements and modify reliance standards. The new withholding
regulations generally will be effective for payments made after December 31,
2000, subject to certain transition rules. You are urged to consult your tax
advisors regarding the new withholding regulations.
FASIT Securities
Treatment of the Trust for Federal Income Tax Purposes
Many aspects of the federal income tax treatment of the securities will
depend upon whether an election is made to treat your trust, or one or more
segregated pools of trust assets, as a FASIT. The accompanying prospectus
supplement will indicate whether a FASIT election or elections will be made with
respect to your trust. For each series in which one or more FASIT elections are
to be made, Hunton & Williams, counsel to National Mortgage, will deliver a
separate opinion generally to the effect that, assuming timely filing of a FASIT
election or elections and compliance with the documents specified in the
opinion, the trust -- or one or more segregated pools of trust assets -- will
qualify as one or more FASITs.
The FASIT provisions of the Code became effective on September 1, 1997.
However, no Treasury regulations or other administrative guidance have been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
securityholders. Investors should also note that the FASIT discussion contained
herein constitutes only a summary of the United States federal income tax
consequences to holders of FASIT securities. With respect to each series of
FASIT regular interests, the related prospectus supplement will provide a
detailed discussion regarding the federal income tax consequences associated
with the particular transaction.
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or FASIT
ownership interests, which generally are not treated as debt for such purposes,
but rather as representing rights and responsibilities with respect to the
taxable income or loss of the related FASIT. The prospectus supplement for each
series of securities will indicate which securities of such series will be
designated as regular interests, and which, if any, will be designated as the
ownership interest.
Characterization of Investments in FASIT Securities
The securities will not constitute "government securities" within the
meaning of Code Section 856(c)(5)(A), and the securities held by a RIC will not
constitute "government securities" within the meaning of Code Section
851(b)(4)(A)(i). The prospectus supplement will provide further information
regarding the tax status of the securities for other purposes, which will depend
on the particular assets held by the FASIT.
FASIT Qualification
A trust fund will qualify as a FASIT if (i) a FASIT election is in effect,
(ii) certain tests concerning the composition of the FASITs assets (the "asset
test") and the nature of
<PAGE>
the investors' interests in the FASIT (the "interests test") are met on a
continuing basis, and (iii) the trust fund is not a RIC as described in Section
851(a) of the Code.
The Interest Test. All interests in a FASIT must be designated as either
regular interests or as the ownership interest. A FASIT can have only one
ownership interest and it must be held directly at all times by an "eligible
corporation" (i.e., a domestic "C" corporation that is subject to tax and that
----
is not a RIC, a REIT, a REMIC, or a subchapter T cooperative).
A FASIT regular interest generally qualifies as a regular interest if (i)
it is designated as a regular interest, (ii) it has a stated maturity of no
greater than 30 years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its stated
principal amount, (v) the yield to maturity of the interest is less than the
applicable federal rate published by the IRS for the month of issue plus 5%, and
(vi) if it pays interest, such interest is payable at either (a) a fixed rate
with respect to the principal amount of the regular interest or (b) a
permissible variable rate with respect to such principal amount. Permissible
variable rates for a FASIT regular interest are the same as those for REMIC
regular interests (certain qualified floating rates and weighted average rates).
See "Federal Income Tax Consequences -- REMIC Certificates --REMIC
Qualification --Investors' Interests" in this prospectus.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "high-yield interest." In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi) above, but
the interest payable on the interest consists of a specified portion of the
interest payments on permitted assets and that portion does not vary over the
life of the security, the interest will also qualify as high-yield interest. A
high-yield interest may only be held by domestic C corporations that are fully
subject to corporate income tax, other FASITs, and dealers in securities who
acquire such interests as inventory, rather than for investment. In addition,
holders of high-yield interests are subject to limitations on offsetting income
derived from such interest. See "FASIT Security Holders -- Tax Treatment of
FASIT Securityholders -- Taxation of Holders of High-Yield Interests" in this
prospectus.
One class of securities will be designated as the sole ownership interest
in the FASIT. The ownership class may not be owned by any entity other than an
eligible corporation. The ownership interest need not have any particular
economic characteristics.
The Asset Test. If the trust is to qualify as a FASIT, then as of the
close of the third month following the date of its formation, and at all times
thereafter, substantially all of its assets must be "permitted assets."
"Permitted assets" include (i) cash and cash equivalents, (ii) any debt
instrument that provides for interest at a rate that would be a qualifying rate
for a REMIC regular interest, (iii) foreclosure property, (iv) certain hedging
instruments (i.e., swap contracts, futures contracts, and guarantee
----
arrangements)
<PAGE>
intended to hedge against the risks associated with being the obligor on FASIT
regular interests, (v) contract rights to acquire debt instruments described in
(ii) above or hedges described in (iv) above, and (vi) any regular interest in a
REMIC or in another FASIT. The term "permitted asset" does not, however, include
any debt instrument issued by the holder of the ownership interest or any person
related to such holder.
Consequences of Disqualification
If a trust or segregated pool of trust assets fails to comply with one or
more ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the federal income tax treatment of the former FASIT and
the related securities is uncertain. Although the Code authorizes the Treasury
to issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Securityholders
FASIT regular securities generally will be subject to the same rules of
taxation as REMIC regular certificates, including the requirement that holders
of FASIT regular securities report income from their securities under the
accrual method of accounting, even if they otherwise would have used the cash
receipts and disbursement method. See "Federal Income Tax Consequence -- REMIC
Certificates -- Original Issue Discount," "--Market Discount" and "--
Amortizable Premium" in this Prospectus. The sale or other disposition of a
FASIT regular security generally will be subject to the same rules as a REMIC
regular certificate. See "Federal Income Tax Consequence -- REMIC Certificates
- --Gain or Loss on Disposition" in this Prospectus.
Taxation of Holders of High-yield Interests. High-yield interests are
subject to special rules regarding the eligibility of holders of such interests,
and the ability of such holders to offset income derived from those interests
with losses. High-yield interests only may be held by eligible corporations,
other FASITs, and dealers in securities which acquire such interests as
inventory. If a securities dealer (other than an eligible corporation)
initially acquires a high-yield interest as inventory, but later begins to hold
it for investment, the dealer will be subject to an excise tax equal to the
income from the high-yield interest multiplied by the highest corporate tax
rate. In addition, transfers of high-yield interests to disqualified holders
will be disregarded for federal income tax purposes, and the transferor will
continue to be treated as the holder of the high-yield interest.
The holder of a high-yield interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the high-yield interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes
<PAGE>
corporate income tax on income derived from a FASIT regular interest that is
held by a pass-through entity (other than another FASIT) that issues debt or
equity securities backed by the FASIT regular interest and that have the same
features as high-yield interests.
Taxation of Holders of FASIT Ownership Interests. A FASIT ownership
interest represents the residual equity interest in a FASIT. As such, the
holder of a FASIT ownership interest determines its taxable income by taking
into account all assets, liabilities, and items of income, gain, deduction, loss
and credit of the related FASIT. In general the character of the income to the
holder of a FASIT ownership interest will be the same as the character of such
income to the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT ownership interest is treated as ordinary
income. In determining that taxable income, the holder of a FASIT ownership
interest must use a constant yield methodology and an accrual method of
accounting and generally will be subject to the same rules of taxation for
original issue discount, market discount, and amortizable premium as a REMIC
would. See "Federal Income Tax Consequence -- REMIC Certificates -- Treatment
by the REMIC of Original Issue Discount, Market Discount, and Amortizable
Premium" in this Prospectus. In addition, a holder of a FASIT ownership interest
is subject to the same limitations on its ability to use non-FASIT losses to
offset income from the FASIT ownership interest as are holders of high-yield
interests.
Rules similar to the wash sale rules applicable to REMIC residual interests
will also apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership interest generally will be disallowed where
within six months before or after the disposition, the seller of such interest
acquires any other FASIT ownership interest that is economically comparable to
the disposed FASIT ownership interest. In addition, if any security that is
sold or contributed to a FASIT by the holders of the related FASIT ownership
interest was required to be marked to market under section 475 of the Code by
such holder, then section 475 of the Code generally will continue to apply to
such security.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions."
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any series of securities for which a FASIT election is made
generally will be structured to avoid application of the prohibited transaction
tax.
Tax Consequences to Foreign Securityholders
Interest or original issue discount paid to or accrued by a FASIT regular
interest holder who is a foreign person generally will be considered "portfolio
interest" and will not be subject to United States federal income or withholding
tax if the holder meets the same requirements that are applicable to foreign
holders of REMIC regular interests. See
<PAGE>
"Federal Income Tax Consequence -- REMIC Certificates -- Taxation of Certain
Foreign Holders of REMIC Certificates --REMIC Regular Certificates" in this
Prospectus.
The 30% withholding tax will apply, however, in certain situations where
"contingent interest" is paid or the IRS determines that withholding is required
in order to prevent tax evasion by United States persons. If the 30% withholding
tax is applicable, interest payments made to FASIT regular interest holders who
are foreign persons will be subject to withholding. In addition, a tax equal to
30% of the original issue discount accrued with respect to a security since the
last payment of interest thereon will be withheld from each interest payment
made to a foreign person. The Code provides, for purposes of determining the
amount of original issue discount subject to the withholding tax on foreign
persons, that original issue discount shall accrue at a constant interest rate
pursuant to the rules applicable to United States persons. Securityholders to
whom withholding with respect to foreign persons applies will also be subject to
a 30% tax on the portion of any accrued original issue discount that has not
previously been subject to withholding upon the payment by the issuer of
principal on a security or upon the sale or exchange of a security.
The 30% withholding tax imposed on a foreign person may be subject to
reduction or elimination under applicable tax treaties and does not apply if the
interest, original issue discount or gain treated as ordinary income, as the
case may be, is effectively connected with the conduct by such foreign person of
a trade or business within the United States.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of FASIT securities by a foreign person will be exempt from
United States income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual, the
individual is not present in the United States for 183 days or more in the
taxable year.
Backup Withholding
A holder of a FASIT regular interest will be subject to the same backup
withholding rules as holders of REMIC regular certificates. See ""Federal
Income Tax Consequence -- REMIC Certificates -- Taxation of Certain Foreign
Holders of REMIC Certificates" -- "Backup Withholding" in this supplement.
The New Withholding Regulations
The Treasury Department has enacted new withholding regulations that
generally will be effective after December 31, 2000. See "Federal Income Tax
Consequences -- REMIC Certificates -- New Withholding Regulations" in this
prospectus. Please consult your tax advisor concerning these new regulations.
Tax Information Reporting
The securities will represent collateralized debt obligations for purposes
of the information reporting requirements set out in the Treasury regulations.
As required by those regulations, the trustee will provide to securityholders
information concerning the interest paid and original issue discount accrued on
the securities as specified in the prospectus supplement.
<PAGE>
The securities will represent collateralized debt obligations for purposes of
the information reporting requirements set out in the Treasury regulations. As
required by those regulations, the trustee will provide to securityholders
information concerning the interest paid and original issue discount accrued on
the securities as specified in the prospectus supplement.
Grantor Trust Funds
Treatment of the Trust for Federal Income Tax Purposes
With respect to each series of Grantor Trust Securities, assuming
compliance with all applicable provisions of the Code, the related Grantor Trust
Fund (the "Grantor Trust") will be classified as a grantor trust under Subpart
E, Part I of subchapter J of the Code and not as an association taxable as a
corporation. For federal income tax purposes, the owner of a Grantor Trust
Security will be treated as the beneficial owner of an appropriate portion of
the principal and interest payments, according to the characteristics of the
security in question, to be received on the trust assets assigned to your trust
for federal income tax purposes.
Tax Treatment of the Grantor Trust Security
The types of Grantor Trust Securities offered in a series may include:
. Grantor Trust Securities evidencing ownership interests only in the
interest payments on the trust assets, net of certain fees, ("IO
Securities"),
. Grantor Trust Securities evidencing ownership interests in the
principal, but not the interest, payments on the trust assets ("PO
Securities"),
. Grantor Trust Securities evidencing ownership interests in differing
percentages of both the interest payments and the principal payments on
the trust assets ("Ratio Securities"), and
. Grantor Trust Securities evidencing ownership in equal percentages of
the principal and interest payments on the trust assets ("Pass-Through
Securities").
The federal income tax treatment of Grantor Trust Securities other than Pass-
Through Securities ("Strip Securities") will be determined in part by Section
1286 of the Code. Little administrative guidance has been issued under that
Section and, thus, many aspects of its operation are unclear, particularly the
interaction between that Section and the rules pertaining to discount and
premium. Hence, significant uncertainty exists with respect to the federal
income tax treatment of the Strip Securities, and potential investors should
consult their own tax advisors concerning such treatment.
Several Code Sections provide beneficial treatment to certain taxpayers
that invest in certain types of mortgage assets. For purposes of those Code
Sections, Pass-Through Securities
<PAGE>
will be characterized with reference to the trust assets, but it is not clear
whether the Strip Securities will be so characterized. The IRS could take the
position that the character of the trust assets is not attributable to the Strip
Securities for purposes of those Sections. However, because the Strip Securities
represent sole ownership rights in the principal and interest payments on the
trust assets, the Strip Securities, like the Pass-Through Securities, should be
considered to represent "real estate assets" within the meaning of Section
856(c)(4)(A) of the Code, and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code, and interest income
attributable to the securities should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, to the extent that the trust assets would qualify for
such treatment.
One or more classes of Grantor Trust Securities may be subordinated to one
or more other classes of Grantor Trust Securities of the same series. In
general, such subordination should not affect the federal income tax treatment
of either the subordinated or senior Grantor Trust Securities. However, holders
of the subordinated Grantor Trust Securities will be allocated losses that
otherwise would have been borne by the holders of the more senior Grantor Trust
Securities. Holders of the subordinated Grantor Trust Securities should be able
to recognize any such losses no later than the taxable year in which they become
Realized Losses. Employee benefit plans subject to ERISA should consult their
own tax advisors before purchasing any subordinated Grantor Trust Security. See
"ERISA Considerations" in this prospectus and in the accompanying prospectus
supplement.
Treatment of Pass-Through Securities
The holder of a Pass-Through Security ("Pass-Through Securityholder")
generally will be treated as owning a pro rata undivided interest in each of the
trust assets. Accordingly, each Pass-Through Securityholder will be required to
include in income its pro rata share of the entire income from the trust assets,
including interest and discount income, if any. Such securityholder generally
will be able to deduct from its income its pro rata share of the administrative
fees and expenses incurred with respect to the trust assets, provided that these
fees and expenses represent reasonable compensation for the services rendered.
An individual, trust, or estate that holds a Pass-Through Security directly or
through a pass-through entity will be entitled to deduct such fees and expenses
under Section 212 of the Code only to the extent that the amount of the fees and
expenses, when combined with its other miscellaneous itemized deductions for the
taxable year in question, exceeds 2% of its adjusted gross income. In addition,
Code Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount -- $126,600, or $63,300 in the case of a separate
return by a married individual within the meaning of Code Section 7703, for
taxable year 1999 and adjusted for inflation each year thereafter -- will be
reduced by the lesser of
. the excess of adjusted gross income over the applicable amount, or
. 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
<PAGE>
Non-corporate holders of Pass-Through Securities also should be aware that
miscellaneous itemized deductions are not deductible for purposes of the AMT.
Each Pass-Through Securityholder generally will determine its net income or loss
with respect to the Grantor Trust in accordance with its own method of
accounting, although income arising from original issue discount must be taken
into account under the accrual method even though the securityholder otherwise
would use the cash receipts and disbursements method.
The Code provisions concerning original issue discount, market discount,
and amortizable premium will apply to the trust assets. The rules regarding
discount and premium that are applicable to Grantor Trust Securities generally
are the same as those that apply to REMIC regular certificates. See "Federal
Income Tax Consequences -- REMIC Certificates -- Original Issue Discount,"
" -- Variable Rate Certificates," " -- Market Discount" and " -- Amortizable
Premium" in this prospectus.
For instruments to which it applies, Code Section 1272(a)(6) requires the
use of an income tax accounting methodology that utilizes
. a single constant yield to maturity, and
. the Pricing Prepayment Assumptions.
As in the case of REMIC regular certificates, Code Section 1272(a)(6) applies to
Grantor Trust Securities, but no regulations have been issued describing the
application of that Section to such securities. Nonetheless, unless and until
administrative guidance to the contrary is released, the Tax Administrator
intends to account for a class of Grantor Trust Securities in the same manner as
it would account for a class of REMIC regular certificates with the same terms.
There can be no assurance, however, that the IRS ultimately will sanction the
Tax Administrator's position.
It is anticipated that most or all of the trust assets securing your series
will be subject to the original issue discount, market discount, and amortizable
premium rules. Although most mortgage loans nominally are issued at their
original principal amounts, original issue discount could arise from the payment
of points or certain other origination charges by the obligor if the discount
attributable to such payments exceeds the de minimis amount. If the Grantor
Trust contains trust assets purchased for a price below their outstanding
principal amount, Pass-Through securityholders generally will be required to
take into account original issue discount not previously accrued to the prior
holder of such trust assets. Moreover, if trust assets were purchased for less
than their adjusted issue prices, Pass-Through Securityholders generally will be
required to take into account market discount, unless the amount of such market
discount is de minimis under the market discount rules. Finally, Pass-Through
Securityholders generally may elect to amortize any premium paid for trust
assets over their adjusted issue prices. See "Federal Income Tax Consequences--
REMIC Certificates -- Original Issue Discount," "-- Market Discount" and "--
Amortizable Premium" in this prospectus.
<PAGE>
Treatment of Strip Securities
Many aspects of the federal income tax treatment of the Strip Securities
are uncertain. The discussion below describes the treatment that Hunton &
Williams believes is appropriate, but there can be no assurance that the IRS
will not take a contrary position. You should consult your tax advisor with
respect to the federal income tax treatment of the Strip Securities.
Under Section 1286 of the Code, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments on such obligation
results in the creation of "stripped coupons" with respect to the separated
rights to interest payments and "stripped bonds" with respect to the principal
and any unseparated interest payments associated with that principal. The
issuance of IO Securities or PO Securities effects a separation of the ownership
of the interest and principal payments on some or all of the trust assets. In
addition, the issuance of Ratio Securities effectively separates and reallocates
the proportionate ownership of the interest and principal payments on the trust
assets. Therefore, Strip Securities will be subject to Section 1286. For federal
income tax accounting purposes, Section 1286 of the Code treats a stripped bond
or a stripped coupon as a new debt instrument issued on the date that the
stripped interest is purchased, and at a price equal to its purchase price or,
if more than one stripped interest is purchased, the share of the purchase price
allocable to such stripped interest.
Each stripped bond or coupon generally will have original issue discount equal
to the excess of its stated redemption price at maturity -- or, in the case of a
stripped coupon, the amount payable on the due date of such coupon -- over its
issue price. Treasury regulations under Section 1286 of the Code (the "Stripping
Regulations"), however, provide that the original issue discount on a stripped
bond or stripped coupon is zero if the amount of the original issue discount
would be de minimis under rules generally applicable to debt instruments. For
purposes of determining whether such amount would be de minimis,
. the number of complete years to maturity is measured from the date the
stripped bond or stripped coupon is purchased,
. an aggregation approach similar to the Aggregation Rule may be applied,
and
. unstripped coupons may be treated as stated interest with respect to the
related bonds and, therefore, may be excluded from stated redemption
price at maturity in appropriate circumstances.
In addition, the Stripping Regulations provide that, in certain circumstances,
the excess of a stripped bond's stated redemption price at maturity over its
issue price is treated as market discount, rather than as original issue
discount. See "Federal Income Tax Consequences -- Grantor Trust Funds --
Determination of Income With Respect to Strip Securities" in this prospectus.
The application of Section 1286 of the Code to the Strip Securities is not
entirely clear under current law. That Section could be interpreted as causing
any or all of the following:
<PAGE>
. in the case of an IO Security, each interest payment due on the trust
assets to be treated as a separate debt instrument,
. in the case of a Ratio Security entitled to a disproportionately high
share of principal, each excess principal amount -- i.e., the portion of
each principal payment on such assets that exceeds the amount to which
the Ratio Securityholder would have been entitled if he had held an
undivided interest in the trust assets -- to be treated as a separate
debt instrument, and
. in the case of a Ratio Security entitled to a disproportionately high
share of interest, each excess interest amount to be treated as a
separate debt instrument.
In addition, Section 1286 of the Code requires the purchase price of a Strip
Security to be allocated among each of the rights to payment on the trust assets
to which the securityholder is entitled that are treated as separate debt
instruments. Despite the foregoing, it may be appropriate to treat stripped
coupons and stripped bonds issued to the same holder in connection with the same
transaction as a single debt instrument, depending on the facts and
circumstances surrounding the issuance. Facts and circumstances considered
relevant for this purpose should include the likelihood of the debt instruments
trading as a unit and the difficulty of allocating the purchase price of the
unit among the individual payments. Strip Securities are designed to trade as
whole investment units and, to the extent that the underwriter develops a
secondary market for the Strip Securities, it anticipates that the Strip
Securities would trade in such market as whole units. In addition, because no
market exists for individual payments on trust assets, the proper allocation of
the security's purchase price to each separate payment on the trust assets would
be difficult and burdensome to determine. Based on those facts and
circumstances, it appears that all payments of principal and interest to which
the holder of a Strip Security is entitled should be treated as a single
installment obligation. Although the OID Regulations do not refer directly to
debt instruments that are governed by Section 1286 of the Code, the application
of the OID Regulations to such instruments is consistent with the overall
statutory and regulatory scheme. Therefore, the Tax Administrator intends to
treat each Strip Security as a single debt instrument for federal income tax
accounting purposes.
Determination of Income with Respect to Strip Securities
For purposes of determining the amount of income on a Strip Security that
accrues in any period, the rules described in this prospectus under "Federal
Income Tax Consequences -- REMIC Certificates -- Original Issue Discount,"
" -- Variable Rate Certificates," " -- Interest Weighted Certificates and Non-
VRDI Securities," " -- Anti-Abuse Rule," " -- Market Discount" and " --
Amortizable Premium" in this prospectus will apply. PO Securities, and certain
classes of Ratio Securities, will be issued at a price that is less than their
stated principal amount and thus generally will be issued with original issue
discount. A Strip Security that would meet the definition of an Interest
Weighted Certificate or a Weighted Average Certificate if it were a REMIC
regular certificate is subject to the same tax accounting considerations
applicable to the REMIC regular certificate to which it corresponds. As
described in "Federal Income Tax Consequences -- REMIC Certificates -- Interest
Weighted Certificates and Non-VRDI Certificates" in this
<PAGE>
prospectus, certain aspects of the tax accounting treatment of such a Strip
Security are unclear. Unless and until the IRS provides administrative guidance
to the contrary, the Tax Administrator will account for such a Strip Security in
the manner described for the corresponding REMIC regular certificate. See
"Federal Income Tax Consequences -- REMIC Certificates -- Interest Weighted
Certificates and Non-VRDI Certificates" in this prospectus.
If a PO Security or a Ratio Security that is not considered a Contingent
Payment Obligation (an "Ordinary Ratio Security") subsequently is sold, the
purchaser apparently would be required to treat the difference between the
purchase price and the stated redemption price at maturity as original issue
discount. The holders of such securities generally will be required to include
such original issue discount in income as described in "Federal Income Tax
Consequences -- REMIC Certificates -- Original Issue Discount" in this
prospectus. PO Securities and Ordinary Ratio Securities issued at a price less
than their stated principal amount will be treated as issued with market
discount rather than with original issue discount if, after the most recent
disposition of the related Grantor Trust Security, either (i) the amount of
original issue discount on the Grantor Trust Security is considered to be de
minimis under the Stripping Regulations or (ii) the annual stated rate of
interest payable on the Grantor Trust Security is no more than 1% lower than the
annual stated rate of interest payable on the trust assets from which the
Grantor Trust Security was stripped. The holders of such Grantor Trust
Securities generally would be required to include market discount in income in
the manner described in "Federal Income Tax Consequences -- REMIC Certificates
- -- Market Discount" in this prospectus. Some classes of Ordinary Ratio
Securities may be issued at prices that exceed their stated principal amounts.
Subject to the discussion of Superpremium Securities in "Federal Income Tax
Consequences --REMIC Certificates -- Original Issue Discount," holders of
Ordinary Ratio Securities generally will be able to amortize that premium as
described in "Federal Income Tax Consequences -- REMIC Securities -- Amortizable
Premium" in this prospectus.
Purchase of Complementary Classes of Strip Securities
Strip Securities of certain classes of the same series ("Complementary
Securities"), when held in combination, may provide an aggregate economic effect
equivalent to that of a Pass-Through Security based upon the same trust assets.
When an investor purchases Complementary Securities, it appears that, for
federal income tax purposes, each security should be treated separately and
should be subject to the rules described above. The IRS could assert, however,
that Complementary Securities held in combination should be treated as a single
pass-through type instrument, with the result that the rules governing stripped
bonds and stripped coupons under Section 1286 of the Code would not be applied.
Consequently, investors who acquire Complementary Securities should consult
their own tax advisors as to the proper treatment of such securities.
Possible Alternative Characterizations
The IRS could assert that the Strip Securities should be characterized for
tax purposes in a manner different from that described above. For example, the
IRS could contend that each Ratio Security whose interest rate is higher than
the net interest rate distributed from the trust
<PAGE>
taking into account all of the securities of that series (the "Net Series Rate")
is to be treated as being composed of two securities: (i) a Pass-Through
Security of the same principal amount as the Ratio Security but generating
interest at the Net Series Rate; and (ii) an IO Security representing the excess
of the rate on the Ratio Security over the Net Series Rate. Similarly, a Ratio
Security whose interest rate is lower than the Net Series Rate could be treated
as composed of a Pass-Through Security with an interest rate equal to the Net
Series Rate and a PO Security. Alternatively, the IRS could interpret Section
1286 of the Code to require that each individual interest payment with respect
to an IO Security or a Ratio Security be treated as a separate debt instrument
for original issue discount purposes. The IRS also might challenge the manner in
which original issue discount is calculated, contending that
. the stated maturity should be used to calculate yield on the Grantor
Trust Securities,
. the Contingent Payment Regulations should not apply to the IO
Securities, or
. the Contingent Payment Regulations should apply to the Ordinary Ratio
Securities.
Given the variety of alternative treatments of the Grantor Trust Securities and
the different federal income tax consequences that could result from each
alternative, your are urged to consult your tax advisor regarding the proper
treatment of the Grantor Trust Securities for federal income tax purposes.
Limitations on Deductions With Respect to Strip Securities
The holder of a Strip Security will be treated as owning an interest in
each of the trust assets and will recognize an appropriate share of the income
and expenses associated with those trust assets. Accordingly, an individual,
trust, or estate that holds a Strip Security directly or through a pass-through
entity will be subject to the same limitations on deductions with respect to
such security as are applicable to holders of Pass-Through Securities. See
"Federal Income Tax Consequences -- Grantor Trust Funds -- Treatment of Pass-
Through Securities" in this prospectus.
Sale of a Grantor Trust Security
A sale of a Grantor Trust Security prior to its maturity will result in
gain or loss equal to the difference, if any, between the amount received and
the holder's adjusted basis in such security. The rules for computing the
adjusted basis of a Grantor Trust Security are the same as in the case of a
REMIC regular certificate. See "Federal Income Tax Consequences -- REMIC
Certificates -- Gain or Loss on Disposition" in this prospectus. Gain or loss
from the sale or other disposition of a Grantor Trust Security generally will be
capital gain or loss to a securityholder if the security is held as a "capital
asset" within the meaning of Section 1221 of the Code, and will be long-term or
short-term depending on whether the security has been held for more than one
year. Ordinary income treatment, however, will apply to the extent mandated by
the original issue discount and market discount rules or if the Securityholder
is a financial institution described in Section 582 of the Code. See "Federal
Income Tax Consequences -- REMIC Certificates -- Gain or Loss on Disposition" in
this prospectus.
<PAGE>
Taxation of Certain Foreign Holders of Grantor Trust Securities
Interest, including original issue discount, paid on a Grantor Trust
Security to a foreign person generally is treated as "portfolio interest" and,
therefore, is not subject to any United States tax, provided that
. such interest is not effectively connected with a trade or business in
the United States of the securityholder,
. the trustee or other person who would otherwise be required to withhold
tax is provided with foreign person certification,
. the foreign person is not a 10% shareholder within the meaning of Code
Section 871(h)(3)(B) or a controlled foreign corporation as described
under Code Section 881(c)(3)(C), and
. the foreign person is not a bank receiving interest on a loan made
during the ordinary course of business.
If the foregoing conditions are not met, interest -- including original issue
discount -- paid on a Grantor Trust Security may be subject to either a 30%
withholding tax or 31% backup withholding.
In the case of certain series, portfolio interest treatment will not be
available for interest paid with respect to certain classes of Grantor Trust
Securities. Interest on debt instruments issued on or before July 18, 1984 does
not qualify as "portfolio interest" and, therefore, is subject to United States
withholding tax at a 30% rate -- or lower treaty rate, if applicable. IO
Securities and PO Securities generally are treated, and Ratio Securities
generally should be treated, as having been issued when they are sold to an
investor. In the case of Pass-Through Securities, however, the issuance date of
the security is determined by the issuance date of the mortgage loans underlying
the trust. Thus, to the extent that the interest received by a holder of a Pass-
Through Security is attributable to mortgage loans issued on or before July 18,
1984, such interest will be subject to the 30% withholding tax. Moreover, to the
extent that a Ratio Security is characterized as a pass-through type security
and the underlying mortgage loans were issued on or before July 18, 1984,
interest generated by the security may be subject to the withholding tax. See
"Federal Income Tax Consequences -- Grantor Trust Funds -- Possible Alternative
Characterizations" in this prospectus. Although Code Sections 871(h)(4) and
881(c)(4) deny portfolio interest treatment to certain types of contingent
interest, those provisions generally apply only to interest based on the income,
profits, or property values of the debtor. Accordingly, it is not anticipated
that those provisions will apply to deny portfolio interest to Securityholders
who are foreign persons. However, because the scope of those provisions is not
entirely clear, investors who are foreign persons should consult their own tax
advisors regarding the potential application of those provisions before
purchasing a security.
<PAGE>
Backup Withholding
The application of backup withholding to Grantor Trust Securities generally
is the same as in the case of REMIC regular certificates. See "Federal Income
Tax Consequences -- REMIC Certificates -- Backup Withholding" and "-- New
Withholding Regulations" in this prospectus.
Reporting and Tax Administration
For purposes of reporting and tax administration, the holders of Grantor
Trust Securities will be treated in the same fashion as the holders of REMIC
regular certificates. See "Federal Income Tax Consequences -- REMIC
Certificates -- Reporting and Tax Administration" in this prospectus.
Debt Securities and Partnership Trust Funds
Classification of Debt Securities and Partnership Trust Funds
With respect to each series of Partnership Securities and Debt Securities,
Hunton & Williams will deliver its opinion that the Partnership Trust Fund (the
"Partnership Trust") will not be a taxable mortgage pool or an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. With respect to the Debt Securities, Hunton & Williams will deliver
its opinion that for federal income tax purposes the Debt Securities will be
classified as debt. Each Debt Securityholder, by acceptance of a Debt Security,
will agree to treat the Debt Securities as indebtedness for federal income tax
purposes. The opinions will be based on the assumption that the terms of the
related documents will be complied with, and on counsel's conclusion that either
the Trust Fund is not a publicly traded partnership or the nature of the income
of the Trust Fund will be exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
Characterization of Investments in Partnership Securities and Debt
Securities
For federal income tax purposes, (i) Partnership Securities and Debt
Securities held by a thrift institution taxed as a domestic building and loan
association will not constitute "loans...secured by an interest in real property
which is...residential real property" within the meaning of Code Section
7701(a)(19)(C)(v) and (ii) interest on Debt Securities held by a real estate
investment trust will not be treated as "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B), and (iii) Debt Securities held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code Section 856(c)(4)(A), but Partnership Securities held by a real estate
investment trust will represent a proportionate interest in the assets of the
Partnership Trust based on the real estate investment trust's capital interest
in the Partnership Trust.
<PAGE>
Taxation of Debt Securityholders
Treatment of the Debt Securities as Indebtedness
The depositor will agree, and the securityholders will agree by their
purchase of Debt Securities, to treat the Debt Securities as debt for federal
income tax purposes. No regulations, published rulings, or judicial decisions
exist that discuss the characterization for federal income tax purposes of
securities with terms substantially the same as the Debt Securities. However,
with respect to each series of Debt Securities, Hunton & Williams will deliver
its opinion that the Debt Securities will be classified as indebtedness for
federal income tax purposes. The discussion below assumes this characterization
of the Debt Securities is correct.
If, contrary to the opinion of counsel, the IRS successfully asserted that
the Debt Securities were not debt for federal income tax purposes, the Debt
Securities might be treated as equity interests in the Partnership Trust, and
the timing and amount of income allocable to holders of such Debt Securities may
be different than as described in the following paragraph.
Debt Securities generally will be subject to the same rules of taxation as
REMIC regular certificates issued by a REMIC except that (i) stated interest
reportable on Debt Securities generally is not required to be reported under the
accrual method unless the holder otherwise uses the accrual method and (ii) the
special rule treating a portion of the gain on the sale or exchange of a REMIC
regular certificate as ordinary income is inapplicable to Debt Securities. See
"Federal Income Tax Consequences -- REMIC Certificates -- Tax Treatment of REMIC
Regular Certificates" and "-- Gain or Loss on Disposition."
Taxation of Owners of Partnership Securities
Treatment of the Partnership Trust as a Partnership
If so specified in the applicable Prospectus Supplement, the depositor will
agree, and the securityholders will agree by their purchase of Partnership
Securities, to treat the Partnership Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the Partnership Trust, the partners of the partnership being the
securityholders (including the depositor), and the Debt Securities (if any)
being debt of the partnership. However, the proper characterization of the
arrangement involving the Partnership Trust, the Partnership Securities, the
Debt Securities, and the depositor is not entirely clear, because there is not
authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Securities have certain
features characteristic of debt, the Partnership Securities might be considered
debt of the depositor or the Partnership Trust. Any such characterization would
not result in materially adverse tax consequences to securityholders as compared
to the consequences from treatment of the Partnership Securities as equity in a
partnership, described below. The following discussion assumes that the
Partnership Securities represent equity interests in a partnership.
<PAGE>
Partnership Taxation
As a partnership, the Partnership Trust will not be subject to federal
income tax. Rather, each securityholder will be required to separately take into
account such holder's allocated share of income, gains, losses, deductions and
credits of the Partnership Trust. It is anticipated that the Partnership Trust's
income will consist primarily of interest earned on the Mortgage Loans
(including appropriate adjustments for market discount, original issue discount
and bond premium) as described above under "Federal Income Tax Consequences --
REMIC Certificates -- Original Issue Discount," " -- Market Discount" and
"-- Amortizable Premium" in this prospectus, and any gain upon collection or
disposition of Mortgage Loans. The Partnership Trust's deductions will consist
primarily of interest expense accruing with respect to the Debt Securities,
servicing and other fees, and losses or deductions upon collection or
disposition of Debt Securities.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. The
partnership agreement will provide, in general, that the securityholders will be
allocated taxable income of the Partnership Trust for each Collection Period
equal to the sum of (i) the interest that accrues on the Partnership Securities
in accordance with their terms for such Collection Period, including interest
accruing at the applicable pass-through rate for such Collection Period and
interest on amounts previously due on the Partnership Securities but not yet
distributed; (ii) any Partnership Trust income attributable to discount on the
mortgage loans that corresponds to any excess of the principal amount of the
Partnership Securities over their initial issue price; and (iii) any other
amounts of income payable to a securityholder for such Collection Period. Such
allocation will be reduced by any amortization by the Partnership Trust of
premium on mortgage loans that corresponds to any excess of the issue price of
Partnership Securities over their principal amount. All remaining taxable income
of the Partnership Trust will be allocated to the depositor. Based on the
economic arrangement of the parties, this approach for allocating Partnership
Trust income should be permissible under applicable Treasury regulations,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to securityholders. Moreover, even under the
foregoing method of allocation, securityholders may be allocated interest income
at the applicable pass-through rate plus the other income items described above,
even though the Partnership Trust may not have sufficient cash to make current
cash distributions of such amounts. Thus, cash basis holders will in effect be
required to report income from the Partnership Securities on the accrual basis
and securityholders may become liable for taxes on Partnership Trust income even
if they have not received cash from the Partnership Trust to pay such taxes.
Part or all of the taxable income allocated to a securityholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may constitute UBTI generally
taxable to such a holder under the Code.
A share of expenses of the Partnership Trust (including fees of the master
servicer but not interest expense) allocable to an individual, estate or trust
securityholder would be miscellaneous itemized deductions subject to the
limitations described above under "Federal Income Tax
<PAGE>
Consequences -- REMIC Certificates -- Tax Treatment of REMIC Regular
Certificates" in this prospectus. Accordingly, such deductions might be
disallowed to the individual, estate or trust in whole or in part and might
result in such holder being taxed on an amount of income that exceeds the amount
of cash actually distributed to such holder over the life of the Partnership
Trust.
Discount income or premium amortization with respect to each mortgage loan
would be calculated in a manner similar to the description under "Federal Income
Tax Consequences -- REMIC Certificates -- Original Issue Discount, " " -- Market
Discount" and " -- Amortizable Premium" in this prospectus. Notwithstanding such
description, it is intended that the Partnership Trust will make all tax
calculations relating to income and allocations to securityholders on an
aggregate basis with respect to all mortgage loans held by the Partnership Trust
rather than on a mortgage loan-by-mortgage loan basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Partnership Trust might be required to incur additional expense, but it is
believed that there would be no material adverse effect on securityholders.
Discount and Premium
Unless indicated otherwise in the applicable prospectus supplement, it is
not anticipated that the mortgage loans will have been issued with original
issue discount and, therefore, the Partnership Trust should not have original
issue discount income. However, the purchase price paid by the Partnership Trust
for the mortgage loans may be greater or less than the remaining principal
balance of the mortgage loans at the time of purchase. If so, the mortgage loans
will have been acquired at a premium or discount, as the case may be. See
"Federal Income Tax Consequences -- REMIC Certificates -- Original Issue
Discount," " -- Market Discount" and " -- Amortizable Premium" in this
prospectus. (As indicated above, the Partnership Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
mortgage loan-by-mortgage loan basis).
If the Partnership Trust acquires the mortgage loans at a market discount
or premium, the Partnership Trust will elect to include any such discount in
income currently as it accrues over the life of the mortgage loans or to offset
any such premium against interest income on the mortgage loans. As indicated
above, a portion of such market discount income or premium deduction may be
allocated to securityholders.
Section 708 Termination
Under Section 708 of the Code, the Partnership Trust will be deemed to
terminate for federal income tax purposes if 50% or more of the capital and
profits interests in the Partnership Trust are sold or exchanged within a twelve
month period. If such termination occurs, it would cause a deemed contribution
of the assets of a Partnership Trust (the "old partnership") to a new
Partnership Trust (the "new partnership") in exchange for interests in the new
partnership. Such interests would be deemed distributed to the partners of the
old partnership in liquidation thereof, which would not constitute a sale or
exchange. The Partnership Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As
<PAGE>
a result, the Partnership Trust may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Partnership Trust might not be able to comply due to lack of
data.
Gain or Loss on Disposition of Partnership Securities
Generally, capital gain or loss will be recognized on a sale of Partnership
Securities in an amount equal to the difference between the amount realized and
your tax basis in the Partnership Securities sold. A securityholder's tax basis
in a Partnership Security will generally equal the holder's cost increased by
the holder's share of Partnership Trust income (includible in income) and
decreased by any distributions received with respect to such Partnership
Security. In addition, both the tax basis in the Partnership Securities and the
amount realized on a sale of a Partnership Security would include the holder's
share of the Debt Securities and other liabilities of the Partnership Trust. A
holder acquiring Partnership Securities at different prices will be required to
maintain a single aggregate adjusted tax basis in such Partnership Securities,
and, upon sale or other disposition of some of the Partnership Securities,
allocate a portion of such aggregate tax basis to the Partnership Securities
sold (rather than maintaining a separate tax basis in each Partnership Security
for purposes of computing gain or loss on a sale of that Partnership Security).
Any gain on the sale of a Partnership Security attributable to the holder's
share of unrecognized accrued market discount on the mortgage loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Partnership Trust does not expect to
have any other assets that would give rise to such special reporting
considerations. Thus, to avoid those special reporting requirements, the
Partnership Trust will elect to include market discount in income as it accrues.
If a securityholder is required to recognize an aggregate amount of income
(not including income attributable to disallowed itemized deductions described
above) over the life of the Partnership Securities that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Partnership Securities.
Allocations Between Transferors and Transferees
In general, the Partnership Trust's taxable income and losses will be
determined each Collection Period and the tax items for a particular Collection
Period will be apportioned among the securityholders in proportion to the
principal amount of Partnership Securities owned by them as of the close of the
last day of such Collection Period. As a result, a holder purchasing Partnership
Securities may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a Collection Period convention may not be permitted by
existing regulations. If a Collection Period convention is not allowed (or only
applies to transfers of less than all of the partner's interest), taxable income
or losses of the Partnership Trust might be reallocated among the
securityholders. The depositor will be authorized to revise the Partnership
<PAGE>
Trust's method of allocation between transferors and transferees to conform to a
method permitted by future regulations.
Section 731 Distributions
In the case of any distribution to a securityholder, no gain will be
recognized to that securityholder except to the extent that the amount of any
money distributed with respect to such security does not exceed the adjusted
basis of such securityholder's interest in the security. To the extent that the
amount of money distributed exceeds such securityholder's adjusted basis, gain
will be currently recognized. In the case of any distribution to a
securityholder, no loss will be recognized except upon a distribution in
liquidation of a securityholder's interest. Any gain or loss recognized by a
securityholder will be capital gain or loss.
Section 754 Election
In the event that a securityholder sells its Partnership Securities at a
profit (loss), the purchasing securityholder will have a higher (lower) basis in
the Partnership Securities than the selling securityholder had. The tax basis of
the Partnership Trust's assets would not be adjusted to reflect the higher (or
lower) basis unless the Partnership Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Partnership Trust will not make such an
election. As a result, a securityholder might be allocated a greater or lesser
amount of Partnership Trust income than would be appropriate based on its own
purchase price for Partnership Securities.
Administrative Matters
The trustee is required to keep or have kept complete and accurate books of
the Partnership Trust. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the Partnership Trust
will be the calendar year. The trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Partnership
Trust and will report each securityholder's allocable share of the items of
Partnership Trust income and expense to holders and the IRS on Schedule K-1. The
trustee will provide the Schedule K-1 information to nominees that fail to
provide the Partnership Trust with the information statement described below and
such nominees will be required to forward such information to the beneficial
owners of the Partnership Securities. Generally, holders must file tax returns
that are consistent with the information return filed by the Partnership Trust
or be subject to penalties unless the holder notifies the IRS of all such
consistencies.
Under Section 6031 of the Code, any person that holds Partnership
Securities as a nominee at any time during a calendar year is required to
furnish the Partnership Trust with a statement containing certain information on
the nominee, the beneficial owners and the Partnership Securities so held. Such
information includes the (i) name, address and taxpayer identification number of
the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States Person, a tax-exempt entity or a foreign government, an
international organization, or any
<PAGE>
wholly-owned agency or instrumentality of either of the foregoing, and (z)
certain information on Partnership Securities that were held, bought or sold on
behalf of such persons throughout the year. In addition, brokers and financial
institutions that hold Partnership Securities through a nominee are required to
furnish directly to the trustee information as to themselves and their ownership
of Partnership Securities. A clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, as amended is not required to furnish any such
information statement to the Partnership Trust. The information referred to
above for any calendar year must be furnished to the Partnership Trust on or
before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Partnership Trust with the information described above
may be subject to penalties.
The depositor will be designated as the TMP in the pooling and master
servicing agreement and as such, will be responsible for representing the
securityholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for a
partnership item does not expire until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Partnership Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the securityholders,
and, under certain circumstances, a securityholder may be precluded from
separately litigating a proposed adjustment to the items of the Partnership
Trust. An adjustment could also result in an audit of a securityholder's returns
and adjustments of items not related to the income and losses of the Partnership
Trust.
Tax Consequences to Foreign Securityholders
It is not clear whether the Partnership Trust would be considered to be
engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to foreign persons because there is no clear
authority dealing with that issue under facts substantially similar to those
applicable here. Although it is not expected that the Partnership Trust would be
engaged in a trade or business in the United States for such purposes, if so
specified in the applicable prospectus supplement, the Partnership Trust may
withhold as if it were so engaged in order to protect the Partnership Trust from
possible adverse consequences of a failure to withhold. The Partnership Trust
may withhold on the portion of its taxable income that is allocable to
securityholders that are foreign persons pursuant to Section 1446 of the Code,
as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign persons taxable as corporations and 39.6%
for all other foreign securityholders. Amounts withheld will be deemed to be
distributed to the Foreign securityholder. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Partnership Trust to change its withholding procedures. In determining a
holder's withholding status, the Partnership Trust may rely on IRS Form W-8, IRS
Form W-9 or the holder's certification of non-foreign status signed under
penalties of perjury.
To the extent specified in the applicable prospectus supplement, (i) each
foreign securityholder might be required to file an individual or corporate
United States income tax return (including in the case of a corporation, the
branch profits tax) on its share of the
<PAGE>
Partnership Trust's income, (ii) each foreign securityholder must obtain a
taxpayer identification number from the IRS and submit that number to the
Partnership Trust on Form W-8 in order to ensure appropriate crediting of the
taxes withheld, and (iii) a foreign securityholder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
Partnership Trust, taking the position that no taxes were due because the
Partnership Trust was not engaged in a United States trade or business.
Notwithstanding the foregoing, interest payments made (or accrued) to a foreign
securityholder may be considered guaranteed payments to the extent such payments
are determined without regard to the income of the Partnership Trust. If these
interest payments are properly characterized as guaranteed payments, then the
interest may not be considered "portfolio interest." As a result, a foreign
securityholder may be subject to United States federal income tax and
withholding at a rate of 30%, unless reduced or eliminated pursuant to an
applicable treaty. In such case, a foreign securityholder would be entitled to
claim a refund for that portion of the taxes in excess of the taxes that should
be paid with respect to the guaranteed payments.
The Treasury Department has enacted new withholding regulations that
generally will be effective after December 31, 2000. See "Federal Income Tax
Consequences -- REMIC Certificates -- New Withholding Regulations" in this
prospectus. Please consult your tax advisor concerning these new regulations.
Backup Withholding
Distributions made on the Partnership Securities and proceeds from the sale
of the Partnership Securities will be subject to a "backup" withholding tax of
31% if, in general, the securityholder fails to comply with certain
identification and certification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
State Tax Considerations
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," you should consider the state income tax consequences
of the acquisition, ownership, and disposition of the securities. State 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. Therefore, you should consult your tax advisor with respect to the
various state tax consequences of an investment in the securities.
ERISA Considerations
In considering an investment in a security of the assets of an employee
benefit plan or retirement arrangement, including individual retirement accounts
and annuities, Keogh plans, and collective investment funds in which these
plans, accounts, annuities or arrangements are invested, that are described in
or must follow the requirements of the United States Department of Labor ("DOL")
regulations set forth in 29 C.F.R. 2510.3-101, as amended from time to time (the
"Plan Asset Regulations"), the Employee Retirement Income Security Act of 1974
("ERISA"), or corresponding, provisions of the Code (a "Plan"), a fiduciary
should consider, among other things,
<PAGE>
. the purposes, requirements, and liquidity needs of the Plan,
. the definition of plan assets under ERISA, and the DOL's regulations
regarding the definition of plan assets,
. whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of ERISA, and
. whether the investment is prudent, considering the nature of an
investment in a security and the fact that no market in which the
fiduciary can sell or otherwise dispose of securities is expected to
arise.
The prudence of a particular investment must be determined by the responsible
fiduciary, usually the trustee or investment manager, with respect to each
employee benefit plan taking into account all of the facts and circumstances of
the investment.
Section 403 of ERISA requires that all plan assets be held in trust.
However, under regulations that became effective on June 17, 1982, even if the
underlying assets of an issuer of securities are deemed to be plan assets of an
employee benefit plan investing in the securities, the "holding in trust"
requirement of Section 403 of ERISA will be satisfied if the securities are held
in trust on behalf of the plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions that involve
. a Plan and any party in interest or disqualified person with respect to
the Plan, and
. plan assets.
The Plan Asset Regulations define "plan assets" to include not only securities
- -- like the securities -- held by a Plan but also the underlying assets of the
issuer of any equity securities, unless one or more exceptions specified in the
regulations are satisfied. Under the Plan Asset Regulations, a Plan that
acquires a security could be treated for ERISA purposes as having acquired a
direct interest in some or all of the assets in your trust. This treatment could
cause certain transactions concerning the trust assets to be deemed prohibited
transactions under ERISA and, in addition, could result in a finding of an
improper delegation by the plan fiduciary of its duty to manage plan assets. The
Plan Asset Regulations will not apply, however, if
. the security is registered under the Securities Exchange Act of 1934, is
freely transferable and is part of a class of securities that is held by
more than 100 unrelated investors (the "publicly offered exception") or
. immediately after the most recent acquisition of an equity interest,
benefit plan investors do not own 25% or more of the value of any class
of equity interests in the trust (the "insignificant participation
exception").
<PAGE>
Prior to purchasing a security, a Plan should consult with its counsel to
determine whether the publicly offered exception, the insignificant
participation exception, or any other exception to the Plan Asset Regulations
would apply to the purchase of the security.
The DOL has issued several exemptions from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code. Those exemptions include, but are not limited to:
. Prohibited Transaction Class Exemption ("PTCE") 95-60, regarding
investments by insurance company general accounts;
. PTCE 96-23, regarding investment decisions by in-house asset managers;
. PTCE 91-38, regarding investments by bank collective investment funds;
. PTCE 90-1, regarding investments by insurance company pooled separate
accounts;
. PTCE 84-14, regarding investment decisions made by a qualified plan
asset manager;
. PTCE 83-1, regarding acquisitions by Plans of interests in mortgage
pools;
. various underwriter exemptions.
Before purchasing any securities, a Plan subject to the fiduciary responsibility
provisions of ERISA or described in Section 4975(e)(1) of the Code should
consult with its counsel to determine whether the conditions of any exemption
would be met. A purchaser of securities should be aware, however, that certain
of the exemptions do not apply to the purchase, sale, and holding of
subordinated securities. In addition, PTCE 83-1 will not apply to securities
evidencing interests in a trust estate that contains contracts Moreover, you
also should be aware that even if the conditions specified in one or more
exemptions are met, the scope of the relief provided by an exemption might not
cover all acts that might be construed as prohibited transactions.
Because the purchase or holding of securities may result in unfavorable
consequences for a Plan or its fiduciaries under the Plan Asset Regulations or
the prohibited transaction provisions of ERISA or the Code, certain classes of
securities will not be offered for sale to, and are not transferable to, any
benefit plan investor unless such benefit plan investor provides National
Mortgage with a "Benefit Plan Opinion." A Benefit Plan Opinion is an opinion of
counsel satisfactory to National Mortgage (and upon which National Mortgage, the
trustee, the TMP, and their respective counsel are authorized to rely) that the
ownership of a security of such class
. will not be treated as a prohibited transaction under Sections 406 and
407 of ERISA or Section 4975 of the Code and
. either
<PAGE>
. will not cause any of the assets in the trust -- or in the case of a
REMIC, the REMIC's assets -- to be regarded as plan assets for purposes
of the Plan Asset Regulation or
. will not give rise to any fiduciary duty under ERISA on the part of
National Mortgage, the trustee, the master servicer or the TMP.
The accompanying prospectus supplement will indicate which classes of
securities, if any, are restricted in their availability to benefit plan
investors.
In considering the possible application of the Plan Asset Regulations,
potential Plan investors should be aware that, with respect to certain series
and under certain circumstances, National Mortgage may have a right to redeem
the securities, at its option. In this case, National Mortgage's purpose for the
retention of such a redemption right is to enable National Mortgage to terminate
its administration obligations with respect to the securities in the event these
obligations become unprofitable. National Mortgage undertakes no obligation to
consider the interests of securityholders in deciding whether to exercise any
redemption right.
As described in "Federal Income Tax Consequences," an investment in a
security may produce unrelated business taxable income for tax-exempt employee
benefit plans. Potential investors also should be aware that ERISA requires that
the assets of a Plan be valued at their fair market value as of the close of the
plan year. Neither National Mortgage nor the underwriters currently intend to
provide valuations to securityholders. Plans contemplating the acquisition of
securities should consult their legal advisors with respect to the ERISA, Code,
and other consequences of an investment in the securities.
Prospective purchasers of securities that are insurance companies should be
aware that the United States Supreme Court interpreted the fiduciary
responsibility rules of ERISA in John Hancock Mutual Life Insurance Co. V.
Harris Bank and trust. In John Hancock, the Supreme Court ruled that assets held
in an insurance company's general account may be deemed to be plan assets for
ERISA purposes under certain circumstances. Prospective purchasers of securities
that are insurance companies should consult with their counsel with respect to
the application of the John Hancock case and PTCE 95-60 to their purchase of
securities, and should be aware that certain restrictions may apply to their
purchase of securities.
Legal Investment
The accompanying prospectus supplement describes whether the securities
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). To the extent that any
securities constitute mortgage related securities, these securities will be
legal investments for 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 whose authorized investments are
subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any of its agencies or instrumentalities constitute legal
<PAGE>
investments for any of these entities. Pursuant to SMMEA, a number of states
enacted legislation, on or before the October 3, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain entities to
invest in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in the
securities only to the extent provided in such legislation.
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 the securities
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in the securities; and national banks may
purchase the securities for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. Section 24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Securities that do not constitute "mortgage-related securities" under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws and may not be "legal investments" to the same extent as
"mortgage-related securities."
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase certain types of the securities or
to purchase securities representing more than a specified percentage of the
investor's assets. You should consult your legal advisors in determining whether
and to what extent the securities constitute legal investments for you.
Plan of Distribution
National Mortgage may sell the securities either directly or through one or
more underwriters or underwriting syndicates. The accompanying prospectus
supplement sets forth the terms of the offering of your securities, including
the name or names of the underwriters, the proceeds to and their use by National
Mortgage, and either the initial public offering price, the discounts and
commissions to the underwriters and any discounts or concessions allowed or
reallowed to dealers, or the method by which the price at which the underwriters
will sell the securities will be determined.
Your securities may be acquired by underwriters for their own account 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. The obligations of any underwriters will be
subject to certain conditions precedent, and the underwriters will be severally
obligated to purchase all the securities of a series described in the
accompanying prospectus supplement, if any are purchased. If securities of a
series are offered other than through underwriters, the accompanying prospectus
supplement will contain information regarding the nature of the offering and any
agreements to be entered into between National Mortgage and purchasers of these
securities.
<PAGE>
The place and time of delivery for your securities is set forth in the
accompanying prospectus supplement.
Securities issued under the registration statement of which this prospectus
is a part may be reregistered and reissued under the registration statement when
they are reacquired by National Mortgage and deposited by National Mortgage to
be part of the estate of a new trust. In addition, other securities issued by
affiliates of National Mortgage or persons unaffiliated with National Mortgage
may be acquired by National Mortgage and deposited to new trusts to be part of
the trust estate for securities issued pursuant to this prospectus and a related
prospectus supplement.
Rating
It is a condition to the issuance of any class of securities that they
shall have been rated not lower than investment grade, that is, in one of the
four highest rating categories, by at least one rating agency.
Any ratings on the securities address the likelihood of receipt by you of
all collections on the underlying trust assets to which you are entitled. These
ratings address the structural, legal and issuer-related aspects associated with
your securities, the nature of the underlying trust assets and the credit
quality of the guarantor, if any. Ratings do not represent any assessment of the
likelihood of principal prepayments by obligors or of the degree by which
prepayments might differ from those originally anticipated. As a result, you
might suffer a lower than anticipated yield, and, in addition, holders of Strip
Securities in extreme cases might fail to recoup their initial investments.
Reports to Securityholders
The master servicer, the trustee or the securities administrator will mail
monthly reports concerning your trust to the registered holder of each security.
Additional Information
National Mortgage is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports and
other information with the SEC. Reports and other information filed by National
Mortgage with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC at 7 World Trade Center, Suite
1300, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of these material can
be obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the SEC
maintains a public access site on the internet through the "world wide web" at
which any electronic filings, reports, information statements and other
information regarding National Mortgage may be viewed. The internet address of
the SEC's site is http://www.sec.gov.
<PAGE>
This prospectus does not contain all the information set forth in the
registration statements of which this prospectus is a part, such as the exhibits
National Mortgage has filed with the SEC. Copies of the information and the
exhibits are on file at the offices of the SEC may be obtained, upon payment of
the fee prescribed by the SEC, or may be examined without charge at the offices
of the SEC. Copies of the agreements for your series will be provided to each
person to whom a prospectus and prospectus supplement is delivered upon written
or oral request, provided that such request is made to National Mortgage
Securities Corporation, 909 East Main Street, Richmond, Virginia 23219-3002
(telephone (804) 649-3952).
Copies of Freddie Mac's most recent offering circular for Freddie Mac
certificates, Freddie Mac's most recent information statement and any subsequent
information statement, any supplement to any information statement relating to
Freddie Mac and any quarterly report made available by Freddie Mac after
December 31, 1983 can be obtained by writing or calling the Investor Relations
Department of Freddie Mac at Post Office Box 4112, Reston, Virginia 22090
(outside Washington, D.C. metropolitan area, telephone 800-424-5401, ext. 3725;
within Washington, D.C. metropolitan area, telephone 703-903-3725). National
Mortgage did not participate in the preparation of Freddie Mac's offering
circular, information statement or any supplement and, accordingly, makes no
representation as to the accuracy or completeness of the information in these
documents.
Copies of Fannie Mae's most recent prospectus for Fannie Mae certificates
and Fannie Mae's annual report and quarterly financial statements, as well as
other financial information, are available from the Director of Investor
Relations, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7115).
National Mortgage did not participate in the preparation of Fannie Mae's
prospectus and, accordingly, makes no representations as to the accuracy or
completeness of the information in these documents.
Data concerning Ginnie Mae certificates is available in electronic format
on gREX or by calling (800) 234-GNMA.
If your trust contains financial assets that are publicly-issued
securities, the related registration statement, prospectus, periodic filings and
other information required to be filed with the SEC may be found on the SEC's
internet site, located at http://www.sec.gov.
Financial Information
National Mortgage is not obligated with respect to the securities.
Accordingly, National Mortgage has determined that financial statements of
National Mortgage are not material to the offering of your securities.
Each trust will engage in no activities other than as described in this
prospectus and the accompanying prospectus supplement. Accordingly, no financial
statements concerning your trust are included in this prospectus.
<PAGE>
Incorporation of Certain Documents by Reference
All documents filed by National Mortgage pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus and prior to the termination of the offering of the securities shall
be deemed to be incorporated into and made a part of this prospectus from the
date of filing of these documents.
National Mortgage undertakes to provide a copy of any and all information
that has been incorporated by reference into the registration statement -- not
including exhibits to the information incorporated by reference, unless these
exhibits are specifically incorporated by reference into the information that
the registration statements incorporate -- upon written or oral request of any
person, without charge, provided that such request is made to National Mortgage
Securities Corporation, 909 East Main Street, Richmond, Virginia 23219-3002
(telephone (804) 649-3952).
<PAGE>
Index of Principal Defined Terms
1996 Lender Liability Act.........................
30% Test..........................................
Accretion Class...................................
Act...............................................
Aggregation Rule..................................
All OID Election..................................
AMT...............................................
Asset Qualification Test..........................
Bankruptcy Code...................................
Beneficial Owner..................................
Cap...............................................
Capital Appreciation Class........................
CERCLA............................................
Code..............................................
Collection Period.................................
Complementary Securities..........................
Companion Class...................................
Compound Interest Class...........................
Contingent Payment Obligations....................
Contingent Payment Regulations....................
Current Recognition Election......................
Depository Participants...........................
Disqualified Organization.........................
Deemed Principal Payments.........................
DOL...............................................
ERISA.............................................
excess inclusion income...........................
Excess Premium....................................
FASIT.............................................
financial assets..................................
Financial Intermediary............................
First Distribution Period.........................
Floor.............................................
Foreign Person....................................
FTC Rule..........................................
Governor..........................................
indirect participants ............................
Interest Weighted Certificate.....................
Inverse Floater Certificates......................
IO Securities.....................................
IRS...............................................
Mark-to-Market Regulations........................
Mortgage Assets...................................
Multiple Rate VRDI Certificate....................
National Mortgage.................................
Net Series Rate...................................
Non-VRDI Certificate..............................
NOWA Certificates.................................
OID Regulations...................................
Ordinary Ratio Security...........................
PAC Class.........................................
<PAGE>
Pass-Through Securities...........................
Plan..............................................
Plan Asset Regulations............................
PO Securities.....................................
Pre-Funded Amount.................................
Pre-Funding Account...............................
Pre-Issuance Accrued Interest.....................
Pre-Issuance Accrued Interest Rule................
Prepayment Period.................................
Pricing Prepayment Assumptions....................
Principal Only Class..............................
Qualified Reserve Fund............................
Qualifying REIT Interest..........................
Rate Bubble Certificate...........................
Ratio Securities..................................
Realized Losses...................................
REIT..............................................
REMIC.............................................
REMIC Regulations.................................
Residual Certificates.............................
RIC...............................................
Series REMIC......................................
Single Rate VRDI Certificate......................
SMMEA.............................................
Strip Class.......................................
Strip Securities..................................
Stripping Regulations.............................
Superpremium Certificates.........................
Tax Administrator.................................
Taxable Mortgage Pool.............................
Teaser Certificate................................
Thrift Institution................................
TIN...............................................
TMP...............................................
True Discount.....................................
trust assets......................................
UBTI..............................................
Variable Rate Certificate.........................
VRDI..............................................
WAM...............................................
Weighted Average Certificates.....................
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSTECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the offering of $1,000,000 of the Mortgage Pass-Through Certificates and Asset-
Backed Notes being registered under this Registration Statement, other than
underwriting discounts and commission:
SEC Registration....................................... $ 278
Printing and Engraving................................. *
Legal Fees and Expenses................................ *
Accounting Fees and Expenses........................... *
Trustee Fees and Expenses.............................. *
Rating Agency Fees..................................... *
Miscellaneous.......................................... *
TOTAL............................................ $ *
-
* To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
The Virginia Stock Corporation Act (the "Act") permits, and the
Registrant's bylaws require, indemnification of the Registrant's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended. Under Section 13.1-697 of the Act, a
Virginia corporation generally may indemnify its officers and directors in civil
or criminal actions if they acted in good faith and believed their conduct to be
in the best interest of the corporation and, in the case of criminal actions,
had no reasonable cause to believe that the conduct was unlawful. The Act also
permits a corporation to require, and the Registrant's bylaws do require,
indemnification of officers and directors with respect to any action except in
the case of willful misconduct or knowing violation of the criminal law. In
addition, the Act limits the damages that may be assessed against a director or
officer of the Registrant in a shareholder or derivative proceeding to the
greater of (a) $100,000 or (b) the amount of cash compensation received by him
from the Registrant in the twelve months immediately preceding the act or
omission giving rise to liability. Because the directors and officers of the
Registrant will not be compensated, the maximum amount for which they may be
held liable is $100,000. This limit on liability will not apply in the event of
willful misconduct or a knowing violation of the criminal law or of federal or
state securities law.
The Registrant's parent corporation carries an insurance policy providing
directors' and officers' liability insurance for any liability its directors or
officers or the directors or officers of any of its subsidiaries, including the
Registrant, may incur in their capacities as such.
Under certain sales agreements entered into by the Registrant (as
purchaser) with sellers of collateral, such sellers are obligated to indemnify
the Registrant against certain expenses and liabilities.
II-1
<PAGE>
Reference is made to the form of Underwriting Agreement filed as an exhibit
hereto for provisions relating to the indemnification of directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Item 16. Exhibits.
1.1 Underwriting Agreement Standard Provisions, together with Form of
Underwriting Agreement*
4.1 Form of Pooling and Master Servicing Agreement
4.2 Standard Terms to Pooling and Master Servicing Agreement (September 1999
Edition)
4.3 Form of Indenture
4.4 Form of Owner Trust Agreement
5.1 Legality Opinion of Hunton & Williams*
8.1 Tax Opinion re: Adequacy of Prospectus Disclosure*
8.2 Tax Opinion re: REMIC Certificates*
8.3 Tax Opinion re: Non-REMIC Certificates*
8.4 Tax Opinion re: Notes*
23.1 Consent of Hunton & Williams is contained in their opinions filed as
Exhibits 5.1, 8.1, 8.2 and 8.3*
24.1 Power of Attorney (included on signature page)
99.1 Form of Sales Agreement between the Registrant, as Purchaser, and
Seller
_________________________
* To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20 change in the maximum aggregate offering price set forth
in the "Calculation of the Registration Fee" table in this
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
II-2
<PAGE>
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in the post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are included by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the indenture trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act of 1939, as
amended, in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust Indenture Act.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 (including the security rating requirement)
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Richmond,
Commonwealth of Virginia, on September 17, 1999.
NATIONAL MORTGAGE SECURITIES
CORPORATION (Registrant)
/s/ John Wright
----------------------------------------
John Wright
President and Chairman of the Board of
Directors
Each person whose signature appears below constitutes and appoints John
Wright and William E. Hardy his true and lawful attorneys-in-fact and agents,
each acting alone, with full powers of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ John Wright Chairman of the Board of Director September 17, 1999
- ----------------------
John Wright and President (Principal
Executive Officer)
/s/ Randall B. Saufley Director, Vice President and September 17, 1999
- ----------------------
Randall B. Saufley Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
/s/ William E. Hardy Director, Vice President and Secretary September 17, 1999
- ----------------------
William E. Hardy
</TABLE>
II-4
<PAGE>
Exhibit 4.1
___________________________________________________________________________
_______________________
POOLING AND MASTER SERVICING AGREEMENT
between
NATIONAL MORTGAGE SECURITIES CORPORATION,
as Depositor[,/
and]
[_______________________________________],
as Trustee[,]
[and]
[________________],
[as Security Insurer]
DATED AS OF
______ 1, ____
PASS-THROUGH CERTIFICATES
SERIES ____-__
___________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENT......................................................................................... 1
ARTICLE I DEFINITIONS...................................................................................... 1
Section 1.01. Standard Terms............................................................................ 1
Section 1.02. Defined Terms............................................................................. 2
ARTICLE II FORMATION OF TRUST; CONVEYANCE OF MORTGAGE ASSETS............................................... 9
Section 2.01. Conveyance to the Trustee................................................................ 9
Section 2.02. Acceptance by the Trustee................................................................ 9
Section 2.03. REMIC Elections.......................................................................... 10
ARTICLE III REMITTING TO CERTIFICATEHOLDERS................................................................ 10
Section 3.01. Distributions to Certificateholders...................................................... 10
Section 3.02. Allocation of Realized Losses and Shortfalls............................................. 11
ARTICLE IV THE CERTIFICATES................................................................................ 11
Section 4.01. The Certificates......................................................................... 11
Section 4.02. Denominations............................................................................ 12
Section 4.04. Certificates Laws Restrictions........................................................... 12
ARTICLE V MISCELLANEOUS PROVISIONS......................................................................... 12
[Section 5.01. Request for Opinions..................................................................... 12
Section 5.02. Schedules and Exhibits................................................................... 13
Section 5.03. Governing Law............................................................................ 13
Section 5.04. Counterparts............................................................................. 13
Section 5.05. Notices.................................................................................. 13
Schedule I Pool I Mortgage Assets
Schedule II Pool II Mortgage Assets
Exhibit A-1 Form of Class A-1 Certificate
Exhibit A-2 Form of Class A-2 Certificate
Exhibit A-3 Form of Class A-3 Certificate
Exhibit A-4 Form of Class A-4 Certificate
Exhibit A-5 Form of Class A-5 Certificate
Exhibit M-1 Form of Class M-1 Certificate
Exhibit M-2 Form of Class M-2 Certificate
Exhibit B-1 Form of Class B-1 Certificate
Exhibit B-2 Form of Class B-2 Certificate
Exhibit X Form of Class X Certificate
Exhibit R-P Form of Class R-P Certificate
Exhibit R-I Form of Class R-I Certificate
</TABLE>
(i)
<PAGE>
POOLING AND MASTER SERVICING AGREEMENT
THIS SERIES ____-__ POOLING AND MASTER SERVICING AGREEMENT, dated as of
_______ 1, ____, is hereby executed by and among NATIONAL MORTGAGE CERTIFICATES
CORPORATION, a Virginia corporation ("NMSC" or the "Depositor")[,/and]
[_________________], a [national banking association] as trustee (the
"Trustee")[, and [________________], as Certificate insurer (the "Certificate
Insurer")], under this Agreement and the Standard Terms to Pooling and Master
Servicing Agreement, [August 1999] Edition (the "Standard Terms"), all of the
provisions of which, unless otherwise specified herein, are incorporated herein
and shall be a part of this Agreement as if set forth herein in full (this
Agreement with the Standard Terms so incorporated, the "Pooling and Master
Servicing Agreement").
PRELIMINARY STATEMENT
---------------------
The Board of Directors of the Depositor has duly authorized the formation
of a trust (the "Trust") to issue a Series of Certificates with an aggregate
initial outstanding principal balance of $______________ to be known as the
Senior/Subordinated Pass-Through Certificates, Series ____-__ (the
"Certificates"). The Certificates in the aggregate evidence the entire
beneficial ownership in the Trust. The Certificates consist of _____ classes as
set forth herein.
[Pursuant to Section 10.01 of the Standard Terms, the Trustee will make an
election to treat all of the assets of the Trust as two real estate mortgage
investment conduits (each, a "REMIC" and, individually, the "Pooling REMIC" and
the "Issuing REMIC") for federal income tax purposes. The "startup day" of each
REMIC for purposes of the REMIC Provisions is the Closing Date.]
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties hereinafter set forth, the Depositor[,/and] the
Trustee [and the Certificate Insurer] agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Standard Terms.
The Depositor[,/and] the Trustee [and the Certificate Insurer] acknowledge
that the Standard Terms prescribe certain obligations of the Depositor[,/and]
the Trustee [and the Certificate Insurer] with respect to the Certificates. The
Depositor[,/and] the Trustee [and the Certificate Insurer] agree to observe and
perform such prescribed duties, responsibilities and obligations, pursuant to
the terms and conditions thereof and of this Pooling and Master Servicing
Agreement, and acknowledge that, except to the extent inconsistent with the
provisions of this Pooling and Master Servicing Agreement, the Standard Terms
are and shall be a part of this Pooling and Master Servicing Agreement to the
same extent as if set forth herein in full.
<PAGE>
Section 1.02. Defined Terms.
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in Section 1.01 of the Standard Terms or, if not
defined therein, in the Servicing Agreements. In addition, the following
provisions shall govern the defined terms set forth below for this Pooling and
Master Servicing Agreement:
"Aggregate Principal Distribution Amount": With respect to any
---------------------------------------
Distribution Date, an amount equal to the sum of [(a) the Principal Prepayment
Amount for the Pool I Mortgage Assets, (b) the Principal Prepayment Amount for
the Pool II Mortgage Assets, (c) the principal portion of all Monthly Payments
due on the Mortgage Assets during the related Due Period, whether or not
received and (d) the excess of the Aggregate Principal Distribution Amount on
the prior Distribution Date over the principal actually paid on the Certificates
on that date.]
"Bill of Sale": [Each of t/T]he Bill of Sale[s] dated _____ __, ____, by
------------
and among [NMSC], the Depositor and [_________] relating to the [_______]
Mortgage Assets.
"Certificated Certificates": The Certificates.
-------------------------
"Certificated Subordinated Certificates": The [Class B] Certificates.
--------------------------------------
"Class A-1 Certificates": The [Class A] Certificates.
----------------------
"Class A Subaccounts": The [Class A] Subaccounts.
-------------------
"Class A Senior Principal Distribution Amount": [For any Distribution
--------------------------------------------
Date, the sum of (a) the Class A Senior Percentage of the principal portion of
all Monthly Payments on the Pool I Mortgage Assets due during the related Due
Period, whether or not received, (b) the Class A Senior Prepayment Amount, (c)
the amount by which, following the distribution to be made on the Distribution
Date, the Certificate Principal Balance of the Class A-1 Certificates or the
Subaccount Principal Balance of the Class A Subaccount, as applicable, otherwise
would exceed the Scheduled Principal Balance of the Pool I Mortgage Assets;
provided that the amount of this clause (c) shall be limited to the Subordinate
Principal Distribution Amount (as calculated before giving effect to this clause
(c)), and (d) the excess of the Class A Senior Principal Distribution Amount on
the prior Distribution Date over the principal actually paid on the Class A-1
Certificates or Class A Subaccount, as applicable, on that date.]
"Class A Senior Percentage": [For any Distribution Date, the lesser of (a)
-------------------------
100% and (b) the percentage derived by dividing (i) the Certificate Principal
Balance of the Class A-1 Certificates or the Subaccount Principal Balance of the
Class A Subaccount, as applicable, immediately prior to the Distribution Date by
(ii) the Scheduled Principal Balance of the Pool I Mortgage Assets as of the
beginning of the related Due Period.]
"Class A Senior Prepayment Amount": [For any Distribution Date, the Class
--------------------------------
A Senior Prepayment Percentage of the Principal Prepayment Amount of the Pool I
Mortgage Assets received during the related Prepayment Period.]
2
<PAGE>
"Class A Senior Prepayment Percentage": [For each Distribution Date, the
------------------------------------
Class A Senior Percentage for such Distribution Date plus the percentage of the
Pool II Subordinate Percentage identified below for the period during which such
Distribution Date occurs:]
Distribution Date Percent of Subordinate Percentage
----------------- ---------------------------------
[ ]through[ ]................... 100%
[ ]through[ ]................... ___%
[ ]through[ ]................... ___%
[ ]through[ ]................... ___%
[ ]through[ ]................... ___%
[ ]and thereafter....................... 0%
provided, however, that (i) the reduction of the Class A Senior Prepayment
Percentage under the foregoing provisions shall not be made as of any
Distribution Date unless Realized Losses on the Mortgage Assets as of the last
day of the month prior to such Distribution Date, if occurring during the
[sixth, seventh, eighth, ninth or tenth year (or any year thereafter)] after the
first Distribution Date, are less than [30%, 35%, 40%, 45% or 50%],
respectively, of the initial aggregate Certificate Principal Balance of the
Subordinate Certificates or the Subaccount Principal Balances of the Class B
Subaccounts, as applicable; (ii) the Class A Senior Prepayment Percentage for
each Mortgage Pool will once again be 100% on any Distribution Date if the sum
of the Certificate Principal Balance of the Class A-1 Certificates or the
Subaccount Principal Balance of the Class A Subaccounts, as applicable, exceeds
[ ]% of the Scheduled Principal Balance of the Mortgage Assets; and (iii) the
Class A Senior Prepayment Percentage will equal 0% upon reduction of the
Certificate Principal Balance of the Senior Certificates (other than the Class X
Certificates) or the Subaccount Principal Balance of the Class A Subaccounts, as
applicable, to zero.]
"Class A Subaccount": [As defined under the definition of "Subaccounts"
------------------
hereunder.]
"Class A Subaccount Pass-Through Rate": [With respect to any Distribution
------------------------------------
Date, a per annum rate equal to the Pool I Subaccount Pass-Through Rate.]
"Class B ARM Component": The Class BA Subaccount.
----------------------
"Class B Fixed Rate Component": The Class BF Subaccount.
-----------------------------
"Class B Certificates": [ ]
--------------------
"Class B Subaccounts": As defined under the definition of "Subaccounts"
-------------------
hereunder.
"Class Percentage": For each Distribution Date for each Class of
----------------
Certificates, the percentage obtained by dividing the Certificate Principal
Balance of such Class immediately prior to such Distribution Date by the then
aggregate Certificate Principal Balance of all of the Certificates.
"Closing Date": ________ __, ____.
------------
3
<PAGE>
["CMT": With respect to any Distribution Date, the simple average of the
---
average yield for the 12 months ending with the last day in the second month
preceding the applicable Interest Accrual Period, expressed as a per annum rate,
on U.S. Treasury Certificates adjusted on a constant maturity of one year, as
published in the most recent edition of the Federal Reserve Board Statistical
Release No. H.15(519).]
"Corresponding Class": The Class of Certificates corresponding to each
-------------------
Subaccount, as set forth in the definition of "Subaccount" contained herein.
"Custodian": [___________________]
---------
"Custody Agreement": [Each of t/T]he Custody Agreement, dated as of _____
-----------------
__, ____, by and among [NMSC], ________ and _______________ [relating to the
__________ Mortgage Assets, the Custody Agreement, dated as of ________ __,
____, by and among [NMSC], __________ and _____________________, relating to the
__________ Mortgage Assets, and the Custody Agreement, dated as of ________ __,
____, by and among [NMSC], __________ and _____________________, relating to the
__________ Mortgage Assets].
"Cut-off Date": _____ __, ____.
------------
"Distribution Date": With respect to each month, the [19th day] of each
-----------------
month, or if such day is not a Business Day, the Business Day following such
day, beginning in [May 1999].
"Fannie Mae": The Federal National Mortgage Association or any successor
----------
thereto.
["Fitch": Fitch IBCA, Inc. (One State Street Plaza, New York, New York
-----
10004), or its successor.]
"Guaranteed Certificates": The [Class A] Certificates.
-----------------------
"Issuing REMIC": One of the two real estate mortgage investment conduits
-------------
created with respect to the assets of the Trust, which Issuing REMIC consists of
the Distribution Account and the Subaccounts.
"Issuing REMIC Regular Interests": The regular interests in the Issuing
-------------------------------
REMIC, consisting of the Class A and Class B Certificates.
"Issuing REMIC Residual Interest": The Class R-I Certificates which
-------------------------------
represent the residual interest (as defined in Code section 860G(a)(2)) in the
Issuing REMIC.
"Mortgage Assets": [_______________________]
---------------
"Mortgage Pool": The Pool I and Pool II Mortgage Assets.
-------------
["NMSC": National Mortgage Certificates Corporation]
----
4
<PAGE>
"Net Rate": With respect to each Mortgage Asset, the Note Rate of such
--------
Mortgage Asset less the sum of the Servicing Fee Rate, the Trustee Fee Rate and
the Certificate Guaranty Fee Rate, if any, applicable to such Mortgage Asset.
For purposes of calculating the Pass-Through Rates of the Subaccounts and
Certificates, the Net Rate of a Mortgage Asset will be calculated without regard
to any modification, waiver or amendment of the terms of the Mortgage Asset,
whether agreed to by any Servicer or resulting from a bankruptcy, insolvency or
similar proceeding involving the related Mortgagor. Moreover, for purposes of
calculating the Pass-Through Rates, if a Debenture becomes an asset of the
Trust, it will be deemed to bear interest at the Note Rate of the defaulted
Mortgage Asset to which it relates.
"Notional Amount": On any date of determination, the aggregate Subaccount
---------------
Principal Balances of the Class A and Class B Subaccounts.
"P&I Certificates": All Classes of Certificates other than the Residual
----------------
Certificates.
"Pass-Through Rate": With respect to each Class of Certificates on any
-----------------
Distribution Date, the percentage per annum described in Section 4.01. With
respect to each Subaccount on any Distribution Date, the Pass-Through Rates
described herein under the definition of "Subaccount."
"Pool I Mortgage Assets": The Mortgage Assets identified on Schedule I
----------------------
hereto.
"Pool I Subaccount Pass-Through Rate": [With respect to any Distribution
-----------------------------------
Date, the per annum rate equal to the sum of (i) the weighted average of the Net
Rates on the Pool I Mortgage Assets and (ii) the fraction, expressed as a
percentage, equal to (A) the amount of any Pool II Interest Differential for
such Distribution Date divided by (B) the aggregate Subaccount Principal
Balances of the Pool I Subacccounts as of such Distribution Date; provided,
however, that, if a Pool II Surplus Amount exists with respect to any
Distribution Date, the Pool I Subaccount Pass-Through Rate shall equal the sum
of (A) the product of (i) the Pool I WAC Rate and (ii) a fraction, the numerator
of which is the aggregate Scheduled Principal Balance of the Pool I Mortgage
Assets as of the beginning date of the related Due Period and the denominator of
which is the sum of the aggregate Scheduled Principal Balance of the Pool I
Mortgage Assets as of that date and the Pool II Surplus Amount, and (B) the
product of (i) the Pool II WAC Rate and (ii) a fraction, the numerator of which
is the Pool II Surplus Amount and the denominator of which is the sum of the
aggregate Scheduled Principal Balance of the Pool I Mortgage Assets as of that
date and the Pool II Surplus Amount.]
"Pool I Subaccounts": The Class A [and Class [ ] ]Subaccounts.
------------------
"Pool I Subordinate Percentage": For each Distribution Date, the
-----------------------------
difference between 100% and the Class A Senior Percentage.
"Pool I WAC Rate": With respect to any Distribution Date, the weighted
---------------
average of the Net Rates for the Pool I Mortgage Assets as of their respective
Due Dates in the second preceding Due Period, weighted on the basis of the
respective Scheduled Principal Balances of such Mortgage Assets on such Due
Dates.
5
<PAGE>
"Pool II Deficit Amount": With respect to any Distribution Date, the
-----------------------
amount, if any, by which [ ].
"Pool II Difference Amount": With respect to any Distribution Date, an
--------------------------
amount [ ].
"Pool II Interest Differential": For each Distribution Date, an amount
------------------------------
(which may be positive or negative) equal to [ ].
"Pool II Mortgage Assets": The Mortgage Assets identified on Schedule II
------------------------
hereto.
"Pool II Subaccount Pass-Through Rate": With respect to any Distribution
------------------------------------
Date, the Pool II WAC Rate.
"Pool II Subaccounts": The [Class [ ] and Class [ ] Subaccounts].
-------------------
"Pool II Subordinate Percentage": For each Distribution Date, the
------------------------------
difference between 100% and the Class [ ] Senior Percentage.
"Pool II Surplus Amount": With respect to any Distribution Date, the
----------------------
amount, if any, [ ].
"Pool II WAC Rate": [With respect to any Distribution Date that the
----------------
Scheduled Principal Balance of the Pool II Mortgage Assets is greater than zero,
the weighted average Net Rate of the Pool II Mortgage Assets as of the beginning
of the related Due Period. With respect to any Distribution Date that the
Scheduled Principal Balance of the Pool II Mortgage Assets has been reduced to
zero, the lesser of (i) the sum of CMT and [ ]% or (ii) [ ]%.]
"Pooling REMIC": One of the two real estate mortgage investment conduits
-------------
created with respect to the assets of the Trust, which consists of the Mortgage
Assets and the Certificate Account.
"Pooling REMIC Regular Interests": The regular interests in the Pooling
-------------------------------
REMIC, consisting of the Class A and Class B Subaccounts.
"Pooling REMIC Residual Interest": The Class R-P Certificates, which
-------------------------------
represent the residual interest (as defined in Code Section 860G(a)(2)) in the
Pooling REMIC.
"Principal Payment Amount": For any Distribution Date, the sum of the
------------------------
scheduled principal payments on the Mortgage Assets due during the related Due
Period.
"Principal Prepayment Amount": [For the Pool I Mortgage Assets or the Pool
---------------------------
II Mortgage Assets for any Distribution Date, the sum of (i) all partial
principal prepayments and prepayments in full from the related Mortgage Assets
that were received during the related Prepayment Period, (ii) all other
unscheduled collections, including Liquidation Proceeds, Insurance Proceeds and
Condemnation Proceeds, representing or allocable to recoveries of principal of
such related Mortgage Assets, to the extent deposited in the Collection Account
6
<PAGE>
during the related Prepayment Period, and (iii) the principal portion of all
proceeds of the purchase of any related Mortgage Assets, to the extent deposited
in the Collection Account or Certificate Account from the day after the
Determination Date in the month preceding the month of such Distribution Date
through the Determination Date in the month of such Distribution Date.]
"Private Certificates": Each of the Subordinate Certificates and each of
--------------------
the Residual Certificates.
"Private Residual Certificates": The Class R-P and Class R-I Certificates.
-----------------------------
"Qualified Institutional Buyer": Any "qualified institutional buyer" as
-----------------------------
defined in clause 7(a) of Rule 144A promulgated under the Certificates Act.
"Rating Agency": [Fitch].
-------------
"Regular Interest": With respect to the Pooling REMIC, each Subaccount.
----------------
With respect to the Issuing REMIC, the Class A and Class B Certificates.
"Regular Certificates": The Class A and Class B Certificates.
--------------------
"REMIC": Either the Pooling REMIC or the Issuing REMIC.
-----
"Residual Certificates": The Class R-P and Class R-I Certificates issued
---------------------
by the Trust, which represent the "residual interests" in the Pooling REMIC and
Issuing REMIC, respectively.
"Rule 144A Certificates": Each of the Subordinated and Residual
----------------------
Certificates.
"Sale Agreement": [Each of t/T]he Seller's Warranties and Servicing
--------------
Agreement dated as of _____ __, ____, by and between NMSC and ______ relating to
the [ ] Mortgage Assets[ and the Seller's Warranties and Servicing Agreement
dated as of _____ __, ____, by and between NMSC and ______ relating to the [ ]
Mortgage Assets].
"Seller": [_____________].
------
"Senior Principal Distribution Amount": The Class A Senior Principal
------------------------------------
Distribution Amount [or the Class A-2 Senior Principal Distribution Amount, as
applicable].
"Senior Certificates": The Class A, Class R-P and Class R-I Certificates.
-------------------
"Servicer": [_____________].
--------
"Servicing Agreement": [Each of t/T]he Servicing Agreement dated as of
-------------------
______ __, ____, by and between NMSC and ________ relating to the servicing of
the [____________] Mortgage Assets and the Servicing Agreement dated as of
______ __, ____, by and between NMSC and ________ relating to the servicing of
the [____________] Mortgage Assets.
7
<PAGE>
"Servicing Fee Rate": With respect to each Mortgage Asset, a fixed
------------------
percentage per annum as set forth for such Mortgage Asset in the related
Servicing Agreement.
"Subaccount": Each of the following Subaccounts established solely for
----------
purposes of the REMIC Provisions by the Trustee, which have the following Pass-
Through Rates and initial Subaccount Principal Balances:
<TABLE>
<CAPTION>
Initial Subaccount Corresponding
Pass-Through Principal Class of
Subaccount Rate Balance Certificates
---------- ---- ------- ------------
<S> <C> <C> <C>
$_________
$_________
$_________
$_________
</TABLE>
The final scheduled Distribution Date for each Subaccount is the [Month Year]
Distribution Date. For purposes of Treasury Regulation (S) 1.860G-1(a)(4), the
latest possible maturity date for each of the Subaccounts shall be the [Month
Year] Distribution Date.
"Subaccount Principal Balance": With respect to each Subaccount, on any
----------------------------
date of determination, the amount identified as the "Initial Subaccount
Principal Balance" of such Subaccount in the definition of "Subaccount" above,
minus all amounts allocated to such Subaccount Principal Balance pursuant to
Section 3.01(a) below.
"Subordinate Principal Distribution Amount" For any Distribution Date, the
-----------------------------------------
amount by which the Aggregate Principal Distribution Amount for such
Distribution Date exceeds the sum of the Class A Senior Principal Distribution
Amount [and the Class A-2 Senior Principal Distribution Amount] for such
Distribution Date.
"Subordinate Certificates": The Class B Certificates.
------------------------
"Subordinate Subaccounts": The Class B Subaccounts.
-----------------------
"Trust Estate": As defined in Section 2.01 hereof.
------------
"Pooling and Master Servicing Agreement": This Pooling and Master
--------------------------------------
Servicing Agreement, dated as of _______ __, ____, which incorporates by
reference the Standard Terms to Pooling and Master Servicing Agreement, _____
____ edition.
"Trustee": [_______________________], not in its individual capacity but
-------
solely as Trustee under this Pooling and Master Servicing Agreement, or its
successor in interest, or any successor trustee appointed as herein provided.
"Trustee Fee": With respect to each Distribution Date, an amount payable
-----------
to the Trustee equal to the product of one-twelfth of the Trustee Fee Rate and
the aggregate Scheduled Principal Balance of the Mortgage Assets on the first
day of the preceding Due Period.
8
<PAGE>
"Trustee Fee Rate": _____% per annum.
----------------
ARTICLE II
FORMATION OF TRUST; CONVEYANCE OF MORTGAGE ASSETS
Section 2.01. Conveyance to the Trustee.
To provide for the distribution of the principal of and interest on the
Certificates in accordance with their terms, all of the sums distributable under
this Pooling and Master Servicing Agreement with respect to the Certificates and
the performance of the covenants contained in this Pooling and Master Servicing
Agreement, the Depositor hereby bargains, sells, conveys, assigns and transfers
to the Trustee, in trust, without recourse and for the exclusive benefit of the
Holders of the Certificates, all of the Depositor's right, title and interest in
and to any and all benefits accruing to the Depositor from: (a) the Mortgage
Assets listed on Schedule I and Schedule II hereto, with respect to which the
---------- -----------
Depositor is causing to be delivered to the Custodian, as agent and bailee for
the Trustee, the related Trustee Mortgage Asset Files, and all Monthly Payments
due thereon after the Cut-off Date and all principal prepayments collected with
respect to the Mortgage Assets and paid by a Borrower on or after the Cut-off
Date, and proceeds of the conversion, voluntary or involuntary, of the
foregoing; (b) the Sale Agreements; provided that Depositor hereby reserves its
right to indemnification under the Sale Agreements; (c) the Custody Agreements;
(d) the Bill of Sales; (e) the Servicing Agreements; (f) the Distribution
Account, the Certificate Account, the Reserve Account and the Collection Account
and (g) proceeds of all the foregoing (including, but not by way of limitation,
all amounts, other than investment earnings, from time to time held or invested
in the Collection Account and the Certificate Account, whether in the form of
cash, instruments, Certificates or other property, all proceeds of any mortgage
insurance, mortgage guarantees, hazard insurance, or title insurance policy
relating to the Mortgage Assets, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables,
which at any time constitute all or part or are included in the proceeds of any
of the foregoing) to pay the Certificates as specified herein (items (a) through
(g) above shall be collectively referred to herein as the "Trust Estate").
The foregoing sale, transfer, assignment, set-over and conveyance does not
and is not intended to result in the creation of an assumption by the Trustee of
any obligation of the Depositor, the Seller or any other person in connection
with the Mortgage Assets, the Sale Agreements, the Servicing Agreements, the
Bill of Sales or under any agreement or instrument relating thereto except as
specifically set forth herein.
Section 2.02. Acceptance by the Trustee.
By its execution of this Agreement, the Trustee acknowledges and declares
that it holds and will hold or has agreed to hold all documents delivered to it
from time to time with respect to the Mortgage Assets and all assets included in
the definition of "Trust Estate" herein in trust for the exclusive use and
benefit of all present and future Holders of the Certificates [and for the
Certificate Insurer]. The Trustee has not created and will not create, and no
Officer of the Trustee has any actual knowledge or has received actual notice
of, any interest in the Trust
9
<PAGE>
contrary to the interests created by the Pooling and Master Servicing Agreement.
The Trustee has not entered, and does not intend to enter, into any
subordination agreement or intercreditor agreement with respect to any assets
included in the Trust.
Section 2.03. REMIC Elections.
Elections shall be made to treat the assets of the Trust described in the
definition of the term "Pooling REMIC" and the assets of the Trust described in
the definition of the term "Issuing REMIC" as separate REMICs for federal income
tax purposes. The Pooling REMIC Regular Interests will constitute the regular
interests in the Pooling REMIC, and the Class R-P Certificates will constitute
the residual interest in such REMIC. The Class A, Class M, Class B, and Class X
Certificates will constitute the regular interests in the Issuing REMIC, and the
Class R-I Certificates will constitute the residual interest in the Issuing
REMIC.
ARTICLE III
REMITTING TO CERTIFICATEHOLDERS
Section 3.01. Distributions to Certificateholders.
(a) In accordance with Section 3.01(b) of the Standard Terms, on each
Distribution Date, the Trustee (or the Paying Agent on behalf of the Trustee)
shall withdraw the Available Distribution from the Certificate Account, and
shall distribute it in the following manner and order of priority:
[As determined with respect to each transaction]
(b) In accordance with Section 3.01(b) of the Standard Terms, on each
Distribution Date, after all Subaccount allocations have been made as described
in Section 3.01(a) above and 3.02(a)(i) below, the Trustee (or the Paying Agent
on behalf of the Trustee) shall withdraw all amounts allocated to the various
Subaccounts and deposited in the Distribution Account, and shall allocate and,
subject to section 3.01(c), distribute such amounts in the following manner and
order of priority:
[As determined with respect to each transaction]
(c) All distributions or allocations made with respect to each Class on
each Distribution Date shall be allocated pro rata among the outstanding
Certificates of such Class based on the Certificate Principal Balance [(or
Notional Amount, in the case of the Class X Certificates)] of each such
Certificate. [Notwithstanding Section 3.01(b), because the Certificate Insurer
is required to distribute the Guaranteed Distribution amount directly to the
holders of the Guaranteed Certificates pursuant to Section 3.07 of the Standard
Terms, amounts otherwise to be distributed to the Guaranteed Certificates shall
not be actually distributed by the Trustee to the holders of such Guaranteed
Certificates.] Payment shall be made either (1) by check mailed to the address
of each Certificateholder as it appears in the Certificate Register on the
Record Date immediately prior to such Distribution Date or (2) with respect to
the Regular Certificates, by wire transfer of immediately available funds to the
account of a Holder at a bank or other entity
10
<PAGE>
having appropriate facilities therefor, if such Holder shall have so notified
the Trustee in writing by the Record Date immediately prior to such Distribution
Date and such Holder is the registered owner of Regular Certificates with an
initial principal amount of at least $[1,000,000] (or, with respect to Class M-1
and Class M-2, at least $[500,000], and, with respect to the Class X
Certificates, an initial Notional Amount of $[5,000,000]). The Trustee may
charge the Holder a fee for any payment made by wire transfer. Final
distribution on the Certificates will be made only upon surrender of the
Certificates at the offices of the Certificate Registrar set forth in the notice
of such final distribution.]
(d) (1) Any amounts remaining in the Certificate Account on any
Distribution Date after all allocations and distributions required to be
made by this Pooling and Master Servicing Agreement have been made, and any
amounts remaining in the Pooling REMIC after payment in full of all of the
Pooling REMIC Regular Interests and any administrative expenses associated
with the Trust, will be distributed to the Holders of the Pooling REMIC
Residual Interest.
(2) Any amounts remaining in the Distribution Account on any
Distribution Date after all distributions required to be made by this
Pooling and Master Servicing Agreement have been made, and any amounts
remaining in the Issuing REMIC after payment in full of the Issuing REMIC
Regular Interests and any administrative expenses associated with the
Trust, will be distributed to the Holders of the Issuing REMIC Residual
Interest.
Section 3.02. Allocation of Realized Losses and Shortfalls.
(i) (a) Realized Losses.
---------------
(b) Interest Shortfall. Notwithstanding anything in the Standard
------------------
Terms to the contrary, on each Distribution Date, before any distributions are
made on the Certificates, Month End Interest Shortfall and Soldiers' and
Sailors' Shortfall with respect to the Mortgage Assets in the Pooling REMIC
shall be allocated to reduce the amount of interest distributable on the
Subaccounts. Shortfall allocated to the Subaccounts shall be allocated to each
Subaccount in proportion to the amount of interest that each such Class of
Subaccount otherwise would have been entitled to receive. Any Shortfall
allocated to the Subaccounts in turn shall be allocated to reduce the amount of
interest distributable on the Corresponding Class of Certificates.
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates.
The Certificates will be designated generally as the Senior/Subordinated
Pass-Through Certificates, Series ____-__. The aggregate principal amount of
Certi ficates that may be executed and delivered under this Agreement is limited
to $______________, except for Certificates executed and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Certificates pursuant to Sections 5.03 or 5.05 of the Standard Terms. On the
Closing
11
<PAGE>
Date, the Trustee shall execute, and the Certificate Registrar shall
authenticate and deliver Pass-Through Certificates in the names and amounts and
to the Persons as directed by the Depositor. The following table sets forth the
Classes of Certificates and initial Certificate Principal Balance and Final
Distribution Date for each Class of the Certificates:
Final
Initial Certificate Scheduled
Principal Pass-Through Distribution
Class Balance Rate Date
----- ------- ---- ----
$[ ] [ ]%
$[ ] [ ]%
__________________
Section 4.02. Denominations.
Each of the Certificates will be issued in fully-registered, certificated
form. The Class A and the Subordinate Certificates will be issued in minimum
denominations of $[250,000] and integral multiples of $1 in excess thereof. The
Class R-P and Class R-I Certificates will be issued in minimum percentage
interests of [99]%; provided that one Class R-P and one Class R-I Certificate
will be issued in percentage interests of 1%. [The Class X Certificates will be
issued in minimum initial Notional Amounts of $[5,000,000] and integral
multiples of $1 in excess thereof.] In addition, one Certificate of each Class
(other than Class R-P and Class R-I) may be issued evidencing the sum of an
authorized denomination thereof and the remainder of the aggregate initial
Certificate Principal Balance or Notional Amount of such Class.
Section 4.04. Certificates Laws Restrictions.
Each of the Private Certificates is a Private Certificate subject to the
restrictions on transfer contained in Section 5.05(a) of the Standard Terms.
Furthermore, each of the Private Certificates is a Rule 144A Certificate. The
Class B Certificates are Certificated Subordinated Certificates subject to the
restrictions set forth in Section 5.05(b)(ii) of the Standard Terms. The Class
R-P and R-I Certificates are Private Residual Certificates subject to Section
5.05(c) of the Standard Terms.
ARTICLE V
MISCELLANEOUS PROVISIONS
[Section 5.01. Request for Opinions.
(a) The Depositor hereby requests and authorizes Hunton & Williams, as its
counsel in this transaction, to issue on behalf of the Depositor such legal
opinions to the Trustee and the Rating Agency as may be (i) required by any and
all documents, certificates or agreements executed in connection with the Trust,
or (ii) requested by the Trustee, the Rating Agency or their respective
counsels.
12
<PAGE>
(b) The Trustee hereby requests and authorizes its counsel to issue on
behalf of the Trustee such legal opinions to [the Depositor and NMSC] as may be
required by any and all documents, certificates or agreements executed in
connection with the establishment of the Trust and the issuance of the
Certificates.
[(c) The Certificate Insurer hereby requests and authorizes its counsel to
issue on behalf of the Certificate Insurer such legal opinions to the Trustee
and the Depositor as may be required by any and all documents, certificates or
agreements executed in connection with the Trust.]]
Section 5.02. Schedules and Exhibits.
Each of the Schedules and Exhibits attached hereto or referenced herein are
incorporated herein by reference as contemplated by the Standard Terms. Each
Class of Certificates shall be in substantially the form attached hereto, as set
forth in the Exhibit index.
Section 5.03. Governing Law.
This Pooling and Master Servicing Agreement shall be construed in
accordance with the laws of the State of New York, without reference to the
conflict of laws principles thereof.
Section 5.04. Counterparts.
This Pooling and Master Servicing Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original but
all of such counterparts shall together constitute but one and the same
instrument.
Section 5.05. Notices.
The address of the rating agency required to be stated herein pursuant to
Section 11.08(d) of the Standard Terms is [Fitch IBCA, Inc., One State Street
Plaza, 31st Floor, New York, New York 10004].
13
<PAGE>
IN WITNESS WHEREOF, the Depositor[,/and] the Trustee [and the Certificate
Insurer] have caused this Pooling and Master Servicing Agreement to be duly
executed by their respective officers thereunto duly authorized and their
respective signatures duly attested all as of the [1st] day of ______ _____.
NATIONAL MORTGAGE CERTIFICATES CORPORATION,
as Depositor
By: ____________________________________
Its: Chief Executive Officer
------------------------------------
[____________________________________],
not in its individual capacity, but solely in its
capacity as Trustee under this Pooling and Master
Servicing Agreement
By: _____________________________________
Its: Assistant Vice President
-------------------------------------
[[________________],
as Certificate Insurer
By: _____________________________________
Its: _____________________________________]
14
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule I Pool I Mortgage Assets
Schedule II Pool II Mortgage Assets
Exhibit A Form of Class A Certificate
Exhibit M Form of Class M Certificate
Exhibit B Form of Class B Certificate
Exhibit X Form of Class X Certificate
Exhibit R-P Form of Class R-P Certificate
Exhibit R-I Form of Class R-I Certificate
15
<PAGE>
Exhibit 4.2
_______________________________________________________________________________
STANDARD TERMS
TO
POOLING AND MASTER SERVICING AGREEMENT
______________________________________________
National Mortgage Securities Corporation
Pass-Through Certificates
September 1999 Edition
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
RECITALS...................................................................................................... 1
STANDARD TERMS................................................................................................ 1
ARTICLE I DEFINITIONS......................................................................................... 1
Section 1.01. Defined Terms......................................................................... 1
Accounting Date...................................................................................... 1
Advance.............................................................................................. 1
Affiliate............................................................................................ 1
Annual Compliance Statement.......................................................................... 1
ARM Loan............................................................................................. 1
Asset Proceeds Account............................................................................... 1
Available Distribution............................................................................... 1
Basis Limit Amount................................................................................... 2
Beneficial Owner..................................................................................... 2
Benefit Plan Affidavit............................................................................... 2
Benefit Plan Opinion................................................................................. 2
Book-Entry Securities................................................................................ 2
Borrower............................................................................................. 2
Business Day......................................................................................... 2
Certificate of Title Insurance....................................................................... 2
Class................................................................................................ 2
Clearing Agency...................................................................................... 2
Clearing Agency Participant.......................................................................... 2
Closing Date......................................................................................... 3
Code................................................................................................. 3
Converted Mortgage Loan.............................................................................. 3
Corporate Trust Office............................................................................... 3
Custodian............................................................................................ 3
Cut-off Date......................................................................................... 3
Defect Discovery Date................................................................................ 3
Deleted Mortgage Loan................................................................................ 3
Directly Operate..................................................................................... 3
Disqualified Organization............................................................................ 3
Disqualified Organization Affidavit.................................................................. 3
Distribution Account................................................................................. 3
Distribution Date.................................................................................... 3
Double REMIC Series.................................................................................. 3
Due Period........................................................................................... 4
Eligible Account..................................................................................... 4
ERISA................................................................................................ 4
Event of Default..................................................................................... 4
Final Certification.................................................................................. 4
Fiscal Year.......................................................................................... 4
FNMA Guidelines...................................................................................... 4
</TABLE>
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<TABLE>
<S> <C>
Fraud Losses......................................................................................... 4
Holders or Securityholders........................................................................... 4
Independent Contractor............................................................................... 4
Initial Certification................................................................................ 4
Insurer.............................................................................................. 5
Interim Certification................................................................................ 5
Issuing REMIC........................................................................................ 5
Letter of Credit..................................................................................... 5
Loan-to-Value Ratio.................................................................................. 5
Master Servicer...................................................................................... 5
Master Servicer Compensation......................................................................... 5
Master Servicer Custodial Account.................................................................... 5
Master Servicer Errors and Omissions Insurance Policy................................................ 5
Master Servicer Fidelity Bond........................................................................ 5
Master Servicer Remittance Date...................................................................... 5
Master Servicer Reporting Date....................................................................... 6
Master Servicing Fee................................................................................. 6
Master Servicing Fee Rate............................................................................ 6
Mortgage Assets...................................................................................... 6
Mortgage Asset Schedule.............................................................................. 6
Mortgagor Bankruptcy Losses.......................................................................... 6
Negative Amortization Amount......................................................................... 6
Net Rate............................................................................................. 6
New Lease............................................................................................ 6
Non-Recoverable Advance.............................................................................. 6
Non-U.S. Person...................................................................................... 6
Note................................................................................................. 7
Officer.............................................................................................. 7
Opinion of Counsel................................................................................... 7
Pass-Through Rate.................................................................................... 7
Paying Agent......................................................................................... 7
Percentage Interest.................................................................................. 7
Permitted Investments................................................................................ 7
Person............................................................................................... 8
Plan................................................................................................. 8
Plan Asset Regulations............................................................................... 8
Plan Investor........................................................................................ 8
Pooling and Master Servicing Agreement............................................................... 8
Pooling REMIC........................................................................................ 8
Pooling REMIC Subaccounts............................................................................ 8
Prepayment Period.................................................................................... 8
Private Security..................................................................................... 8
Purchase Price....................................................................................... 8
Purchaser............................................................................................ 9
Qualification Defect................................................................................. 9
Qualified Institutional Buyer........................................................................ 9
Qualified Substitute Mortgage Asset.................................................................. 9
Rating Agency........................................................................................ 10
Realized Interest Shortfall.......................................................................... 10
Realized Loss........................................................................................ 10
Record Date.......................................................................................... 10
Recordation Report................................................................................... 10
Redeeming Purchase................................................................................... 10
Redemption Account................................................................................... 10
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Redemption Date...................................................................................... 10
Redemption Price..................................................................................... 10
Regular Interest..................................................................................... 10
Regular Security..................................................................................... 10
REMIC................................................................................................ 10
REMIC Provisions..................................................................................... 11
Remittance Date...................................................................................... 11
Remittance Report.................................................................................... 11
Rents From Real Property............................................................................. 11
REO.................................................................................................. 11
REO Disposition...................................................................................... 11
Request for Release.................................................................................. 11
Reserve Fund......................................................................................... 11
Residual Interest.................................................................................... 11
Residual Security.................................................................................... 11
Residual Transferee Agreement........................................................................ 11
Rule 144A............................................................................................ 11
Rule 144A Agreement.................................................................................. 11
Rule 144A Securities................................................................................. 11
Scheduled Principal Balance.......................................................................... 11
Securities Act....................................................................................... 11
Security............................................................................................. 11
Security Principal Balance........................................................................... 12
Security Register and Security Registrar............................................................. 12
Seller............................................................................................... 12
Senior Percentage.................................................................................... 12
Senior Prepayment Percentage......................................................................... 12
Series............................................................................................... 12
Servicer............................................................................................. 12
Servicing Agreement.................................................................................. 12
Shortfall............................................................................................ 12
Soldiers'and Sailors'Shortfall....................................................................... 12
Special Hazard Insurance Policy...................................................................... 12
Special Hazard Losses................................................................................ 12
Special Tax Consent.................................................................................. 12
Special Tax Opinion.................................................................................. 12
Standard Terms....................................................................................... 12
Subaccount........................................................................................... 13
TAPRI Certificate.................................................................................... 13
Tax Matters Person................................................................................... 13
Terminating Purchase................................................................................. 13
Termination Account.................................................................................. 13
Termination Price.................................................................................... 13
Transferee Agreement................................................................................. 13
Trust................................................................................................ 13
Trust Estate......................................................................................... 13
Trustee.............................................................................................. 13
Trustee Mortgage Asset File.......................................................................... 13
UCC.................................................................................................. 14
Unpaid Principal Balance............................................................................. 14
U.S. Person.......................................................................................... 14
Voting Rights........................................................................................ 14
Withholding Agent.................................................................................... 15
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE II MORTGAGE ASSET FILES............................................................................... 15
Section 2.01. Mortgage Asset Files.................................................................. 15
Section 2.02. Acceptance by the Trustee............................................................. 15
Section 2.03. Purchase or Substitution of Mortgage Assets by the Seller, the Servicer or the
Company............................................................................... 17
Section 2.04. Representations and Warranties of the Company......................................... 21
Section 2.05. Representations, Warranties and Covenants of the Master Servicer...................... 22
ARTICLE III ADMINISTRATION OF THE TRUST....................................................................... 23
Section 3.01. Master Servicer Custodial Account..................................................... 23
Section 3.02. Asset Proceeds Account................................................................ 24
Section 3.03. Issuing REMIC Accounts................................................................ 25
Section 3.04. Advances by Master Servicer and Trustee............................................... 25
Section 3.05. Month End Interest.................................................................... 27
Section 3.06. Trustee to Cooperate; Release of Mortgage Files....................................... 27
Section 3.07. Reports to the Trustee; Annual Compliance Statements.................................. 28
Section 3.08. Title, Management and Disposition of Any REO.......................................... 28
Section 3.09. Amendments to Servicing Agreements.................................................... 31
Section 3.10. Oversight of Servicing................................................................ 31
ARTICLE IV REPORTING/REMITTING TO SECURITYHOLDERS............................................................. 32
Section 4.01. Statements to Securityholders......................................................... 32
Section 4.02. Remittance Reports.................................................................... 33
Section 4.03. Compliance with Withholding Requirements.............................................. 34
Section 4.04. Reports of Security Principal Balances to The Depository Trust Company................ 34
Section 4.05. Preparation of Regulatory Reports..................................................... 34
ARTICLE V THE POOLING INTERESTS AND THE SECURITIES............................................................ 35
Section 5.01. Pooling REMIC Interests............................................................... 35
Section 5.02. The Securities........................................................................ 35
Section 5.03. Book-Entry Securities................................................................. 36
Section 5.04. Registration of Transfer and Exchange of Securities................................... 36
Section 5.05. Restrictions on Transfer.............................................................. 37
Section 5.06. Mutilated, Destroyed, Lost or Stolen Securities....................................... 39
Section 5.07. Persons Deemed Owners................................................................. 39
Section 5.08. Appointment of Paying Agent........................................................... 39
ARTICLE VI THE COMPANY AND THE MASTER SERVICER................................................................ 39
Section 6.01. Liability of the Company and the Master Servicer...................................... 39
Section 6.02. Merger or Consolidation of the Company or the Master Servicer......................... 39
Section 6.03. Limitation on Liability of the Company, the Master Servicer and Others................ 40
Section 6.04. Resignation of the Master Servicer.................................................... 40
Section 6.05. Compensation to the Master Servicer................................................... 40
Section 6.06. Assignment or Delegation of Duties by the Master Servicer............................. 41
ARTICLE VII TERMINATION OF SERVICING AND MASTER SERVICING ARRANGEMENTS....................................... 41
Section 7.01. Termination and Substitution of Servicing Agreements.................................. 41
Section 7.02. Termination of Master Servicer; Trustee to Act........................................ 42
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Section 7.03. Notification to Securityholders...................................................... 43
ARTICLE VIII CONCERNING THE TRUSTEE........................................................................... 44
Section 8.01. Duties of Trustee.................................................................... 44
Section 8.02. Certain Matters Affecting the Trustee................................................ 45
Section 8.03. Trustee Not Liable for Securities or Mortgage Assets................................. 46
Section 8.04. Trustee May Own Securities........................................................... 46
Section 8.05. Trustee's Fees and Expenses.......................................................... 46
Section 8.06. Eligibility Requirements for Trustee................................................. 47
Section 8.07. Resignation and Removal of the Trustee............................................... 47
Section 8.08. Successor Trustee.................................................................... 48
Section 8.09. Merger or Consolidation of Trustee................................................... 48
Section 8.10. Appointment of Co-Trustee or Separate Trustee........................................ 48
Section 8.11. Appointment of Custodians............................................................ 49
Section 8.12. Trustee May Enforce Claims Without Possession of Certificates........................ 49
ARTICLE IX REDEMPTION OF SECURITIES AND TERMINATION OF TRUST.................................................. 49
Section 9.01. Redemption........................................................................... 49
Section 9.02. Termination.......................................................................... 50
Section 9.03. Procedure for Redemption or Termination.............................................. 50
Section 9.04. Additional Termination Requirements.................................................. 51
ARTICLE X REMIC TAX PROVISIONS................................................................................ 52
Section 10.01. REMIC Administration................................................................. 52
Section 10.02. Prohibited Activities................................................................ 53
ARTICLE XI MISCELLANEOUS PROVISIONS........................................................................... 54
Section 11.01. Amendment of Pooling and Master Servicing Agreement.................................. 54
Section 11.02. Recordation of Agreement; Counterparts............................................... 54
Section 11.03. Limitation on Rights of Securityholders.............................................. 55
Section 11.04. Notices.............................................................................. 55
Section 11.05. Severability of Provisions........................................................... 56
Section 11.06. Sale of Mortgage Assets.............................................................. 56
Section 11.07. Notice to Rating Agency.............................................................. 56
</TABLE>
Exhibit A-1 Form of Initial Certification
Exhibit A-2 Form of Interim Certification
Exhibit A-3 Form of Final Certification
Exhibit B Form of Recordation Report
Exhibit C Form of Remittance Report
Exhibit D Form of Rule 144A Agreement - QIB Certification
Exhibit E Form of Transferee Agreement
Exhibit F Form of Benefit Plan Affidavit
Exhibit G Form of Residual Transferee Agreement
Exhibit H-1 Form of Non-U.S. Person Affidavit
Exhibit H-2 Form of U.S. Person Affidavit
(v)
<PAGE>
RECITALS
National Mortgage Securities Corporation (the "Company"), a corporation
licensed to perform servicing activities (the "Master Servicer") and a banking
association or corporation as trustee (the "Trustee") have entered into a
Pooling and Master Servicing Agreement that provides for the issuance of
pass-through certificates ("Securities") that in the aggregate evidence the
entire interest in Mortgage Assets or certificates or securities evidencing an
interest therein and other property owned by the Trust created by such Pooling
and Master Servicing Agreement. These Standard Terms are a part of, and are
incorporated by reference into, the Pooling and Master Servicing Agreement.
STANDARD TERMS
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made in the Pooling and Master Servicing
Agreement and as hereinafter set forth, the Company, the Master Servicer and the
Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms.
Except as otherwise specified herein or in a Pooling and Master
Servicing Agreement or as the context may otherwise require, whenever used in
this Agreement, the following words and phrases shall have the meanings
specified in this Article. Capitalized words and phrases used herein but not
defined herein shall, when applied to a Trust, have the meanings set forth in
the Servicing Agreement(s) assigned to such Trust as in effect on the date of
this Agreement. Unless otherwise specified, all calculations described herein
shall be made on the basis of a 360-day year consisting of twelve 30-day months.
"Accounting Date": With respect to each Distribution Date, the last day
of the month preceding the month in which such Distribution Date occurs.
"Advance": As to any Mortgage Asset, any advance of principal and
interest, taxes, insurance or expenses made by a Servicer, the Master Servicer,
the Trustee or an Insurer.
"Affiliate": Any person or entity controlling, controlled by or under
common control with the Company or the Master Servicer. "Control" means the
power to direct the management and policies of a person or entity, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "Controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Annual Compliance Statement": The Officer's Certificate required to be
delivered annually by the Master Servicer pursuant to Section 3.07 hereof.
"ARM Loan": An "adjustable rate" mortgage loan, the Note Rate of which
is subject to periodic adjustment in accordance with the terms of the Note.
"Asset Proceeds Account": The account or accounts created and
maintained for a Trust pursuant to Section 3.02 hereof.
"Available Distribution": Unless otherwise provided in the Pooling and
Master Servicing Agreement, on each Distribution Date the Available Distribution
shall equal the sum of the following:
(a) Monthly Payments due during the preceding Due Period, to the
extent paid by the Borrower or advanced by a Servicer, the Master Servicer, the
Trustee or an Insurer;
<PAGE>
(b) all amounts deposited in the Asset Proceeds Account on account of
Mortgage Assets sold by the Trust to a Purchaser during the preceding Prepayment
Period; and
(c) all other payments (other than late charges, conversion fees and
similar charges and fees retained by a Servicer pursuant to the related
Servicing Agreeement) received by the Trust in connection with any unscheduled
principal payments or recoveries on the Mortgage Assets during the preceding
Prepayment Period, including Liquidation Proceeds and Insurance Proceeds,
together with interest received on the principal portion thereof by the Trust
(including Month End Interest paid by a Servicer or the Master Servicer) through
the Accounting Date preceding the Distribution Date, less the sum of (i)
expenses associated with such recovery, and (ii) any unreimbursed Advances on
such Mortgage Assets;
minus the Servicing Fee and Master Servicing Fee allocable to each Mortgage
Asset from payments or Advances on, or proceeds of, such Mortgage Asset, and
Non-Recoverable Advances to the extent required to be reimbursed.
"Basis Limit Amount": With respect to a Mortgage Asset purchased from a
REMIC, an amount equal to the REMIC's adjusted federal income tax basis in such
Mortgage Asset as of the date on which the purchase occurs as set forth in a
certificate of an Officer of the Master Servicer, which certificate shall be
delivered to the Trustee in connection with any purchase of a Mortgage Asset.
"Beneficial Owner": With respect to a Book-Entry Security, the Person
who is registered as owner of that Security in the books of the Clearing Agency
for that Security or in the books of a Person maintaining an account with such
Clearing Agency.
"Benefit Plan Affidavit": An affidavit substantially in the form of
Exhibit F hereto.
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"Benefit Plan Opinion": An Opinion of Counsel satisfactory to the
Master Servicer and the Trustee (and upon which the Company, the Master
Servicer, the Tax Matters Person and the Trustee are authorized to rely) to the
effect that the proposed transfer will not (a) cause the assets of the Trust to
be regarded as plan assets for purposes of the Plan Asset Regulations, (b) give
rise to any fiduciary duty under ERISA, on the part of the Company, the Master
Servicer, or the Trustee or any of the Servicers, or (c) result in, or be
treated as, a prohibited transaction under Sections 406 or 407 of ERISA or
Section 4975 of the Code. Obtaining a Benefit Plan Opinion shall not be a cost
or expense of the Company, the Master Servicer, the Tax Matters Person or the
Trustee.
"Book-Entry Securities": The Classes of Securities, if any, specified
as such in the Pooling and Master Servicing Agreement for a Series.
"Borrower": The individual or individuals or any of the Servicers
obligated to repay a Mortgage Asset.
"Business Day": Any day that is not a Saturday, Sunday, holiday, or
other day on which commercial banking institutions in the city and state in
which the Corporate Trust Office (and the office of the Custodian, if any) are
located are authorized or obligated by law or executive order to be closed.
"Certificate of Title Insurance": A certificate of title insurance
issued pursuant to a master title insurance policy.
"Class": Collectively, all of the Securities bearing the same
designation.
"Clearing Agency": The Depository Trust Company, or any successor
organization or any other organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and
the regulations of the Securities and Exchange Commission thereunder.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
-2-
<PAGE>
"Closing Date": The date on which Securities are issued by a Trust as
set forth in the related Pooling and Master Servicing Agreement.
"Code": The Internal Revenue Code of 1986, as amended.
"Converted Mortgage Loan": An ARM Loan with respect to which the
Borrower has complied with the applicable requirements of the Note to convert
the Note Rate to a fixed rate of interest, and the related Servicer has
processed such conversion.
"Corporate Trust Office": The principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered.
"Custodian": The Trustee or the agent for the Trustee identified in the
Pooling and Master Servicing Agreement which shall hold all or a portion of the
Trustee Mortgage Asset Files with respect to a Series.
"Cut-off Date": The date specified as such in the Pooling and Master
Servicing Agreement.
"Defect Discovery Date": With respect to a Mortgage Asset, the date on
which either the Trustee or the Master Servicer first discovers a Qualification
Defect affecting the Mortgage Asset.
"Deleted Mortgage Asset": A Mortgage Asset replaced or to be replaced
by a Qualified Substitute Mortgage Asset.
"Directly Operate": With respect to any REO, the furnishing or
rendering of services to the tenants thereof, the management or operation of
such REO, or any use of such REO in a trade or business conducted by the Trust,
in each case other than through an Independent Contractor; provided, however,
that the Trustee or the Master Servicer on behalf of the Trust shall not be
considered to Directly Operate an REO Property solely because the Trustee or the
Master Servicer on behalf of the Trust establishes rental terms, chooses
tenants, enters into or renews leases, deals with taxes and insurance, or makes
decisions as to repairs or maintenance with respect to such REO.
"Disqualified Organization": Either (a) the United States, (b) any
state or political subdivision thereof, (c) any foreign government, (d) any
international organization, (e) any agency or instrumentality of any of the
foregoing, (f) any tax-exempt organization (other than a cooperative described
in section 521 of the Code) that is exempt from federal income tax unless such
organization is subject to tax under the unrelated business taxable income
provisions of the Code, (g) any organization described in section 1381(a)(2)(C)
of the Code, or (h) any other entity identified as a disqualified organization
by the REMIC Provisions. A corporation will not be treated as an instrumentality
of the United States or any state or political subdivision thereof if all of its
activities are subject to tax and, with the exception of the Federal Home Loan
Mortgage Corporation, a majority of its board of directors is not selected by
such governmental unit.
"Disqualified Organization Affidavit": If provided by a Non-U.S.
Person, an affidavit substantially in the form of Exhibit H-1 hereto, and, if
-----------
provided by a U.S. Person, an affidavit substantially in the form of Exhibit H-2
-----------
hereto.
"Distribution Account": With respect to any Double REMIC Series, an
Eligible Account maintained by the Trustee for each Issuing REMIC. Unless
otherwise provided in the Pooling and Master Servicing Agreement, the
Distribution Account shall be considered an asset of the Issuing REMIC.
"Distribution Date": Unless otherwise provided in the Pooling and
Master Servicing Agreement, the 25th day of any month, or the next Business Day
if the 25th is not a Business Day, commencing in the month following the Closing
Date.
"Double REMIC Series": A Trust with respect to which two REMIC
elections are made to form the Issuing REMIC and Pooling REMIC.
-3-
<PAGE>
"Due Period": With respect to any Distribution Date, the period
commencing on the [second] day of the calendar month preceding the calendar
month in which such Distribution Date occurs and continuing through the [first]
day of the month in which such Distribution Date occurs.
"Eligible Account": Either (a) an account or accounts maintained with a
federal or state chartered depository institution or trust company the long-term
or short-term unsecured debt obligations of which (or, in the case of a
depository institution or trust company that is the principal subsidiary of a
holding company, the long-term or short-term unsecured debt obligations of such
holding company) are rated by the Rating Agency in one of its two highest
long-term rating categories or one of its two highest short-term ratings at the
time any amounts are held in deposit therein, or (b) a trust account or accounts
maintained with a federal or state chartered depository institution or trust
company, acting in the capacity of a trustee, in a manner acceptable to the
Rating Agency in respect of mortgage pass-through certificates rated in one of
its two highest rating categories. Eligible Accounts may be interest-bearing
accounts or the funds therein may be invested in Permitted Investments. If
otherwise qualified by this definition, accounts maintained with the Trustee may
constitute Eligible Accounts.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default": An event with respect to the Master Servicer, as
described in Section 7.02 hereof.
"Final Certification": A certification as to the completeness of each
Trustee Mortgage Asset File substantially in the form of Exhibit A-3 hereto
-----------
provided by the Trustee (or the Custodian) on or before the first anniversary of
the Closing Date pursuant to Section 2.02(d) hereof.
"Fiscal Year": Unless otherwise provided in the Pooling and Master
Servicing Agreement, the fiscal year of the Trust shall run from March 1 (or
from the Closing Date, in the case of the first fiscal year) through the last
day of February.
"FNMA Guidelines": The provisions contained in the guide for selling
and servicing first lien residential mortgage loans issued from time to time by
Fannie Mae (formerly the Federal National Mortgage Association).
"Fraud Losses": Losses on Mortgage Assets resulting from fraud,
dishonesty or misrepresentation in the origination of such Mortgage Assets.
"Holders" or "Securityholders": The holders of the Securities, as shown
on the Security Register maintained by the Trustee.
"Independent Contractor": Either (a) any Person (other than the Trustee
or the Master Servicer) that would be an "independent contractor" with respect
to the Trust within the meaning of Section 856(d)(3) of the Code if the Trust
were a real estate investment trust (except that, in applying that Section, more
than 35% of the outstanding principal balance of any Class shall be deemed to be
more than 35% of the certificates of beneficial interest of the Trust), so long
as the Trust does not receive or derive any income from such Person, the
relationship between such Person and the Trust is at arm's length and such
Person is not an employee of the Trust, the Trustee or the Master Servicer, all
within the meaning of Treasury Regulation Section 1.856-4(b)(5), or (b) any
other Person (including the Trustee or the Master Servicer) upon receipt by the
Trustee of an Opinion of Counsel, the expense of which shall constitute an
Advance if borne by the Servicer or any sub-Servicer, to the effect that the
taking of any action in respect of any REO by such Person, subject to any
conditions therein specified, that is otherwise herein contemplated to be taken
by an Independent Contractor will not cause such REO to cease to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code), or cause any income realized in respect of such REO to
fail to qualify as Rents from Real Property.
"Initial Certification": A certification as to the completeness of each
Trustee Mortgage Asset File substantially in the form of Exhibit A-1 hereto
-----------
provided by the Trustee (or the Custodian) on the Closing Date pursuant to
Section 2.02(b) hereof.
-4-
<PAGE>
"Insurer": Any issuer of an insurance policy relating to the Mortgage
Assets or Securities of a Series.
"Interim Certification": A certification as to the completeness of each
Trustee Mortgage Asset File substantially in the form of Exhibit A-2 hereto
-----------
provided by the Trustee (or the Custodian) within 45 days of the Closing Date
pursuant to Section 2.02(c) hereof.
"Issuing REMIC": With respect to any Double REMIC Series, if so
provided in the Pooling and Master Servicing Agreement, the REMIC consisting
primarily of Regular Interests in the Pooling REMIC.
"Letter of Credit": A letter of credit issued to the Trustee and its
successors or assigns by any Person whose long-term unsecured debt obligations
are rated in one of the two highest rating categories of each Rating Agency.
"Loan-to-Value Ratio": For purposes of the REMIC Provisions, the ratio
that results when the Unpaid Principal Balance of a mortgage loan is divided by
the fair market value of the Mortgaged Premises (or, in the case of a mortgage
loan that is secured by a leasehold interest, the fair market value of the
leasehold interest and any improvements thereon). For purposes of determining
that ratio, the fair market value of the Mortgage Premises (or leasehold
interest, as the case may be) must be reduced by (i) the full amount of any lien
on the Mortgaged Premises (or leasehold interest, as the case may be) that is
senior to the mortgage loan and (ii) a pro rata portion of any lien that is in
parity with the mortgage loan.
"Master Servicer": Unless otherwise specified in the Pooling and Master
Servicing Agreement, a national banking association, or any successor thereto as
master servicer of the Trust.
"Master Servicer Compensation": The Master Servicing Fee and additional
compensation as specified in Section 6.05.
"Master Servicer Custodial Account": The account described in Section
3.01 hereof. Subject to the provisions of the Pooling and Master Servicing
Agreement, the owner of the Master Servicer Custodial Account is the Master
Servicer. To the extent provided in the REMIC Provisions or proposed, temporary,
or final Treasury regulations, any amounts transferred to the Master Servicer
Custodial Account shall be treated as amounts distributed by the REMIC or
Pooling REMIC to the Master Servicer. The Master Servicer Custodial Account
shall not be considered an asset of the Trust or any REMIC.
"Master Servicer Errors and Omissions Insurance Policy": Insurance
coverage in an amount and otherwise in form and substance acceptable under FNMA
Guidelines, insuring the Master Servicer as the named insured against liability
for damages arising out of errors, omissions or mistakes committed in the
performance of the services and other obligations required of the Master
Servicer hereunder and, if permitted by the issuer of such policy, naming the
Trustee as an additional insured, containing a severability of interests
provision, but no other exclusion or other provision that would limit the
liability of any insured to any other insured.
"Master Servicer Fidelity Bond": A fidelity bond issued by an insurer
and in form and substance acceptable under FNMA Guidelines, under which such
insurer (a) agrees to indemnify the Master Servicer for all losses sustained as
a result of any theft, embezzlement, fraud or other dishonest act on the part of
the Master Servicer's directors, officers or employees, and (b) provides for
limits of liability under such bond for each director, officer or employee of
not less than an amount required by such guidelines.
"Master Servicer Remittance Date": Unless otherwise provided in the
Pooling and Master Servicing Agreement, (i) the Distribution Date, if the Master
Servicer Custodial Account and Asset Proceeds Account are maintained at the same
bank, or (ii) the Business Day immediately preceding each Distribution Date, if
such Accounts are not maintained at the same bank.
-5-
<PAGE>
"Master Servicer Reporting Date": Unless otherwise provided in the
Pooling and Master Servicing Agreement, the date that is no later than the close
of business on the second Business Day prior to each Distribution Date.
"Master Servicing Fee": Unless otherwise provided in the Pooling and
Master Servicing Agreement, in any month, an amount equal to one-twelfth of the
Master Servicing Fee Rate multiplied by the aggregate Scheduled Principal
Balance of the Mortgage Assets as of the Due Date preceding a Distribution Date
without taking into account any payment of principal due or made on such Due
Date.
"Master Servicing Fee Rate": The rate specified as such in the Pooling
and Master Servicing Agreement.
"Mortgage Assets": The Mortgage Certificates and mortgage loans sold by
the Company to the Trust as listed on the Mortgage Asset Schedule to the Pooling
and Master Servicing Agreement, and any mortgage asset substituted therefor.
"Mortgage Asset Schedule": The list of Mortgage Assets sold by the
Company to the Trust, which Schedule is attached to the Pooling and Master
Servicing Agreement, and which shall set forth for each Mortgage Asset that is a
mortgage loan the following information:
(a) the Servicer (Company) Loan Number;
(b) the Borrower's Name;
(c) the original principal balance; and
(d) the Scheduled Principal Balance as of the Cut-off Date;
together with such additional information as may be reasonably requested by the
Trustee.
"Mortgage Certificates": With respect to a Series, the GNMA
Certificates, the FHLMC Certificates, the FNMA Certificates and the Other
Mortgage Certificates securing such Series.
"Mortgagor Bankruptcy Losses": Losses resulting from any court ordered
reduction in the valuation of Mortgaged Premises or changes in the repayment
terms of a Mortgage Asset in conjunction with a bankruptcy proceeding of a
Borrower or otherwise.
"Negative Amortization Amount": As to a Mortgage Asset, the excess, if
any, of interest accrued at the Note Rate for any month over the greater of (a)
the amount of the Monthly Payment for such month and (b) the interest received
in respect of such month.
"Net Rate": Unless otherwise provided in the Pooling and Master
Servicing Agreement, with respect to each Mortgage Asset that is a mortgage
loan, the Note Rate of that Mortgage Asset less the sum of the Servicing Fee
Rate and the Master Servicing Fee Rate applicable thereto.
"New Lease": Any lease of REO entered into on behalf of the Trust,
including any lease renewed, modified or extended on behalf of the Trust (if the
Trustee, the Master Servicer, the Servicer or an agent of the foregoing, has the
right to renegotiate the terms of such lease).
"Non-Recoverable Advance": Any Advance or proposed Advance that the
Master Servicer or the Trustee, as the case may be, has determined not to be
recoverable in accordance with Section 3.04 hereof.
"Non-U.S. Person": A foreign person within the meaning of Treasury
regulation Section 1.860G-3(a)(1) (i.e., a person other than (a) a citizen or
resident of the United States, (b) a corporation or partnership that is
organized under the laws of the United States or any jurisdiction thereof or
therein, or (c) an estate or trust that is
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subject to United States federal income taxation regardless of the source of its
income) who would be subject to United States income tax withholding pursuant to
Section 1441 or 1442 of the Code on income derived from a Residual Interest.
"Note": A manually executed written instrument evidencing the
Borrower's promise to repay a stated sum of money, plus interest, to the holder
of the Note by a specific date according to a schedule of principal and interest
payments.
"Officer": When used with respect to the Trustee, any senior vice
president, any vice president, any assistant vice president, any assistant
treasurer, any trust officer, any assistant secretary in the Corporate Trust
Office of the Trustee, or any other officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, and also to whom with respect to a particular corporate
trust matter such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. With respect to any other Person, the
chairman of the board, the president, a vice president (however designated), the
treasurer or controller.
"Opinion of Counsel": A written opinion of counsel, who may be counsel
for the Company or the Master Servicer, acceptable to the Trustee and the Master
Servicer. Except with the consent of each Rating Agency, no Opinion of Counsel
may be delivered by in-house counsel of the entity required to deliver such
opinion.
"Pass-Through Rate": With respect to the Securities, as to each
Distribution Date, the rate specified as such in the Pooling and Master
Servicing Agreement.
"Paying Agent": The paying agent appointed pursuant to Section 5.08
hereof.
"Percentage Interest": With respect to any Security to which principal
is assigned as of the Closing Date, the portion of the Class evidenced by such
Security, expressed as a percentage, the numerator of which is the initial
Security Principal Balance of such Security and the denominator of which is the
aggregate Security Principal Balance of all of the Securities of such Class as
of the Closing Date. With respect to any Security to which a principal balance
is not assigned as of the Closing Date, the portion of the Class evidenced by
such Security, expressed as a percentage, as stated on the face of such
Security.
"Permitted Investments": Permitted Investments shall consist of the
following:
(a) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or instrumentality
thereof, provided such obligations are backed by the full faith and credit of
the United States;
(b) senior debt obligations and mortgage participation certificates
of Fannie Mae (formerly the Federal National Mortgage Association) or the
Federal Home Loan Mortgage Corporation;
(c) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in clauses
(a) or (b) above, provided that the long-term or short-term unsecured debt
obligations of the party agreeing to repurchase such obligations are at the time
rated by the Rating Agency in one of its two highest long-term unsecured debt
rating categories or one of its two highest short-term unsecured debt ratings;
(d) money market funds rated in the highest long-term rating
category;
(e) certificates of deposit, time deposits and bankers' acceptances
of any bank or trust company (including the Trustee) incorporated under the laws
of the United States or any state, provided that the long-term unsecured debt
obligations of such bank or trust company at the date of acquisition thereof
(or, in the case of the principal depository institution in a depository
institution holding company, the long-term unsecured debt
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obligations of the depository institution holding company) have been rated by
the Rating Agency in one of its two highest long-term unsecured debt rating
categories;
(f) commercial paper (having original maturities of not more than 365
days) of any corporation incorporated under the laws of the United States or any
state thereof which on the date of acquisition has been rated by the Rating
Agency in its highest short-term unsecured debt rating available (i.e., "P-1" by
Moody's Investors Service, "A-1+" by Standard & Poor's Corporation and "F-1+" by
Fitch Investors Service, Inc.); and
(g) any other demand, money market or time deposit or obligation, or
interest-bearing or other security or investment as would not affect the then
current rating of the Securities by any Rating Agency;
provided, however, that no investment described above shall constitute a
Permitted Investment if such investment evidences either the right to receive
(i) only interest with respect to the obligations underlying such instrument or
(ii) both principal and interest payments derived from obligations underlying
such instrument if the interest and principal payments with respect to such
instrument provide a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations; and provided further, that no
investment described above shall constitute a Permitted Investment unless such
investment matures no later than the Business Day immediately preceding the
Distribution Date on which the funds invested therein are required to be
distributed (or, in the case of an investment that is an obligation of the
institution in which the account is maintained, no later than such Distribution
Date).
"Person": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan": Any employee benefit plan or retirement arrangement, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds in which such plans, accounts, annuities or arrangements are
invested, that are described in or subject to the Plan Asset Regulations, ERISA
or corresponding provisions of the Code.
"Plan Asset Regulations": The Department of Labor regulations set forth
in 29 C.F.R. ss. 2510.3-101, as amended from time to time.
"Plan Investor": Any Plan, any Person acting on behalf of a Plan or any
Person using the assets of a Plan.
"Pooling and Master Servicing Agreement": The Pooling and Master
Servicing Agreement among the Company, the Master Servicer and the Trustee
relating to the issuance of Securities, and into which these Standard Terms are
incorporated by reference.
"Pooling REMIC": With respect to any Double REMIC Series, if so
provided in the Pooling and Master Servicing Agreement, the REMIC consisting
primarily of Mortgage Assets and the Asset Proceeds Account.
"Pooling REMIC Subaccounts": With respect to any Double REMIC Series,
the accounts established by the Trustee that represent the Regular Interests in
the Pooling REMIC.
"Prepayment Period": With respect to each Distribution Date, the
calendar month preceding the month in which such Distribution Date occurs.
"Private Security": Any Class of Securities designated as such in the
Pooling and Master Servicing Agreement.
"Purchase Price": With respect to a Mortgage Asset purchased from the
Trust, an amount equal to the Unpaid Principal Balance of the Mortgage Asset,
plus accrued and unpaid interest thereon at the Note Rate to the last day of the
month in which the purchase occurs, and, if the Servicer is the Purchaser, less
any unreimbursed
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Advances of principal and interest made by the Servicer on such Mortgage Asset
and any outstanding Servicing Fee owed with respect to such Mortgage Asset.
"Purchaser": The Person that purchases a Mortgage Asset from the Trust
pursuant to Section 2.03 hereof.
"Qualification Defect": With respect to a Mortgage Asset, (a) a
defective document in the Trustee Mortgage Asset File, (b) the absence of a
document in the Trustee Mortgage Asset File, or (c) the breach of any
representation, warranty or covenant with respect to the Mortgage Asset made by
the Seller, Servicer or the Company but only if the affected Mortgage Asset
would cease to qualify as a "qualified mortgage" for purposes of the REMIC
Provisions. With respect to a REMIC Regular Interest or a mortgage certificate
described in Section 860G(a)(3) of the Code, the failure to qualify as a
"qualified mortgage" for purposes of the REMIC Provisions.
"Qualified Institutional Buyer": Any "qualified institutional buyer" as
defined in clause (a)1 of Rule 144A.
"Qualified Substitute Mortgage Asset": A Mortgage Asset substituted by
the Company or a Seller for a Deleted Mortgage Asset which must, on the date of
such substitution, (a) have an Unpaid Principal Balance not greater than (and
not more than $10,000 less than) the Unpaid Principal Balance of the Deleted
Mortgage Asset, (b) have a Note Rate not less than (and not more than one
percentage point in excess of) the Note Rate of the Deleted Mortgage Asset, (c)
have a Net Rate equal to the Net Rate of the Deleted Mortgage Asset, (d) have a
remaining term to maturity not greater than (and not more than one year less
than) that of the Deleted Mortgage Asset, (e) have a Loan-to-Value ratio as of
the first day of the month in which the substitution occurs equal to or less
than the Loan-to-Value ratio of the Deleted Mortgage Asset as of such date (in
each case, using the Value at origination, and after taking into account the
Monthly Payment due on such date), and (f) comply with each representation and
warranty set forth in Section 2.04 and, if the Seller is effecting the
substitution, comply with each representation and warranty set forth in the
Sales Agreement. In addition, no ARM Loan may be substituted unless the Deleted
Mortgage Asset is an ARM Loan, in which case, the substituted Mortgage Asset
must also (i) have a Minimum Lifetime Note Rate that is not less than the
Minimum Lifetime Note Rate on the Deleted Mortgage Asset, (ii) have a Maximum
Lifetime Note Rate that is not less than the Maximum Lifetime Note Rate on the
Deleted Mortgage Asset, (iii) provide for a lowest possible Net Rate that is not
lower than the lowest possible Net Rate for the Deleted Mortgage Asset and a
highest possible Net Rate that is not lower than the highest possible Net Rate
for the Deleted Mortgage Asset, (iv) have a Gross Margin not less than the Gross
Margin of the Deleted Mortgage Asset, (v) have a Periodic Rate Cap equal to the
Periodic Rate Cap on the Deleted Mortgage Asset, (vi) have a next Interest
Adjustment Date that is the same as the next Interest Adjustment Date for the
Deleted Mortgage Asset or occurs not more than two months prior to the next
Interest Adjustment Date for the Deleted Mortgage Asset, (vii) not have a
permitted increase or decrease in the Monthly Payment on each Payment Adjustment
Date less than the permitted increase or decrease applicable to the Deleted
Mortgage Asset, and (viii) not be a Mortgage Asset convertible from a variable
to a fixed Note Rate unless the Deleted Mortgage Asset is so convertible. In the
event that more than one Mortgage Asset is substituted for a Deleted Mortgage
Asset, the amount described in clause (a) hereof shall be determined on the
basis of aggregate Unpaid Principal Balances, the rates described in clauses
(c), (i), (ii), and (iii) hereof shall be determined on the basis of weighted
average Note Rates and Net Rates, as the case may be, the term described in
clause (d) hereof shall be determined on the basis of weighted average remaining
terms to maturity, provided that no Qualified Substitute Mortgage Asset may have
an original term to maturity beyond the latest original term to maturity of any
Mortgage Asset assigned to the Trust on the Closing Date, the Gross Margins
described in clause (iv) hereof shall be determined on the basis of weighted
average Gross Margins, and the Interest Adjustment Dates described in clause
(vi) hereof shall be determined on the basis of weighted average Interest
Adjustment Dates. In the case of a Trust for which a REMIC election has been or
will be made, a Qualified Substitute Mortgage Asset also shall satisfy the
following criteria as of the date of its substitution for a Deleted Mortgage
Asset: (A) the Borrower shall not be 90 or more days delinquent in payment on
the Qualified Substitute Mortgage Asset; (B) the Trustee Mortgage Asset File for
such Mortgage Asset shall not contain any material deficiencies in
documentation, and shall include an executed Note and a recorded Security
Instrument; (C) the Loan-to-Value Ratio of the Mortgage Asset must be 125% or
less either (1) on the date of origination of the Mortgage Asset, or, if any of
the terms of such Mortgage Asset were modified other than in connection with a
default or imminent default on such Mortgage Asset, on the date of such
modification, or (2) on the date of the substitution, based on an appraisal
conducted within the 60 day
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period prior to the date of the substitution; (D) no property securing such
Mortgage Asset may be subject to foreclosure, bankruptcy, or insolvency
proceedings; and (E) such Mortgage Asset must be secured by a valid first lien
on the related Mortgaged Premises.
"Rating Agency": Any nationally recognized statistical rating agency,
or its successor, that on the Closing Date rated one or more Classes of the
Securities at the request of the Company. If such agency or a successor is no
longer in existence, the "Rating Agency" shall be such nationally recognized
statistical rating agency, or other comparable Person, designated by the
Company, notice of which designation shall be given to the Trustee and the
Master Servicer. References herein to any long-term rating category of a Rating
Agency shall mean such rating category without regard to any plus or minus or
numerical designation.
"Realized Interest Shortfall": With respect to a Mortgage Asset, the
amount by which the interest payable thereon exceeds the net amount recovered
(including Insurance Proceeds) in Liquidation thereof, after payment of expenses
of Liquidation and reimbursement of any Advances made with respect to such
Mortgage Asset.
"Realized Loss": With respect to any Mortgage Asset, (a) the amount by
which the Unpaid Principal Balance thereof exceeds the net amount recovered in
Liquidation thereof (after payment of expenses of Liquidation), after payment of
accrued interest on the Mortgage Asset and after application of any Insurance
Proceeds with respect thereto, and (b) any other types of principal loss,
including but not limited to, Mortgagor Bankruptcy Losses, Special Hazard Losses
and Fraud Losses with respect thereto.
"Record Date": Unless otherwise provided in the Pooling and Master
Servicing Agreement, with respect to each Distribution Date, the last Business
Day of the month immediately preceding the month in which such Distribution Date
occurs.
"Recordation Report": A report substantially in the form of Exhibit B
---------
hereto provided by the Trustee (or the Custodian) pursuant to Section 2.02(f)
hereof identifying those Mortgage Assets for which a Security Instrument or an
Assignment remains unrecorded.
"Redeeming Purchase": The purchase of all of the Regular Securities
issued by a Trust pursuant to Section 9.01 hereof.
"Redemption Account": An escrow account maintained by the Trustee into
which any Trust funds not distributed on a Distribution Date on which a
Redeeming Purchase is made are deposited. The Redemption Account shall be an
Eligible Account.
"Redemption Date": The date, if any, specified in the Pooling and
Master Servicing Agreement for a Series.
"Redemption Price": An amount equal to (a) the Security Principal
Balance of the Regular Securities (and any Residual Securities with a Security
Principal Balance) and accrued and unpaid interest due thereon to the Accounting
Date preceding the Distribution Date fixed for redemption and (b) unreimbursed
Advances and Non-Recoverable Advances.
"Regular Interest": An interest in a REMIC that is designated in the
Pooling and Master Servicing Agreement as a "regular interest" under the REMIC
Provisions.
"Regular Security": Any Security other than a Residual Security and
that represents a Regular Interest in a REMIC or a combination of Regular
Interests in a REMIC.
"REMIC": With respect to each Trust, each real estate mortgage
investment conduit, within the meaning of the REMIC Provisions, for such Trust.
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"REMIC Provisions": Provisions of the Code relating to real estate
mortgage investment conduits, which appear at sections 860A through 860G of the
Code, related Code provisions, and regulations, announcements and rulings
thereunder, as the foregoing may be in effect from time to time.
"Remittance Date": The 18th day of each month, or the preceding
Business Day if the 18th is not a Business Day.
"Remittance Report": A report (either a data file or hard copy) that is
prepared by the Master Servicer and contains the information specified in
Exhibit C attached hereto.
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"Rents From Real Property": With respect to any REO, gross income of
the character described in Code section 856(d) and Treasury regulations
thereunder.
"REO": A Mortgaged Premises acquired by a Servicer on behalf of the
Securityholders through foreclosure or deed-in-lieu of foreclosure, as further
described in Section 3.08 hereof.
"REO Disposition": The receipt by the Servicer of Insurance Proceeds
and other payments and recoveries (including Liquidation Proceeds) which the
Servicer recovers from the sale or other disposition of an REO.
"Request for Release": A release signed by an Officer of the Servicer
in the form attached to the Servicing Agreement as the Company Form 340 (or a
similar certificate of the Master Servicer containing the same information).
"Reserve Fund": Unless otherwise provided in the Pooling and Master
Servicing Agreement, any fund in the Trust Estate other than (a) the Asset
Proceeds Account and (b) any other fund that is expressly excluded from a REMIC.
"Residual Interest": An interest in a REMIC that is designated as a
"residual interest" under the REMIC Provisions.
"Residual Security": Any one of the Securities designated as such in
the Pooling and Master Servicing Agreement.
"Residual Transferee Agreement": An agreement substantially in the form
of Exhibit G hereto.
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"Rule 144A": Rule 144A promulgated by the Securities and Exchange
Commission, as the same may be amended from time to time.
"Rule 144A Agreement": An agreement substantially in the form of
Exhibit D hereto.
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"Rule 144A Securities": Any Class of Securities designated as such in
the Pooling and Master Servicing Agreement.
"Scheduled Principal Balance": For a Mortgage Asset as of any date of
determination, the scheduled principal balance thereof as of the Cut-off Date,
increased by the amount of negative amortization, if any, with respect thereto,
and reduced by (a) the principal portion of all Monthly Payments due on or
before such determination date, whether or not paid by the Borrower or advanced
by a Servicer, the Master Servicer, the Trustee or an Insurer, (b) all amounts
allocable to unscheduled principal payments received on or before the last day
of the Prepayment Period preceding such date of determination, and (c) without
duplication, the amount of any Realized Loss that has occurred with respect to
such Mortgage Asset.
"Securities Act": The Securities Act of 1933, as amended.
"Security": Any Security designated in the Pooling and Master Servicing
Agreement.
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"Security Principal Balance": With respect to each Class of Securities,
on any Distribution Date, the aggregate principal amount, if any, of such Class
of Securities immediately prior to such Distribution Date (or in the case of the
first Distribution Date, an amount equal to the aggregate initial principal
amount of such Class of Securities as of the Closing Date) net of the sum of (a)
the amounts to be applied on such Distribution Date to reduce the aggregate
principal amount of such Class of Securities in accordance with the Pooling and
Master Servicing Agreement, and (b) the aggregate of all Realized Losses, if
any, to be allocated to such Class of Securities on such Distribution Date
pursuant to the Pooling and Master Servicing Agreement.
"Security Register" and "Security Registrar": The register maintained
and the registrar appointed pursuant to Section 5.02 hereof.
"Seller": With respect to each Mortgage Asset, the Person that executed
a Sales Agreement applicable to such Mortgage Asset.
"Senior Percentage": The percentage, if any, calculated as set forth in
the Pooling and Master Servicing Agreement.
"Senior Prepayment Percentage": The percentage, if any, calculated as
set forth in the Pooling and Master Servicing Agreement.
"Series": A group of Securities issued by a separate Trust.
"Servicer": The Servicer or Servicers identified in the Servicing
Agreement.
"Servicing Agreement": The Servicing Agreement or Agreements identified
in the Pooling and Master Servicing Agreement.
"Shortfall": Month End Interest Shortfall and Soldiers' and Sailors'
Shortfall.
"Soldiers' and Sailors' Shortfall": Interest losses on a Mortgage Asset
resulting from application of the Soldiers' and Sailors' Civil Relief Act of
1940.
"Special Hazard Insurance Policy": An insurance policy covering a
Mortgage Asset against (i) loss by reason of damage to Mortgaged Premises caused
by certain hazards not covered by any Hazard Insurance Policy and (ii) partial
loss from damage to the Mortgaged Premises caused by reason of the application
of the coinsurance clause contained in any Hazard Insurance Policy.
"Special Hazard Losses": Losses on Mortgage Assets arising out of
damage to the Mortgaged Premises that are not covered by Standard Hazard
Insurance Policies, but do not include losses caused by war, nuclear reaction,
nuclear or atomic weapons, insurrection or wear and tear.
"Special Tax Consent": The written consent of the Holder of a Residual
Security to any tax (or risk thereof) arising out of a proposed transaction or
activity that may be imposed upon such Holder or that may affect adversely the
value of such Holder's Residual Security.
"Special Tax Opinion": An Opinion of Counsel that a proposed
transaction or activity will not (a) affect adversely the status of any REMIC as
a REMIC or of the Regular Interests as the "regular interests" therein under the
REMIC Provisions, (b) affect the payment of interest or principal on the Regular
Interests, or (c) result in the encumbrance of the Mortgage Assets by a tax
lien.
"Standard Terms": These Standard Terms, as amended or supplemented,
incorporated by reference in a Pooling and Master Servicing Agreement.
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"Subaccount": With respect to any Double REMIC Series, each of the
Subaccounts of the Distribution Account that is established by the Trustee
solely for purposes of the REMIC Provisions. Unless otherwise provided in the
Pooling and Master Servicing Agreement, the Subaccounts shall be Regular
Interests in the Pooling REMIC and assets of the Issuing REMIC.
"TAPRI Certificate": A certificate signed by the transferor of a
Residual Security stating whether such Security has "tax avoidance potential" as
defined in Treasury regulations section 1.860G-3(a)(2).
"Tax Matters Person": The Person or Persons designated from time to
time hereunder to act as tax matters person (within the meaning of the REMIC
Provisions) of a REMIC.
"Terminating Purchase": The purchase of all Mortgage Assets and each
REO owned by a Trust pursuant to Section 9.02 hereof.
"Termination Account": An escrow account maintained by the Trustee into
which any Trust funds not distributed on the Distribution Date on which the
earlier of (a) a Terminating Purchase or (b) the final payment or other
Liquidation of the last Mortgage Asset remaining in the Trust or the disposition
of the last REO remaining in the Trust is made are deposited. The Termination
Account shall be an Eligible Account.
"Termination Price": The greater of (a) 100% of the Unpaid Principal
Balance of each Mortgage Asset remaining in the Trust on the day of such
purchase, plus accrued interest thereon at the Note Rate through the Accounting
Date preceding repurchase plus (i) unreimbursed Advances of other than principal
and interest, and (ii) the lesser of (A) the Unpaid Principal Balance of the
Mortgage Asset for any REO remaining in the Trust, plus accrued interest thereon
at the Note Rate to the Accounting Date preceding repurchase and (B) the current
appraised value of any such REO, such appraisal to be conducted by an appraiser
satisfactory to the Master Servicer (net of liquidation expenses to be incurred
in connection with the disposition of such REO, estimated in good faith by the
Master Servicer), and (b) the sum of the aggregate fair market value of all of
the assets of the Trust (as determined by the Master Servicer based upon bids
from at least three recognized broker/dealers that deal in similar assets as of
the close of business on the third Business Day preceding the date upon which
notice of any such termination is furnished to Securityholders pursuant to
Section 9.03). The fair market value of the assets in a Trust or the appraised
value of any REO shall be based upon the inclusion of accrued interest to the
Accounting Date preceding repurchase at the applicable Note Rate on the
Scheduled Principal Balance of each Mortgage Asset (including any Mortgage Asset
which became an REO as to which an REO Disposition has not occurred).
"Transferee Agreement": An agreement substantially in the form of
Exhibit E hereto.
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"Trust": The trust formed pursuant to a Pooling and Master Servicing
Agreement.
"Trust Estate": The segregated pool of assets sold and assigned to the
Trustee by the Company pursuant to the conveyance clause of any Trust.
"Trustee": The bank or trust company identified as the Trustee in the
Pooling and Master Servicing Agreement.
"Trustee Mortgage Asset File": With respect to each Mortgage Asset,
unless otherwise provided in the Pooling and Master Servicing Agreement,
collectively, the following documents [(if applicable)], together with any other
Mortgage Asset documents held by the Trustee or Custodian with respect to such
Mortgage Asset:
(a) the original Note, endorsed in blank or in the following form:
"WITHOUT RECOURSE, PAY TO THE ORDER OF, AS TRUSTEE u/a DATED AS OF
____________________" with all prior and intervening endorsements as may be
necessary to show a complete chain of endorsements from the originator to the
Trustee and any related power of attorney, surety or guaranty agreement, Note
Assumption Rider or buydown agreement; provided, however, that if the original
Note is endorsed in blank, such endorsement shall be completed by the
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Trustee or Custodian in the above form within 30 days of the Closing Date, with
all costs of completion of such endorsement being borne by the Seller;
(b) the original recorded Security Instrument with evidence of
recordation noted thereon or attached thereto, together with any addenda or
riders thereto or a copy of such recorded Security Instrument with such evidence
of recordation certified to be true and correct by the appropriate governmental
recording office or, if the original Security Instrument has been submitted for
recordation but has not been returned from the applicable public recording
office, a photocopy of the Security Instrument certified by an Officer of the
Seller or by the title insurance company providing title insurance in respect of
such Security Instrument, the closing/settlement - escrow agent or the closing
attorney to be a true and complete copy of the original Security Instrument
submitted for recordation;
(c) an original Assignment of the Security Instrument (pursuant to
the directions of the Company) in blank or to "__________________, AS TRUSTEE
u/a WITH NATIONAL MORTGAGE SECURITIES CORPORATION AND __________________ DATED
AS OF [DATE OF POOLING AND MASTER SERVICING AGREEMENT]" with evidence of
recording noted thereon or attached thereto, or a copy of such Assignment with
such evidence of recordation certified to be true and correct by the appropriate
governmental recording office, or if such original Assignment has been submitted
for recordation but has not been returned from the applicable public recording
office, a photocopy of such Assignment certified by an Officer of the Seller to
be a true and complete copy of the Assignment submitted for recordation;
provided, however, that if the original Assignment of the Security Instrument is
in blank, such assignment shall be completed by the Trustee or Custodian in the
above form within 30 days of the Closing Date, with all costs of completion of
such Assignment being borne by the Seller;
(d) each original recorded intervening Assignment of the Security
Instrument as may be necessary to show a complete chain of title from the
originator to the Trustee, with evidence of recordation noted thereon or
attached thereto, or a copy of such Assignment with such evidence of recordation
certified to be true and correct by the appropriate governmental recording
office or, if any such Assignment has been submitted for recordation but has not
been returned from the applicable public recording office or is not otherwise
available, a copy of such Assignment certified by an Officer of the Seller to be
a true and complete copy of the recorded Assignment or the Assignment submitted
for recordation;
(e) an original Title Insurance Policy, Certificate of Title
Insurance or a written commitment to issue such a Title Insurance Policy or
Certificate of Title Insurance, or a copy of such Title Insurance Policy or such
Certificate of Title Insurance certified as true and correct by the applicable
Title Insurance company; and
(f) if indicated on a Schedule to the Pooling and Master Servicing
Agreement (or otherwise received by the Trustee or the Custodian), the original
or certified copies of each assumption agreement, modification agreement,
written assurance or substitution agreement, if any.
"UCC": The Uniform Commercial Code as in effect in the jurisdiction
that governs the interpretation of the substantive provisions of the Pooling and
Master Servicing Agreement.
"Unpaid Principal Balance": With respect to a Mortgage Asset, the
outstanding principal balance payable by the Borrower under the terms of the
Note.
"U.S. Person": A Person other than a Non-U.S. Person.
"Voting Rights": The portion of the voting rights of all of the
Securities which is allocated to any Security. Unless otherwise provided in the
Pooling and Master Servicing Agreement, (a) if any Class of Securities does not
have a Security Principal Balance or has an initial Security Principal Balance
that is less than or equal to 1% of the aggregate Security Principal Balance of
all the Securities, then 1% of Voting Rights shall be allocated to each Class of
such Securities having no Security Principal Balance or a Security Principal
Balance equal to or less than 1% of the aggregate Security Principal Balance of
all Securities, and the balance of Voting Rights shall be allocated among the
remaining Classes of Securities in proportion to their respective Security
Principal Balances
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following the most recent Distribution Date, and (b) if no Class of Securities
has an initial Security Principal Balance less than 1% of the aggregate Security
Principal Balance, then all of the Voting Rights shall be allocated among all
the Classes of Securities in proportion to their respective Security Principal
Balances following the most recent Distribution Date. Voting Rights allocated to
each Class of Securities shall be allocated in proportion to the respective
Percentage Interests of the Holders thereof.
"Withholding Agent": The Trustee or its designated Paying Agent or
other person who is liable to withhold federal income tax from a distribution on
a Residual Security under Section 1441 and 1442 of the Code and the Treasury
regulations thereunder.
ARTICLE II
MORTGAGE ASSET FILES
Section 2.01. Mortgage Asset Files.
Pursuant to a Pooling and Master Servicing Agreement, the Company has
sold to the Trustee without recourse all the right, title and interest of the
Company in and to the Mortgage Assets, any and all rights, privileges and
benefits accruing to the Company under the Sales Agreement and the Servicing
Agreement with respect to the Mortgage Assets (except, in the case of the Sales
Agreement, any rights of the Company to fees and indemnification by the Seller
under such Agreement), including the rights and remedies with respect to the
enforcement of any and all representations, warranties and covenants under such
agreements and all other agreements and assets included or to be included in the
Trust for the benefit of the Securityholders as set forth in the conveyance
clause of the Pooling and Master Servicing Agreement. Such assignment includes
all of the Company's rights to Monthly Payments on the Mortgage Assets due after
the Cut-off Date, and all other payments of principal (and interest) made on or
after the Cut-off Date that are reflected in the initial aggregate Security
Principal Balance of the Securities for a Trust.
In connection with such transfer and assignment, the Company shall
deliver, or cause to be delivered, to the Trustee or the Custodian on or before
the Closing Date, a Trustee Mortgage Asset File with respect to each Mortgage
Asset. If any Security Instrument or an Assignment of a Security Instrument to
the Trustee or any prior Assignment is in the process of being recorded on the
Closing Date, the Company shall cause each such original recorded document or
certified copy thereof, to be delivered to the Trustee promptly following its
recordation. The Company shall also cause to be delivered to the Trustee any
other original Mortgage Asset Document to be included in the Trustee Mortgage
Asset File if a copy thereof initially was delivered.
The Seller has delivered or caused to be delivered to the Servicer, on
or before the Closing Date, a Servicer Mortgage Asset File containing each of
the documents listed in the Servicing Agreement. All such documents shall be
held by the Servicer in trust for the benefit of the Trustee on behalf of the
Securityholders.
Section 2.02. Acceptance by the Trustee.
(a) By its execution of the Pooling and Master Servicing Agreement,
the Trustee acknowledges and declares that it or the Custodian holds and will
hold or has agreed to hold all documents delivered to it from time to time with
respect to a Mortgage Asset and all assets included in the definition of "Trust
Estate" in the related Pooling and Master Servicing Agreement in trust for the
exclusive use and benefit of all present and future Securityholders. The Trustee
represents and warrants that to the best of its knowledge, (i) it acquired the
Mortgage Assets on behalf of the Trust from the Company in good faith, for
value, and without actual notice or actual knowledge of any adverse claim, lien,
charge, encumbrance or security interest (including, without limitation, federal
tax liens or liens arising under ERISA) (it being understood that the Trustee
has not undertaken searches (lien records or otherwise) of any public records),
(ii) except as permitted in the Pooling and Master Servicing Agreement, it has
not and will not, in any capacity, assert any claim or interest in the Mortgage
Assets and will hold (or its agent will hold) such Mortgage Assets and the
proceeds thereof in trust pursuant to the terms of the Agreement, and (iii) it
has not encumbered or transferred its right, title or interest in the Mortgage
Assets.
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(b) The Trustee (or Custodian) shall, on the Closing Date, deliver to
the Company and the Master Servicer an Initial Certification certifying that,
except as specifically noted on a schedule of exceptions attached thereto and
subject to its review as herein provided, it is in possession of a Trustee
Mortgage Asset File for each Mortgage Asset. Before making this Initial
Certification, the Trustee (or Custodian) shall have examined each Note to
confirm that:
(i) except for the endorsement required pursuant to clause (a)
of the definition of Trustee Mortgage Asset File, the Note, on the face
or the reverse side(s) thereof, does not contain evidence of any
unsatisfied claims, liens, security interests, encumbrances or
restrictions on transfer; and
(ii) the Note bears an endorsement (which appears to be an
original) as required pursuant to clause (a) of the definition of
Trustee Mortgage Asset File.
(c) The Trustee (or Custodian) agrees, for the benefit of the
Securityholders, to review each Trustee Mortgage Asset File within 45 days of
the Closing Date to ascertain that all documents required to be included in the
Trustee Mortgage Asset File are included therein, and to deliver to the Company
and the Master Servicer an Interim Certification with respect to each Mortgage
Asset (except any Mortgage Asset that has been liquidated or purchased from the
Trust) to the effect that, except as specifically noted on a schedule of
exceptions thereto, (i) all documents required to be contained in the Trustee
Mortgage Asset File are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage
Asset and (iii) based on its examination and only as to the foregoing documents,
the Mortgage Asset Schedule accurately reflects information set forth in the
Trustee Mortgage Asset File.
It is understood that before making the Interim Certification,
the Trustee (or Custodian) shall examine the Mortgage Asset Documents to confirm
that:
(A) each Note and Security Instrument bears a signature or
signatures that appear to be original and that purport to be that of
the Person or Persons named as the maker and mortgagor/trustor or, if
photocopies are permitted, that such copies bear a reproduction of such
signature or signatures;
(B) except for the endorsement required pursuant to clause (a)
of the definition of Trustee Mortgage Asset File, neither the Security
Instrument nor any Assignment, on the face or the reverse side(s)
thereof, contains evidence of any unsatisfied claims, liens, security
interests, encumbrances or restrictions on transfer;
(C) the principal amount of the indebtedness secured by the
Security Instrument is identical to the original principal amount of
the Note;
(D) the Assignment of the Security Instrument from the Seller
to the Trustee is in the form required pursuant to clause (c) of the
definition of Trustee Mortgage Asset File, and bears the signature of
the Seller that appears to be an original and any other necessary party
or, if photocopies are permitted, such copies bear a reproduction of
such signature or signatures;
(E) if intervening Assignments are included in the Trustee
Mortgage Asset File, each such intervening Assignment bears the
signature of the Mortgagee and/or the assignee (and any other necessary
party) or, if photocopies are permitted, that such copies bear a
reproduction of such signature or signatures;
(F) if either a Title Insurance Policy, a Preliminary Title
Report or a written commitment to issue a Title Insurance Policy is
delivered, the address of the real property set forth in such policy,
report or written commitment is identical to the real property address
contained in the Security Instrument; and
(G) if any of a Title Insurance Policy, Certificate of Title
Insurance or a written commitment to issue a Title Insurance Policy is
delivered, such policy, certificate or written commitment is for an
amount not less than the original principal amount of the Note and such
Title Insurance Policy insures that
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the Security Instrument constitutes a first lien, senior in priority to
all other deeds of trust, mortgages, deeds to secure debt, financing
statements and security agreements and to any mechanics' liens,
judgment liens or writs of attachment (or if the Title Insurance Policy
or Certificate has not been issued, the written commitment for such
insurance obligates the Insurer to issue such policy for an amount not
less than the original principal amount of the Note).
(d) Prior to the first anniversary date of the Closing Date, the
Trustee (or Custodian) shall deliver to the Company and the Master Servicer a
Final Certification evidencing the completeness of the Trustee Mortgage Asset
File for each Mortgage Asset, with any applicable exceptions noted on such
Certification.
(e) In giving each of the certifications required above, the Trustee
shall be under no duty or obligation (i) to inspect, review or examine any such
documents, instruments, securities or other papers to determine that they or the
signatures thereon are genuine, enforceable, or appropriate for the represented
purpose or that they have actually been recorded or that they are other than
what they purport to be on their face or that any document that appears to be an
original is, in fact, an original or (ii) to determine whether any Trustee
Mortgage Asset File should include any surety or guaranty, Note Assumption
Rider, buydown agreement, assumption agreement, modification agreement, written
assurance or substitution agreement.
(f) No later than the fifth Business Day of each third month,
commencing the fourth month following the month in which the Closing Date
occurs, the Trustee (or the Custodian on its behalf) shall deliver to the party
responsible for recordation of any Security Instruments and/or Assignments
(either the Seller or the Servicer, as specified in the related Sales Agreement
or Servicing Agreement) a Recordation Report, dated as of the first day of such
month, identifying those Mortgage Assets for which it has not yet received (i)
an original recorded Security Instrument or a copy thereof certified to be true
and correct by the public recording office in possession of such Security
Instrument or (ii) an original recorded Assignment of the Security Instrument to
the Trustee and any required intervening Assignments or a copy thereof certified
to be a true and correct copy by the public recording office in possession of
such Assignment.
(g) In lieu of taking possession of the Trustee Mortgage Asset
Files and reviewing such files itself, the Trustee may, in accordance with
Section 8.11 hereof, appoint one or more Custodians to hold the Trustee Mortgage
Asset Files on its behalf and to review them as provided in this Section 2.02.
The Company shall, upon notice of the appointment of a Custodian, deliver or
cause to be delivered all documents to the Custodian that would otherwise be
deliverable to the Trustee. In such event, the Trustee shall obtain from each
such Custodian, within the specified times, the Initial, Interim and Final
Certifications and the Recordation Reports with respect to those Mortgage Assets
held and reviewed by such Custodian and may deliver such Certifications and
Reports to the Company and the Master Servicer in satisfaction of the Trustee's
obligation to prepare such Certifications and Reports. The Trustee shall notify
the Custodian of any notices delivered to the Trustee with respect to those
Trustee Mortgage Asset Files.
Section 2.03. Purchase or Substitution of Mortgage Assets by the
Seller, the Servicer or the Company.
(a) Seller Breach. Upon discovery or notice of any defective document
-------------
in a Trustee Mortgage Asset File, or of any breach by a Seller of any
representation, warranty or covenant under the Sales Agreement which defect or
breach materially and adversely affects the value of any Mortgage Asset or the
interest of the Trust therein (it being understood that any such defect or
breach shall be deemed to have materially and adversely affected the value of
the related Mortgage Asset or the interest of the Trust therein if the Trust
incurs a loss as a result of such defect or breach), the Trustee shall promptly
notify the Master Servicer of such defect or breach and direct the Master
Servicer to request that the Seller of such Mortgage Asset cure such defect or
breach, and if such Seller does not cure such defect or breach in all material
respects within 90 days from the date on which it is notified of the defect or
breach, to enforce such Seller's obligation under the Sales Agreement to
purchase such Mortgage Asset from the Trustee. In lieu of purchasing any such
Mortgage Asset as provided above, if so provided in the Sales Agreement, the
Seller may cause such Mortgage Asset to be removed from the Trust (in which case
it shall become a Deleted Mortgage Asset) and substitute one or more Qualified
Substitute Mortgage Assets in the manner and subject to the limitations set
forth in Section 2.03(h). Notwithstanding the foregoing, however, if such breach
or
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defect results in or is a Qualification Defect, such cure, purchase or
substitution must take place within 75 days of the Defect Discovery Date. It is
understood and agreed that enforcement of the obligation of the Seller to cure,
purchase or substitute for any Mortgage Asset as to which a material defect in a
constituent document exists or as to which such a breach has occurred and is
continuing shall constitute the sole remedy respecting such defect or breach
available to the Trustee on behalf of the Securityholders.
(b) Servicer Breach. In addition to taking any action required
---------------
pursuant to Section 7.01 hereof, upon discovery or notice of any breach by a
Servicer of any representation, warranty or covenant under the Servicing
Agreement which materially and adversely affects the value of any Mortgage Asset
or the interest of the Trust therein (it being understood that any such defect
or breach shall be deemed to have materially and adversely affected the value of
the related Mortgage Asset or the interest of the Trust therein if the Trust
incurs a loss as a result of such defect or breach), the Trustee promptly shall
notify the Master Servicer of such breach and direct the Master Servicer to
request that the Servicer cure such breach and, if the Servicer does not cure
such breach in all material respects within 90 days from the date on which it is
notified of the breach, to enforce the Servicer's obligation under the Servicing
Agreement to purchase such Mortgage Asset from the Trustee. Notwithstanding the
foregoing, however, if such breach is a Qualification Defect, such cure or
purchase must take place within 75 days of the Defect Discovery Date.
In the event the Seller has breached a representation or warranty under
the Sales Agreement that is substantially identical to a representation or
warranty breached by the Servicer, the Master Servicer shall first proceed
against the Seller. If the Seller does not within 90 days after notification of
the breach, take steps to cure such breach or purchase or substitute for the
Mortgage Asset, the Master Servicer shall enforce the obligations of the
Servicer under the Servicing Agreement to cure such breach or purchase the
Mortgage Asset from the Trust as provided in this Section 2.03(b).
Except as specifically set forth herein, the Trustee shall have no
responsibility to enforce any provision of the Sales Agreements and Servicing
Agreements assigned to it hereunder, to oversee compliance thereof, or to take
notice of any breach or default thereof. No successor servicer shall have any
obligation to repurchase a Mortgage Asset except to the extent specifically set
forth in the Servicing Agreement signed by such substitute servicer.
(c) Company Breach. Within 90 days of the earlier of discovery or
--------------
receipt of notice by the Company of the breach of any of its representations or
warranties set forth in Section 2.04 hereof with respect to any Mortgage Asset,
which breach materially and adversely affects the value of the related Mortgage
Asset or the interest of the Trust therein (it being understood that any such
defect or breach shall be deemed to have materially and adversely affected the
value of the related Mortgage Asset or the interest of the Trust therein if the
Trust incurs a loss as a result of such defect or breach), the Company shall (i)
cure such breach in all material respects, (ii) purchase the Mortgage Asset from
the Trustee, or (iii) remove such Mortgage Asset from the Trust (in which case
it shall become a Deleted Mortgage Asset) and substitute one or more Qualified
Substitute Mortgage Assets in the manner and subject to the limitations set
forth in Section 2.03(h) hereof. Notwithstanding the foregoing, however, if such
breach is a Qualification Defect, such cure, purchase or substitution must take
place within 75 days of the Defect Discovery Date.
(d) Assignment Failure. If an Assignment to the Trustee of the
------------------
Seller's interest in a Security Instrument has not been recorded within one year
of the Closing Date of the related Securities, the Master Servicer shall enforce
the Servicer's obligation set forth in the Servicing Agreement or the Seller's
obligation under the Sales Agreement either to (i) purchase the related Mortgage
Asset from the Trustee on behalf of the Securityholders or (ii) if there have
been no defaults in the Monthly Payments on such Mortgage Asset, deposit an
amount equal to the Purchase Price into an escrow account maintained by the
Trustee (which account shall not be an asset of the Trust or any REMIC), as
required by the applicable Servicing Agreement or Sales Agreement. Any such
amounts deposited to an escrow account, plus any earnings thereon, shall (A) be
released to the Servicer or Seller, as the case may be, upon receipt by the
Trustee of satisfactory evidence that the Assignment has been recorded in the
name of the Trustee or (B) be applied to purchase the related Mortgage Asset in
the event that the Master Servicer notifies the Trustee that there has been a
default thereon. Any amounts in the escrow account may be invested in Permitted
Investments at the written direction of the Master Servicer.
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(e) Converted Mortgage Loans. Upon receipt of written notice from the
------------------------
Master Servicer of the conversion of any ARM Loan to a Converted Mortgage Loan,
the Trustee shall direct the Master Servicer to enforce the Servicer's
obligation, if any, set forth in the Servicing Agreement or the Seller's
obligation, if any, set forth in the Sales Agreement to purchase such Converted
Mortgage Loan from the Trustee. In the event the Servicer or Seller defaults
upon its obligation to purchase any Converted Mortgage Loan, and such default
remains unremedied for a period of five Business Days after written notice of
such default shall have been given by the Master Servicer to the Servicer or
Seller, as applicable, then the Master Servicer shall use its best efforts to
cause such Converted Mortgage Loan to be sold for settlement on the last day of
any month to any entity which the Master Servicer may in its sole discretion
select. The Master Servicer shall not cause a Converted Mortgage Loan to be sold
or otherwise transferred to a Person other than the Servicer or Seller (or other
Person who has a pre-existing obligation to purchase such Mortgage Asset) unless
(i) upon such sale the Trust would receive a net amount at least equal to the
Purchase Price and (ii) if the Purchase Price exceeds the Basis Limit Amount,
the Master Servicer receives an Opinion of Counsel (which Opinion of Counsel
shall not be an expense of the Master Servicer) that such disposition of a
Converted Mortgage Loan will not result in the imposition of a "prohibited
transaction" tax (as such term is defined in the Code) on the related REMIC or
jeopardize its status as a REMIC. Any such Converted Mortgage Loan which is not
purchased by the Servicer or the Seller and which the Master Servicer is unable
to sell shall remain in the Trust.
(f) Purchase of Delinquent Mortgage Assets. The Seller may, but is not
--------------------------------------
obligated to, purchase any Mortgage Asset that is delinquent in payment by 90
days or more for a price equal to the greater of the Purchase Price for such
Mortgage Asset or the fair market value thereof at the time of purchase.
(g) Purchase Price. Except as otherwise provided in the Pooling and
--------------
Master Servicing Agreement, the purchase of any Mortgage Asset from the Trust
pursuant to this Section 2.03 shall be effected for its Purchase Price. If the
Purchaser is the Servicer, the Purchase Price shall be deposited in the
Custodial P&I Account. If the Purchaser is other than the Servicer, an amount
equal to the Purchase Price shall be deposited into the Master Servicer
Custodial Account. Within five Business Days of its receipt of such funds or
certification by the Master Servicer that such funds have been deposited in the
Custodial P&I Account or Master Servicer Custodial Account, the Trustee shall
release or cause to be released to the Purchaser the related Trustee Mortgage
Asset File and Servicer Mortgage Asset File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, in form as
presented by the Purchaser and satisfactory to the Trustee, as shall be
necessary to vest in the Purchaser title to any Mortgage Asset released pursuant
hereto and the Trustee shall have no further responsibility with regard to such
Trustee Mortgage Asset File or Servicer Mortgage Asset File. The Master Servicer
shall cause the Servicer of any Deleted Mortgage Asset to release to the
Purchaser the Servicer Mortgage Asset File relating thereto.
(h) Substitution. Unless otherwise provided in the Pooling and Master
------------
Servicing Agreement, the right to substitute a Qualified Substitute Mortgage
Asset for any Deleted Mortgage Asset that is an asset of the Trust shall be
limited to (i) in the case of substitutions pursuant to Section 2.03(a) or
2.03(c), the two-year period beginning on the Closing Date and (ii) in the case
of any other substitution, the three-month period beginning on the Closing Date.
As to any Deleted Mortgage Asset for which the Company or a Seller
substitutes a Qualified Substitute Mortgage Asset(s), the Company or the Seller,
as the case may be, shall effect such substitution by delivering to the Trustee
for such Qualified Substitute Mortgage Asset(s) the Note, the Security
Instrument, the related Assignment(s), and such other documents and agreements,
with all necessary endorsements thereon, as are required to be included in the
Trustee Mortgage Asset File pursuant to Section 2.01, together with a
certificate of an officer of the Company to the effect that each such Qualified
Substitute Mortgage Asset complies with the terms of the Pooling and Master
Servicing Agreement. Monthly Payments due with respect to Qualified Substitute
Mortgage Assets in the month of substitution are not part of the Trust and will
be retained by the Company or the Seller, as the case may be. For the month of
substitution, distributions to Securityholders will reflect the Monthly Payment
due on such Deleted Mortgage Asset on or before the first day of the month in
which the substitution occurs, and the Company or the Seller, as the case may
be, shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Asset. The Master Servicer shall amend the
Mortgage Asset Schedule to reflect
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the removal of such Deleted Mortgage Asset from the terms of the Pooling and
Master Servicing Agreement and the substitution of the Qualified Substitute
Mortgage Asset or Assets. Upon such substitution, such Qualified Substitute
Mortgage Asset or Assets shall be subject to the terms of the Pooling and Master
Servicing Agreement in all respects, including, in the case of a substitution
effected by a Seller, the representations and warranties included in the Sales
Agreement, and in the case of a substitution effected by the Company, the
representations and warranties set forth in Section 2.04 hereof, in each case as
of the date of substitution. The Trustee shall, within five Business Days of its
receipt of the documents referred to above, effect the reconveyance of such
Deleted Mortgage Asset to the Company or the Seller, as the case may be, in
accordance with the procedures specified above.
For any month in which the Company or a Seller substitutes one
or more Qualified Substitute Mortgage Assets for one or more Deleted Mortgage
Assets, the Master Servicer will determine and notify the Trustee with respect
to the amount (if any) by which the aggregate Unpaid Principal Balance of all
such Qualified Substitute Mortgage Assets as of the date of substitution is less
than the aggregate Unpaid Principal Balance of all such Deleted Mortgage Assets
(after application of Monthly Payments due in the month of substitution) (the
"Substitution Shortfall"). On the date of such substitution, the Company or the
Seller, as the case may be, will deliver or cause to be delivered to the Trustee
for deposit from its own funds into the Asset Proceeds Account an amount equal
to the Substitution Shortfall.
(i) Determination of Purchase Price. The Master Servicer will be
-------------------------------
responsible for determining the Purchase Price for any Mortgage Asset and, where
appropriate, the Basis Limit Amount for any Converted Mortgage Asset that is
sold by the Trust or with respect to which provision is made for the escrow of
funds pursuant to this Section 2.03 and shall at the time of any purchase or
escrow certify such amounts to the Trustee. If, for whatever reason, the Master
Servicer shall certify to the Trustee that there is a miscalculation of the
amount to be paid to the Trust, the Trustee shall from monies in the Asset
Proceeds Account return any overpayment that the Trust received as a result of
such miscalculation to the applicable Purchaser upon the discovery of such
overpayment, and the Master Servicer shall collect from the applicable Purchaser
for payment to the Trustee any underpayment that resulted from such
miscalculation upon the discovery of such underpayment. Recovery may be made
either directly or by set-off of all or any part of such underpayment against
amounts owed by the Trust to such Purchaser.
(j) Qualification Defect. If (A) any person required to cure,
--------------------
purchase, or substitute under subsections 2.03(a), 2.03(b) or 2.03(c) of these
Standard Terms or under a separate agreement for a Mortgage Asset affected by a
Qualification Defect fails to perform within the earlier of (1) 75 days of the
Defect Discovery Date or (2) the time limit set forth in those subsections or
that separate agreement or (B) no person is obligated to cure, purchase or
substitute for a Mortgage Asset affected by a Qualification Defect, the Trustee
shall dispose of such Mortgage Asset in such manner and for such price as the
Master Servicer notifies the Trustee are appropriate, provided that the removal
of such Mortgage Asset occurs no later than the 90th day from the Defect
Discovery Date. It is the express intent of the parties that a Mortgage Asset
affected by a Qualification Defect be removed from the Trust before the 90th day
from the Defect Discovery Date so that the related REMIC(s) will continue to
qualify as a REMIC(s). Accordingly, the Trustee is not required to sell an
affected Mortgage Asset for its fair market value nor shall the Trustee be
required to make up any shortfall resulting from the sale of such Mortgage
Asset. The person failing to perform under subsections 2.03(a), 2.03(b) or
2.03(c) of these Standard Terms shall be liable to the Trust for (i) any
difference between (A) the Unpaid Principal Balance of the Mortgage Asset plus
accrued and unpaid interest thereon at the Note Rate to the date of disposition
and (B) the net amount received by the Trustee from the disposition (after the
payment of related expenses), (ii) interest on such difference at the Note Rate
from the date of disposition to the date of payment and (iii) any legal and
other expenses incurred by or on behalf of the Trust in seeking such payments.
Except where the Master Servicer is the person failing to perform, the Master
Servicer shall pursue the legal remedies of the Trust on the Trust's behalf and
the Trust shall reimburse the Master Servicer for any legal or other expenses of
the Master Servicer related to such pursuit not recovered from such person. If
the Master Servicer is the person failing to perform, the Trustee shall pursue
the Trust's legal remedies against the Master Servicer and the Trust shall
reimburse the Trustee for its related legal or other expenses.
Any person required under this Section 2.03 to give notice or to
make a request of another person to give notice shall give such notice or make
such request promptly.
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Section 2.04. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Trustee that as of
the Closing Date or as of such other date specifically provided herein:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Commonwealth of Virginia
with full power and authority (corporate and other) to own its properties and
conduct its business as now conducted by it and to enter into and perform its
obligations under the Pooling and Master Servicing Agreement, and has duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification wherein it owns
or leases material properties, except where the failure to so qualify would not
have a material adverse effect on the Company;
(b) The Pooling and Master Servicing Agreement, assuming due
authorization, execution and delivery by the Trustee and the Master Servicer,
constitutes a legal, valid and binding agreement of the Company, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and to general principles of equity regardless of whether enforcement
is sought in a proceeding in equity or at law;
(c) Neither the execution and delivery by the Company of the Pooling
and Master Servicing Agreement, nor the consummation by the Company of the
transactions therein contemplated, nor compliance by the Company with the
provisions thereof, will (i) conflict with or result in a breach of, or
constitute a default under, any of the provisions of the articles of
incorporation or by-laws of the Company or any law, governmental rule or
regulation or any judgment, decree or order binding on the Company or any of its
properties, or any of the provisions of any indenture, mortgage, deed of trust,
contract or other instrument to which the Company is a party or by which it is
bound, or (ii) result in the creation of any lien, charge, or encumbrance upon
any of its properties pursuant to the terms of any such indenture, mortgage,
deed of trust, contract or other instrument;
(d) There are no actions, suits or proceedings against, or
investigations of, the Company pending, or, to the knowledge of the Company,
threatened, before any court, administrative agency or other tribunal (i)
asserting the invalidity of the Pooling and Master Servicing Agreement or (ii)
seeking to prevent the issuance of the Securities or the consummation of any of
the transactions contemplated by the Pooling and Master Servicing Agreement;
(e) The information set forth in the Mortgage Asset Schedule with
respect to each Mortgage Asset is true and correct in all material respects at
the date or dates respecting which such information is furnished;
(f) The Company is the owner of, or holder of a perfected first
priority security interest in, each Mortgage Asset;
(g) The Company has acquired its ownership of, or security interest
in, each such Mortgage Asset in good faith without notice of any adverse claim;
(h) Except for the sale to the Trustee, the Company has not assigned
any interest or participation in each such Mortgage Asset (or, if any such
interest or participation has been assigned, it has been released); and
(i) The Company has full right to sell the Trust Estate to the
Trustee.
It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the
respective Trustee Mortgage Asset Files to the Trustee and shall inure to the
benefit of the Trustee notwithstanding any restrictive or qualified endorsement
or assignment. Upon the discovery by the Company, the Master Servicer or the
Trustee of a breach of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice to the other parties to
the Pooling and Master Servicing Agreement, and in no event later than two
Business Days from the date of such discovery. It is understood and agreed that
the obligations of the Company set forth in Section 2.03(c) to cure, substitute
for or repurchase a
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Mortgage Asset constitute the sole remedies available to the Securityholders or
to the Trustee on their behalf respecting a breach of the representations and
warranties contained in this Section 2.04. It is further understood and agreed
that the Company shall be deemed not to have made the representations and
warranties in this Section 2.04 with respect to, and to the extent of,
representations and warranties made, as to the matters covered in this Section
2.04, by any Servicer in the related Servicing Agreement assigned to the Trustee
or any Seller in the related Sales Agreement assigned to the Trustee.
Section 2.05. Representations, Warranties and Covenants of the Master
Servicer.
The Master Servicer hereby represents, warrants and covenants to the
Trustee that as of the Closing Date or as of such date specifically provided
herein:
(a) The Master Servicer has been duly organized and is validly
existing as a [national banking association] and in good standing under the laws
of the United States of America with full power and authority (corporate and
other) to own its properties and conduct its business as now conducted by it and
to enter into and perform its obligations under the Pooling and Master Servicing
Agreement, and has duly qualified to do business and is in good standing under
the laws of each jurisdiction wherein it owns or leases any material properties
or conducts any material business or in which the performance of its duties
under the Pooling and Master Servicing Agreement would require such
qualification, except where the failure so to qualify would not have a material
adverse effect on the performance of its obligations under the Pooling and
Master Servicing Agreement;
(b) The Pooling and Master Servicing Agreement, assuming due
authorization, execution and delivery by the Company and the Trustee,
constitutes a legal, valid and binding agreement of the Master Servicer,
enforceable against it in accordance with its terms, subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, (ii) general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law and (iii) any
notice, order, directive, or similar action by a federal banking agency that
would be enforceable pursuant to Section 8 of the Federal Deposit Insurance Act
to the extent that such notice, order, directive, or action prohibits or enjoins
performance by the Master Servicer;
(c) Neither the execution and delivery by the Master Servicer of the
Pooling and Master Servicing Agreement, nor the consummation by the Master
Servicer of the transactions therein contemplated, nor compliance by the Master
Servicer with the provisions thereof, will (i) conflict with or result in a
breach of, or constitute a default under, any of the provisions of the articles
of association or by-laws of the Master Servicer or any law, governmental rule
or regulation, or any judgment, decree or order binding on the Master Servicer
or its properties, or any of the provisions of any indenture, mortgage, deed of
trust, contract or other instrument to which the Master Servicer is a party or
by which it is bound or (ii) result in the creation or imposition of any lien,
charge or encumbrance upon any of its properties pursuant to the terms of any
such indenture, mortgage, deed of trust, contract or other instrument.
(d) No litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which would prohibit its
entering into the Pooling and Master Servicing Agreement or performing its
obligations under the Pooling and Master Servicing Agreement; and
(e) The Master Servicer maintains a Master Servicer Errors and
Omissions Policy and Fidelity Bond which covers the Master Servicer's
performance under the Pooling and Master Servicing Agreement and such policy and
bond are in full force and effect.
Upon discovery by any of the Company, the Master Servicer or the
Trustee of a breach of any of the foregoing representations, warranties and
covenants which materially and adversely affects the interest of the
Securityholders in any Mortgage Asset, the party discovering such breach shall
give prompt written notice (but in no event later than two Business Days
following such discovery) to the other parties.
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ARTICLE III
ADMINISTRATION OF THE TRUST
Section 3.01. Master Servicer Custodial Account.
(a) Establishment. The Master Servicer shall establish a Master Servicer
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Custodial Account into which the Master Servicer shall deposit payments,
collections and Advances with respect to the Mortgage Assets until such amounts
are transferred to the Asset Proceeds Account as provided herein. The Master
Servicer may elect to use a single Master Servicer Custodial Account for more
than one series of Securities, but shall maintain separate accounting records
for each Series of Securities. Each Master Servicer Custodial Account shall be
an Eligible Account and shall reflect the custodial nature of the account and
that all funds in such account (except interest earned thereon) are held in
trust for the benefit of the Trustee. The Master Servicer Custodial Account
shall not be considered an asset of the Trust or any REMIC. The Master Servicer
will notify the Trustee of the location and account number of such Master
Servicer Custodial Account and of any changes in the location or account number
of such account.
(b) Deposits. On each Remittance Date, the Master Servicer shall withdraw
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from the Custodial P&I Account maintained by a Servicer and deposit into the
Master Servicer Custodial Account an amount with respect to each Mortgage Asset
serviced by such Servicer equal to:
(i) Monthly Payments received by the Servicer during the preceding
Due Period, whether paid by the Borrower or advanced by the Servicer minus
the Servicing Fee due the Servicer to the extent paid by the Borrower;
(ii) all Monthly Payments made by a Borrower after their Due Date and
which were not paid or advanced pursuant to Subsection 3.01(b)(i);
(iii) all other payments (other than late charges, conversion fees and
similar charges and fees retained by a Servicer pursuant to the Servicing
Agreement) received in connection with any unscheduled principal payments
or recoveries on the Mortgage Assets during the previous Prepayment Period,
including Liquidation Proceeds and Insurance Proceeds, together with any
interest thereon paid by or for the account of the Borrower minus the sum
of (A) expenses associated with such recovery, (B) any Advances on such
Mortgage Assets paid by the Servicer and (C) the Servicing Fee allocable
thereto; and
(iv) the Purchase Price of any Mortgage Asset purchased by the
Servicer.
(c) Withdrawals. On a daily basis, the Master Servicer may withdraw from
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the appropriate Master Servicer Custodial Account (to the extent the funds
therein are not invested) any Non-Recoverable Advance and any Advance previously
made with respect to a Mortgage Asset as to which a late payment, Insurance
Proceeds or Liquidation Proceeds have been received.
On or prior to the Master Servicer Remittance Date, the Master Servicer
shall remit from the funds in each Master Servicer Custodial Account by wire
transfer (or as otherwise instructed by the Trustee) in immediately available
funds to the Asset Proceeds Account an amount equal to the aggregate of the
following:
(i) Monthly Payments received by the Master Servicer during the
preceding Due Period, whether or not paid by the Borrower, or advanced by a
Servicer, the Master Servicer, the Trustee or an Insurer, minus the sum of
(A) Servicing Fees due the Servicer to the extent paid by the Borrower and
(B) the Master Servicing Fee (net of any payments on account of Month End
Interest required pursuant to Section 3.05) to the extent paid by the
Borrower or advanced by the Servicer;
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(ii) all Monthly Payments made by a Borrower after their Due Date
and which were not paid or advanced pursuant to Subsection 3.01(c)(i), net
of the Master Servicing Fee after payment of Month End Interest required
pursuant to Section 3.05;
(iii) all other payments received by the Master Servicer in
connection with any unscheduled principal payments or recoveries on the
Mortgage Assets during the preceding Prepayment Period, including
Liquidation Proceeds and Insurance Proceeds, together, with respect to
prepayments or Liquidation Proceeds or Insurance Proceeds received during
the preceding calendar month, any interest thereon received by the Master
Servicer (less the Master Servicing Fee attributable thereto after payment
of Month End Interest required pursuant to Section 3.05); and
(iv) The Purchase Price of any Mortgage Assets purchased from the
Trust during the preceding Prepayment Period, less any amounts due the
Servicer or Master Servicer on account of Advances, the Servicing Fee or
the Master Servicing Fee attributable to such Mortgage Asset.
(d) Investment. The Master Servicer shall cause the funds in the
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Master Servicer Custodial Account to be invested in Permitted Investments with a
maturity prior to the next Master Servicer Remittance Date. Net investment
income on the funds in the Master Servicer Custodial Account on such investments
shall be released to the Master Servicer as a part of its Master Servicer
Compensation no later than the fifth Business Day of the month following the
month in which the related Distribution Date occurs, unless provided in the
Pooling and Master Servicing Agreement that such net investment income be
applied to the payment of Month End Interest Shortfall or other amounts due from
the Master Servicer. If there is a loss on the investments in the Master
Servicer Custodial Account for any month, the Master Servicer shall pay the
amount of such loss no later than the fifth Business Day of the following month.
Section 3.02. Asset Proceeds Account.
(a) Deposits. The Trustee shall establish and maintain one or more
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accounts (collectively, the "Asset Proceeds Account") held in trust for the
benefit of the Securityholders. Each Asset Proceeds Account shall be an Eligible
Account. On each Distribution Date, the Trustee shall deposit into the Asset
Proceeds Account the following amounts, to the extent not previously deposited
therein:
(i) the amount to be deposited from the Master Servicer Custodial
Account pursuant to Section 3.01(c);
(ii) Advances;
(iii) the amount required to effect a Terminating Purchase pursuant
to Section 9.02; and
(iv) the amount required to be deposited from any Insurance Policy
or Reserve Fund, as provided in the Pooling and Master Servicing Agreement.
(b) Withdrawal. On each Distribution Date, the Trustee shall withdraw all
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monies in the Asset Proceeds Account in accordance with the amounts set forth in
the statement furnished by the Master Servicer pursuant to Section 4.01 in the
following order of priority for the purposes indicated:
(i) to pay each Servicer its monthly Servicing Fee, to the extent
not retained by such Servicer;
(ii) to reimburse the Trustee, the Master Servicer or the Servicer,
in that order of priority, for any Advance previously made that has been
determined to be a Non-Recoverable Advance;
(iii) to reimburse the Company or the Master Servicer for expenses
incurred by or reimbursable to it pursuant to Section 6.03;
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(iv) to refund any overpayment of the Purchase Price of a Mortgage
Asset;
(v) to pay the Master Servicer its Master Servicing Fee, to the
extent not previously paid;
(vi) to pay the Securityholders (or, in the case of a Double REMIC
Series, to pay the holders of the Regular Interests and Residual Interest
of the Pooling REMIC), the amount of the Available Distribution as provided
in the Pooling and Master Servicing Agreement; and
(vii) to reimburse the Master Servicer or Trustee for Advances not
previously reimbursed.
(c) Accounting. The Master Servicer shall keep and maintain separate
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accounting, on a Mortgage Asset by Mortgage Asset basis, for the purpose of
justifying any payment to and from the Asset Proceeds Account.
(d) Investment. The Master Servicer shall direct the Trustee in writing
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(which may be in the form of standing instructions) as to the investment of
funds (which shall be invested in Permitted Investments) in the Asset Proceeds
Account for the period from the Master Servicer Remittance Date through the
Distribution Date. Net investment income on funds in the Asset Proceeds Account
shall be released to the Master Servicer as part of its Master Servicer
Compensation no later than the fifth Business Day of the month following the
month in which the related Distribution Date occurs, unless provided in the
Pooling and Master Servicing Agreement that such net investment income be
applied to the payment of Month End Interest Shortfall or other amounts due from
the Master Servicer.
Section 3.03. Issuing REMIC Accounts.
(a) With respect to any Double REMIC Series, the Trustee shall establish
one or more accounts into which the Trustee shall deposit all payments on
account of the Regular Interests in the Pooling REMIC that are considered assets
of the Issuing REMIC and from which the Trustee shall withdraw funds to pay the
Securities evidencing an interest in the Issuing REMIC.
(b) With respect to any Double REMIC Series, the Trustee shall establish
one or more accounts into which the Trustee shall deposit all payments on
account of the Residual Interests in the Pooling REMIC and any Regular Interests
in the Pooling REMIC that are not considered assets of the Issuing REMIC and
from which the Trustee shall withdraw funds to pay the Securities that do not
evidence an interest in the Issuing REMIC. In lieu of establishing such an
account, the Trustee may pay on each Distribution Date to the Holders of the
Securities that do not evidence interests in the Issuing REMIC the amounts that
are due with respect to such Securities. In addition, upon payment in full of
the Regular Interests and all administrative costs of the Trust and the REMICs,
any amount remaining in the Asset Proceeds Account may be distributed directly
to the Holders of the Security representing beneficial ownership of the Residual
Interest in the Pooling REMIC.
Section 3.04. Advances by Master Servicer and Trustee.
(a) To the extent not made by the Servicer of a Mortgage Asset, the
Master Servicer shall be obligated to make Advances with respect to such
Mortgage Asset to the extent that the Master Servicer determines, in good faith,
that an Advance made hereunder is recoverable from Insurance Proceeds,
Liquidation Proceeds or subsequent payments by the Borrower of such Mortgage
Asset. In the event the Master Servicer determines that all, or a portion, of
any Advance required by this Section 3.04 is not so recoverable, the Master
Servicer shall promptly deliver to the Trustee an Officer's certificate setting
forth the reasons for such determination and the amount of the Non-Recoverable
Advance (a "Non-Recoverability Certificate"). Subject to the foregoing:
(i) Prior to the close of business on the Business Day prior to
the Master Servicer Remittance Date, the Master Servicer shall determine
whether and to what extent any Servicers have failed to make any Advances
in respect of Monthly Payments that were due on the previous Due Date. The
Master Servicer shall make an Advance to the Master Servicer Custodial
Account in the amount, if any, of the aggregate Monthly Payments (less
applicable Servicing Fees) on the Mortgage Assets that were due on
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the Due Date but which were not received or advanced by the Servicers and
remitted to the Master Servicer Custodial Account on or prior to the Master
Servicer Remittance Date. Each such Advance shall be remitted in
immediately available funds to the Master Servicer Custodial Account no
later than the Master Servicer Remittance Date for the month in which the
Distribution Date occurs.
(ii) To the extent not made by a Servicer, the Master Servicer
shall make Advances from time to time for attorneys' fees and court costs
incurred, or which reasonably can be expected to be incurred, for the
foreclosure of any Mortgage Asset or for any transaction in which the
Trustee is expected to receive a deed-in-lieu of foreclosure.
(iii) In the event that any Mortgaged Premises shall be damaged or
destroyed, and if the Servicer fails to Advance the funds necessary to
repair or restore the damaged or destroyed Mortgaged Premises, then the
Master Servicer shall Advance such funds and take such other action as is
necessary to repair or restore the damage or loss.
(iv) To the extent a Servicer is required to Advance funds
sufficient to pay the taxes or insurance premiums with respect to a
Mortgage Asset pursuant to applicable Servicing Agreement and the Servicer
fails to make such Advance, the Master Servicer shall Advance such funds
and take such steps as are necessary to pay such taxes or insurance
premiums.
(v) In the event that any Servicer fails to remit to the Master
Servicer Custodial Account on or before the Master Servicer Remittance
Date, the full amount of the funds in the custody or under the control of
the Servicer that the Servicer is required to remit under its Servicing
Agreement, then the Master Servicer shall Advance and remit to the Master
Servicer Custodial Account an amount equal to the required remittance no
later than the Master Servicer Remittance Date for the month in which such
funds were required to be remitted by the Servicer under the Servicing
Agreement.
(b) Any Advance made by the Master Servicer under this Section 3.04 which
the Master Servicer shall ultimately determine in its good faith judgment to be
not recoverable from Insurance Proceeds, Liquidation Proceeds or subsequent
payments by the Borrower shall be a Non-Recoverable Advance. The determination
by the Master Servicer that it has made a Non-Recoverable Advance shall be
evidenced by a Non-Recoverability Certificate of the Master Servicer promptly
delivered to the Trustee setting forth the reasons for such determination.
Following the Trustee's receipt of such Non-Recoverability Certificate, the
Master Servicer shall be entitled to reimbursement for such Non-Recoverable
Advance as provided herein.
(c) If the Master Servicer fails to make any Advance required of it
hereunder, the Trustee shall, to the maximum extent permitted by law, make such
Advance in its stead and, in such event, the Trustee shall be entitled to
receive the Master Servicer Compensation payable with respect to the
Distribution Date related to such Master Servicer Remittance Date; provided,
however, in no event shall the Trustee, whether as Trustee, Master Servicer or
Servicer, be deemed to have assumed the obligations of any Person to purchase
any Mortgage Asset from the Trust for breach of representations or warranties or
as a Converted Mortgage Loan or otherwise nor to make any Advances or pay Month
End Interest with respect to any Mortgage Asset except to the extent
specifically provided in Sections 3.04 or 3.05. Notwithstanding the foregoing,
neither the Master Servicer nor the Trustee will be obligated to make an Advance
that it reasonably believes to be a Non-Recoverable Advance. The Trustee may
conclusively rely for any determination to be made by it hereunder upon the
determination of the Master Servicer as set forth in its Non-Recoverability
Certificate.
(d) To the extent that any Advance has been made by the Trustee, the
Trustee shall be entitled to reimbursement therefor at the times and to the same
extent as either the Servicer or the Master Servicer would have been so entitled
had such Person originally made such Advance, whether or not any provision of
the Pooling and Master Servicing Agreement specifically references the right of
the Trustee to such reimbursement. In the event that the Trustee learns it is
prevented by law from making such an Advance, the Trustee will notify the Master
Servicer in writing within 24 hours of receipt of such information.
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(e) Notwithstanding anything herein to the contrary, no Advance shall
be required to be made by the Master Servicer or the Trustee to the extent that
making such Advance would result in the amount of aggregate Advances then
outstanding and unreimbursed by the Master Servicer or the Trustee to be in
excess of the amount, if any, set forth in the definition of "Master Servicer
Advance Amount" in the Pooling and Master Servicing Agreement.
Section 3.05. Month End Interest.
If so provided in the Pooling and Master Servicing Agreement, the
Master Servicer shall pay and deposit into the Master Servicer Custodial
Account, on or before each Master Servicer Remittance Date, an amount equal to
Month End Interest attributable to any Mortgage Asset liquidated or prepaid in
the preceding Prepayment Period, but only to the extent of its Master Servicing
Compensation payable with respect to the Distribution Date related to such
Master Servicer Remittance Date. Such payment will not be considered a
Non-Recoverable Advance; and in case of such payment, the Master Servicer shall
not be entitled to any recovery or reimbursement from the Trustee or the
Securityholders, but may seek and obtain recovery from the Servicer that failed
to make the payment through legal action or otherwise, to the extent provided in
the related Servicing Agreement.
Section 3.06. Trustee to Cooperate; Release of Mortgage Files.
The Trustee shall, if requested by any Servicer, execute a power of
appointment pursuant to which the Trustee shall authorize, make, constitute and
appoint designated officers of such Servicer with full power to execute in the
name of the Trustee (without recourse, representation or warranty) any deed of
reconveyance, any substitution of trustee documents or any other document to
release, satisfy, cancel or discharge any Security Instrument or Mortgage Asset
upon its payment in full or other Liquidation; provided, however, that such
power of appointment shall be limited to the powers limited above and to those
Servicers as to which a power of appointment is approved by the Rating Agencies.
The Servicer shall promptly forward to the Trustee for its files copies of all
documents executed pursuant to such power of appointment.
Upon the Liquidation of any Mortgage Asset, the Servicer shall remit
the proceeds thereof to the Master Servicer Custodial Account and unless a
Servicer has been given a power of appointment as provided in the preceding
paragraph, deliver to the Master Servicer a Request for Release of Documents (in
the form required pursuant to the related Servicing Agreement) requesting that
the Trustee execute such instrument of release or satisfaction as is necessary
to release the Mortgaged Premises from the lien of the Security Instrument. Upon
the Master Servicer's receipt of such Request for Release and its confirmation
that all amounts required to be remitted to the Master Servicer Custodial
Account in connection with such Liquidation have been so deposited, the Master
Servicer will deliver such Request for Release to the Trustee. The Trustee
shall, within five Business Days of its receipt of such a Request for Release,
release, or cause the Custodian to release, the related Trustee Mortgage Asset
File to the Master Servicer or Servicer, as requested by the Master Servicer. No
expenses incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to a Master Servicer Custodial Account or the
Asset Proceeds Account.
From time to time and as appropriate for the servicing or foreclosure
of any Mortgage Asset, including but not limited to, collection under any Title
Insurance Policy, Primary Mortgage Insurance Policy, Flood Insurance Policy or
Hazard Insurance Policy or to effect a partial release of any Mortgaged Premises
from the lien of the Security Instrument, the Servicer shall deliver to the
Master Servicer a Request for Release. Upon the Master Servicer's receipt of any
such Request for Release, the Master Servicer shall promptly forward such
request to the Trustee and the Trustee, within five Business Days, shall
release, or shall cause the Custodian to release, the related Trustee Mortgage
Asset File to the Master Servicer or the Servicer, as requested by the Master
Servicer. Any such Request for Release shall obligate the Master Servicer or the
Servicer, as the case may be, to return each and every document previously
requested from the Trustee Mortgage Asset File to the Trustee (or the Custodian)
by the twenty-first day following the release thereof, unless (a) the Mortgage
Asset has been liquidated and the Liquidation Proceeds relating to the Mortgage
Asset have been deposited in the Asset Proceeds Account or the Master Servicer
Custodial Account or (b) the Trustee Mortgage Asset File or such document has
been delivered to an attorney, or to a public trustee or other public official
as required by law, for purposes of initiating or pursuing legal action or other
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proceedings for the foreclosure of the Mortgaged Premises either judicially or
non-judicially, and the Master Servicer has delivered to the Trustee a
certificate of the Master Servicer or the Servicer certifying as to the name and
address of the Person to which such Trustee Mortgage Asset File or such document
was delivered and the purpose or purposes of such delivery. Upon receipt of an
Officer's certificate of the Master Servicer or Servicer stating that such
Mortgage Asset was liquidated and that all amounts received or to be received in
connection with such liquidation which are required to be deposited into the
Master Servicer Custodial Account or Asset Proceeds Account have been so
deposited, or that such Mortgage Asset has become an REO, the Request for
Release shall be released by the Trustee (or the Custodian) to the Master
Servicer or Servicer, as appropriate.
Upon written certification of the Master Servicer or Servicer, the
Trustee (subject to Section8.01(e) hereof) shall execute and deliver to the
Master Servicer or Servicer, as directed by the Master Servicer, court
pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Premises or to any legal
action brought to obtain judgment against any Borrower on the Note or Security
Instrument or to obtain a deficiency judgment, or to enforce any other remedies
or rights provided by the Note or Security Instrument or otherwise available at
law or in equity. Each such certification shall include a request that such
pleadings or documents be executed by the Trustee and a statement as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Security Instrument, except for the termination of such a lien upon
completion of the foreclosure proceeding or trustee's sale.
Section 3.07. Reports to the Trustee; Annual Compliance Statements.
The Master Servicer shall deliver to the Trustee on or before April 30
of each year, an Annual Compliance Statement with respect to each Pooling and
Master Servicing Agreement that the Master Servicer entered into on or before
the preceding December 31, signed by an Officer of the Master Servicer,
certifying that (a) such Officer has reviewed the activities of the Master
Servicer during the preceding calendar year or portion thereof and its
performance under each such Pooling and Master Servicing Agreement and (b) to
the best of such Officer's knowledge, based on such review, the Master Servicer
has performed and fulfilled its duties, responsibilities and obligations under
each such Pooling and Master Servicing Agreement in all material respects
throughout such year, or, if there has been a default in the fulfillment of any
such duties, responsibilities or obligations, specifying each such default known
to such Officer and the nature and status thereof, and (i) an Officer of the
Master Servicer has conducted an examination of the activities of each Servicer
during the preceding calendar year and its performance under its Servicing
Agreement with the Company, (ii) an Officer of the Master Servicer has examined
each Servicer's Fidelity Bond and Errors and Omissions Policy and each such bond
or policy is in effect and conforms to the requirements of the related Servicing
Agreement, (iii) the Master Servicer has received from each Servicer such
Servicer's annual audited financial statements and such other information as is
required by the related Servicing Agreement and (iv) to the best of such
Officer's knowledge, based on such examination, the Servicer has performed and
fulfilled its duties, responsibilities and obligations under its Servicing
Agreement in all material respects throughout such year, or, if there has been a
default in the performance or fulfillment of any such duties, responsibilities
or obligations, specifying each such default known to such Officer and the
nature and status thereof. Copies of the Annual Compliance Statement of the
Master Servicer shall be provided by the Trustee to any Securityholder upon
written request provided such statement is delivered, or caused to be delivered,
by the Master Servicer to the Trustee.
Section 3.08. Title, Management and Disposition of Any REO.
(a) Each Servicing Agreement provides that in the event that any
Mortgaged Premises becomes an REO, the Servicer shall manage, conserve, protect
and operate each REO for the Securityholders solely for the purpose of its
prompt disposition and sale. The Servicer shall use its best efforts to dispose
of any REO for its fair market value within twenty-two months of its acquisition
by the Trust, unless the Trustee has been granted an extension of time to
dispose of such REO by the Internal Revenue Service pursuant to Section
856(e)(3) of the Code (an "Extension"). If the Trustee has been granted an
Extension, the Servicer shall continue to attempt to sell the REO property for
its fair market value for the period ending two months prior to the time such
Extension expires (the "Extended Period"). In the event the Servicer is unable
to dispose of any REO within such twenty-two-month
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period or Extended Period, as the case may be, the Master Servicer shall ensure
that such REO is auctioned to the highest bidder within one month after the end
of such twenty-two-month period or Extended Period, as the case may be. In the
event of any such sale of an REO, the Trustee shall, at the written request of
the Master Servicer and upon being supported with appropriate forms therefor,
within five Business Days of its receipt of the proceeds of such sale or
auction, release or cause to be released to the purchaser the related Trustee
Mortgage Asset File and Servicer Mortgage Asset File and shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in the auction purchaser title to the
REO and the Trustee shall have no further responsibility with regard to such
Trustee Mortgage Asset File or Servicer Mortgage Asset File. Neither the
Trustee, the Master Servicer nor the Servicer, acting on behalf of the Trust,
shall provide financing from the Trust to any purchaser of REO Property.
(b) In the event that title to any REO is acquired, the deed or
certificate of sale shall be issued to the Trustee for the benefit of the
Holders. The Servicer shall, in accordance with Section 3.08(a), use its
reasonable efforts to sell any REO as expeditiously as possible, but in all
events within the time period, and subject to the conditions set forth in
Section 3.08(a) hereof. Pursuant to its efforts to sell such REO, the Servicer
shall either itself or through an agent selected by the Servicer protect and
conserve such REO in the same manner and to such extent as it customarily does
in connection with its own real estate acquired through foreclosure or by deed-
in-lieu of foreclosure, incident to its conservation and protection of the
interests of the Holders, and may rent the same, or any part thereof, as the
Servicer deems likely to increase the net proceeds distributable to the Holders
subject to the terms and conditions described in this Section 3.08.
For the purpose of protecting the interests of the Trustee and
conserving the REO prior to sale, the Servicer may contract with any Independent
Contractor for the conservation, protection and rental of any REO, provided
that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered
to require, that, the Independent Contractor (A) pay all costs and
expenses incurred in connection with the operation and management of
such REO, (B) hold all related revenues in a segregated account insured
by the FDIC, (c) remit all related revenues collected (net of such
costs and expenses retained by such Independent Contract) to the
Servicer on a monthly or more frequent basis; and
(iii) none of the provisions of this Section 3.08 relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Servicer of any of its duties
and obligations to the Trustee and the Holders with respect to the
conservation, protection and rental of any such REO.
The Servicer shall be entitled to enter into any agreement with any Independent
Contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such Independent Contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer or any Independent Contractor shall be entitled to
a fee, based on the prevailing market rate (and set in good faith at a
reasonable level in the case of a fee payable to the Servicer), for the
operation and management of any REO, which fee shall be an expense of the Trust
payable out of the gross income on such REO.
(c) The Servicer shall deposit all funds collected and received in
connection with the operation of any REO in the Custodial P&I Account no later
than the second Business Day following receipt of such funds.
(d) The Servicer, upon the final disposition of any REO, shall be
entitled to reimbursement of any related unreimbursed Advances related to the
Mortgage Asset for such REO as well as any unpaid Servicing Fees from
Liquidation Proceeds received in connection with the final disposition of such
REO; provided that any such unreimbursed Advances as well as any unpaid
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Servicing Fees may be reimbursed or paid, as the case may be, out of any net
rental income or other net amounts derived from such REO.
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(e) The final disposition of REO shall be carried out by the Servicer
at the REO's fair market value under the circumstances existing at the time of
disposition and upon such terms and conditions as the Servicer shall deem
necessary or advisable, and as are in accordance with accepted servicing
practices and in accordance with Section 3.08(a).
(f) The Liquidation Proceeds from the final disposition of the REO
shall be deposited in the Custodial P&I Account no later than the second
Business Day following receipt of such Liquidation Proceeds and, subject to such
withdrawals as may be permitted by Section 3.08(d), shall be transferred to the
Asset Proceeds Account pursuant to Section 3.01(c).
(g) The Servicer shall prepare and file reports of foreclosure and
abandonment in accordance with Section 6050J of the Code.
(h) Notwithstanding any other provision of this Agreement, the
Servicer, acting on behalf of the Trustee hereunder, shall not rent, lease, or
otherwise earn income or take any action on behalf of the Trust with respect to
any REO that might (i) cause such REO to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or (ii) result in
the receipt by the REMIC of any "income from non-permitted assets" within the
meaning of Section 860F(a)(2) of the Code or any "net income from foreclosure
property" within the meaning of Section 860G(c)(2) of the Code, both of which
types of income are subject to tax under the REMIC Provisions, unless the
Trustee has received an Opinion of Counsel at the Trust's expense (the costs of
which shall be recoverable out of the Custodial P&I Account), to the effect
that, under the REMIC Provisions and any relevant proposed legislation, any
income generated for the REMIC by the REO would not result in the imposition of
a tax upon the REMIC.
Without limiting the generality of the foregoing, neither the
Trustee, the Master Servicer, nor a Servicer shall knowingly:
(i) enter into, renew or extend any New Lease with respect to
any REO, if the New Lease by its terms will give rise to any income
that does not constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under any New
Lease other than amounts that will constitute Rents from Real Property;
(iii) authorize or permit any construction on any REO, other
than the completion of a building or other improvement thereon, and
then only if more than ten percent of the construction of such building
or other improvement was completed before default on the related
Mortgage Asset became imminent, all within the meaning of Section
856(e)(4)(B) of the Code; or
(iv) Directly Operate, or allow any other Person to Directly
Operate any REO Property on any date more than 90 days after its
acquisition date (unless the Person who would Directly Operate the REO
Property is an Independent Contractor);
unless, in any such case, the Person proposing to take such action has requested
and received the Opinion of Counsel described in the preceding sentence, in
which case the Person may take such actions as are specified in such Opinion of
Counsel.
(i) The Servicer shall not acquire any personal property relating to
any Mortgage Asset pursuant to this Section 3.08 unless either:
(i) such personal property is incident to real property (within
the meaning of Section 856(e)(1) of the Code) so acquired by the
Servicer; or
(ii) the Servicer shall have requested and received an Opinion of
Counsel, at the expense of the Trust (recoverable out of the Custodial
P&I Account), to the effect that the holding of such personal
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property by the REMIC will not cause the imposition of a tax under the
REMIC Provisions on any REMIC related to the Trust or cause any such
REMIC to fail to qualify as a REMIC at any time that any Security is
outstanding.
(j) Any actions required or permitted to be taken by a Servicer under
this Section 3.08 may be taken by the Master Servicer on behalf of such
Servicer.
Section 3.09. Amendments to Servicing Agreements.
From time to time the Master Servicer may, to the extent permitted by
the applicable Servicing Agreement, make such modifications and amendments to
the Servicing Agreement as the Master Servicer deems necessary or appropriate to
confirm or carry out more fully the intent and purpose of the Servicing
Agreement and the duties, responsibilities and obligations to be performed by
the Servicer thereunder; provided, however, that in no event shall the Master
Servicer modify or amend the Servicing Agreements if such modification or
amendment would have a material adverse effect on the Securityholders. Any such
modification or amendment by the Master Servicer shall be deemed to have a
material adverse effect on the Securityholders if such amendment or modification
either results in (a) the downgrading of the rating assigned by any Rating
Agency to the Securities or (b) the loss by the Trust or the assets thereof of
REMIC status for federal income tax purposes. Prior to the issuance of any
modification or amendment, the Master Servicer shall deliver to the Trustee an
Officer's certificate setting forth (i) the provision that is to be modified or
amended, (ii) the modification or amendment that the Master Servicer desires to
issue and (iii) the reason or reasons for such proposed amendment or
modification.
Section 3.10. Oversight of Servicing.
The Master Servicer shall supervise, administer, monitor and oversee
the servicing of the Mortgage Assets by each Servicer and the performance by
each Servicer of all services, duties, responsibilities and obligations that are
to be observed or performed by the Servicer under its respective Servicing
Agreement. Without limiting the generality of the foregoing, the Master
Servicer, acting alone and without the consent of the Trustee or any
Securityholder, shall have the power and responsibility for approving the
transfer or other assignment of any Servicing Agreement by any Servicer. The
Company shall provide the Master Servicer with a copy of the Servicing Agreement
executed by each Servicer no later than the Closing Date for the applicable
Trust. The Master Servicer acknowledges that prior to taking certain actions
required to service the Mortgage Assets, the Servicing Agreement provides that
the Servicer must notify, consult with, obtain the consent of or otherwise
follow the instructions of the Master Servicer. The Master Servicer is also
given authority to waive compliance by the Servicer with certain provisions of
the Servicing Agreement. In each such instance, the Master Servicer shall
promptly instruct the Servicer or otherwise respond to the Servicer's request.
In no event will the Master Servicer instruct the Servicer to take any action,
give any consent to action by the Servicer or waive compliance by the Servicer
with any provision of the Servicing Agreement if any resulting action or failure
to act is inconsistent with the Servicers' obligations for similarly rated
transactions or would otherwise have an adverse effect on the Securityholders.
Any such action or failure to act shall be deemed to have an adverse effect on
the Securityholders if such action or failure to act either results in (a) the
downgrading of the rating assigned by any Rating Agency to the Securities or (b)
the loss by the Trust or the assets thereof of REMIC status for federal income
tax purposes.
The Master Servicer shall instruct each Servicer that it should not
take any action to foreclose, or accept a deed in lieu of foreclosure, with
respect to any Mortgage Asset that such Servicer knows, or has reason to know,
that the related Mortgaged Premises are contaminated with toxic wastes or other
hazardous substances.
During the term of the Pooling and Master Servicing Agreement, the
Master Servicer shall consult fully with each Servicer as may be necessary from
time to time to perform and carry out the Master Servicer's obligations
hereunder and receive, review and evaluate all reports, information and other
data that are provided to the Master Servicer by each Servicer and otherwise
exercise reasonable efforts to encourage each Servicer to perform and observe
the covenants, obligations and conditions to be performed or observed by it
under its Servicing Agreement.
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For the purposes of determining whether any modification of a Mortgage
Asset shall be permitted by the Trustee or the Master Servicer, such
modification shall be construed as a substitution of the modified Mortgage Asset
for the Mortgage Asset originally deposited to the Trust. No modification shall
be approved unless either (i) such modification is occasioned by default or a
reasonably foreseeable default, or (ii) there is delivered to the Trustee an
Opinion of Counsel (at the expense of the party seeking to modify the Mortgage
Asset) to the effect that such modification would not be treated as giving rise
to a new debt instrument for federal income tax purposes.
The relationship of the Master Servicer to the Trustee under the
Pooling and Master Servicing Agreement is intended by the parties to be that of
an independent contractor and not that of a joint venturer, partner or agent.
ARTICLE IV
REPORTING/REMITTING TO SECURITYHOLDERS
Section 4.01. Statements to Securityholders.
On or before the Master Servicer Reporting Date, the Master Servicer
shall prepare a statement as to such distribution and deliver such statement to
the Trustee. On such Distribution Date the Trustee shall forward such statement
by mail to each Securityholder, setting forth:
(a) the amount of such distribution to the Holders of Securities of
such Class to be applied to reduce the Security Principal Balance thereof,
separately identifying the amounts, if any, of any prepayments;
(b) the amount of such distribution to the Holders of Securities of
such Class allocable to interest, and the Pass-Through Rate applicable to each
Class;
(c) the amount of the Master Servicing Fee to be paid to the Master
Servicer on such Distribution Date; and such other customary information as the
Master Servicer deems necessary or desirable, or which a Securityholder
reasonably requests, to enable Securityholders to prepare their tax returns;
(d) the aggregate amount of outstanding Advances, together with Non-
Recoverable Advances, if any, at the close of business on such Distribution
Date;
(e) the aggregate Scheduled Principal Balance of the Mortgage Assets
as of such Distribution Date and the number of Mortgage Assets outstanding on
such Distribution Date;
(f) the number and aggregate principal balance of Mortgage Assets (a)
delinquent two months (i.e., 60 to 89 days), (b) delinquent three months (i.e.,
90 days or longer) and (c) as to which foreclosure proceedings have been
commenced;
(g) the number and aggregate Unpaid Principal Balance of Mortgage
Assets that are REOs;
(h) the aggregate Security Principal Balance of each Class of
Securities after giving effect to the distribution to be made on such
Distribution Date, and separately identifying any reduction thereof on account
of Realized Losses;
(i) the amount of Realized Losses incurred during the related
Prepayment Period and since the Cut-off Date (separately identifying any
Mortgagor Bankruptcy Losses, Special Hazard Losses and Fraud Losses, if they are
separately allocated);
(j) the amount of Month End Interest Shortfall, Soldiers' and
Sailors' Shortfall and Realized Interest Shortfall incurred during the related
Due Period;
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(k) the aggregate amount of interest remaining unpaid (exclusive of
Shortfall and Realized Interest Shortfall allocated to such Class), if any, for
each Class of Securities, after giving effect to the distribution made on such
Distribution Date;
(l) the aggregate amount of withdrawals, if any, from any Reserve
Fund or under any Insurance Policy, and the amount, if any, available
thereunder;
(m) the Senior Percentage and Senior Prepayment Percentage, if any,
after giving effect to the distributions to be made, and Realized Losses
allocated, on such Distribution Date; and
(n) in the case of a Trust with respect to which one or more REMIC
elections have been or will be made, any reports required to be provided to
Holders by the REMIC Provisions.
In the case of information furnished pursuant to clauses (a) and
(b) above, the amounts shall be expressed, with respect to any Security, as a
dollar amount per $1,000 denomination; provided, however, that if any Class of
Securities does not have a Security Principal Balance, then the amounts shall be
expressed as a dollar amount per 10% Percentage Interest.
In addition to the Distribution Date report specified above, the
Master Servicer shall prepare and deliver to the Trustee prior to each
Distribution Date, and the Trustee shall forward to each Holder of a Residual
Security, if any, on each Distribution Date a statement setting forth the
amounts actually distributed with respect to the Residual Securities on such
Distribution Date, the aggregate Security Principal Balance, if any, of the
Residual Securities after giving effect to any distribution made on such
Distribution Date, separately identifying the amount of Realized Losses
allocated to such Residual Securities for the preceding Prepayment Period.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall prepare and furnish a statement, from information
provided by the Master Servicer, containing the information set forth in clauses
(a) through (c) above, to each Person who at any time during the calendar year
was a Holder that constituted a retail investor or other Holder that requests
such statement, aggregated for such calendar year or portion thereof during
which such Person was a Securityholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code as from time to time are in force.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer shall prepare and the Trustee shall furnish to each
Person who at any time during the calendar year was a Holder of a Residual
Security a statement containing the information provided pursuant to the second
preceding paragraph aggregated for such calendar year thereof during which such
Person was a Securityholder. Such obligation of the Trustee shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided by the Trustee pursuant to any requirements of the Code as
from time to time are in force.
Section 4.02. Remittance Reports.
The Master Servicer shall prepare the Remittance Report with respect to
the related Distribution Date and shall deliver it to the Trustee by mail,
facsimile or electronic transfer no later than each Master Servicer Reporting
Date. The Remittance Report shall set forth the information as specified in
Exhibit C attached hereto. The information in such report shall be made
- ---------
available by the Trustee to a Securityholder upon written request of such
Securityholder therefor.
In the event the Master Servicer does not furnish the Remittance Report
or any other statement or report as required by this Section 4.02 or Section
4.01, or if an Officer of the Trustee has actual knowledge that any such
Remittance Report or other statement or report is erroneous or inaccurate in any
material respect, and if any such Remittance Report or other statement or report
is not furnished or corrected, as the case may be, within one Business Day
following the date it is due to be delivered, then the Trustee shall request and
the Master Servicer shall furnish by electromagnetic tape (or such other medium
as the Trustee and the Master Servicer may agree from
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time to time) the information to enable the Trustee to prepare the Remittance
Report and the other statements and reports as required by this Section 4.02 and
Section 4.01, and the Trustee shall thereupon prepare such report and receive
the Master Servicing Fee for such month. Upon termination of the Master Servicer
pursuant to Section 7.03 hereof, the Trustee shall thereafter undertake all of
the obligations of the Master Servicer pursuant to this Section 4.02 and Section
4.01 and shall be entitled to the compensation otherwise payable to the Master
Servicer pursuant hereto in consideration of the performance of such
obligations.
The Trustee shall be under no duty to recalculate, verify or recompute
the information provided to it hereunder by the Master Servicer.
Section 4.03. Compliance with Withholding Requirements.
Notwithstanding any other provisions of the Pooling and Master
Servicing Agreement, the Trustee shall comply with all federal withholding
requirements respecting payments to Securityholders of interest or original
issue discount on the Securities that the Trustee reasonably believes are
applicable under the Code. The consent of Securityholders shall not be required
for such withholding. In the event the Trustee does withhold any amount from
interest or original issue discount payments or Advances thereof to any
Securityholder pursuant to federal withholding requirements, the Trustee shall
indicate with any payment to such Securityholders the amount withheld.
Section 4.04. Reports of Security Principal Balances to The Depository
Trust Company.
If and for so long as any Security is held by The Depository Trust
Company, on the second Business Day before each Distribution Date, the Trustee
shall give oral notice to The Depository Trust Company (and shall promptly
thereafter confirm in writing) the following: (a) the amount to be reported
pursuant to clause (a) and (b) of each statement provided to Holders of
Securities pursuant to Section 4.01 in respect of the next succeeding
distribution, (b) the Record Date for such distribution, (c) the Distribution
Date for such distribution and (d) the aggregate Security Principal Balance of
each Class of Securities to be reported pursuant to clause (h) of the first
paragraph of Section 4.01 in such month.
Section 4.05. Preparation of Regulatory Reports.
(a) Subject to the provisions of subsections (b) and (c) of this
Section 4.05, the Master Servicer shall prepare or cause to be prepared, on
behalf of the Trust, and delivered in a timely manner to the Trustee for its
review and execution, such supplementary and periodic information, documents and
reports (such information, documents or reports are referred to hereinafter as
"Periodic Reports") as may be required pursuant to Section 12(g) or Section
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
by the rules and regulations of the Securities and Exchange Commission (the
"SEC") thereunder or as a condition to approval of any application for relief
("Application for Relief") hereinafter referred to and, in connection therewith,
shall prepare such applications and requests for exemption and other relief from
such provisions as it may deem appropriate. The Master Servicer shall be deemed
to certify as to each Periodic Report delivered to the Trustee for its review
and execution that it conforms in all material respects to applicable reporting
requirements imposed by the Exchange Act or is otherwise in form and content
appropriate for filing with the SEC. The Trustee shall execute all such Periodic
Reports and Applications for Relief delivered as provided above and shall return
the same to the Master Servicer for filing with the SEC and other required
filing offices, if any, on behalf of the Trust or shall authorize the Master
Servicer to execute any such Periodic Report or Application for Relief on the
Trustee's behalf.
(b) Within 30 days after the beginning of the first fiscal year of the
Trust during which the obligation to file Periodic Reports pursuant to the
Exchange Act shall have been suspended, the Master Servicer shall prepare, or
cause to be prepared, a notice on SEC Form 15 ("Form 15") and shall forward such
notice to the Trustee for execution, whereupon the Trustee shall return the
executed Form 15 to the Master Servicer or shall authorize the Master Servicer
to execute such Form 15 on the Trustee's behalf; provided, however, that the
Master Servicer shall be under no obligation to prepare such notice if the
number of Securityholders exceeds 300. The Trustee shall notify the Master
Servicer in a timely manner if the number of Securityholders at any one time
exceeds 300. The
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Master Servicer shall file any notice on Form 15 with the SEC in accordance with
the provisions of Rule 15d-6 under the Exchange Act.
(c) Notwithstanding any other provision of this Agreement, the
Trustee has not assumed, and shall not by its performance hereunder be deemed to
have assumed, any of the duties or obligations of the Company or any other
Person with respect to (i) the registration of the Securities pursuant to the
Securities Act, (ii) the issuance or sale of the Securities, or (iii) compliance
with the provisions of the Securities Act, the Exchange Act, or any applicable
federal or state securities or other laws including, without limitation, any
requirement to update the registration statement or prospectus relating to the
Securities in order to render the same not materially misleading to investors.
(d) In connection with the Master Servicer's preparation of any Form
15 or of any Periodic Report, the Trustee shall provide it with information
which it may reasonably request concerning the number and identity of the
Holders appearing on the Security Register maintained by the Trustee, but the
Trustee shall have no duty or obligation to provide information which does not
appear on the Security Register, including any information concerning the
ownership of Persons for whom a nominee is the Holder of record.
ARTICLE V
THE POOLING INTERESTS AND THE SECURITIES
Section 5.01. Pooling REMIC Interests.
If an election has been made to treat certain assets of the Trust as a
Pooling REMIC, the Pooling and Master Servicing Agreement will set forth the
terms of the Regular Interests and Residual Interest of the Pooling REMIC.
Unless otherwise specified in the Pooling and Master Servicing Agreement, (a)
the Pooling REMIC Regular Interests will be "regular interests" for purposes of
the REMIC Provisions but will not constitute securities or certificates of
interest in the Trust; (b) the Trustee will be the owner of the Pooling REMIC
Regular Interests, which may not be transferred to any person other than a
successor trustee appointed pursuant to Section 8.07 hereof unless the party
desiring the transfer obtains a Special Tax Opinion; and (c) the Pooling REMIC
Regular Interests will be represented by Pooling REMIC Subaccounts.
Section 5.02. The Securities.
The Securities shall be designated in the Pooling and Master Servicing
Agreement. The Securities in the aggregate will represent the entire beneficial
ownership interest in the Trust Estate. On the Closing Date, the aggregate
Security Principal Balance of the Securities will equal the aggregate Scheduled
Principal Balance of the Mortgage Assets as of the Cut-off Date. The Securities
will be substantially in the forms annexed to the Pooling and Master Servicing
Agreement. Unless otherwise provided in the Pooling and Master Servicing
Agreement, the Securities of each Class will be issuable in registered form, in
denominations of authorized Percentage Interests as described in the definition
thereof. Each Security will share ratably in all rights of the related Class.
Upon original issue, the Securities shall be executed and delivered by
the Trustee and the Trustee shall cause the Securities to be authenticated by
the Security Registrar to or upon the order of the Company upon receipt by the
Trustee of the documents specified in Section 2.01. The Securities shall be
executed and attested by manual or facsimile signature on behalf of the Trustee
by an authorized Officer under its seal imprinted thereon. Securities bearing
the manual or facsimile signatures of individuals who were at any time the
proper Officers of the Trustee shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of such Securities. No Security shall be entitled to any benefit under
this Agreement or be valid for any purpose, unless there appears on such
Security a certificate of authentication substantially in the form provided in
the Pooling and Master Servicing Agreement executed by the Security Registrar by
manual signature, and such certificate of authentication shall be
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conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder. All Securities shall be dated the date of
their execution.
Section 5.03. Book-Entry Securities.
(a) The Book-Entry Securities will be represented initially by one or
more certificates registered in the name designated by the Clearing Agency. The
Company, the Master Servicer and the Trustee may for all intents and purposes
(including the making of payments on the Book-Entry Securities) deal with the
Clearing Agency as the authorized representative of the Beneficial Owners of the
Book-Entry Securities for as long as those Securities are registered in the name
of the Clearing Agency. The rights of Beneficial Owners of the Book-Entry
Securities shall be limited to those established by law and agreements between
such Beneficial Owners and the Clearing Agency and Clearing Agency Participants.
The Beneficial Owners of the Book-Entry Securities shall not be entitled to
certificates for the Book-Entry Securities as to which they are the Beneficial
Owners, except as provided in subsection (c) below. Requests and directions
from, and votes of, the Clearing Agency, as Holder, shall not be deemed to be
inconsistent if they are made with respect to different Beneficial Owners.
Without the consent of the Company, the Master Servicer and the Trustee, a Book-
Entry Security may not be transferred by the Clearing Agency except to another
Clearing Agency that agrees to hold the Book-Entry Security for the account of
the respective Clearing Agency Participants and Beneficial Owners.
(b) Neither the Company, the Master Servicer, nor the Trustee will
have any liability for any aspect of the records relating to or payment made on
account of Beneficial Owners of the Book-Entry Securities held by the Clearing
Agency, for monitoring or restricting any transfer of beneficial ownership in a
Book-Entry Security or for maintaining, supervising or reviewing any records
relating to such Beneficial Owners.
(c) The Book-Entry Securities will be issued in fully registered,
certificated form to Beneficial Owners of Book-Entry Securities or their
nominees, rather than to the Clearing Agency or its nominee, only if (a) the
Company advises the Trustee in writing that the Clearing Agency is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Securities, and the Company is unable to locate a
qualified successor within 30 days or (b) the Company, at its option, elects to
terminate the book-entry system operating through the Clearing Agency. Upon the
occurrence of either such event, the Trustee shall notify the Clearing Agency,
which in turn will notify all Beneficial Owners of Book-Entry Securities through
Clearing Agency Participants, of the availability of certificated Securities.
Upon surrender by the Clearing Agency of the certificates representing the Book-
Entry Securities and receipt of instructions for re-registration, the Trustee
will reissue the Book-Entry Securities as certificated Securities to the
Beneficial Owners identified in writing by the Clearing Agency. Such
certificated Securities shall not constitute Book-Entry Securities. All
reasonable costs associated with the preparation and delivery of certificated
Securities shall be borne by the Company.
Section 5.04. Registration of Transfer and Exchange of Securities.
The Trustee shall cause to be kept at its Corporate Trust Office a
Security Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Securities and of
transfers and exchanges of Securities as herein provided. The Trustee will
initially serve as Security Registrar for the purpose of registering Securities
and transfers and exchanges of Securities as herein provided.
Subject to Section 5.05, upon surrender for registration of transfer of
any Security at the Corporate Trust Office of the Trustee or at any other office
or agency of the Trustee maintained for such purpose, the Trustee shall execute
and the Security Registrar shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of the same
Class of a like aggregate Percentage Interest.
At the option of the Securityholders, each Security may be exchanged
for other Securities of the same Class with the same and authorized
denominations and a like aggregate Percentage Interest, upon surrender of such
Security to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, the Trustee shall execute and cause the
Security Registrar to authenticate and deliver the Securities which the
Securityholder making the exchange is entitled to receive. Every Security
presented or surrendered for transfer or
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exchange shall (if so required by the Trustee) be duly endorsed by, or be
accompanied by a written instrument of transfer in the form satisfactory to the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing.
No service charge to the Securityholders shall be made for any transfer
or exchange of Securities, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Securities.
All Securities surrendered for transfer and exchange shall be destroyed
by the Security Registrar.
The Trustee will cause the Security Registrar (unless the Trustee is
acting as Security Registrar) to provide notice to the Trustee of each transfer
of a Security, and will provide the Trustee and Master Servicer with an updated
copy of the Security Register on January 1 and July 1 of each year.
Section 5.05. Restrictions on Transfer.
(a) Securities Law Compliance. No transfer of any Private Security
-------------------------
shall be made unless that transfer is made pursuant to an effective registration
statement under the Securities Act and effective registration or qualification
under applicable state securities laws, or is made in a transaction that does
not require such registration or qualification. Any Holder of a Private Security
shall, and, by acceptance of such Security, does agree to, indemnify the
Company, the Trustee and the Master Servicer against any liability that may
result if any transfer of such Securities by such Holder is not exempt from
registration under the Securities Act and all applicable state securities laws
or is not made in accordance with such federal and state laws. Neither the
Company, the Trustee nor the Master Servicer is obligated to register or qualify
any Private Security under the Securities Act or any other securities law or to
take any action not otherwise required under this Agreement to permit the
transfer of such Securities without such registration or qualification. The
Trustee shall not register any transfer of a Private Security (other than a
Residual Security) unless and until the prospective transferee provides the
Trustee with a Transferee Agreement or, if the Security to be transferred is a
Rule 144A Security, a Rule 144A Agreement certifying to facts which, if true,
would mean that the proposed transferee is a Qualified Institutional Buyer, and
unless and until the transfer otherwise complies with the provisions of this
Section 5.05. If a proposed transfer does not involve a Rule 144A Security or
the transferee of a Rule 144A Security does not certify to facts which, if true,
would mean that the transferee is a Qualified Institutional Buyer, the Trustee
shall require that the transferor and transferee certify as to the factual basis
for the registration exemption(s) relied upon, and if the transfer is made
within three years of the acquisition thereof by a non-Affiliate of the Company
from the Company or an Affiliate of the Company, the Master Servicer or the
Trustee also may require an Opinion of Counsel that such transfer may be made
without registration or qualification under the Securities Act and applicable
state securities laws, which Opinion of Counsel shall not be obtained at the
expense of the Company, the Trustee or the Master Servicer. Notwithstanding the
foregoing, no Rule 144A Agreement, Transferee Agreement or Opinion of Counsel
shall be required in connection with the initial transfer of the Private
Securities and no Opinion of Counsel shall be required in connection with the
transfer of the Private Securities by a broker or dealer, if such broker or
dealer was the initial transferee.
The Company shall provide to any Holder of a Rule 144A Security
and any prospective transferee designated by such Holder information regarding
the related Securities and the Mortgage Assets and such other information as
shall be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Security without registration thereof under
the Securities Act pursuant to the registration exemption provided by Rule 144A.
(b) Regular Securities.
(i) Book-Entry Subordinated Securities. No Regular Security
that (i) is a Book-Entry Security and (ii) is subordinated in right to
payment to the Securities of any other Class due to the allocation of
Realized Losses (a "Book-Entry Subordinated Security") shall be
transferred to a transferee that acknowledges that it is a Plan
Investor unless such transferee provides the Trustee and the Master
Servicer with a Benefit Plan Opinion. The transferee of a Book-Entry
Subordinated Security that does not
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provide the Trustee and the Master Servicer with a Benefit Plan Opinion
will be deemed, by virtue of its acquisition of such Security, to have
represented that it is not a Plan Investor.
(ii) Certificated Subordinated Securities. No Regular Security
that (i) is not a Book-Entry Security and (ii) is subordinated in right
to payment to the Securities of any other Class due to the allocation
of Realized Losses (a "Certificated Subordinated Security") shall be
transferred unless the prospective transferee provides the Trustee and
the Master Servicer with a properly completed Benefit Plan Affidavit,
together with a Benefit Plan Opinion if required in order to comply
with such Affidavit.
(c) Residual Securities. No Residual Security (including any
-------------------
beneficial interest therein) may be transferred to a Disqualified Organization.
In addition, no Residual Security (including any beneficial interest therein)
may be transferred unless (i) the proposed transferee provides the Trustee and
the Master Servicer with (A) a Residual Transferee Agreement, (B) a Benefit Plan
Affidavit, (C) a Disqualified Organization Affidavit, and (D) if the proposed
transferee is a Non-U.S. Person, a TAPRI Certificate, and (ii) the interest
transferred involves the entire interest in a Residual Security or an undivided
interest therein (unless the transferor or the transferee provides the Master
Servicer and the Trustee with an Opinion of Counsel (which shall not be an
expense of the Master Servicer or the Trustee) that the transfer will not
jeopardize the REMIC status of any related REMIC). Furthermore, if a proposed
transfer involves a Private Security, (1) the Trustee shall require that the
transferor and transferee certify as to the factual basis for the registration
exemption(s) relied upon, and (2) if the transfer is made within three years
from the acquisition of the Security by a non-Affiliate of the Company from the
Company or an Affiliate of the Company, the Trustee also may require an Opinion
of Counsel that such transfer may be made without registration or qualification
under the Securities Act and applicable state securities laws, which Opinion of
Counsel shall not be obtained at the expense of the Trustee or the Master
Servicer. In any event, the Trustee shall not effect any transfer of a Residual
Security except upon notification of such transfer to the Master Servicer.
Notwithstanding the foregoing, no Opinion of Counsel shall be required in
connection with the initial transfer of the Residual Securities or their
transfer by a broker or dealer, if such broker or dealer was the initial
transferee. Notwithstanding the fulfillment of the prerequisites described
above, the Trustee may refuse to recognize any transfer to the extent necessary
to avoid a risk of disqualification of any related REMIC as a REMIC or the
imposition of a tax upon any such REMIC.
Upon notice to the Trustee that any legal or beneficial interest
in any portion of the Residual Securities has been transferred, directly or
indirectly, to a Disqualified Organization or agent thereof (including a broker,
nominee, or middleman) in contravention of the foregoing restrictions, (i) such
transferee shall be deemed to hold the Residual Security in constructive trust
for the last transferor who was not a Disqualified Organization or agent
thereof, and such transferor shall be restored as the owner of such Residual
Certificate as completely as if such transfer had never occurred, provided that
the Trustee may, but is not required to, recover any distributions made to such
transferee with respect to the Residual Security and return such recovery to the
transferor, and (ii) the Trustee agrees to furnish to the Internal Revenue
Service and to any transferor of the Residual Security or such agent (within 60
days of the request therefor by the transferor or agent) such information
necessary for the computation of the tax imposed under Section 860E(e) of the
Code and as otherwise may be required by the Code, including but not limited to
the present value of the total anticipated excess inclusions with respect to the
Residual Security (or portion thereof) for periods after such transfer. At the
election of the Trustee, the cost to the Trustee of computing and furnishing
such information may be charged to the transferor or such agent referred to
above; however, the Trustee shall in no event be excused from furnishing such
information.
If a tax or a reporting cost is borne by the REMIC as a result of
the transfer of a Residual Security or any beneficial interest therein in
violation of the restrictions set forth in this Section, the transferor shall
pay such tax or cost and, if such tax or cost is not so paid, the Trustee, upon
notification from the Master Servicer, shall pay such tax or cost with amounts
that otherwise would have been paid to the transferee of the Residual Security
(or beneficial interest therein). In that event, neither the transferee nor the
transferor shall have any right to seek repayment of such amounts from the
Company, the Trustee, the REMIC, the Master Servicer, or the other Holders of
any of the Securities, and none of such parties shall have any liability for
payment of any such tax or reporting cost. In the event that a Residual Security
is transferred to a Disqualified Organization, the Master Servicer shall
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make, or cause to be made, available the information necessary for the
computation of the excise tax imposed under Section 860E(e) of the Code.
Section 5.06. Mutilated, Destroyed, Lost or Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee or the
Security Registrar, or the Trustee and the Security Registrar receive evidence
to their satisfaction of the destruction, loss or theft of any Security, and (b)
there is delivered to the Trustee and the Security Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of actual knowledge by the Trustee or the Security Registrar that such
Security has been acquired by a bona fide purchaser, the Trustee shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Security, a new Security of the same Class and of like tenor and
Percentage Interest. Upon the issuance of any new Security under this Section,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Security Registrar) connected
therewith. Any replacement Security issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the destroyed, lost or stolen Security shall
be found at any time.
Section 5.07. Persons Deemed Owners.
Prior to due presentation of a Security for registration of transfer, the
Trustee, the Security Registrar and any agent of any of them may treat the
person in whose name any Security is registered as the owner of such Security
for the purpose of receiving distributions and for all other purposes
whatsoever, and neither the Trustee, the Security Registrar nor any agent of any
of them shall be affected by notice to the contrary.
Section 5.08. Appointment of Paying Agent.
The Trustee may appoint a Paying Agent for the purpose of making
distributions to Securityholders. The Trustee shall cause such Paying Agent to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent will hold all sums held by
it for the payment to Securityholders in an Eligible Account in trust for the
benefit of the Securityholders entitled thereto until such sums shall be paid to
the Securityholders. All funds remitted by the Trustee to any such Paying Agent
for the purpose of making distributions shall be paid to Securityholders on each
Distribution Date and any amounts not so paid shall be returned on such
Distribution Date to the Trustee.
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
Section 6.01. Liability of the Company and the Master Servicer.
The Company and the Master Servicer shall each be liable in accordance
herewith only to the extent of the respective obligations specifically imposed
by the Pooling and Master Servicing Agreement and undertaken by the Company and
the Master Servicer under the Pooling and Master Servicing Agreement.
Section 6.02. Merger or Consolidation of the Company or the Master
Servicer.
Subject to the following paragraph, the Company and the Master Servicer
each will keep in full effect its corporate existence, rights and franchises
under the laws of the jurisdiction of its organization, and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Pooling and Master Servicing Agreement, the Securities or
any of the Mortgage Assets and to perform its respective duties under the
Pooling and Master Servicing Agreement.
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The Company or the Master Servicer may be merged or consolidated with or
into any Person, or transfer all or substantially all of their respective assets
to any Person, in which case any Person resulting from any merger or
consolidation to which the Company or the Master Servicer shall be a party, or
any Person succeeding to the business of the Company or the Master Servicer,
shall be the successor of the Company or the Master Servicer, as the case may
be, without the execution or filing of any paper or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
Section 6.03. Limitation on Liability of the Company, the Master Servicer
and Others.
Neither the Company, the Master Servicer nor any of the directors,
officers, employees or agents of either entity shall be under any liability to
the Trust or the Securityholders and all such Persons shall be held harmless for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Pooling and Master Servicing Agreement, or for errors in
judgment; provided, however, that this provision shall not protect any such
Person against any breach of warranties or representations made herein or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties hereunder. The Company, the
Master Servicer and any of the directors, officers, employees or agents of
either may rely in good faith on any document of any kind which, prima facie, is
properly executed and submitted by any Person respecting any matters arising
hereunder. Neither the Company nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action unless such action
is related to its respective duties under the Pooling and Master Servicing
Agreement and which in its opinion does not involve it in any expense or
liability, except as provided in Section 10.01(b); provided, however, that the
Company or the Master Servicer may each in its discretion undertake any such
action that it deems necessary or desirable with respect to the Pooling and
Master Servicing Agreement and the rights and duties of the parties thereto and
the interests of the Securityholders thereunder if the Securityholders offer to
the Company or the Master Servicer, as the case may be, reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby.
Section 6.04. Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor master servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not, in and of itself, result in a downgrading
of any rated Securities or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination permitting
the resignation of the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered to the Trustee. No such resignation shall
become effective until the Trustee or a successor master servicer shall have
become the successor master servicer hereunder and agreed to perform the
responsibilities, duties, liabilities and obligations of a Master Servicer that
arise thereafter; provided, however, that any successor shall not (unless
otherwise agreed) assume any liability for the actions (or failure to act) of
the Master Servicer prior to the date that the successor becomes Master Servicer
under the Pooling and Master Servicing Agreement.
Section 6.05. Compensation to the Master Servicer.
The Master Servicer shall be entitled to receive a monthly fee as
compensation for services rendered by the Master Servicer under each Pooling and
Master Servicing Agreement, which may be retained by the Master Servicer when it
remits funds from the Master Servicer Custodial Account to the Asset Proceeds
Account. The monthly Master Servicing Fee with respect to any Trust shall equal
the amount set forth in the Pooling and Master Servicing Agreement. The Master
Servicing Fee shall be payable from amounts received with respect to the
Mortgage Assets. The Master Servicer also will be entitled, as additional
compensation, to any late reporting fees paid by a Servicer, as well as net
investment earnings on the Master Servicer Custodial Account, the Asset Proceeds
Account and any Reserve Funds that it is considered to own pursuant to the
Pooling and Master Servicing Agreement.
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Section 6.06. Assignment or Delegation of Duties by the Master Servicer.
Except as expressly provided in any Pooling and Master Servicing Agreement,
the Master Servicer shall not assign or transfer any of its rights, benefits or
privileges under the Pooling and Master Servicing Agreement to any other Person,
or delegate to or subcontract with, or authorize or appoint any other Person to
perform any of the duties, covenants or obligations to be performed by the
Master Servicer under the Pooling and Master Servicing Agreement, without the
prior written consent of the Trustee, and any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment
shall be void. Notwithstanding the foregoing, the Master Servicer shall have the
right without the prior written consent of the Trustee to delegate to,
subcontract with, authorize, or appoint an affiliate of the Master Servicer to
perform and carry out any duties, covenants or obligations to be performed and
carried out by the Master Servicer under the Pooling and Master Servicing
Agreement and hereby agrees so to delegate, subcontract, authorize or appoint to
an affiliate of the Master Servicer any duties, covenants or obligations to be
performed and carried out by the Master Servicer under the Pooling and Master
Servicing Agreement to the extent that such duties, covenants or obligations are
to be performed in any state or states in which the Master Servicer is not
authorized to do business but in which the affiliate is so authorized. In no
case, however, shall any permitted assignment relieve the Master Servicer of any
liability to the Trustee or the Company under the Pooling and Master Servicing
Agreement.
ARTICLE VII
TERMINATION OF SERVICING AND MASTER
SERVICING ARRANGEMENTS
Section 7.01. Termination and Substitution of Servicing Agreements.
Upon the occurrence of any event for which a Servicer may be terminated
pursuant to a Servicing Agreement, the Master Servicer shall promptly deliver to
the Company and the Trustee a certification by an Officer that an event has
occurred that may justify termination of a Servicing Agreement, describing the
circumstances surrounding such event and directing what action should be taken
by the Trustee with respect to the Servicer. If the Master Servicer directs that
the Servicing Agreement with the Servicer be terminated, the Master Servicer's
certification must state that the breach is material and not merely technical in
nature. Upon written direction of the Master Servicer, based upon such
certification, the Trustee, as assignee of the Servicing Agreement, shall
promptly terminate such Servicing Agreement and, as provided in the succeeding
paragraph, the Master Servicer shall concurrently therewith either enter into a
substitute Servicing Agreement or appoint another Servicer to enter into a
substitute Servicing Agreement.
The Master Servicer shall indemnify the Trustee and hold the Trustee
harmless from and against all claims, liabilities, costs and expenses
(including, without limitation, reasonable attorneys' fees) arising out of, or
assessed against the Trustee in connection with, termination of any Servicing
Agreement at the direction of the Master Servicer. If the Trustee terminates any
such Servicing Agreement, the Trustee shall enter into a substitute Servicing
Agreement with the Master Servicer or, at the Master Servicer's direction, with
another mortgage loan service company acceptable to the Master Servicer and each
Rating Agency under which such mortgage loan service company or the Master
Servicer, as the case may be, shall assume, satisfy, perform and carry out all
liabilities, duties, responsibilities and obligations that are to be, or
otherwise were to have been, satisfied, performed and carried out by the
Servicer under such terminated Servicing Agreement. Until such time as the
Trustee enters into a substitute servicing agreement with respect to the
Mortgage Assets, the Master Servicer shall assume, satisfy, perform and carry
all obligations which otherwise were to have been satisfied, performed and
carried out by the Servicer under the terminated Servicing Agreement. However,
in no event shall the Master Servicer be deemed to have assumed the obligations
of a Servicer to purchase any Mortgage Asset from the Trust or to make Advances
with respect to any Mortgage Asset, except to the extent specifically provided
in Section 3.03 hereof. As compensation to the Master Servicer for any servicing
obligations fulfilled or assumed by the Master Servicer, the Master Servicer
shall be entitled to any servicing compensation to which the Servicer would have
been entitled if
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the Servicing Agreement with the Servicer had not been terminated. It is
understood that any such substitute Servicing Agreement need not contain a
covenant by the substitute Servicer to purchase Converted Mortgage Loans.
Section 7.02. Termination of Master Servicer; Trustee to Act.
Each of the following shall constitute an Event of Default by the Master
Servicer of its obligations hereunder:
(a) any failure on the part of the Master Servicer to duly observe
or perform in any material respect any of the covenants or agreements on the
part of the Master Servicer (other than its obligation to make an Advance
pursuant to Section 3.04 hereof) contained in the Pooling and Master Servicing
Agreement which continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be remedied, shall
have been given to the Master Servicer by the Trustee, or to the Master Servicer
and the Trustee by the Holders of Securities entitled to at least 25% of the
Voting Rights; or
(b) a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Master Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or
(c) the Master Servicer shall consent to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to the Master
Servicer or of or relating to all or substantially all of its property; or
(d) the Master Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or
(e) any failure of the Master Servicer to remit funds in the Master
Servicer Custodial Account to the Asset Proceeds Account required by Section
3.01(c) within one Business Day of the date that such funds are due; or
(f) any failure of the Master Servicer to make any Advance or other
payment required by Sections 3.04 or 3.05 within one Business Day of the date
that it is due.
The rights and obligations of the Master Servicer under the Pooling and
Master Servicing Agreement may be terminated only upon the occurrence of an
Event of Default. If an Event of Default described in clauses (a) through (d) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Trustee may, and at the
direction of the Holders of Securities entitled to at least 51% of Voting
Rights, the Trustee shall, by notice in writing to the Master Servicer terminate
all of the rights and obligations of the Master Servicer under the Pooling and
Master Servicing Agreement, other than its rights as a Securityholder. If an
Event of Default described in clauses (e) and (f) hereof shall occur, the
Trustee may, by notice in writing to the Master Servicer, terminate all of the
rights and obligations of the Master Servicer under the Pooling and Master
Servicing Agreement, other than its rights as a Securityholder. On or after the
receipt by the Master Servicer of such written notice, all authority and power
of the Master Servicer under this Agreement, whether with respect to the
Securities (other than as a Holder thereof) or the Mortgage Assets or otherwise,
shall, to the maximum extent permitted by law, pass to and be vested in the
Trustee pursuant to and under this Section (provided, however, that the Master
Servicer shall continue to be entitled to receive all amounts accrued or owing
to it under the Pooling and Master Servicing Agreement on or prior to the date
of such termination). Without limiting the generality of the foregoing, the
Trustee is hereby authorized and empowered to execute and deliver on behalf of
and at the expense of the Master Servicer, as the Master Servicer's
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things that in the Trustee's sole and
absolute judgment may be necessary or appropriate to effect such termination.
Notwithstanding the foregoing, upon any such termination the
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Master Servicer shall do all things reasonably requested by the Trustee to
effect the termination of the Master Servicer's responsibilities, rights and
powers thereunder, and the transfer thereof to the Trustee, including, without
limitation, promptly providing to the Trustee (and in no event later than ten
Business Days subsequent to such notice) all documents and records electronic
and otherwise reasonably requested by the Trustee to enable the Trustee or its
designee to assume and carry out the duties and obligations that otherwise were
to have been performed and carried out by the Master Servicer thereunder but for
such termination.
Upon such termination, the Trustee shall, to the maximum extent permitted
by law, be the successor in all respects to the Master Servicer in its capacity
as master servicer under the Pooling and Master Servicing Agreement, but the
Trustee shall not have any liability for, or any duty or obligation to perform,
any duties or obligations of the Master Servicer required to be performed prior
to the date that the Trustee becomes successor master servicer. As compensation
therefor, the Trustee shall be entitled to the fees to which the Master Servicer
would have been entitled if the Master Servicer had continued to act as such.
The Trustee shall also, as successor master servicer, be entitled to all of the
protections and indemnification afforded to the Master Servicer pursuant to
Section 6.03 hereof.
Notwithstanding the above, the Trustee may, upon an Event of Default by the
Master Servicer, if it shall be unwilling so to act, or shall, if it is unable
so to act or if the Holders of Securities entitled to at least 51% of the Voting
Rights so request in writing to the Trustee, promptly appoint, or petition a
court of competent jurisdiction to appoint, any established mortgage loan
servicing institution acceptable to the Rating Agency and having a net worth of
not less than $15,000,000 as the successor to the Master Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer thereunder. No appointment of a successor to the Master
Servicer shall be effective until the assumption by the successor to the Master
Servicer of all future responsibilities, duties and liabilities of the Master
Servicer under the Pooling and Master Servicing Agreement. Pending appointment
of a successor to the Master Servicer hereunder, the Trustee or an affiliate
shall, to the maximum extent permitted by law, act in such capacity as
hereinabove provided.
In connection with such appointment and assumption described herein, the
Trustee may make such arrangements for the compensation of such successor out of
payments received on the assets included in the Trust Estate as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Master Servicer hereunder. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
Upon any Event of Default described hereunder, the Trustee, in addition to
the rights specified in this Section, shall have the right, in its own name and
as Trustee, to take all actions now or hereafter existing at law, in equity or
by statute to enforce its rights and remedies and to protect the interests, and
enforce the rights and remedies of the Securityholders (including the
institution and prosecution of all judicial, administrative and other
proceedings and the filings of proofs of claim and debt in connection
therewith). No remedy provided for by the Pooling and Master Servicing Agreement
shall be exclusive of any other remedy, and each and every remedy shall be
cumulative and in addition to any other remedy and no delay or omission to
exercise any right or remedy shall impair any such right or remedy or shall be
deemed to be a waiver of any Event of Default.
For the purposes of this Section 7.02, the Trustee shall not be deemed to
have knowledge of an Event of Default hereunder unless an Officer of the Trustee
has actual knowledge thereof or unless written notice of any event which is an
Event of Default is received by the Trustee and such notice references the
Securities or the Trust.
Section 7.03. Notification to Securityholders.
(a) Upon any termination pursuant to Section 7.01 or 7.02 above or
appointment of a successor to the Servicer or the Master Servicer, the Trustee
shall give prompt written notice thereof to Securityholders at their respective
addresses appearing in the Security Register.
(b) Within 60 days after the occurrence of any Event of Default involving
the Master Servicer or, with respect to a Servicer, the Trustee's receipt of
notice of the occurrence of any event permitting termination of
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such Servicer, the Trustee shall transmit by mail to all Holders of Securities
notice of each such Event of Default or occurrence known to the Trustee, unless
such default shall have been cured or waived.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after the
curing of any such Events of Default, undertakes to perform such duties and only
such duties as are specifically set forth in the Pooling and Master Servicing
Agreement. During an Event of Default of which the Trustee has notice, the
Trustee shall exercise such of the rights and powers vested in it by the Pooling
and Master Servicing Agreement, and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances in
the conduct of such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of the Pooling and Master Servicing Agreement, shall examine them to
determine whether they conform to the requirements of the Pooling and Master
Servicing Agreement; provided, however, that the Trustee shall be under no duty
to recalculate, verify or recompute the information provided to it hereunder by
the Company or the Master Servicer. If any such instrument is found not to
conform to the requirements of the Pooling and Master Servicing Agreement in a
material manner, the Trustee shall take action as it deems appropriate to have
the instrument corrected, and if the instrument is not corrected to the
Trustee's satisfaction, the Trustee will provide notice thereof to the
Securityholders.
No provision of the Pooling and Master Servicing Agreement shall be
construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct; provided,
however, that:
(a) Prior to the occurrence of an Event of Default with respect to the
Master Servicer, and after the curing of any such Event of Default, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of the Pooling and Master Servicing Agreement, the Trustee shall not
be liable except for the performance of such duties and obligations as are
specifically set forth in the Pooling and Master Servicing Agreement, no implied
covenants or obligations shall be read into the Pooling and Master Servicing
Agreement against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee that conform to the
requirements of the Pooling and Master Servicing Agreement;
(b) The Trustee shall not be personally liable for an error of judgment
made in good faith by an Officer of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
(c) The Trustee shall not be personally liable with respect to any action
taken, suffered or omitted to be taken by it in good faith in accordance with
the direction of Holders of Securities entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under the Pooling and Master Servicing Agreement;
(d) Any determination of negligence or bad faith of the Trustee shall be
made only upon a finding that there is clear and convincing evidence (and not
upon the mere preponderance of evidence) thereof in a proceeding before a court
of competent jurisdiction in which the Trustee has had an opportunity to defend;
and
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(e) In no event shall the Trustee be held liable for the actions or
omissions of the Master Servicer or Servicer (excepting the Trustee's own
actions as Master Servicer or Servicer), and in connection with any action or
claim or recovery sought against the Trustee based upon facts involving the acts
or omissions of the Master Servicer or the Company, or involving any allegation
or claim of liability or recovery against the Trustee by the Master Servicer or
by the Seller, the Trustee shall not be held to a greater standard of care than
the Master Servicer or Seller would be held in such situation. Other than those
obligations assumed by the Trustee pursuant to Sections 3.04, 3.05, 4.02 and
7.02 hereof, no provision of the Pooling and Master Servicing Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it unless such risk or liability
relates to duties set forth herein (which duties shall not be deemed to include
actions required to be taken by the Trustee arising out of the failure of
another person to take any required action hereunder).
Section 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01 hereof:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate of auditors or
any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper party or parties. Further, the Trustee may accept a copy of
the vote of the Board of Directors of any party certified by its clerk
or assistant clerk or secretary or assistant secretary as conclusive
evidence of the authority of any person to act in accordance with such
vote, and such vote may be considered as in full force and effect until
receipt by the Trustee of written notice to the contrary;
(ii) The Trustee may, in the absence of bad faith on its part, rely
upon a certificate of an Officer of the appropriate Person whenever in
the administration of the Pooling and Master Servicing Agreement the
Trustee shall deem it desirable that a matter be proved or established
(unless other evidence be herein specifically prescribed) prior to
taking, suffering or omitting any action hereunder;
(iii) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such
written advice or Opinion of Counsel;
(iv) The Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by the Pooling and Master Servicing
Agreement or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the
Securityholders, pursuant to the provisions of the Pooling and Master
Servicing Agreement, unless such Securityholders shall have offered to
the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby;
(v) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by the Pooling and Master Servicing Agreement;
(vi) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so
by Holders of Securities entitled to at least 25% of the Voting Rights;
provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the
Trustee, not assured to the Trustee by the security afforded to it by
the terms of the Pooling and Master Servicing Agreement, the Trustee
may require indemnity against such
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expense or liability as a condition to taking any such action. The
expense of every such examination shall be paid by the Master Servicer
or, if paid by the Trustee, shall be repaid by the Master Servicer upon
demand;
(vii) The Trustee may execute any of the trusts or powers under
the Pooling and Master Servicing Agreement or perform any duties
hereunder either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it under
the Pooling and Master Servicing Agreement;
(viii) Whenever the Trustee is authorized herein to require acts
or documents in addition to those required to be provided it in any
matter, it shall be under no obligation to make any determination
whether or not such additional acts or documents should be required
unless obligated to do so under Section 8.01;
(ix) The permissive right or authority of the Trustee to take
any action enumerated in this Agreement shall not be construed as a
duty or obligation; and
(x) The Trustee shall not be deemed to have notice of any
matter, including without limitation any Event of Default, unless one
of its Officers has actual knowledge thereof or unless written notice
thereof is received by the Trustee at the Corporate Trust Office and
such notice references the applicable Securities generally, the Seller,
the Trust or this Agreement.
(b) All rights of action under the Pooling and Master Servicing
Agreement or under any of the Securities, enforceable by the Trustee, may be
enforced by it without the possession of any of the Securities, or the
production thereof at the trial or other proceeding relating thereto, and any
such suit, action or proceeding instituted by the Trustee shall be brought in
its name for the benefit of all the Holders of such Securities, subject to the
provisions of the Pooling and Master Servicing Agreement.
Section 8.03. Trustee Not Liable for Securities or Mortgage Assets.
The recitals contained in the Pooling and Master Servicing Agreement
and in the Securities (other than the signature and countersignature of the
Trustee on the Securities) shall be taken as the statements of the Company, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations or warranties as to the validity or sufficiency of the
Pooling and Master Servicing Agreement or of the Securities (other than the
signature and countersignature of the Trustee on the Securities) or of any
Mortgage Asset or related document. The Trustee shall not be accountable for the
use or application by the Company of any of the Securities or of the proceeds of
such Securities, or for the use or application of any funds paid to the Company
in respect of the Mortgage Assets or deposited in or withdrawn from the Asset
Proceeds Account or Master Servicer Custodial Account other than any funds held
by or on behalf of the Trustee in accordance with Sections 3.01 and 3.02 or as
owner of the Regular Interests of the Pooling REMIC.
Section 8.04. Trustee May Own Securities.
The Trustee in its individual capacity or any other capacity may become
the owner or pledgee of Securities with the same rights it would have if it were
not Trustee.
Section 8.05. Trustee's Fees and Expenses.
The Master Servicer shall, pursuant to the Pooling and Master Servicing
Agreement or a separate fee agreement, (i) pay to the Trustee reasonable
compensation (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all services rendered by
it in the execution of the trusts created under the Pooling and Master Servicing
Agreement and in the exercise and performance of any of the powers and duties
thereunder of the Trustee and (ii) reimburse the Trustee for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of the
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Pooling and Master Servicing Agreement (including but not limited to the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith and except any expenses
incurred or Advances made by the Trustee in connection with its assumption of
the obligations of the Master Servicer pursuant to Section 7.02 hereof. The
Master Servicer shall indemnify and hold harmless the Trustee and any director,
officer, employee or agent of the Trustee against any loss, liability or expense
thereof, including reasonable attorney's fees, incurred arising out of or in
connection with the Pooling and Master Servicing Agreement, any custodial
agreement or the Securities, including, but not limited to, any such loss,
liability, or expense incurred in connection with any legal action against the
Trust or the Trustee or any director, officer, employee or agent thereof, or the
performance of any of the Trustee's duties under the Pooling and Master
Servicing Agreement other than any loss, liability or expense incurred by reason
of willful misfeasance, bad faith or negligence in the performance of duties
under the Pooling and Master Servicing Agreement or by reason of reckless
disregard of obligations and duties under the Pooling and Master Servicing
Agreement. Any payment pursuant to this Section made by the Master Servicer to
the Trustee shall be from such entity's own funds, without reimbursement
therefor. The provisions of this Section 8.05 shall survive the resignation or
removal of the Master Servicer or Trustee and the termination of this Pooling
and Master Servicing Agreement.
Section 8.06. Eligibility Requirements for Trustee.
The Trustee shall at all times be a corporation or national banking
association that is not an Affiliate of the Company or the Master Servicer
organized and doing business under the laws of any state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by federal or state authority. If such corporation publishes
reports of its conditions at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of conditions so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07.
Section 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts
created pursuant to a Pooling and Master Servicing Agreement by giving written
notice thereof to the Company, the Master Servicer and to all Securityholders.
Upon receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, which instrument shall be
delivered to the resigning Trustee and to the successor trustee. A copy of such
instrument shall be delivered to the Securityholders, the Master Servicer and
each Servicer by the Company. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 and shall fail to resign after written request
therefor by the Company, or if any time the Trustee shall become incapable of
acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take charge
or control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Company may remove the
Trustee and appoint a successor trustee by written instrument, in duplicate,
which instrument shall be delivered to the Trustee so removed and to the
successor trustee. A copy of such instrument shall be delivered to the
Securityholders, the Master Servicer and each Servicer by the Company.
The Holders of Securities entitled to at least 51% of the Voting Rights may
at any time remove the Trustee and appoint a successor trustee by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to the Company, one complete set to the Trustee so removed and one
complete set to the successor trustee so appointed. A copy of such instrument
shall be delivered to the Securityholders, the Master Servicer and each Servicer
by the Company.
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Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment by the successor trustee as provided
in Section 8.08 hereof.
Section 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.08 shall execute,
acknowledge and deliver to the Company, the Master Servicer and to the
predecessor trustee an instrument accepting such appointment under the Pooling
and Master Servicing Agreement and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor thereunder, with the
like effect as if originally named as trustee therein. The predecessor trustee
shall deliver to the successor trustee all Trustee Mortgage Asset Files and
related documents and statements held by it under the Pooling and Master
Servicing Agreement and the Company, the Master Servicer and the predecessor
trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully and certainly vesting and confirming
in the successor trustee all such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 8.06 hereof.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Company shall mail notice of the succession of such trustee under
the Pooling and Master Servicing Agreement to all Holders of Securities at their
addresses as shown in the Security Register. If the Company fails to mail such
notice within 10 days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Company.
Section 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee under the Pooling and Master Servicing Agreement provided such
corporation shall be eligible under the provisions of Section 8.06, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 8.10. Appointment of Co-Trustee or Separate Trustee.
For the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust or property securing the same may at the time be
located, the Company, the Master Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or trustees, of all or any part of
the Trust, and to vest in such Person or Persons, in such capacity, such title
to the Trust, or any part thereof, and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations, rights and trusts as the
Company, the Master Servicer and the Trustee may consider necessary or
desirable. If the Company or the Master Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, the
Trustee alone shall have the power to make such appointment. No co-trustee or
separate trustee(s) hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereof and no notice to Holders of
Securities of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee pursuant
to this Section 8.10 all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly, except
to the extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee under the Pooling and Master
Servicing Agreement or as successor to the Master Servicer pursuant to Section
7.02 hereof),
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the Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the direction
of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to the Pooling and Master Servicing
Agreement and the conditions of this Article VIII. Each separate trustee and co-
trustee, upon its acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment, either jointly
with the Trustee or separately, as may be provided therein, subject to all the
provisions of the Pooling and Master Servicing Agreement, specifically including
every provision of the Pooling and Master Servicing Agreement relating to the
conduct of, affecting the liability of, or affording protection to, the Trustee.
Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of the
Pooling and Master Servicing Agreement on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting, resign or
be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee. Any expense associated with the
appointment of a separate trustee or co-trustee shall not be an expense of the
Master Servicer.
Section 8.11. Appointment of Custodians.
The Trustee may, with the consent of the Master Servicer, appoint one or
more Custodians to hold all or a portion of the Trustee Mortgage Asset Files as
agent for the Trustee, by entering into a custodial agreement. The appointment
of any Custodian may at any time be terminated and a substitute custodian
appointed therefor by the Trustee. The Trustee shall terminate the appointment
of any Custodian and appoint a substitute custodian upon the request of the
Master Servicer to the Trustee. Subject to Article VIII, the Trustee agrees to
comply with the terms of each custodial agreement and to enforce the terms and
provisions thereof against the Custodian for the benefit of the Securityholders.
Each Custodian shall be a depository institution or trust company subject to
supervision by federal or state authority, shall have combined capital and
surplus of at least $10,000,000 and shall be qualified to do business in the
jurisdiction in which it holds any Trustee Mortgage Asset File. Any such
Custodian may not be an affiliate of the Company or any Seller with respect to
the applicable Trust.
Section 8.12. Trustee May Enforce Claims Without Possession of
Certificates.
All rights of action and claims under the Pooling and Master Servicing
Agreement or the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto and any such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders in respect of which such judgment has
been recovered.
ARTICLE IX
REDEMPTION OF SECURITIES AND TERMINATION OF TRUST
Section 9.01. Redemption.
Unless otherwise provided in the Pooling and Master Servicing Agreement,
either the Master Servicer or the Holders of the majority of the Percentage
Interest in the Residual Securities may, at their respective options, make or
cause a Person to make a Redeeming Purchase of the Securities for the Redemption
Price on any Distribution Date on or after the earlier of (a) the Distribution
Date on which, after taking into account distributions
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of principal to be made on such Distribution Date, the aggregate Security
Principal Balance of the Securities is equal to or less than 10% of the initial
aggregate Security Principal Balance of such Securities, or (b) the Redemption
Date. The Holders of a majority of the Percentage Interests of each Class of
Residual Securities may not cause a Person to make a Redeeming Purchase unless
the Master Servicer shall have first received cash from such Holders in an
amount equal to the Redemption Price. Unclaimed funds otherwise distributable to
Securityholders on a Distribution Date on which a Redeeming Purchase is made are
to be deposited in the Redemption Account.
Section 9.02. Termination.
Whether or not the Securities have been redeemed, unless otherwise provided
in the Pooling and Master Servicing Agreement, either the Master Servicer or the
Holders of the majority of the Percentage Interest in the Residual Securities
(or each such Class, if more than one), may, at their respective options, make
or cause a Person to make a Terminating Purchase for the Termination Price on
any Distribution Date upon which a Redeeming Purchase may be made. Upon such
Terminating Purchase or the final payment or other liquidation (or any advance
with respect thereto) of the last Mortgage Asset remaining in the Trust or the
disposition of the last REO remaining in the Trust, the respective obligations
and responsibilities under the Pooling and Master Servicing Agreement of the
Company, the Master Servicer and the Trustee (other than the obligations of the
Trustee to make payments to Securityholders as hereafter set forth and of the
Master Servicer to make payment to the Trustee of all amounts due to it
hereunder) shall terminate upon payment to the Securityholders of all amounts
held by or on behalf of the Trustee and required hereunder to be so paid and
upon deposit of unclaimed funds otherwise distributable to Securityholders in
the Termination Account. Notwithstanding the foregoing, in no event shall the
Trust created hereby continue beyond the expiration of 21 years from the death
of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James's, living on the date
hereof.
The Trust also may be terminated and the Securities retired if the Master
Servicer determines, based upon an Opinion of Counsel, that the REMIC status of
any related REMIC has been lost or that a substantial risk exists that such
REMIC status will be lost for the then-current taxable year.
Section 9.03. Procedure for Redemption or Termination.
The requisite Residual Securityholders or Master Servicer shall each advise
the Trustee of its election to cause a Redeeming Purchase or Terminating
Purchase no later than the Distribution Date in the month preceding the
Distribution Date on which the Redeeming Purchase or Terminating Purchase will
occur. The Master Servicer shall advise the Trustee of the final payment or
other Liquidation of the last Mortgage Asset remaining in the Trust or the
disposition of the last REO remaining in the Trust at least two Business Days
prior to the Remittance Date in the month in which the Trust will terminate.
Notice of the Distribution Date on which any such redemption or termination
shall occur (the "Final Distribution Date") shall be given promptly by the
Trustee by letter to Securityholders mailed (a) in the event such notice is
given in connection with a Redeeming Purchase or Terminating Purchase, not
earlier than the 15th day and not later than the last day of the month preceding
the month of such final distribution or (b) otherwise during the month of such
final distribution on or before the Remittance Date in such month, in each case
specifying (i) the Final Distribution Date and that final payment of the
Securities will be made upon presentation and surrender of Securities at the
office of the Trustee therein designated on that date, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Final Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Securities at the office of the Trustee. The
Trustee shall give such notice to the Security Registrar at the time such notice
is given to Securityholders. In the event such notice is given in connection
with a Redeeming Purchase or Terminating Purchase, the purchaser shall deliver
to the Trustee for deposit in the Asset Proceeds Account on the Business Day
immediately preceding the Final Distribution Date an amount in next day funds
equal to the Redemption Price or Termination Price, as the case may be.
Upon presentation and surrender of the Securities on a Distribution Date by
Securityholders, the Trustee shall distribute to Securityholders (A) the amount
otherwise distributable on such Distribution Date, if not in connection with a
Redeeming Purchase or Terminating Purchase, or (B) if in connection with a
Redeeming Purchase or Terminating Purchase, an amount determined as follows:
With respect to each Security with an
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outstanding Security Principal Balance, the outstanding Security Principal
Balance thereof, plus interest thereon through the Accounting Date preceding the
Distribution Date fixed for redemption or termination and any previously unpaid
interest, net of unrealized losses, Realized Interest Shortfall and Shortfall
with respect thereto; and in addition, with respect to each Residual Security,
the Percentage Interest evidenced thereby multiplied by the difference between
the Redemption Price or Termination Price and the aggregate amount to be
distributed as provided in the first clause of this sentence and the next
succeeding sentence. The Trustee also shall pay each Servicer, the Master
Servicer or itself the amount of their respective unreimbursed Advances.
Upon the deposit of the Redemption Price in the Asset Proceeds Account,
the Trustee (or the Custodian) shall retain possession of the Mortgage Assets
and shall release the Securities to the person effecting the Redeeming Purchase.
Upon the deposit of the Termination Price in the Asset Proceeds Account, the
Trustee, and any Custodian acting as its agent, shall promptly release to the
purchaser the Trustee Mortgage Asset Files for the remaining Mortgage Assets,
and the Trustee shall execute all assignments, endorsements and other
instruments without recourse necessary to effectuate such transfer. The Trust
shall terminate immediately following the deposit of funds in the Termination
Account as provided below.
In the event that all of the Securityholders shall not surrender their
Securities within six months after the Final Distribution Date specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Securityholders to surrender their Securities and receive the
final distribution with respect thereto, net of the cost of such second notice.
If within one year after the second notice all the Securities shall not have
been surrendered for cancellation, the Trustee may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Securityholders concerning surrender of their Securities, and the cost thereof
shall be paid out of the amounts otherwise payable on such Securities. Any funds
payable to Securityholders that are not distributed on the Final Distribution
Date shall be deposited in a Redemption Account or Termination Account, as the
case may be, each of which shall be an Eligible Account, to be held for the
benefit of Securityholders not presenting and surrendering their Securities in
the aforesaid manner, and shall be disposed of in accordance with this Section.
Section 9.04. Additional Termination Requirements.
(a) In the event of a Terminating Purchase as provided in Section 9.02,
the Trust shall be terminated in accordance with the following additional
requirements, unless the Trustee receives (i) a Special Tax Opinion and (ii) a
Special Tax Consent from each of the Holders of the Residual Securities (unless
the Special Tax Opinion specially provides that no REMIC-level tax will result
from the Terminating Purchase):
(A) Within 90 days prior to the Final Distribution Date, the Company
on behalf of the related REMIC shall adopt a plan of complete liquidation
meeting the requirements of a qualified liquidation under the REMIC
Provisions (which plan may be adopted by the Trustee's attachment of a
statement specifying the first day of the 90-day liquidation period to the
REMIC's final federal income tax return);
(B) Upon making final payment on the Regular Securities or the
deposit of any unclaimed funds otherwise distributable to the holders of
the Regular Securities in the Termination Account on the Final Distribution
Date, the Trustee shall distribute or credit, or cause to be distributed or
credited, to the Holders of the Residual Securities all cash on hand
relating to the REMIC after such final payment (other than cash retained to
meet claims), and the REMIC shall terminate at that time; and
(C) In no event may the final payment on the Securities be made after
the 90th day from the date on which the plan of complete liquidation is
adopted. A payment into the Termination Account with respect to any
Security pursuant to Section 9.03 shall be deemed a final payment on, or
final distribution with respect to, such Security for the purposes of this
clause.
(b) By its acceptance of a Residual Security, the Holder thereof hereby
(i) authorizes such action as may be necessary to adopt a plan of complete
liquidation of any related REMIC and (ii) agrees to take such action
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as may be necessary to adopt a plan of complete liquidation of any related REMIC
upon the written request of the Master Servicer, which authorization shall be
binding upon all successor Holders of Residual Securities.
ARTICLE X
REMIC TAX PROVISIONS
Section 10.01. REMIC Administration.
(a) Unless otherwise specified in the Pooling and Master Servicing
Agreement, the Trustee shall elect (on behalf of each REMIC to be created) to
have the Trust (or designated assets thereof) treated as one or more REMICs on
Form 1066 or other appropriate federal tax or information return for the taxable
year ending on the last day of the calendar year in which the Securities are
issued as well as on any corresponding state tax or information return necessary
to have the Trust (or such assets) treated as a REMIC under state law.
(b) The Master Servicer shall pay any and all tax related expenses (not
including taxes) of the Trust and each REMIC, including but not limited to any
professional fees or expenses related to (i) audits or any administrative or
judicial proceedings with respect to each REMIC that involve the Internal
Revenue Service or state tax authorities or (ii) the adoption of a plan of
complete liquidation.
(c) The Master Servicer shall prepare any necessary forms for election as
well as all of the Trust's and each REMIC's federal and state tax and
information returns. At the request of the Master Servicer, the Trustee shall
sign and file such returns on behalf of each REMIC. The expenses of preparing
and filing such returns shall be borne by the Master Servicer.
(d) The Master Servicer shall perform all reporting and other tax
compliance duties that are the responsibility of the Trust and each REMIC under
the REMIC Provisions or state or local tax law. Among its other duties, if
required by the REMIC Provisions, the Master Servicer, acting as agent of each
REMIC, shall provide (i) to the Treasury or other governmental authority such
information as is necessary for the application of any tax relating to the
transfer of a Residual Security to any Disqualified Organization and (ii) to the
Trustee such information as is necessary for the Trustee to discharge its
obligations under the REMIC Provisions to report tax information to the
Securityholders.
(e) The Company, the Master Servicer, the Trustee (to the extent it has
been instructed by the Company or the Master Servicer), and the Holders of the
Residual Securities shall take any action or cause any REMIC to take any action
necessary to create or maintain the status of such REMIC as a REMIC under the
REMIC Provisions and shall assist each other as necessary to create or maintain
such status.
(f) The Company, the Master Servicer, the Trustee (to the extent it has
been instructed by the Company or the Master Servicer), and the Holders of the
Residual Securities shall not take any action required by the Code or REMIC
Provisions, or fail to take any action, or cause any REMIC to take any action or
fail to take any action that, if taken or not taken, could endanger the status
of any such REMIC as a REMIC unless the Trustee and the Master Servicer have
received an Opinion of Counsel (at the expense of the party seeking to take or
to fail to take such action) to the effect that the contemplated action or
failure to act will not endanger such status.
(g) Any taxes that are imposed upon the Trust or any REMIC by federal or
state (including local) governmental authorities (other than taxes paid by a
party pursuant to Section 10.02 hereof or as provided in the following sentence)
shall be allocated in the same manner as Realized Losses are allocated. Any
state (or local) taxes imposed upon the Trust or any REMIC that would not have
been imposed on the Trust or such REMIC in the absence of any legal or business
connection between the Trustee and the state (or locality) imposing such taxes
shall be paid by the Trustee, and, notwithstanding anything to the contrary in
these Standard Terms, such taxes shall be deemed to be part of the Trustee's
cost of doing business and shall not be reimbursable to the Trustee.
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(h) The Master Servicer or an Affiliate shall acquire a Residual Security
in each REMIC and will act as the Tax Matters Person of each REMIC and perform
various tax administration functions of each REMIC as its agent, as set forth in
this Section. If the Master Servicer or an Affiliate is unable for any reason to
fulfill its duties as Tax Matters Person for a REMIC, the holder of the largest
Percentage Interest of the Residual Securities in such REMIC shall become the
successor Tax Matters Person of such REMIC.
Section 10.02. Prohibited Activities.
Except as otherwise provided in the Pooling and Master Servicing Agreement,
neither the Company, the Master Servicer, the Holders of the Residual
Securities, nor the Trustee shall engage in, nor shall the Trustee permit, any
of the following transactions or activities unless it has received (a) a Special
Tax Opinion and (b) a Special Tax Consent from each of the Holders of the
Residual Securities (unless the Special Tax Opinion specially provides that no
REMIC-level tax will result from the transaction or activity in question):
(i) the sale or other disposition of, or substitution for, any of
the Mortgage Assets except pursuant to (A) a foreclosure or default with
respect to such Mortgage Assets, (B) the bankruptcy or insolvency of any
REMIC, (C) the termination of any REMIC pursuant to Section 9.02, or (D) a
substitution or purchase in accordance with Section 2.03;
(ii) the acquisition of any Mortgage Assets for the Trust after the
Closing Date except (A) during the three-month period beginning on the
Closing Date pursuant to a fixed price contract in effect on the Closing
Date that has been reviewed and approved by tax counsel acceptable to the
Master Servicer or (B) a substitution in accordance with Section 2.03;
(iii) the sale or other disposition of any investment in the Asset
Proceeds Account at a gain;
(iv) the sale or other disposition of any asset held in a Reserve
Fund for a period of less than three months (a "Short-Term Reserve Fund
Investment") if such sale or disposition would cause 30% or more of a
REMIC's income from such Reserve Fund for the taxable year to consist of a
gain from the sale or disposition of Short-Term Reserve Fund Investments;
(v) the withdrawal of any amounts from any Reserve Fund except (A)
for the distribution pro rata to the Holders of the Residual Securities or
(B) to provide for the payment of Trust expenses or amounts payable on the
Securities in the event of defaults or late payments on the Mortgage Assets
or lower than expected returns on funds held in the Asset Proceeds Account,
as provided under section 860G(a)(7) of the Code;
(vi) the acceptance of any contribution to the Trust except the
following cash contributions: (A) a contribution received during the three
month period beginning on the Closing Date, (B) a contribution to a Reserve
Fund owned by a REMIC that is made pro rata by the Holders of the Residual
Securities, (C) a contribution to facilitate a Terminating Purchase that is
made within the 90-day period beginning on the date on which a plan of
complete liquidation is adopted pursuant to Section 9.04(a)(A), or (D) any
other contribution approved by the Master Servicer after consultation with
tax counsel; or
(vii) any other transaction or activity that is not contemplated by
the Pooling and Master Servicing Agreement.
Any party causing the Trust to engage in any of the activities prohibited in
this Section shall be liable for the payment of any tax imposed on the Trust
pursuant to Code section 860F(a)(1) or 860G(d) as a result of the Trust engaging
in such activities.
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<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment of Pooling and Master Servicing Agreement.
The Pooling and Master Servicing Agreement may be amended or supplemented
from time to time by the Company, the Master Servicer and the Trustee without
the consent of any of the Securityholders to (a) cure any ambiguity, (b) correct
or supplement any provisions herein which may be inconsistent with any other
provisions herein, (c) modify, eliminate or add to any of its provisions to such
extent as shall be necessary or appropriate to maintain the qualification of the
Trust (or certain assets thereof) either as a REMIC or as a grantor trust, as
applicable under the Code at all times that any Securities are outstanding or
(d) make any other provisions with respect to matters or questions arising under
the Pooling and Master Servicing Agreement or matters arising with respect to
the Trust which are not covered by the Pooling and Master Servicing Agreement
which shall not be inconsistent with the provisions of the Pooling and Master
Servicing Agreement, provided that such action shall not adversely affect in any
material respect the interests of any Securityholder. Any such amendment or
supplement shall be deemed not to adversely affect in any material respect any
Securityholder if there is delivered to the Trustee written notification from
each Rating Agency that rated the applicable Securities to the effect that such
amendment or supplement will not cause that Rating Agency to reduce the then
current rating assigned to such Securities.
The Pooling and Master Servicing Agreement may also be amended from time to
time by the Company, the Master Servicer and the Trustee with the consent of the
Holders of Securities entitled to at least 66% of the Voting Rights for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Pooling and Master Servicing Agreement or of modifying
in any manner the rights of the Holders of Securities; provided, however, that
no such amendment shall (A) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Assets which are required to be
distributed on any Security without the consent of the Holder of such Security,
(B) adversely affect in any material respect the interests of the Holders of any
Class of Securities in a manner other than as described in (A), without the
consent of the Holders of Securities of such Class evidencing at least 66% of
the Voting Rights of such Class, or (C) reduce the aforesaid percentage of
Securities the Holders of which are required to consent to any such amendment,
without the consent of such Holders of all Securities then outstanding. For
purposes of the giving or withholding of consents pursuant to this Section
11.01, Securities registered in the name of the Company or an Affiliate shall be
entitled to Voting Rights with respect to matters affecting such Securities.
Promptly after the execution of any such amendment the Trustee shall
furnish a copy of such amendment to each Securityholder.
It shall not be necessary for the consent of Securityholders under this
Section 11.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Securityholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, the Pooling and Master Servicing
Agreement is subject to recordation in all appropriate public offices for real
property records in all the counties or other comparable jurisdictions in which
any or all of the properties subject to the Security Instruments are situated,
and in any other appropriate public recording office or elsewhere, such
recordation to be effected by the Master Servicer and at its expense, but only
upon direction of the Trustee accompanied by an Opinion of Counsel (which shall
not be an expense of the Master Servicer or the Trustee) to the effect that such
recordation materially and beneficially affects the interests of the
Securityholders.
For the purpose of facilitating the recordation of the Pooling and Master
Servicing Agreement as herein provided and for other purposes, the Pooling and
Master Servicing Agreement may be executed simultaneously in
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<PAGE>
any number of counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
Section 11.03. Limitation on Rights of Securityholders.
The death or incapacity of any Securityholder shall not operate to
terminate the Pooling and Master Servicing Agreement or the Trust, nor entitle
such Securityholder's legal representatives or heirs to claim an accounting or
to take any action or proceeding in any court for a partition or winding up of
the Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Securityholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Securities, be
construed so as to constitute the Securityholders from time to time as partners
or members of an association; nor shall any Securityholder be under any
liability to any third person by reason of any action taken by the parties to
the Pooling and Master Servicing Agreement pursuant to any provision hereof.
No Securityholder shall have any right by virtue of any provision of the
Pooling and Master Servicing Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to the Pooling and
Master Servicing Agreement, unless such Holder previously shall have given to
the Trustee a written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the Holders of Securities entitled to at
least 25% of the Voting Rights shall have made written request upon the Trustee
to institute such action, suit or proceeding in its own name as Trustee under
the Pooling and Master Servicing Agreement and shall have offered to the Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 15 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Securityholder with
every other Securityholder and the Trustee, that no one or more Holders of
Securities shall have any right in any manner whatever by virtue of any
provision of the Pooling and Master Servicing Agreement to affect, disturb or
prejudice the rights of the Holders of any other of such Securities, or to
obtain or seek to obtain priority over or preference to any other such Holder,
or to enforce any right under the Pooling and Master Servicing Agreement, except
in the manner therein provided and for the equal, ratable and common benefit of
all Securityholders. For the protection and enforcement of the provisions of
this Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 11.04. Notices.
All demands and notices under the Pooling and Master Servicing Agreement
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by first class mail, postage prepaid, or by express
delivery service, to (a) in the case of the Company, 909 East Main Street, P. O.
Box 1575, Richmond, Virginia, 23218, Attention: President, or such other address
or telecopy number as may hereafter be furnished to each party to the Pooling
and Master Servicing Agreement in writing by the Company, (b) in the case of the
Master Servicer, such address or telecopy number as may hereafter be furnished
to each party to the Pooling and Master Servicing Agreement in writing by the
Master Servicer and (c) in the case of the Trustee, at its address and telecopy
number set forth in the Pooling and Master Servicing Agreement, or such other
address or telecopy number as may hereafter be furnished to each party to the
Pooling and Master Servicing Agreement in writing by the Trustee. Any notice
required or permitted to be mailed to a Securityholder shall be given by first-
class mail, postage prepaid, or by express delivery service, at the address of
such Holder as shown in the Security Register. Any notice so mailed within the
time prescribed in the Pooling and Master Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Securityholder
receives such notice. A copy of any notice required to be telecopied hereunder
also shall be mailed to the appropriate party in the manner set forth above. A
copy of any notice given hereunder to any other party shall be delivered to the
Trustee.
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<PAGE>
Section 11.05. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of the
Pooling and Master Servicing Agreement shall be for any reason whatsoever held
invalid, then such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or terms of the
Pooling and Master Servicing Agreement and shall in no way affect the validity
or enforceability of the other provisions of the Pooling and Master Servicing
Agreement or of the Securities or the rights of the Holders thereof.
Section 11.06. Sale of Mortgage Assets.
It is the express intent of the Company and the Trustee that the conveyance
of the Mortgage Assets by the Company to the Trustee pursuant to each Pooling
and Master Servicing Agreement be construed as a sale of the Mortgage Assets by
the Company to the Trustee. It is, further, not the intention of the Company and
the Trustee that such conveyance be deemed a pledge of the Mortgage Assets by
the Company to the Trustee to secure a debt or other obligation of the Company.
However, in the event that, notwithstanding the intent of the parties, the
Mortgage Assets are held to continue to be property of the Company then (a) the
Pooling and Master Servicing Agreement also shall be deemed to be a security
agreement within the meaning of Article 9 of the UCC; (b) the conveyance by the
Company provided for in the Pooling and Master Servicing Agreement shall be
deemed to be a grant by the Company to the Trustee of a security interest in all
of the Company's right, title and interest in and to the Mortgage Assets and all
amounts payable to the holders of the Mortgage Assets in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property, including
without limitation all amounts, other than investment earnings, from time to
time held or invested in the Master Servicer Custodial Account or Asset Proceeds
Account, whether in the form of cash, instruments, securities or other property;
(c) the possession by the Trustee or its agent of Notes and such other items of
property as constitute instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the UCC; and (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property, shall be deemed notifications
to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Trustee for the purpose
of perfecting such security interest under applicable law. The Company and the
Trustee shall, to the extent consistent with the Pooling and Master Servicing
Agreement, take such actions as may be necessary to ensure that, if the Pooling
and Master Servicing Agreement were deemed to create a security interest in the
Mortgage Assets, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of the Pooling and Master Servicing Agreement.
Section 11.07. Notice to Rating Agency.
(a) The Trustee shall use its best efforts promptly to provide notice to
the Rating Agency with respect to each of the following of which it has actual
knowledge:
(i) any material change or amendment to the Pooling and Master
Servicing Agreement or any agreement assigned to the Trust;
(ii) the occurrence of any Event of Default involving the Master
Servicer that has not been cured or any recommendation by the Master
Servicer that a Servicing Agreement with a Servicer be terminated;
(iii) the resignation, termination or merger of the Company, the
Master Servicer, the Trustee or any Servicer;
(iv) the purchase or substitution of Mortgage Assets pursuant to
Section 2.03;
(v) the final payment to Securityholders;
-56-
<PAGE>
(vi) any change in the location of any Master Servicer Custodial
Account, Reserve Fund or Asset Proceeds Account;
(vii) any event that would result in the inability of the Servicer or
the Master Servicer to make Advances regarding delinquent Mortgage Assets
or the inability of the Trustee to make any such Advance in the event it is
serving as the Master Servicer pursuant to Section 7.02 hereof;
(viii) any change in applicable law that would require an Assignment
of a Security Instrument, not previously recorded pursuant to Section 2.01,
to be recorded in order to protect the right, title and interest of the
Trustee in and to the related Mortgage Asset or, in case a court should
recharacterize the sale of the Mortgage Assets as a financing, to perfect a
first priority security interest in favor of the Trustee in the related
Mortgage Asset.
(b) The Master Servicer shall promptly notify the Trustee of any of the
events listed in Section 11.07(a) of which it has actual knowledge. In addition,
the Trustee shall promptly furnish to the Rating Agency at its address set forth
in the Pooling and Master Servicing Agreement copies of the following:
(i) each report to Securityholders described in Section 4.01; and
(ii) each Annual Compliance Statement.
(c) Any notice pursuant to this Section 11.07 shall be in writing and
shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid or by express delivery service to each Rating
Agency at the address specified in the Pooling and Master Servicing Agreement.
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<PAGE>
Exhibit A-1
FORM OF INITIAL CERTIFICATION
[Date]
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attention: Vice President
[Master Servicer]
[Address]
[Address]
Attention: Master Servicing Department
Pooling and Master Servicing Agreement, dated as of_________ 1, _____, among
National Mortgage Securities Corporation
[ ], as Master Servicer, and _______________, as Trustee,
Pass-Through Certificates, Series __-__ Trust.
Ladies and Gentlemen:
In accordance with Section 2.02 of the Standard Terms to the above-
referenced Pooling and Master Servicing Agreement and subject to the further
examination, the Trustee hereby certifies that, except as noted on the Schedule
of Exceptions attached hereto, it, or a Custodian on its behalf, has received a
Trustee Mortgage Asset File that contains a Note corresponding to such Trustee
Mortgage Asset File with respect to each Mortgage Asset listed on the Mortgage
Asset Schedule.
The Trustee further certifies as to each Note that:
(1) except for the endorsement required pursuant to clause (a) of the
definition of Trustee Mortgage Asset File, the Note, on the face or the reverse
side(s) thereof, does not contain evidence of any unsatisfied claims, liens,
security interests, encumbrances or restrictions on transfer; and
(2) the Note bears an endorsement (which appears to be an original) in
blank or to the Trustee, as set forth in clause (b)(ii) of Section 2.02 of the
Standard Terms.
Except as described herein, neither the Trustee, nor any Custodian on its
behalf, has made an independent examination of any documents contained in any
Trustee Mortgage Asset File. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in any Trustee Mortgage Asset File for any of the Mortgage
Assets listed on the Mortgage Asset Schedule to the Pooling and Master Servicing
Agreement, (ii) the collectibility, insurability, effectiveness or suitability
of any such Mortgage Asset or (iii) whether any Trustee Mortgage Asset File
should include any assumption agreement, modification agreement, written
assurance or substitution agreement.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Master Servicing
Agreement.
Exhibit A-1-1
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be executed
by a duly authorized Officer this __ day of __________, ____.
[TRUSTEE],
as Trustee
By:_________________________
Its:________________________
Exhibit A-1-2
<PAGE>
Exhibit A-2
FORM OF INTERIM CERTIFICATION
[Date]
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attention: Vice President
[Master Servicer]
[Address]
[Address]
Attention: Master Servicing Department
Pooling and Master Servicing Agreement, dated as of _________ 1, _____, among
National Mortgage Securities Corporation
[ ], as Master Servicer, and
____________________, as Trustee,
Pass-Through Certificates, Series __-__ Trust.
Ladies and Gentlemen:
In accordance with Section 2.02 of the Standard Terms to the above-
referenced Pooling and Master Servicing Agreement, the undersigned, as Trustee,
hereby certifies that, as to each Mortgage Asset listed on the Mortgage Asset
Schedule to the Pooling and Master Servicing Agreement (other than any Mortgage
Asset paid in full or listed on the attachment hereto) it, or a Custodian on its
behalf, has reviewed the Trustee Mortgage Asset File and has determined that,
except as noted on the Schedule of Exceptions attached hereto: (i) all documents
required to be included in the Trustee Mortgage Asset File (as set forth in
Section 2.01 of the Standard Terms) are in its possession or in the possession
of a Custodian on its behalf; (ii) such documents have been reviewed by it, or
such Custodian on its behalf, and appear regular on their face and relate to
such Mortgage Asset; and (iii) based on examination by it, or by a Custodian on
its behalf, and only as to such documents, the information set forth on the
Mortgage Asset Schedule to the Pooling and Master Servicing Agreement accurately
reflects the information set forth in the Trustee Mortgage Asset File. The
undersigned further certifies that the Trustee's review, or the review of its
Custodian, of each Trustee Mortgage Asset File included each of the procedures
listed in clause (c) of Section 2.02 of the Standard Terms.
Except as described herein, neither the Trustee, nor any Custodian on its
behalf, has made an independent examination of any documents contained in any
Trustee Mortgage Asset File. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any documents
contained in any Trustee Mortgage Asset File for any of the Mortgage Assets
listed on the Mortgage Asset Schedule to the Pooling and Master Servicing
Agreement, (ii) the collectibility, insurability, effectiveness or suitability
of any such Mortgage Asset or (iii) whether any Trustee Mortgage Asset File
should include any assumption agreement, modification agreement, written
assurance or substitution agreement.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Master Servicing
Agreement.
Exhibit A-2-1
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be executed
by a duly authorized Officer this __ day of __________, ____.
[TRUSTEE]
By:___________________________
Its:__________________________
Exhibit A-2-2
<PAGE>
Exhibit A-3
FORM OF FINAL CERTIFICATION
[Date]
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attention: Vice President
[Master Servicer]
[Address]
[Address]
Attention: Master Servicing Department
Pooling and Master Servicing Agreement, dated as of _________ 1, ____, among
National Mortgage Securities Corporation
[ ], as Master Servicer, and _______________, as Trustee,
Pass-Through Certificates, Series __-__ Trust.
Ladies and Gentlemen:
In accordance with Section 2.02 of the Standard Terms to the above-
referenced Pooling and Master Servicing Agreement, the undersigned, as Trustee,
hereby certifies that, except as noted on the Schedule of Exceptions attached
hereto, for each Mortgage Asset listed on the Mortgage Asset Schedule (other
than any Mortgage Asset paid in full or listed on the attachment hereto) it, or
a Custodian on its behalf, has received a complete Trustee Mortgage Asset File
which includes each of the documents required to be included in the Trustee
Mortgage Asset File.
Neither the Trustee nor any Custodian on its behalf has made an independent
examination of any documents contained in any Trustee Mortgage Asset File beyond
the review specifically required in the above referenced Pooling and Master
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in any Trustee Mortgage Asset File for any of the Mortgage
Assets listed on the Mortgage Asset Schedule, (ii) the collectibility,
insurability, effectiveness or suitability of any such Mortgage Asset or (iii)
whether any Trustee Mortgage Asset File should include any assumption agreement,
modification agreement, written assurance or substitution agreement.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Master Servicing
Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be executed
by a duly authorized Officer this __ day of __________, ____.
[TRUSTEE]
By:_________________________
Its:________________________
Exhibit A-3-1
<PAGE>
Exhibit B
FORM OF RECORDATION REPORT
[Date]
[Master Servicer]
[Address]
[Address]
Attention: Master Servicing Department
Re: Pooling and Master Servicing Agreement, dated as of _____1,____,
among National Mortgage Securities Corporation
[ ], as Master Servicer,
and _______________, as Trustee, Pass-Through
Certificates, Series __-__ Trust.
Ladies and Gentlemen:
In accordance with Section 2.02(f) of the Standard Terms, the undersigned,
as Trustee hereby notifies you, that as of the date hereof with respect to the
following Mortgage Assets it has not received the indicated documents.
If a Security Instrument for any Mortgage Asset has not been recorded
and the original recorded Security Instrument or a copy of such recorded
Security Instrument with such evidence of recordation certified to be true and
correct by the appropriate governmental recording office has not been delivered
to the Trustee (or Custodian), the Seller or Servicer may be required to
purchase such Mortgage Asset from the Trustee if such defect materially and
adversely affects the value of the Mortgage Asset or the interest of the Trust
therein.
If an Assignment to the Trustee of the Seller's interest in a Security
Instrument has not been recorded within one year of the Closing Date, the Seller
or Servicer shall be required to (i) purchase the related Mortgage Asset from
the Trustee or (ii) if there have been no defaults in the Monthly Payments on
such Mortgage Asset, deposit an amount equal to the Purchase Price into an
escrow account maintained by the Trustee.
<TABLE>
<CAPTION>
Original Recorded
Company Loan Original Recorded Security Instrument Assignment of Security Instrument
Number or Certified Copy Thereof or Certified Copy Thereof*
------ ------------------------- -------------------------
<S> <C> <C>
</TABLE>
__________________
* As required with regard to any intervening Assignments.
[TRUSTEE]
as Trustee
By:___________________________
Its:__________________________
Exhibit B-1
<PAGE>
Exhibit C
FORM OF REMITTANCE REPORT
National Mortgage Securities Corporation
Trust: ___________________________________________________
Distribution Date: ______________________________________
Reporting Month: ______________________________________
The following class, series and collateral information will be included
on each Remittance Report, as appropriate:
<TABLE>
<CAPTION>
Class Level Series Level Collateral Level
----------- ------------ ----------------
<S> <C> <C>
Class Name Asset Proceeds Account - Scheduled Principal
Pass-Through Rate Deposits and Withdrawals Unscheduled Principal
Beginning Balance Balance Information for Scheduled Interest
Interest Distribution Other Accounts Beginning Asset Count
Principal Distribution Advances on Delinquencies Ending Asset Count
Realized Losses Beginning Balance Weighted Average Maturity
Ending Balance Interest Distribution (WAM)
Total Distribution Principal Distribution Weighted Average Note Rate
Aggregate Realized Losses Realized Losses Weighted Average Net Rate
Original Balance Ending Balance Weighted Average Pass-
Record Date Total Distribution Through Rate
Interest Distribution Factor Aggregate Realized Losses Delinquency Statistics - 30,
Principal Distribution Factor Original Balance 60, and 90 day delinquencies;
Remaining Principal Factor Remaining Principal Factor foreclosures and REO's
Scheduled Principal Scheduled Principal
Unscheduled Principal Unscheduled Principal
Current Interest Current Interest
Recovery/(Shortfall) Recovery/(Shortfall)
Accretion Accretion
</TABLE>
Exhibit C-1
<PAGE>
Exhibit D
FORM OF RULE 144A AGREEMENT--QIB CERTIFICATION
NATIONAL MORTGAGE SECURITIES CORPORATION
PASS-THROUGH CERTIFICATES, SERIES __-_, CLASS ___
________________
(DATE)
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attention: President
[Master Servicer]
[Address]
[Address]
Attn: Master Servicing Department
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the captioned
securities (the "Purchased Securities"), the undersigned (the "Transferee")
hereby certifies and covenants to the transferor, the Company, the Master
Servicer, the Trustee and the Trust as follows:
1. The Transferee is a "qualified institutional buyer" as that term is
defined in Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933,
as amended (the "1933 Act") and has completed the form of certification to that
effect attached hereto as Annex A1 (if the Transferee is not a registered
--------
investment company) or Annex A2 (if the Transferee is a registered investment
--------
company). The Transferee is aware that the sale to it is being made in reliance
on Rule 144A.
2. The Transferee understands that the Purchased Securities have not
been registered under the 1933 Act or registered or qualified under any state
securities laws and that no transfer may be made unless the Purchased Securities
are registered under the 1933 Act and under applicable state law or unless an
exemption from such registration is available. The Transferee further
understands that neither the Company, the Master Servicer, the Trustee nor the
Trust is under any obligation to register the Purchased Securities or make an
exemption from such registration available.
3. The Transferee is acquiring the Purchased Securities for its own
account or for the account of a "qualified institutional buyer," and understands
that such Purchased Securities may be resold, pledged or transferred only (a) to
a person reasonably believed to be such a qualified institutional buyer that
purchases for its own account or for the account of a qualified institutional
buyer to whom notice is given that the resale, pledge or transfer is being made
in reliance on Rule 144A, or (b) pursuant to another exemption from registration
under the 1933 Act and under applicable state securities laws. In addition, such
transfer may be subject to additional restrictions, as set forth in Section 5.05
of the Standard Terms to the Pooling and Master Servicing Agreement.
4. The Transferee has been furnished with all information that it
requested regarding (a) the Purchased Securities and distributions thereon and
(b) the Pooling and Master Servicing Agreement referred to below.
5. If applicable, the Transferee has complied or will comply in all
material respects with applicable regulatory guidelines relating to the
ownership of mortgage derivative products.
Exhibit D-1
<PAGE>
All capitalized terms used but not otherwise defined herein have the
respective meanings assigned thereto in the Pooling and Master Servicing
Agreement, dated as of _____________ 1, ____, which incorporates by reference
the Standard Terms thereto, among National Mortgage Securities Corporation, the
Master Servicer and the Trustee, pursuant to which the Purchased Securities were
issued.
IN WITNESS WHEREOF, the undersigned has caused this Rule 144A
Agreement--QIB Certification to be executed by its duly authorized
representative as of the day and year first above written.
[TRANSFEREE]
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
Exhibit D-2
<PAGE>
Annex A1 to Exhibit D
TRANSFEREES OTHER THAN REGISTERED INVESTMENT COMPANIES
------------------------------------------------------
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Transferee.
2. The Transferee is a "qualified institutional buyer" as that term is
defined in Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933,
as amended (the "1933 Act"), because (a) the Transferee owns and/or invests on a
discretionary basis at least $100,000,000 in securities or, if the Transferee is
a dealer, the Transferee owns and/or invests on a discretionary basis at least
$10,000,000 in securities. The Transferee owned and/or invested on a
discretionary basis at least $____________ in securities (except for the
excluded securities referred to in paragraph 3 below) as of _______________
[specify a date on or since the end of the Transferee's most recently ended
fiscal year] (such amount being calculated in accordance with Rule 144A) and (b)
the Transferee meets the criteria listed in the category marked below.
_____ Corporation, etc. The Transferee is an organization described
----------------
in Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended, a corporation (other than a bank as defined in
Section 3(a)(2) of the 1933 Act or a savings and loan
association or other similar institution referenced in Section
3(a)(5)(A) of the Act), a partnership, or a Massachusetts or
similar business trust.
_____ Bank. The Transferee (a) is a national bank or banking
----
institution as defined in Section 3(a)(2) of the 1933 Act and
is organized under the laws of a state, territory or the
District of Columbia. The business of the Transferee is
substantially confined to banking and is supervised by the
appropriate state or territorial banking commission or similar
official or is a foreign bank or equivalent institution, and
(b) has an audited net worth of at least $25,000,000 as
demonstrated in its latest annual financial statements as of a
date not more than 16 months preceding the date of this
certification in the case of a U.S. bank, and not more than 18
months preceding the date of this certification in the case of
a foreign bank or equivalent institution, a copy of which
---------------
financial statements is attached hereto.
---------------------------------------
_____ Savings and Loan. The Transferee is a savings and loan
----------------
association, building and loan association, cooperative bank,
homestead association or similar institution referenced in
Section 3(a)(5)(A) of the 1933 Act. The Transferee is
supervised and examined by a state or federal authority having
supervisory authority over any such institutions or is a
foreign savings and loan association or equivalent institution
and has an audited net worth of at least $25,000,000 as
demonstrated in its latest annual financial statements as of a
date not more than 16 months preceding the date of this
certification in the case of a U.S. savings and loan
association or similar institution, and not more than 18
months preceding the date of this certification in the case of
a foreign savings and loan association or equivalent
institution, a copy of which financial statements is attached
------------------------------------------------
hereto.
------
_____ Broker-dealer. The Transferee is a dealer registered pursuant
-------------
to Section 15 of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
_____ Insurance Company. The Transferee is an insurance company as
-----------------
defined in Section 2(13) of the 1933 Act, whose primary and
predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies
and which is subject to supervision by the insurance
commissioner or a similar official or agency of a state,
territory or the District of Columbia.
Exhibit D-3
<PAGE>
_____ State or Local Plan. The Transferee is a plan established and
-------------------
maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees.
_____ ERISA Plan. The Transferee is an employee benefit plan within
----------
the meaning of Title I of the Employee Retirement Income
Security Act of 1974, as amended.
_____ Investment Adviser. The Transferee is an investment adviser
------------------
registered under the Investment Advisers Act of 1940, as
amended.
_____ Other. The Transferee qualifies as a "qualified institutional
-----
buyer" as defined in Rule 144A on the basis of facts other
than those listed in any of the entries above. If this
response is marked, the Transferee must certify on additional
pages, to be attached to this certification, to facts that
satisfy the Servicer that the Transferee is a "qualified
institutional buyer" as defined in Rule 144A.
3. The term "securities" as used herein does not include (a)
---------- ----------------
securities of issuers that are affiliated with the Transferee, (b) securities
constituting the whole or part of an unsold allotment to or subscription by the
Transferee, if the Transferee is a dealer, (c) bank deposit notes and
certificates of deposit, (d) loan participations, (e) repurchase agreements, (f)
securities owned but subject to a repurchase agreement and (g) currency,
interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Transferee, the Transferee
used the cost of such securities to the Transferee and did not include any of
the securities referred to in the preceding paragraph. Further, in determining
such aggregate amount, the Transferee may have included securities owned by
subsidiaries of the Transferee, but only if such subsidiaries are consolidated
with the Transferee in its financial statements prepared in accordance with
generally accepted accounting principles and if the investments of such
subsidiaries are managed under the Transferee's direction. However, such
securities were not included if the Transferee is a majority-owned, consolidated
subsidiary of another enterprise and the Transferee is not itself a reporting
company under the 1934 Act.
5. The Transferee acknowledges that it is familiar with Rule 144A
and understands that the Transferor and other parties related to the Purchased
Securities are relying and will continue to rely on the statements made herein
because one or more sales to the Transferee may be made in reliance on Rule
144A.
6. Will the Transferee be purchasing
_____ ____
the Purchased Certificates only YES NO
for the Transferee's own account?
If the answer to the foregoing question is "NO", the Transferee agrees
that, in connection with any purchase of securities sold to the Transferee for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Transferee will only purchase for the account of a third party
that at the time is a "qualified institutional buyer" within the meaning of Rule
144A. In addition, the Transferee agrees that the Transferee will not purchase
securities for a third party unless the Transferee has obtained a current
representation letter from such third party or taken other appropriate steps
contemplated by Rule 144A to conclude that such third party independently meets
the definition of "qualified institutional buyer" set forth in Rule 144A.
7. The Transferee will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Transferee's purchase of the Purchased
Securities will constitute a reaffirmation of this certification as of the date
of such purchase. In addition, if the Transferee is a bank or savings and loan
as provided above, the Transferee agrees that it will furnish to such parties
updated annual financial statements promptly after they become available.
Exhibit D-4
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed by its duly authorized representative this ____ day of ___________,
_____.
_________________________________________
Print Name of Transferee
By: __________________________________
Name: __________________________________
Title: __________________________________
Date: __________________________________
National Mortgage Securities Corporation
Pass-Through Certificates,
Series ____-__, Class ____.
Exhibit D-5
<PAGE>
Annex A2 to Exhibit D
TRANSFEREES THAT ARE REGISTERED INVESTMENT COMPANIES
----------------------------------------------------
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the entity purchasing the
Purchased Securities (the "Transferee") or, if the Transferee is part of a
Family of Investment Companies (as defined in paragraph 3 below), is an officer
of the related investment adviser (the "Adviser").
2. The Transferee is a "qualified institutional buyer" as that term is
defined in Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933,
as amended (the "1933 Act"), because (a) the Transferee is an investment company
(a "Registered Investment Company") registered under the Investment Company Act
of 1940, as amended (the "1940 Act") and (b) as marked below, the Transferee
alone, or the Transferee's Family of Investment Companies, owned at least
$100,000,000 in securities (other than the excluded securities referred to in
paragraph 4 below) as of ________________ [specify a date on or since the end of
the Transferee's most recently ended fiscal year]. For purposes of determining
the amount of securities owned by the Transferee or the Transferee's Family of
Investment Companies, the cost of such securities to the Transferee or the
Transferee's Family of Investment Companies was used.
_____ The Transferee owned $____________ in securities (other than the
excluded securities referred to in paragraph 4 below) as of the end
of the Transferee's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
_____ The Transferee is part of a Family of Investment Companies which
owned in the aggregate $____________ in securities (other than the
excluded securities referred to in paragraph 4 below) as of the end
of the Transferee's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used herein means two
or more Registered Investment Companies except for a unit investment trust whose
assets consist solely of shares of one or more Registered Investment Companies
(provided that each series of a "series company," as defined in Rule 18f-2 under
the 1940 Act, shall be deemed to be a separate investment company) that have the
same investment adviser (or, in the case of a unit investment trust, the same
depositor) or investment advisers (or depositors) that are affiliated (by virtue
of being majority-owned subsidiaries of the same parent or because one
investment adviser is a majority-owned subsidiary of the other).
4. The term "securities" as used herein does not include (a) securities
----------
of issuers that are affiliated with the Transferee or are part of the
Transferee's Family of Investment Companies, (b) bank deposit notes and
certificates of deposit, (c) loan participations, (d) repurchase agreements, (e)
securities owned but subject to a repurchase agreement and (f) currency,
interest rate and commodity swaps.
5. The Transferee is familiar with Rule 144A and understands that the
parties to which this certification is being made are relying and will continue
to rely on the statements made herein because one or more sales to the
Transferee will be in reliance on Rule 144A. In addition, the Transferee will
only purchase for the Transferee's own account.
6. The undersigned will notify the parties to which this certification
is made of any changes in the information and conclusions herein. Until such
notice, the Transferee's purchase of the Purchased Securities will constitute a
reaffirmation of this certification by the undersigned as of the date of such
purchase.
Exhibit D-6
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed by its duly authorized representative this ____ of ____________, _____.
__________________________________________
Print Name of Transferee or
Adviser
By:_______________________________________
Name:_____________________________________
Title:____________________________________
National Mortgage Securities Corporation
Pass-Through Certificates,
Series ___-___, Class ____.
IF AN ADVISER:
__________________________________________
Print Name of Transferee
Date:_____________________________________
Exhibit D-7
<PAGE>
Exhibit E
FORM OF TRANSFEREE AGREEMENT
NATIONAL MORTGAGE SECURITIES CORPORATION
PASS-THROUGH CERTIFICATES, SERIES ___-_, CLASS ___
________________
(DATE)
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attn: President
[Master Servicer]
[Address]
[Address]
Attn: Master Servicing Department
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the captioned
securities (the "Purchased Securities"), the undersigned (the "Transferee")
hereby certifies and covenants to the transferor, the Company, the Master
Servicer, the Trustee and the Trust as follows:
1. Representations and Warranties. The Transferee represents and
------------------------------
warrants:
(a) The Transferee is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which the Transferee is
organized, is authorized to invest in the Purchased Securities and to enter into
this Agreement, and has duly executed and delivered this Agreement.
(b) The Transferee is acquiring the Purchased Securities for its own
account as principal and not with a view to the distribution of the Purchased
Securities, in whole or in part, in violation of Section 5 of the Securities Act
of 1933, as amended (the "Act").
(c) The Transferee is an "Accredited Investor" as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Act.
(d) The Transferee has knowledge in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Purchased Securities; the Transferee has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision;
and the Transferee is able to bear the economic risk of an investment in the
Purchased Securities and can afford a complete loss of such investment;
(e) The Transferee confirms that the Company has made available to
the Transferee the opportunity to ask questions of, and receive answers from,
the Company concerning the Company, the Trust, the purchase by the Transferee of
the Purchased Securities and all matters relating thereto, and to obtain
additional information relating thereto that the Company possesses or can
acquire without unreasonable effort or expense.
Exhibit E-1
<PAGE>
2. Covenants. The Transferee covenants:
---------
(a) The Transferee will not make a public offering of the Purchased
Securities, and will not reoffer or resell the Purchased Securities in a manner
that would render the issuance and sale of the Purchased Securities, whether
considered together with the resale or otherwise, a violation of the Act, or any
state securities or "Blue Sky" laws or require registration pursuant thereto;
(b) The Transferee agrees that, in its capacity as holder of the
Purchased Securities, it will assert no claim or interest in the Mortgage Assets
by reason of owning the Purchased Securities other than with respect to amounts
that may be properly and actually payable to the Transferee pursuant to the
terms of the Pooling and Master Servicing Agreement and the securities; and
(c) If applicable, the Transferee will comply in all material
respects with respect to the Purchased Securities with applicable regulatory
guidelines relating to the ownership of mortgage derivative products.
3. Transfer Restrictions.
---------------------
(a) The Transferee understands that the Purchased Securities have not
been registered under the Act or registered or qualified under any state
securities laws and that no transfer may be made unless the Purchased Securities
are registered under the Act and under applicable state law or unless an
exemption from such registration is available. If so requested by the Master
Servicer or the Trustee, the Transferee and the transferor shall certify to the
Company, the Master Servicer and the Trustee as to the factual basis for the
registration or qualification exemption relied upon. The Transferee further
understands that neither the Company, the Master Servicer, the Trustee nor the
Trust is under any obligation to register the Purchased Securities or make an
exemption from such registration available.
(b) In the event that the transfer is to be made within three years
of the date the Purchased Securities were acquired by a non-Affiliate of the
Company from the Company or an Affiliate of the Company, the Master Servicer or
the Trustee may require an Opinion of Counsel (which shall not be an expense of
the Company, the Master Servicer or the Trustee) that such transfer is not
required to be registered under the Act or state securities laws.
(c) Any Securityholder desiring to effect a transfer shall, and does
hereby agree to, indemnify the Company, the Master Servicer and the Trustee
against any liability that may result if the transfer is not exempt under
federal or applicable state securities laws.
(d) The transfer of the Securities may be subject to additional
restrictions, as set forth in Section 5.05 of the Standard Terms of the Pooling
and Master Servicing Agreement.
All capitalized terms used but not otherwise defined herein have the
respective meanings assigned thereto in the Pooling and Master Servicing
Agreement, dated as of _____________ 1, ___, which incorporates by reference the
Standard Terms thereto, among National Mortgage Securities Corporation, the
Master Servicer and the Trustee, pursuant to which the Purchased Securities were
issued.
IN WITNESS WHEREOF, the undersigned has caused this Transferee
Agreement to be executed by its duly authorized representative as of the day and
year first above written.
Exhibit E-2
<PAGE>
[TRANSFEREE]
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
Exhibit E-3
<PAGE>
Exhibit F
FORM OF BENEFIT PLAN AFFIDAVIT
Re: National Mortgage Securities Corporation
Pass-Through Certificates,
Series ___-__ (the "Trust"), Class ___
STATE OF ____________________ )
) ss.:
CITY OF ______________________ )
Under penalties of perjury, I, the undersigned, declare that, to the
best of my knowledge and belief, the following representations are true,
correct, and complete.
1. I am a duly authorized officer of _______________________ (the
"Transferee"), whose taxpayer identification number is ________, and on behalf
of which I have the authority to make this affidavit.
2. The Transferee either (i) is not a Plan Investor or (ii) has provided
the Master Servicer and the Trustee, at its own expense, with a Benefit Plan
Opinion.
3. If the Transferee is an insurance company: (i) none of the funds used
by it in connection with its purchase of the Securities constitute "plan assets"
as defined in the Plan Asset Regulations and (ii) its purchase of the Securities
shall not result in the Securities or the assets of the Trust being deemed to be
"plan assets" as defined in the Plan Asset Regulations.
All capitalized terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Pooling and Master Servicing Agreement,
dated as of _________ 1, ___, which incorporates by reference the Standard Terms
thereto, among National Mortgage Securities Corporation, the Master Servicer and
the Trustee.
IN WITNESS WHEREOF, the Transferee has caused this instrument to be duly
executed on its behalf, by its duly authorized officer this ____ day of
_______________, ___.
____________________________________
[Name of Transferee]
By:_________________________________
Its:________________________________
Exhibit F-1
<PAGE>
Personally appeared before me _______________________________, known or
proved to me to be the same person who executed the foregoing instrument and to
be a __________________________ of the Transferee, and acknowledged to me that
he or she executed the same as his or her free act and deed and as the free act
and deed of the Transferee.
Subscribed and sworn before me this ______ day of ____________, ____.
____________________________________
Notary Public
My commission expires the _______ day of ______________, ____.
Exhibit F-2
<PAGE>
Exhibit G
FORM OF RESIDUAL TRANSFEREE AGREEMENT
NATIONAL MORTGAGE SECURITIES CORPORATION
PASS-THROUGH CERTIFICATES, SERIES ___-_, CLASS __
________________
(DATE)
National Mortgage Securities Corporation
909 East Main Street
Richmond, Virginia 23218
Attn: President
[Master Servicer]
[Address]
[Address]
Attn: Master Servicing Department
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the captioned
securities (the "Residual Securities"), the undersigned (the "Transferee")
hereby certifies and covenants to the transferor, the Company, the Master
Servicer, the Trustee and the Trust as follows:
1. Representations and Warranties. The Transferee represents and
warrants:
(a) The Transferee's taxpayer identification number is as set forth
on the signature page hereof;
(b) The Transferee is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which the Transferee is
organized, is authorized to invest in the Residual Securities and to enter into
this Agreement, and has duly executed and delivered this Agreement;
(c) The Transferee represents that (i) it understands that the
Residual Securities represent for federal income tax purposes a "residual
interest" in one or more real estate mortgage investment conduits (each, a
"REMIC") and that, as the holder of the Residual Securities, it will be required
to take into account, in determining its taxable income, its pro rata share of
the taxable income of each such REMIC, (ii) it understands that it may incur
federal income tax liabilities with respect to the Residual Securities in excess
of any cash flows generated by such Residual Securities; (iii) it has the
financial wherewithal and intends to pay any tax imposed on the income that it
derives from the Securities as they become due, and (iv) it has historically
paid its debts as they became due and intends to pay its debts as they become
due in the future;
(d) The Transferee has knowledge in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Residual Securities; the Transferee has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision;
and the Transferee is able to bear the economic risk of an investment in the
Residual Securities and can afford a complete loss of such investment;
Exhibit G-1
<PAGE>
*(e) The Transferee is acquiring the Residual Securities for its own
account as principal and not with a view to the resale or distribution thereof,
in whole or in part, in violation of Section 5 of the Securities Act of 1933, as
amended (the "Act"); and
*(f) The Transferee confirms that the Company has made available to
the Transferee the opportunity to ask questions of, and receive answers from,
the Company concerning the Company, the Trust, the purchase by the Transferee of
the Residual Securities and all matters relating thereto, and to obtain
additional information relating thereto that the Company possesses or can
acquire without unreasonable effort or expense.
2. Covenants. The Transferee covenants:
---------
/1/(a) The Transferee will not make a public offering of the Residual
Securities, and will not reoffer or resell the Residual Securities in a manner
that would render the issuance and sale of the Residual Securities whether
considered together with the resale or otherwise, a violation of the Act, or any
state securities or "Blue Sky" laws or require registration pursuant thereto;
(b) The Transferee agrees that, in its capacity as a holder of
the Residual Securities, it will assert no claim or interest in the Mortgage
Assets by reason of owning the Residual Securities other than with respect to
amounts that may be properly and actually payable to the Transferee pursuant to
the terms of the Pooling and Master Servicing Agreement and the Securities;
(c) If applicable, the Transferee will comply with respect to the
Residual Securities in all material respects with applicable regulatory
guidelines relating to the ownership of mortgage derivative products;
(d) Upon notice thereof, the Transferee agrees to any future
amendment to the provisions of the Pooling and Master Servicing Agreement
relating to the transfer of the Residual Securities (or any interest therein)
that counsel to the Company or the Trust may deem necessary to ensure that any
such transfer will not result in the imposition of any tax on the Trust;
(e) The Transferee hereby agrees that the Master Servicer or an
affiliate thereof will (i) supervise or engage in any action necessary or
advisable to preserve the status of each related REMIC as a REMIC, (ii) be, and
perform the functions of, each such REMIC's tax matters person ("TMP"), and
(iii) employ on a reasonable basis counsel, accountants, and professional
assistance to aid in the preparation of tax returns or the performance of the
above;
(f) The Transferee hereby agrees to cooperate with the TMP and to
take any action required of it by the REMIC Provisions in order to create or
maintain the REMIC status of each related REMIC;
(g) The Transferee hereby agrees that it will not take any action
that could endanger the REMIC status of any related REMIC or result in the
imposition of tax on any such REMIC unless counsel for, or acceptable to, the
TMP has provided an opinion that such action will not result in the loss of such
REMIC status or the imposition of such tax, as applicable;
(h) The Transferee hereby agrees to be bound by all of the
provisions of the Pooling and Master Servicing Agreement applicable to the
holders of a Residual Security including, but not limited to, Section 5.05 of
the Standard Terms (which relates to the transfer of a Residual Security), and
acknowledges that each Residual Security will bear a legend setting forth the
applicable restrictions on transfer;
(i) The Transferee hereby agrees that it shall pay any tax or
reporting costs borne by a REMIC as result of its purchase of the Residual
Securities or any beneficial interest therein in violation of Section
_________________________
/1/ These representations and covenants are to be deleted if the Residual
Securities are not Private Securities
Exhibit G-2
<PAGE>
5.05 of the Pooling and Master Servicing Agreement to the extent such tax or
reporting costs are not paid by the Transferor or by the Trustee out of amounts
that otherwise would have been paid to the Transferee;
(j) The Transferee hereby agrees to indemnify and hold harmless the
Company, the Master Servicer, the Trustee, the Trust and each other holder of a
Residual Security from and against any tax liability or reporting costs arising
from its violation of the restrictions on transfer contained in Section 5.05 of
the Pooling and Master Servicing Agreement or its breach of any of its
representations, warranties, or covenants contained herein; and
(k) The Transferee agrees that it will take no action to question
or invalidate the interest of the Trust in the Mortgage Assets or seek or
maintain any claim or interest in the Mortgage Assets having a priority over the
interest of the Trust in such Mortgage Assets.
3. Acknowledgments.
---------------
(a) The Transferee acknowledges that, if the Residual Securities
are Private Securities, the Residual Securities have not been registered under
the Act or registered or qualified under any state securities laws and that no
transfer may be made unless the Purchased Securities are registered under the
Act and under applicable state law or unless an exemption from such registration
is available. The Transferee further understands that neither the Company, the
Master Servicer nor the Trust is under any obligation to register the Security
or make an exemption from such registration available.
(b) The Transferee acknowledges that if a Residual Security is
transferred to a Non-U.S. Person, the transfer will not be recognized by the
Withholding Agent (as defined below) unless the Withholding Agent has received
from the Transferee an affidavit substantially in the form of Exhibit H-1
attached to the Standard Terms to Pooling and Master Servicing Agreement.
(c) The Transferee acknowledges that if any United States federal
income tax is due at the time a Non-U.S. Person transfers a Residual Security,
the Trustee or its designated Paying Agent or other person who is liable to
withhold federal income tax from a distribution on a Residual Security under
sections 1441 and 1442 of the Code and the regulations thereunder (the
"Withholding Agent") may (i) withhold an amount equal to the taxes due upon
disposition of the Security from future distributions made with respect to the
Security to the Transferee (after giving effect to the withholding of taxes
imposed on such Transferee), and (ii) pay the withheld amount to the Internal
Revenue Service unless satisfactory written evidence of payment of the taxes due
by the transferor has been provided to the Withholding Agent. Moreover, the
Transferee acknowledges the Withholding Agent may (x) hold distributions on a
Security, without interest, pending determination of amounts to be withheld, (y)
withhold other amounts required to be withheld pursuant to United States federal
income tax law, if any, from distributions that otherwise would be made to such
Transferee on each Security it holds, and (z) pay to the Internal Revenue
Service all such amounts withheld.
(d) The Transferee acknowledges that the transfer of all or part of
the Residual Securities that have "tax avoidance potential" (as defined in
Treasury Regulations section 1.860G-3(a)(2) or any successor provision) to a
Non-U.S. Person will be disregarded for all federal income tax purposes, and
that Treasury Regulations or other administrative guidance issued by the
Treasury may effectively prohibit the transfer of the Residual Securities to
Non-U.S. Persons.
(e) The Transferee acknowledges that the transfer of the Residual
Securities to a U.S. Person will be disregarded for all federal income tax
purposes if a significant purpose of the transfer is to impede the assessment or
collection of the taxes and expenses associated with the security within the
meaning of Treasury regulation section 1.860E-1(c)(1).
Exhibit G-3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Agreement be
validly executed by its duly authorized representative as of the day and year
first above written.
_________________________________________________
[Name of Transferee]
By: ___________________________________________
Its: ___________________________________________
Taxpayer ID # ___________________________________
Exhibit G-4
<PAGE>
Exhibit H-1
FORM OF NON-U.S. PERSON AFFIDAVIT
AND AFFIDAVIT PURSUANT TO SECTIONS
860D(a)(6)(A) and 860E(e)(4)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
Re: National Mortgage Securities Corporation
Pass-Through Certificates,
Series ___-__ (the "Trust"), Class __
STATE OF ____________________ )
) ss.:
CITY OF ______________________ )
Under penalties of perjury, I, the undersigned, declare that to the best of
my knowledge and belief, the following representations are true, correct and
complete:
1. I am a duly authorized officer of ___________________ (the
"Transferee"), and on behalf of which I have the authority to make this
affidavit.
2. The Transferee is acquiring all or a portion of the securities (the
"Residual Securities"), which represent a residual interest in one or more real
estate mortgage investment conduits (each, a "REMIC") for which elections are to
be made under Section 860D of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Transferee is a foreign person within the meaning of Treasury
Regulation Section 1.860G-3(a)(1) (i.e., a person other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership that is
organized under the laws of the United States or any jurisdiction thereof or
therein, or (iii) an estate or trust that is subject to United States federal
income tax regardless of the source of its income) who would be subject to
United States income tax withholding pursuant to Section 1441 or 1442 of the
Code on income derived from the Residual Securities (a "Non-U.S. Person").
4. The Transferee agrees that it will not hold the Residual Securities
in connection with a trade or business in the United States, and the Transferee
understands that it will be subject to United States federal income tax under
sections 871 and 881 of the Code in accordance with section 860G of the Code and
any Treasury regulations issued thereunder on "excess inclusions" that accrue
with respect to the Residual Securities during the period the Transferee holds
the Residual Securities.
5. The Transferee understands that the federal income tax on excess
inclusions with respect to the Residual Securities may be withheld in accordance
with section 860G(b) of the Code from distributions that otherwise would be made
to the Transferee on the Residual Securities and, to the extent that such tax
has not been imposed previously, that such tax may be imposed at the time of
disposition of any such Residual Security pursuant to section 860G(b) of the
Code.
6. The Transferee agrees (i) to file a timely United States federal
income tax return for the year in which disposition of a Residual Security it
holds occurs (or earlier if required by law) and will pay any United States
federal income tax due at that time and (ii) if any tax is due at that time, to
provide satisfactory written evidence of payment of such tax to the Trustee or
its designated paying agent or other person who is liable to withhold federal
income tax from a distribution on the Residual Securities under sections 1441
and 1442 of the Code and the regulations thereunder (the "Withholding Agent").
Exhibit H-1-1
<PAGE>
7. The Transferee understands that until it provides written evidence of
the payment of tax due upon the disposition of a Residual Security to the
Withholding Agent pursuant to paragraph 6 above, the Withholding Agent may (i)
withhold an amount equal to such tax from future distributions made with respect
to the Residual Security to subsequent transferees (after giving effect to the
withholding of taxes imposed on such subsequent transferees), and (ii) pay the
withheld amount to the Internal Revenue Service.
8. The Transferee understands that (i) the Withholding Agent may withhold
other amounts required to be withheld pursuant to United States federal income
tax law, if any, from distributions that otherwise would be made to such
transferee on each Residual Security it holds and (ii) the Withholding Agent may
pay to the Internal Revenue Service amounts withheld on behalf of any and all
former holders of each Residual Security held by the Transferee.
9. The Transferee understands that if it transfers a Residual Security
(or any interest therein) to a United States Person (including a foreign person
who is subject to net United States federal income taxation with respect to such
Residual Security), the Withholding Agent may disregard the transfer for federal
income tax purposes if the transfer would have the effect of allowing the
Transferee to avoid tax on accrued excess inclusions and may continue to
withhold tax from future distributions as though the Residual Security were
still held by the Transferee.
10. The Transferee understands that a transfer of a Residual Security (or
any interest therein) to a Non-U.S. Person (i.e., a foreign person who is not
subject to net United States federal income tax with respect to such Residual
Security) will not be recognized unless the Withholding Agent has received from
the transferee an affidavit in substantially the same form as this affidavit
containing these same agreements and representations.
11. The Transferee understands that distributions on a Residual Security
may be delayed, without interest, pending determination of amounts to be
withheld.
12. The Transferee is not a "Disqualified Organization" (as defined
below), and the Transferee is not acquiring a Residual Security for the account
of, or as agent or nominee of, or with a view to the transfer of direct or
indirect record or beneficial ownership to, a Disqualified Organization. For the
purposes hereof, a Disqualified Organization is any of the following: (i) the
United States, any State or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing; (ii) any organization (other than a farmer's cooperative
as defined in Section 521 of the Code) that is exempt from federal income
taxation (including taxation under the unrelated business taxable income
provisions of the Code); (iii) any rural telephone or electrical service
cooperative described in Section 1381(a)(2)(C) of the Code; or (iv) any other
entity so designated by Treasury rulings or regulations promulgated or otherwise
in effect as of the date hereof. In addition, a corporation will not be treated
as an instrumentality of the United States or of any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of the Federal Home Loan Mortgage Corporation, a majority of its board
of directors is not selected by such governmental unit.
13. The Transferee agrees to consent to any amendment of the Pooling and
Master Servicing Agreement that shall be deemed necessary by the Company (upon
the advice of counsel to the Company) to constitute a reasonable arrangement to
ensure that no interest in a Residual Security will be owned directly or
indirectly by a Disqualified Organization.
14. The Transferee acknowledges that Section 860E(e) of the Code would
impose a substantial tax on the transferor or, in certain circumstances, on an
agent for the Transferee, with respect to any transfer of any interest in any
Residual Security to a Disqualified Organization.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Pooling and Master Servicing Agreement, dated
as of _______________, ____, which incorporates by reference the Standard Terms
thereto, among National Mortgage Securities Corporation, the Master Servicer,
and the Trustee.
Exhibit H-1-2
<PAGE>
IN WITNESS WHEREOF, the Transferee has caused this instrument to be duly
executed on its behalf, by its duly authorized officer as of the _______ day of
_____________, ____.
_____________________________________________
[Name of Transferee]
By: ________________________________________
Its: ________________________________________
Personally appeared before me ___________________________, known or proved
to me to be the same person who executed the foregoing instrument and to be a
______________________ of the Transferee, and acknowledged to me that he or she
executed the same as his or her free act and deed and as the free act and deed
of the Transferee.
Subscribed and sworn before me this ______ day of __________, ___.
_____________________________________________
Notary Public
My commission expires the _____ day of ________________, ___.
Exhibit H-1-3
<PAGE>
Exhibit H-2
-----------
FORM OF U.S. PERSON AFFIDAVIT
AND AFFIDAVIT PURSUANT TO SECTIONS
860D(a)(6)(A) and 860E(e)(4)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
Re: National Mortgage Securities Corporation
Pass-Through Certificates,
Series ___-__ (the "Trust"), Class ___
STATE OF ____________________ )
) ss.:
CITY OF ______________________ )
Under penalties of perjury, I, the undersigned declare that, to the best of
my knowledge and belief, the following representations are true, correct and
complete:
1. I am a duly authorized officer of ______________________ (the
"Transferee"), on behalf of which I have the authority to make this affidavit.
2. The Transferee is acquiring all or a portion of the securities (the
"Residual Securities"), which represent a residual interest in one or more real
estate mortgage investment conduits (each, a "REMIC") for which elections are to
be made under Section 860D of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Transferee either is (i) a citizen or resident of the United
States, (ii) a domestic partnership or corporation, (iii) an estate or trust
that is subject to United States federal income tax regardless of the source of
its income, or (iv) a foreign person who would be subject to United States
income taxation on a net basis on income derived from the Residual Securities (a
"U.S. Person").
4. The Transferee is a not a "Disqualified Organization" (as defined
below), and the Transferee is not acquiring a Residual Security for the account
of, or as agent or nominee of, or with a view to the transfer of direct or
indirect record or beneficial ownership to, a Disqualified Organization. For the
purposes hereof, a Disqualified Organization is any of the following: (i) the
United States, any state or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing; (ii) any organization (other than a farmer's cooperative
as defined in Section 521 of the Code) that is exempt from federal income
taxation (including taxation under the unrelated business taxable income
provisions of the Code); (iii) any rural telephone or electrical service
cooperative described in (SS). 1381(a)(2)(C) of the Code; or (iv) any other
entity so designated by Treasury rulings or regulations promulgated or otherwise
in effect as of the date hereof. In addition, a corporation will not be treated
as an instrumentality of the United States or of any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of the Federal Home Loan Mortgage Corporation, a majority of its board
of directors is not selected by such governmental unit.
5. The Transferee agrees to consent to any amendment of the Pooling and
Master Servicing Agreement that shall be deemed necessary by the Company (upon
the advice of counsel to the Company) to constitute a reasonable arrangement to
ensure that no interest in a Residual Security will be owned directly or
indirectly by a Disqualified Organization.
Exhibit H-2-1
<PAGE>
6. The Transferee acknowledges that Section 860E(e) of the Code would
impose a substantial tax on the transferor or, in certain circumstances, on an
agent for the Transferee, with respect to any transfer of any interest in any
Residual Security to a Disqualified Organization.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Pooling and Master Servicing Agreement, dated
as of _______________, ____, which incorporates by reference the Standard Terms
thereto, among National Mortgage Securities Corporation, the Master Servicer,
and the Trustee.
IN WITNESS WHEREOF, the Transferee has caused this instrument to be duly
executed on its behalf, by its duly authorized officer this ____ day of ______,
____.
_________________________________________
[Name of Transferee]
By: ____________________________________
Its: ____________________________________
Personally appeared before me ___________________, known or proved to me to
be the same person who executed the foregoing instrument and to be a
_______________ of the Transferee, and acknowledged to me that he or she
executed the same as his or her free act and deed and as the free act and deed
of the Transferee.
Subscribed and sworn before me this ____ day of ________, ____.
_________________________________________
Notary Public
My commission expires the ____ day of ____________________, ____.
Exhibit H-2-2
<PAGE>
Exhibit 4.3
INDENTURE
between
[ ]OWNER TRUST [1999]-[ ],
as Issuer,
and
[Trustee],
as Indenture Trustee,
[Securities Administrator and Custodian]
Dated as of [ ]
Relating to
[ ] OWNER TRUST [1999]-[ ]
ASSET-BACKED NOTES, SERIES [1999]-[ ]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS....................................................................................... 2
Section 1.01. General Definitions................................................................. 2
ARTICLE II THE NOTES........................................................................................ 21
Section 2.01. Form Generally...................................................................... 21
Section 2.02. Form of Certificate of Authentication............................................... 22
Section 2.03. General Provisions With Respect to Principal and Interest Payments.................. 22
Section 2.04. Denominations....................................................................... 23
Section 2.05. Execution, Authentication, Delivery and Dating...................................... 23
Section 2.06. Registration; Registration of Transfer and Exchange................................. 24
Section 2.07. Mutilated, Destroyed, Lost or Stolen Notes.......................................... 25
Section 2.08. Payments of Principal and Interest.................................................. 25
Section 2.09. Persons Deemed Owners............................................................... 27
Section 2.10. Cancellation........................................................................ 27
Section 2.11. Authentication and Delivery of Notes................................................ 28
Section 2.12. Book-Entry Notes.................................................................... 29
Section 2.13. Termination of Book Entry System.................................................... 30
ARTICLE III COVENANTS....................................................................................... 31
Section 3.01. Payment of Notes.................................................................... 31
Section 3.02. Maintenance of Office or Agency..................................................... 31
Section 3.03. Money for Note Payments to Be Held In Trust......................................... 31
Section 3.04. Existence of Issuer................................................................. 33
Section 3.05. Protection of Trust Estate.......................................................... 33
Section 3.06. Opinions as to Trust Estate......................................................... 34
Section 3.07. Performance of Obligations; Servicing Agreement..................................... 34
Section 3.08. Investment Company Act.............................................................. 35
Section 3.09. Negative Covenants.................................................................. 35
Section 3.10. Annual Statement as to Compliance................................................... 36
Section 3.11. Restricted Payments................................................................. 36
Section 3.12. Treatment of Notes as Debt for Tax Purposes......................................... 37
Section 3.13. Notice of Events of Default......................................................... 37
Section 3.14. Further Instruments and Acts........................................................ 37
Section 3.15. Covenants of the Indenture Trustee.................................................. 37
ARTICLE IV SATISFACTION AND DISCHARGE....................................................................... 38
Section 4.01. Satisfaction and Discharge of Indenture............................................. 38
Section 4.02. Application of Trust Money.......................................................... 40
ARTICLE V DEFAULTS AND REMEDIES............................................................................. 40
Section 5.01. Event of Default.................................................................... 40
Section 5.02. Acceleration of Maturity; Rescission and Annulment.................................. 41
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee........... 42
Section 5.04. Remedies............................................................................ 42
Section 5.05. Indenture Trustee May File Proofs of Claim.......................................... 43
</TABLE>
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Section 5.06. Indenture Trustee May Enforce Claims Without Possession of Notes.................... 44
Section 5.07. Application of Money Collected...................................................... 44
Section 5.08. Limitation on Suits................................................................. 45
Section 5.09. Unconditional Rights of Noteholders to Receive Principal and Interest............... 46
Section 5.10. Restoration of Rights and Remedies.................................................. 46
Section 5.11. Rights and Remedies Cumulative...................................................... 46
Section 5.12. Delay or Omission Not Waiver........................................................ 47
Section 5.13. Control by Noteholders.............................................................. 47
Section 5.14. Waiver of Past Defaults............................................................. 47
Section 5.15. Undertaking for Costs............................................................... 48
Section 5.16. Waiver of Stay or Extension Laws.................................................... 48
Section 5.17. Sale of Trust Estate................................................................ 48
Section 5.18. Action on Notes..................................................................... 50
Section 5.19. Application of Section 316(a) of the Trust Indenture Act............................ 50
ARTICLE VI THE INDENTURE TRUSTEE............................................................................ 50
Section 6.01. Duties of Indenture Trustee......................................................... 50
Section 6.02. Notice of Default................................................................... 52
Section 6.03. Rights of Indenture Trustee......................................................... 52
Section 6.04. Not Responsible for Recitals or Issuance of Notes................................... 52
Section 6.05. May Hold Notes...................................................................... 53
Section 6.06. Money Held in Trust................................................................. 53
Section 6.07. Eligibility; Disqualification....................................................... 53
Section 6.08. Indenture Trustee's Capital and Surplus............................................. 53
Section 6.09. Resignation and Removal; Appointment of Successor................................... 53
Section 6.10. Acceptance of Appointment by Successor.............................................. 55
Section 6.11. Merger, Conversion, Consolidation or Succession to Business of Indenture Trustee.... 55
Section 6.12. Preferential Collection of Claims Against Issuer.................................... 56
Section 6.13. Co-Indenture Trustees and Separate Indenture Trustees............................... 56
Section 6.14. Authenticating Agents............................................................... 57
Section 6.15. Review of Home Loan Files......................................Error! Bookmark not defined.
Section 6.16. Indenture Trustee Fees and Expenses................................................. 60
ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS.................................................................. 60
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders.............. 60
Section 7.02. Preservation of Information; Communications to Noteholders.......................... 60
Section 7.03. Reports by Indenture Trustee........................................................ 61
Section 7.04. Reports by Issuer................................................................... 61
ARTICLE VIII ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES..................................... 61
Section 8.01. Collection of Moneys................................................................ 61
Section 8.02. Note Account........................................................................ 62
Section 8.03. Claims against the Note Insurance Policy............................................ 64
Section 8.04. General Provisions Regarding the Note Account and Home Loans........................ 65
Section 8.05. Releases of Defective Home Loans.................................................... 66
</TABLE>
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Section 8.06. Reports by Indenture Trustee to Noteholders; Access to Certain Information.......... 67
Section 8.07. Trust Estate Home Loan Files........................................................ 67
Section 8.08. Amendment to Servicing Agreement.................................................... 67
Section 8.09. Delivery of the Home Loan Files Pursuant to Servicing Agreement..................... 68
Section 8.10. Servicer as Agent................................................................... 68
Section 8.11. Termination of Master Servicer...................................................... 68
Section 8.12. Opinion of Counsel.................................................................. 68
Section 8.13. Appointment of Custodians........................................................... 69
Section 8.14. Rights of the Note Insurer to Exercise Rights of Noteholders........................ 69
Section 8.15. Trust Estate and Accounts Held for Benefit of the Note Insurer...................... 70
ARTICLE IX SUPPLEMENTAL INDENTURES.......................................................................... 70
Section 9.01. Supplemental Indentures Without Consent of Noteholders.............................. 70
Section 9.02. Supplemental Indentures With Consent of Noteholders................................. 71
Section 9.03. Execution of Supplemental Indentures................................................ 72
Section 9.04. Effect of Supplemental Indentures................................................... 72
Section 9.05. Conformity with Trust Indenture Act................................................. 73
Section 9.06. Reference in Notes to Supplemental Indentures....................................... 73
Section 9.07. Amendments to Governing Documents................................................... 73
ARTICLE X REDEMPTION OF NOTES............................................................................... 74
Section 10.01. Redemption......................................................................... 74
Section 10.02. Form of Redemption Notice.......................................................... 74
Section 10.03. Notes Payable on Optional Redemption............................................... 75
ARTICLE XI NOTE ADMINISTRATION.............................................................................. 75
Section 11.01. Powers and Duties of the Securities Administrator.................................. 75
Section 11.02. Compensation; Payment of Certain Expenses.......................................... 76
Section 11.03. Instructions....................................................................... 76
Section 11.04. Benefit of the Agreement........................................................... 76
Section 11.05. Limitation of Responsibility of the Securities Administrator....................... 76
Section 11.06. Termination of Securities Administrator............................................ 77
ARTICLE XII MISCELLANEOUS................................................................................... 78
Section 12.01. Compliance Certificates and Opinions............................................... 78
Section 12.02. Form of Documents Delivered to Indenture Trustee................................... 79
Section 12.03. Acts of Noteholders................................................................ 80
Section 12.04. Notices, etc. to Indenture Trustee, the Note Insurer and Issuer.................... 80
Section 12.05. Notices and Reports to Noteholders; Waiver of Notices.............................. 81
Section 12.06. Rules by Indenture Trustee......................................................... 82
Section 12.07. The Trust Indenture Act............................................................ 82
Section 12.08. Effect of Headings and Table of Contents; References............................... 82
Section 12.09. Successors and Assigns............................................................. 82
Section 12.10. Separability....................................................................... 82
Section 12.11. Benefits of Indenture.............................................................. 82
Section 12.12. Legal Holidays..................................................................... 82
Section 12.13. Governing Law...................................................................... 83
Section 12.14. Counterparts....................................................................... 83
</TABLE>
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<TABLE>
<S> <C>
Section 12.15. Debt Instruments................................................................... 83
Section 12.16. Issuer Obligation.................................................................. 83
Section 12.17. No Petition........................................................................ 84
Section 12.18. Inspection......................................................................... 84
Section 12.19. Usury.............................................................................. 84
Section 12.20. Third Party Beneficiary............................................................ 85
Section 12.21. Limitation of Liability............................................................ 85
</TABLE>
iv
<PAGE>
SCHEDULES AND EXHIBITS
Schedule I Mortgage Asset Schedule
Exhibit A Form of Class A Note
Exhibit B Asset Sale Agreement
Exhibit C Custodial Agreement
v
<PAGE>
THIS INDENTURE, dated as of [ ], [1999] (as amended or supplemented
from time to time as permitted hereby, this "Indenture"), is among [ ]
OWNER TRUST [1999]-[ ], a Delaware business trust (together with its permitted
successors and assigns, the "Issuer"), and [Trustee], a [national banking
association], as trustee (together with its permitted successors in the trusts
hereunder, the "Indenture Trustee"),[ as securities administrator (together with
its permitted successors and assigns in such capacity, the "Securities
Administrator") and as custodian (together with its permitted successors and
assigns in such capacity, the "Custodian")].
Preliminary Statement
---------------------
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for its Asset-Backed Notes, Series [1999]-[ ] Class A (the "Class A
Notes" or the "Notes"), issuable as provided in this Indenture. All covenants
and agreements made by the Issuer herein are for the benefit and security of the
Holders of the Notes[ and the Note Insurer]. The Issuer is entering into this
Indenture, and the Indenture Trustee is accepting the trusts created hereby, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged. All things necessary to make this Indenture a valid agreement of
the Issuer in accordance with its terms have been done.
Granting Clause
---------------
The Issuer hereby Grants to the Indenture Trustee, for the exclusive
benefit of the Holders of the Notes[ and the Note Insurer], all of the Issuer's
right, title and interest in and to (a) the Home Loans listed in Schedule I to
this Indenture (including property that secures any Home Loan that becomes an
REO Property), including the related Home Loan Files delivered or to be
delivered to the Indenture Trustee or the Custodian pursuant to the Asset Sale
Agreement, all payments of principal or interest received, collected or
otherwise recovered in respect of principal or interest after the Cut-off Date,
(b) the Master Servicing Agreement and [all] Servicing Agreements, (c) the Asset
Sale Agreement, (d) the Custodial Agreement, (e) the Owner Trust Agreement, [(f)
the Insurance Policies,] (g) all cash, instruments or other property held or
required to be deposited in the Asset Proceeds Account and the Note Account,
including all investments made with funds in such accounts (but not including
any income on funds deposited in, or investments made with funds deposited in,
the Asset Proceeds Account, which income shall belong to and be for the account
of the [Master] Servicer, [and not including any income on funds deposited in,
or investments made with funds deposited in the Note Account, which income shall
belong to and be for the account of the Indenture Trustee]), and (h) all
proceeds of the conversion, voluntary or involuntary, of any of the foregoing
into cash or other liquid assets, including, without limitation, all insurance
proceeds and condemnation awards. Such Grants are made, however, in trust, to
secure the Notes equally and ratably without prejudice, priority or distinction
between any Note and any other Note by reason of difference in time of issuance
or otherwise, [and for the benefit of the Note Insurer ]to secure (x) the
payment of all amounts due on the Notes in accordance with their terms, (y) the
payment of all other sums payable under this Indenture and (z) compliance with
the provisions of this Indenture, all as provided in this Indenture. All terms
used in the foregoing granting clauses that are defined in Section 1.01 are used
with the meanings given in said Section.
1
<PAGE>
The Indenture Trustee acknowledges such Grant, accepts the trusts hereunder
in accordance with the provisions of this Indenture and agrees to perform the
duties herein required to the end that the interests of the Holders of the Notes
may be adequately and effectively protected. [The Indenture Trustee agrees that
it will hold the Note Insurance Policy in trust and that it will hold any
proceeds of any claim upon the Note Insurance Policy, solely for the use and
benefit of the Noteholders in accordance with the terms hereof and the Note
Insurance Policy.]
ARTICLE I
DEFINITIONS
Section 1.01. General Definitions.
-------------------
Except as otherwise specified or as the context may otherwise require, the
following terms have the respective meanings set forth below for all purposes of
this Indenture, and the definitions of such terms are applicable to the singular
as well as to the plural forms of such terms and to the masculine as well as to
the feminine genders of such terms. Whenever reference is made herein to an
Event of Default or a Default known to the Indenture Trustee or of which the
Indenture Trustee has notice or knowledge, such reference shall be construed to
refer only to an Event of Default or Default of which the Indenture Trustee is
deemed to have notice or knowledge pursuant to Section 6.01(d). All other terms
used herein that are defined in the Trust Indenture Act (as hereinafter
defined), either directly or by reference therein, have the meanings assigned to
them therein.
"Accountant": A Person engaged in the practice of accounting who must be
Independent.
"Act": With respect to any Noteholder [or the Note Insurer,] as defined in
Section 12.03.
"Administrative Fee Amount": For any Payment Date, the sum of the
Servicing Fee, the Master Servicing Fee, the Indenture Trustee Fee, the
Custodial Fee [and the Note Insurer Premium,] each relating to such Payment
Date.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract, relation to individuals or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent": Any Note Registrar, Paying Agent, Authenticating Agent or
Custodian.
"Aggregate Principal Balance": With respect to any Payment Date, the
aggregate of the Principal Balances of the Home Loans as of the related
Determination Date (or other specified date).
2
<PAGE>
"Annualized Loss Percentage": On any date of determination, the Realized
Losses for the previous Collection Period (net of any recoveries received during
such Collection Period) as a percentage of the Aggregate Principal Balance of
the Home Loans, multiplied by 12.
"Asset Proceeds Account": The segregated trust account established by the
Master Servicer and maintained pursuant to Section 2.02(b) of the Master
Servicing Agreement.
"Asset Sale Agreement": The Asset Sale Agreement, dated as of the date
hereof, between the Seller and the Depositor pursuant to which the Home Loans
will be acquired from the Seller by the Transferor and from the Transferor by
the Depositor, a copy of which agreement is attached hereto as Exhibit B.
---------
"Assignment Event": As defined in the Asset Sale Agreement.
"Assignment of Mortgage": As defined in the Asset Sale Agreement.
"Authenticating Agent": The Person, if any, appointed as Authenticating
Agent by the Issuer pursuant to Section 6.13, until any successor Authenticating
Agent for the Notes is named, and thereafter "Authenticating Agent" shall mean
such successor. The initial Authenticating Agent shall be the Indenture
Trustee. Any Authenticating Agent other than the Indenture Trustee shall sign
an instrument under which it agrees to be bound by all of the terms of this
Indenture applicable to the Authenticating Agent.
"Authorized Officer": With respect to the Indenture Trustee, any
Responsible Officer and with respect to any other Person, the Chairman, Chief
Operating Officer, President or any Vice President of such Person.
"Available Funds": With respect to the Notes and any Payment Date, the sum
of the amounts described in clauses (a) through (g) below, less (i) the
Administrative Fee Amount in respect of such Payment Date, (ii) Servicing
Advances previously made that are reimbursable to the Servicer (other than those
included in liquidation expenses for any Liquidated Home Loan and reimbursed
from the related Liquidation Proceeds) with respect to the related Collection
Period to the extent permitted by the Servicing Agreement and (iii) the
aggregate amounts (A) deposited into the Asset Proceeds Account or Note Account
that may not be withdrawn therefrom pursuant to a final and nonappealable order
of a United States bankruptcy court of competent jurisdiction imposing a stay
pursuant to Section 362 of the Bankruptcy Code and that would otherwise have
been included in Available Funds on such Payment Date and (B) received by the
Indenture Trustee that are recoverable and sought to be recovered from the
Issuer as a voidable preference by a trustee in bankruptcy pursuant to the
Bankruptcy Code in accordance with a final nonappealable order of a court of
competent jurisdiction:
(a) all scheduled payments of interest received with respect to the Home
Loans and due during the related Collection Period and all other interest
payments on or in respect of the Home Loans received by or on behalf of the
Servicer during the related Collection Period (including Payments Ahead that are
allocable to interest for the related Collection Period), plus any net income
from related REO Properties for such Collection Period;
3
<PAGE>
(b) all scheduled payments of principal received with respect to the Home
Loans and due during the related Collection Period and all other principal
payments (including Principal Prepayments, but excluding amounts described
elsewhere in this definition) received or deemed to be received during the
related Collection Period (including Payments Ahead that are allocable as
principal for the related Collection Period) in respect of the Home Loans;
(c) the aggregate of any Trust Insurance Proceeds collected by the Servicer
during the related Collection Period;
(d) the aggregate of any Net Liquidation Proceeds collected by the Servicer
during the related Collection Period;
(e) the aggregate of the Purchase Prices received in respect of any Home
Loans that are required or permitted to be repurchased, released or removed by
the Seller during or in respect of the related Collection Period, to the extent
such amounts are received by the Indenture Trustee on or before the related
Deposit Date;
(f) the aggregate of amounts deposited in the Note Account during such
Collection Period in connection with redemption of the Notes pursuant to Article
X; and
(g) subsequent collections on Liquidated Home Loans to the extent of any
Realized Loss incurred with respect to such Home Loan, after payment to the
Servicer of any additional servicing compensation permitted under the Servicing
Agreement.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11 of the
United States Code), as amended.
"Basic Documents": This Agreement, the Master Servicing Agreement, the
Servicing Agreement, the Owner Trust Agreement, the Asset Sale Agreement, the
Custodial Agreement, [the Insurance Agreement] and [the Indemnification
Agreement].
"Beneficial Owner": With respect to a Book-Entry Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Clearing
Agency for the Notes or on the books of a Person maintaining an account with
such Clearing Agency (directly or as an indirect participant, in accordance with
the rules of such Clearing Agency).
"Best Efforts": Efforts determined to be in good faith and reasonably
diligent by the Person performing such efforts, specifically the Issuer or the
Servicer, as the case may be, in its reasonable discretion. Such efforts do not
require the Issuer or the Master Servicer, as the case may be, to enter into any
litigation, arbitration or other legal or quasi-legal proceeding, nor do they
require the Issuer or the Master Servicer, as the case may be, to advance or
expend fees or sums of money in addition to those specifically set forth in this
Indenture and the Master Servicing Agreement.
"Book-Entry Notes": Any Notes registered in the name of the Clearing
Agency or its nominee, ownership of which is reflected on the books of the
Clearing Agency or on the books of
4
<PAGE>
a person maintaining an account with such Clearing Agency (directly or as an
indirect participant in accordance with the rules of such Clearing Agency).
"Book-Entry Termination": The time at which the book-entry registration of
the Book-Entry Notes shall terminate, as specified in Section 2.13.
"Business Day": Any day other than (i) a Saturday or Sunday or (ii) a day
that is either a legal holiday or a day on which banking institutions in the
State of [office of Master Servicer], the State of New York, the State of
[office of Trustee/Custodian] or the State of Delaware are authorized or
obligated by law, regulation or executive order to be closed.
"Certificate": As defined in the Owner Trust Agreement.
"Certificate Distribution Account": As defined in the Owner Trust
Agreement.
"Certificateholders": As defined in the Owner Trust Agreement.
"Class A Notes": Any of the Notes designated as Class A Notes and
evidenced by a duly executed and authenticated certificate substantially in the
form of Exhibit A hereto.
---------
"Clean-Up Call Date": The first Payment Date on which the Note Balance is
equal to or less than [ ]% of the Original Note Balance.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Securities and Exchange Act of 1934, as amended,
and the regulations of the Commission thereunder.
"Clearing Agency Participants": The entities for whom the Clearing Agency
will maintain book-entry records of ownership and transfer of Book-Entry Notes,
which may include securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations.
"Closing Date": [ ], the date of initial issuance of the
Notes.
"Code": The Internal Revenue Code of 1986, as amended, and as may be
further amended from time to time, as successor statutes thereto, and applicable
U.S. Department of Treasury regulations issued pursuant thereto in temporary or
final form and proposed regulations thereunder to the extent that, by reason of
their proposed effective date, such proposed regulations would apply.
"Collection Period": As to any Payment Date, the period beginning on the
first day of the calendar month immediately preceding the month in which such
Payment Date occurs and ending on the last day of such calendar month.
"Combined Loan-to-Value Ratio": As defined in the Master Servicing
Agreement.
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"Commission": The Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934.
"Corporate Trust Office": The principal office of the Indenture Trustee at
which at any particular time its corporate trust business with respect to this
Indenture shall be principally administered, which office at the date of the
execution of this Indenture is located at [ ].
"Cumulative Realized Losses": The aggregate sum of the Realized Losses
from the Cut-off Date to any date of determination.
"Custodial Agreement": The Custodial Agreement, dated as of the date
hereof, between the Indenture Trustee and the Custodian, as such agreement may
be amended or supplemented from time to time as permitted hereby and thereby.
"Custodial Fee": With respect to any Payment Date, one-twelfth of 0.0[ ]%
of the Aggregate Principal Balance as of the applicable Determination Date.
"Custodian": [ ], and any additional or successor
custodian appointed by the Indenture Trustee pursuant to Section 8.13.
"Cut-off Date": [ ], the date after which all payments received
in respect of the Home Loans shall belong to the Issuer, subject to the Grant of
the same hereunder to the Indenture Trustee.
"Default": Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
"Defective Home Loan": Any Home Loan that is required to be repurchased by
the Seller pursuant to the Asset Sale Agreement.
["Deficiency Amount": With respect to any Payment Date, the sum of (i) the
Note Interest for such Payment Date minus Available Funds and (ii) the then
existing Overcollateralization Deficit, if any, after the application of
Available Funds to reduce the Note Balances on such Payment Date.]
"Definitive Notes": Notes other than Book-Entry Notes.
["Delinquency Amount": As of any Payment Date, the product of the
Delinquency Percentage for such Payment Date and the Aggregate Principal Balance
of the Home Loans as of the Determination Date relating to such Payment Date.]
["Delinquency Loss Factor": As of any Payment Date, the sum of (i) the
Principal Balance of all Home Loans that are 30-59 days delinquent multiplied by
[ ]%, (ii) the Principal Balance of all Home Loans that are 60-89 days
delinquent multiplied by [ ]%, (iii) the Principal Balance of all Home Loans
that are 90 or more days delinquent multiplied by [ ]%, and (iv) the
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Principal Balance of all Home Loans that are modified in excess of the [ ]%
limitation in Section 2.04 of the Master Servicing Agreement.]
["Delinquency Percentage": For any Payment Date, the rolling three month
average of the fraction, expressed as a percentage, (i) the numerator of which
is the aggregate of the Principal Balances as of the related Determination Date
of all Home Loans that were 60 or more days contractually delinquent, in
foreclosure, REO Property or for which the related Obligor was in a bankruptcy
proceeding or paying a reduced Monthly Payment as a result of a bankruptcy
workout or were modified in excess of the [ ]% limitation in Section 2.04 of the
Master Servicing Agreement and (ii) the denominator of which is the Aggregate
Principal Balance of all Home Loans as of the related Determination Date.]
"Deposit Date": The date each month on which funds on deposit in the Asset
Proceeds Account are remitted by the Servicer to the Indenture Trustee for
deposit into the Note Account, which date shall be with respect to any Payment
Date, the 18th day of the month in which such Payment Date occurs, or the next
succeeding Business Day, if such 18th day is not a Business Day.
"Depositor": National Mortgage Securities Corporation, a Virginia
corporation.
"Determination Date": As to any Payment Date, the last day of the
Collection Period relating to such Payment Date.
"Duff & Phelps": Duff & Phelps Credit Rating Co., and its successors in
interest.
"Eligible Account": Either (A) a segregated account or accounts maintained
with an institution the deposits of which are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC, the unsecured and
uncollateralized debt obligations of which shall be rated "AA" or better by
[Standard & Poor's][Fitch] and/or [Duff & Phelps] [and Aa2 or better by Moody's]
or in the highest short term rating category by each Rating Agency, and that is
either (i) a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Note Insurer or (B) a trust account maintained with the trust
department of a federal or state chartered depository institution or trust
company, having capital and surplus of not less than $100,000,000, acting in its
fiduciary capacity, the unsecured and uncollateralized debt obligations of which
shall be rated "Baa3" or better by Moody's.
"Event of Default": As defined in Section 5.01.
"Excess Cash": With respect to any Payment Date, the amount, if any, by
which Available Funds for such Payment Date exceed the sum of (i) [any amounts
payable to the Note Insurer for Insured Payments paid on prior Payment Dates and
not yet reimbursed and for any unpaid Note Insurer Premiums for prior Payment
Dates (in each case with interest thereon at the
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"Late Payment Rate" (as defined in the Insurance Agreement)), (ii)] the Note
Interest for the related Payment Date, and (iii) the Monthly Principal for the
related Payment Date.
"Excess Cash Payment": As defined in clause fourth of Section 8.02(c).
"FDIC": The Federal Deposit Insurance Corporation and its successors in
interest.
"Final Certification": A certification as to the completeness of each Home
Loan File provided by the Custodian on or before the first anniversary of the
Closing Date pursuant to the Custodial Agreement.
"Fitch": Fitch IBCA, Inc., and its successors in interest.
"Full Prepayment": With respect to any Home Loan, when any one of the
following occurs: (i) payment is made by the Obligor to the Servicer of 100% of
the outstanding principal balance of such Home Loan, together with all accrued
and unpaid interest thereon at the Mortgage Interest Rate on such Home Loan,
(ii) payment is made to the Indenture Trustee of the Purchase Price of such Home
Loan in connection with the purchase of such Home Loan by the holders of a
majority of the percentage interests of the Certificates, the Seller[ or the
Note Insurer] or (iii) payment is made to the Servicer of all Insurance Proceeds
and Liquidation Proceeds, and other payments, if any, that have been determined
by the Servicer in accordance with the provisions of the Servicing Agreement to
be finally recoverable, in the Servicer's reasonable judgment, in respect of
such Home Loan.
"Grant": To assign, transfer, mortgage, pledge, create and grant a
security interest in, deposit, set-over and confirm. A Grant of a Home Loan and
related Home Loan Files, a Permitted Investment, the Master Servicing Agreement,
the Servicing Agreement, the Asset Sale Agreement, the Owner Trust Agreement,
any Insurance Policy or any other instrument shall include all rights, powers
and options (but none of the obligations) of the Granting party thereunder,
including without limitation the immediate and continuing right to claim for,
collect, receive and give receipts for principal and interest payments
thereunder, insurance proceeds, Purchase Prices and all other moneys payable
thereunder and all proceeds thereof, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Granting party or otherwise,
and generally to do and receive anything that the Granting party is or may be
entitled to do or receive thereunder or with respect thereto.
"Home Loan": Each of the loans Granted to the Indenture Trustee under this
Indenture as security for the Notes and that from time to time comprise part of
the Trust Estate, including any property that secures a Mortgage that becomes
REO Property. The Home Loans are listed on the Mortgage Asset Schedule annexed
hereto as Schedule I.
"Home Loan File": As defined in the Asset Sale Agreement.
"Indenture": This instrument as originally executed and, if from time to
time supplemented or amended by one or more indentures supplemental hereto
entered into pursuant
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to the applicable provisions hereof, as so supplemented or amended. All
references in this instrument to designated "Articles", "Sections",
"Subsections" and other subdivisions are to the designated Articles, Sections,
Subsections and other subdivisions of this instrument as originally executed.
The words "herein", "hereof", "hereunder" and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section,
Subsection or other subdivision.
"Indenture Trustee": [ ], a national banking
association, and any Person resulting from or surviving any consolidation or
merger to which it may be a party until a successor Person shall have become the
Indenture Trustee pursuant to the applicable provisions of this Indenture, and
thereafter "Indenture Trustee" shall mean such successor Person.
"Indenture Trustee Fee": With respect to any Payment Date, one-twelfth of
[ ]% of the Note Balance as of the applicable Determination Date.
"Independent": When used with respect to any specified Person means such a
Person who (i) is in fact independent of the Issuer and any other obligor upon
the Notes, (ii) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or in an
Affiliate of the Issuer or such other obligor, and (iii) is not connected with
the Issuer or any such other obligor as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
Whenever it is herein provided that any Independent Person's opinion or
certificate shall be furnished to the Indenture Trustee, such Person shall be
appointed by an Issuer Order and such opinion or certificate shall state that
the signer has read this definition and that the signer is Independent within
the meaning hereof.
"Individual Note": A Note of an original principal amount of $1,000
(provided, however, one Note may be less than that amount); a Note of an
original principal amount in excess of $1,000 shall be deemed to be a number of
Individual Notes equal to the quotient obtained by dividing such original
principal amount by $1,000.
"Initial Certification": The certification to be provided by the Custodian
on the Closing Date pursuant to the Custodial Agreement.
["Indemnification Agreement": As defined in the Insurance Agreement.]
["Insurance Agreement": The Insurance Agreement, dated as of the date
hereof, among the Note Insurer, the Issuer, the Seller, the Depositor, the
Indenture Trustee and the Master Servicer.]
"Insurance Policies": All insurance policies insuring any Home Loan or
Mortgaged Property, to the extent the Issuer or the Indenture Trustee has any
interest therein.
"Insurance Proceeds": As defined in the Master Servicing Agreement.
["Insured Payments": As to any Payment Date, the amount required to be
paid by the Note Insurer under the Note Insurance Policy pursuant to a Notice of
Claim presented by the
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Indenture Trustee (in the manner described in Section 8.03). The Insured Payment
is (i) for any Payment Date, the Deficiency Amount and (ii) any Preference
Amount due and then owing under the Note Insurance Policy.]
"Interest Period": [With respect to any Payment Date, the period beginning
on the first day of the calendar month preceding such Payment Date and ending on
the last day of such calendar month. All calculations of interest on the Notes
will be computed on the basis of a year of 360 days consisting of twelve 30-day
months.]
"Interim Certification": A certification as to the completeness of each
Home Loan File provided by the Custodian no later than 45 days following the
Closing Date pursuant to the Custodial Agreement.
"Issuer": [ ] Owner Trust [1999]-[ ], a Delaware business
trust.
"Issuer Order" and "Issuer Request": A written order or request of the
Issuer signed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee and delivered to the Indenture Trustee or the Authenticating Agent, as
applicable.
"Liquidated Home Loan": As defined in the Master Servicing Agreement.
"Liquidation Proceeds": As defined in the Master Servicing Agreement.
"Master Servicer": With respect to any Home Loan, [ ], as
Master Servicer under the Master Servicing Agreement, and its permitted
successors and assigns thereunder, including any successor servicer appointed
pursuant to Section 6.02 of the Master Servicing Agreement.
"Master Servicer Remittance Report": As defined in the Master Servicing
Agreement.
"Master Servicing Agreement": The Master Servicing Agreement, dated as of
the date hereof, among the Issuer, the Master Servicer and the Indenture
Trustee, providing, among other things, for the servicing of the Home Loans, as
such agreement may be amended or supplemented from time to time as permitted
hereby and thereby.
"Master Servicing Fee": As defined in the Master Servicing Agreement.
"Master Servicing Fee Rate": [ ]% per annum.
"Maturity": With respect to any Note, the date on which the entire unpaid
principal amount of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity Date or by declaration of acceleration,
call for redemption or otherwise.
"Mortgage Asset Schedule": As of any date, the schedule of Home Loans
included in the Trust Estate. Schedule I hereto identifies the Home Loans being
Granted to the Indenture Trustee on the Closing Date. The Mortgage Asset
Schedule shall be amended by the Seller as appropriate from time to time to
reflect the deletion of Home Loans in accordance with the terms
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of the Basic Documents. The Mortgage Asset Schedule shall identify each Home
Loan by the Servicer's loan number and address (including the state) of the
related Mortgaged Property and shall set forth as to each Home Loan the original
Combined Loan-to-Value Ratio, the lien priority of the related Mortgage, the
Principal Balance as of the Cut-off Date, the Mortgage Interest Rate, the
Monthly Payment amount and the stated maturity date of the related Mortgage
Note. The Issuer shall cause the initial Mortgage Asset Schedule to be delivered
by the Seller to the Indenture Trustee in both physical and computer-readable
form.
["Note Insurance Policy": The financial guaranty insurance policy (No. ),
dated [ ], issued by the Note Insurer to the Indenture Trustee for
the benefit of the Noteholders, pursuant to which the Note Insurer guarantees
payment of Insured Payments.]
["Note Payment Default": Failure and continued failure by the Note Insurer
to make an Insured Payment required under the Note Insurance Policy in
accordance with its terms.]
"Monthly Payment": With respect to any Mortgage Note, the amount of each
monthly payment payable under such Mortgage Note by the Obligor in accordance
with its terms, including one month's accrued interest on the related Principal
Balance at the then applicable Mortgage Interest Rate, but net of any portion of
such monthly payment that represents late payment charges, prepayment or
extension fees or collections allocable to payments to be made by Obligors for
payment of insurance premiums or similar items.
"Monthly Principal": For any Payment Date, an amount equal to (a) the
aggregate of (i) all scheduled payments of principal received with respect to
the Home Loans and due during the related Collection Period and all other
amounts collected, received or otherwise recovered in respect of principal on
the Home Loans (including Principal Prepayments, but not including Payments
Ahead that are not allocable to principal for the related Collection Period)
during or in respect of the related Collection Period, and (ii) the aggregate of
the amounts allocable to principal deposited in the Note Account on the related
Deposit Date by the holders of a majority of the percentage interests of the
Certificates, the Seller,[ or the Note Insurer] in connection with a repurchase,
purchase, release or removal of any Home Loans pursuant to this Indenture or any
other Basic Document, reduced by (b) the amount of any Overcollateralization
Surplus with respect to such Payment Date.
"Moody's": Moody's Investors Service, Inc. and its successors in interest.
"Mortgage": The mortgage, deed of trust or other instrument creating a lien
on an estate in fee simple in real property securing a Home Loan.
"Mortgage Interest Rate": With respect to each Home Loan, the fixed rate
per annum set forth in the related Mortgage Note at which interest accrues on
such Home Loan, after giving effect to any modification of a Home Loan for any
period in connection with a bankruptcy or similar proceeding involving the
related Obligor or a modification, waiver or amendment of such Home Loan granted
or agreed to by the Servicer in accordance with the Servicing Agreement.
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"Mortgage Note": The note or other instrument evidencing the indebtedness
of an Obligor under the related Home Loan.
"Mortgaged Property": The underlying property securing a Mortgage Note.
"Net Liquidation Proceeds": As defined in the Servicing Agreement.
"Notes": Has the same meaning as "Class A Notes."
"Note Account": The segregated account, which shall be an Eligible
Account, established and maintained pursuant to Section 8.02 and entitled "[ ],
as Indenture Trustee for [ ] Owner Trust [1999]-[ ] Asset-Backed Notes
Series [1999]-[ ], Note Account" on behalf of the Noteholders[ and the Note
Insurer].
"Note Balance": As of any date of determination, the original principal
amount of the Notes, reduced by all prior payments (including Insured Payments),
if any, made with respect to the principal of the Notes.
["Note Insurer": [ ] and any successor thereto.]
["Note Insurer Commitment Letter": The Commitment Letter dated [ ],
from the Note Insurer to the Seller regarding the issuance of a financial
guaranty insurance policy.]
["Note Insurer Default": The existence and continuance of any of the
following:
(a) a Note Insurer Payment Default;
(b) the entry by a court having jurisdiction in the premises of (i) a final
and nonappealable decree or order for relief in respect of the Note Insurer in
an involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law of (ii) a final and nonappealable decree or order adjudging the Note Insurer
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition of or in
respect of the Note Insurer under any applicable United States federal or state
law, or appointing a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of the Note Insurer or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60 consecutive
days; or
(c) the commencement by the Note Insurer of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated bankrupt or insolvent, or the consent of the Note Insurer to the
entry of a decree or order for relief in respect of the Note Insurer in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency case or proceeding against the Note Insurer, or the
filing by the Note Insurer of a petition or answer or consent seeking
reorganization or relief under any applicable
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United States federal or state law, or the consent by the Note Insurer to the
filing of such petition or to the appointment of or the taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Note Insurer or of any substantial part of its property, or the
failure by the Note Insurer to pay debts generally as they become due, or the
admission by the Note Insurer in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Note
Insurer in furtherance of any such action.
Notwithstanding anything to the contrary contained herein, upon the
existence and continuance of a Note Insurer Default, the consent by the Note
Insurer shall not be required to any action or inaction hereunder and the Note
Insurer shall not have any rights with respect thereto, except that the Note
Insurer shall be entitled to an Opinion of Counsel to the effect that such
amendment does not materially and adversely impair the Note Insurer's interests
if an amendment is requested while a Note Insurer Default is continuing.]
["Note Insurer Premium": On the Closing Date, the premium due to the Note
Insurer in paragraph 1(a)(i) of the Note Insurer Commitment Letter and
thereafter the premium due to the Note Insurer on each Payment Date, which
amount shall be equal to the Note Insurer Premium Rate and the Note Balance
immediately prior to such Payment Date.]
["Note Insurer Premium Rate": On the Closing Date, the Premium Percentage
specified in paragraph 1(a)(i) of the Note Insurer Commitment Letter and
beginning on [ ] and on each Payment Date thereafter, the Premium
Percentage specified in paragraph 1(b) thereof. ]
"Note Interest": As to any Payment Date, the amount of interest payable to
Holders of the Notes on such Payment Date, which amount shall be equal to
interest for the applicable Interest Period at the Note Interest Rate on the
Note Balance as of the preceding Payment Date (after giving effect to the
payment, if any, in reduction of principal made on the Notes on such preceding
Payment Date).
"Note Interest Rate": [ ]% per annum; provided that, if the Notes
-------------
are not redeemed on the Clean-Up Call Date, then with respect to each Payment
Date thereafter, the Note Interest Rate shall be [ ]% per annum.
"Note Register": As defined in Section 2.06.
"Note Registrar": As defined in Section 2.06.
"Noteholder" or "Holder": The Person in whose name a Note is registered in
the Note Register, except that, solely for the purpose of taking any action
under Section 5.02 or giving of any consent pursuant to this Indenture, any Note
registered in the name of the Issuer, the Seller, the Master Servicer or the
Depositor or any Persons actually known by a Responsible Officer of the
Indenture Trustee to be an Affiliate of the Issuer, the Seller, the Master
Servicer or the Depositor shall be deemed not to be Outstanding and the
percentage of the Note Balance evidenced thereby shall not be taken into account
in determining whether Holders of the requisite percentage of the Note Balance
necessary to take any such action or effect any such consent have
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acted or consented unless the Issuer, the Seller, the Master Servicer, the
Depositor or any such Person is an owner of record of all of the Notes.
["Notice of Claim": The notice required to be furnished by the Indenture
Trustee to the Note Insurer in the event an Insured Payment is required to be
paid under the Note Insurance Policy with respect to any Payment Date, in the
form set forth as Exhibit A to the Note Insurance Policy.]
"Obligor": The obligor under a Mortgage Note.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, Chief Operating Officer or
a Vice President of the Seller, the Depositor, the Master Servicer or, in the
case of the Issuer, an authorized signatory of the Owner Trustee, as the case
may be, and delivered to the Indenture Trustee, [Note Insurer] or each Rating
Agency, as the case may be.
"Opinion of Counsel": A written opinion of counsel including in-house
counsel reasonably acceptable to the Indenture Trustee and, in the case of
opinions delivered to the Note Insurer, reasonably acceptable to it. Any
expense related to obtaining an Opinion of Counsel for an action requested by a
party shall be borne by the party required to obtain such opinion or seeking to
effect the action that requires the delivery of such Opinion of Counsel, except
in such instances where such opinion is at the request of the Indenture Trustee,
in which case such expense shall be an expense of the Seller.
"Original Note Balance": The principal balance of the Notes at the issue
date thereof equal to $[ ].
"Outstanding": As of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(a) Definitive Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(b) Notes or portions thereof for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Indenture Trustee or
any Paying Agent (other than the Issuer) in trust for the Holders of such Notes;
provided, however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision therefor,
satisfactory to the Indenture Trustee, has been made;
(c) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof satisfactory
to the Indenture Trustee is presented that any such Notes are held by a bona
fide purchaser (as defined by the Uniform Commercial Code of the applicable
jurisdiction); and
(d) Notes alleged to have been destroyed, lost or stolen that have been
paid as provided for in Section 2.07; and;
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(e) Notes for which the related Stated Maturity Date has occurred;
provided, however, that in determining whether the Holders of the requisite
percentage of the Note Balance of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Issuer, any other obligor upon the Notes or any Affiliate of the
Issuer, the Seller, the Master Servicer or the Depositor or such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Indenture Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Notes that the Indenture Trustee knows to be so owned shall be so disregarded.
Notes so owned that have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Indenture
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes or any Affiliate of
the Issuer, the Seller, the Master Servicer or the Depositor or such other
obligor[; provided, further, however, that Notes that have been paid with the
proceeds of the Note Insurance Policy shall be deemed to be Outstanding for the
purposes of this Indenture, such payment to be evidenced by written notice from
the Note Insurer to the Indenture Trustee, and the Note Insurer shall be deemed
to the Holder thereof to the extent of any payments thereon made by the Note
Insurer].
["Overcollateralization Amount": As to any Payment Date, the amount, if
any, by which (x) the Aggregate Principal Balance of the Home Loans for such
Payment Date exceeds (y) the Note Balance for such Payment Date, after taking
into account the Monthly Principal (disregarding any permitted reduction thereof
in Monthly Principal due to an Overcollateralization Surplus made on such
Payment Date) to be applied in reduction of the Note Balance on such Payment
Date. If the Aggregate Principal Balance of the Home Loans is less than the Note
Balance for such Payment Date, determined as provided above, the
Overcollateralization Amount for such Payment Date shall be zero.]
["Overcollateralization Deficit": As to any Payment Date, the amount, if
any, by which the Note Balance on such Payment Date (after taking into account
any payments to be paid on such Payment Date in reduction of the Note Balance)
exceeds the Aggregate Principal Balance of the Home Loans for such Payment Date.
If the Aggregate Principal Balance of the Home Loans as determined pursuant to
the preceding sentence is greater than the Note Balance for such Payment Date
determined as provided above, the Overcollateralization Deficit for such Payment
Date shall be zero.]
["Overcollateralization Surplus": As to any Payment Date, the amount, if
any, by which (x) the Overcollateralization Amount on such Payment Date exceeds
(y) the Required Overcollateralization Amount on such Payment Date.]
"Owner Trust Agreement": The Owner Trust Agreement, dated as of the date
hereof, between the Depositor, the Master Servicer, the Trust Paying Agent and
the Owner Trustee.
"Owner Trustee": [ ], a Delaware banking
corporation, not in its individual capacity, but solely as owner trustee under
the Owner Trust Agreement, and any successor owner trustee thereunder.
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"Paying Agent": The [Indenture Trustee] or any other depository
institution or trust company that is authorized by the Issuer pursuant to
Section 3.03 to pay the principal of, or interest on, any Notes on behalf of the
Issuer, which agent, if not the Indenture Trustee, shall have signed an
instrument agreeing to be bound by the terms of this Indenture applicable to the
Paying Agent.
"Payment Ahead": As defined in the Master Servicing Agreement.
"Payment Date": The 25th day of each month or, if any such day is not a
Business Day, the Business Day immediately following such 25th day, beginning in
[ ].
"Payment Date Statement": The statement prepared pursuant to Section
2.08(e) with respect to collections on or in respect of the Home Loans and other
assets of the Trust Estate and payments on or in respect of the Notes, based
upon the information contained in the [Master] Servicer Remittance Report
prepared pursuant to the [Master] Servicing Agreement and setting forth the
following information with respect to each Payment Date (to the extent the
Master Servicer has made such information (other than the information described
in clause (a) (ii), (b), (c), (d) and (e) below) available to the Securities
Administrator):
(a) the amount of such payment to Noteholders allocable to (i) Monthly
Principal (separately setting forth Principal Prepayments) and (ii) any Excess
Cash Payment;
(b) the amount of such payment to Noteholders allocable to Note Interest;
(c) the Note Balance after giving effect to the payment of Monthly
Principal and any Excess Cash Payment applied to reduce the Note Balance on such
Payment Date;
[(d) the amount of any Insured Payments for such Payment Date;]
[(e) the Overcollateralization Amount, the then applicable Required
Overcollateralization Amount, the Overcollateralization Surplus, if any, and the
Overcollateralization Deficit, if any, with respect to such Payment Date; ]
(f) the Aggregate Principal Balance of the Home Loans as of the end of the
related Collection Period;
(g) the amount of Servicing Advances made with respect to such Payment
Date and the amount of unreimbursed Servicing Advances, if any;
(h) the number and aggregate of the Principal Balances of Home Loans
(including the Principal Balances of all Home Loans in foreclosure)
contractually delinquent (i) one month, (ii) two months and (iii) three or more
months, as of the end of the related Collection Period;
(i) the number and aggregate of the Principal Balances of the Home Loans
in foreclosure or subject to other similar proceedings, and the number and
aggregate of the Principal Balance of Home Loans, the Obligor of which is known
by the Servicer to be in bankruptcy as of the end of the related Collection
Period and the book value of any real estate acquired through
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foreclosure, grant of a deed in lieu of foreclosure or other similar proceedings
during the related Collection Period;
(j) the aggregate of the Principal Balances of the Home Loans repurchased
by the Seller or purchased by the Master Servicer, separately setting forth the
aggregate of the Principal Balances of Home Loans delinquent for three
consecutive monthly installments purchased by the Master Servicer at its option
pursuant to the Master Servicing Agreement;
(k) the aggregate amount of the Servicing Fee paid to or retained by the
Servicer, the aggregate amount of the Master Servicing Fee paid to the Master
Servicer, and the Administrative Fee Amount, in each case for the related
Collection Period;
(l) the aggregate Principal Balance of the three largest outstanding Home
Loans subject to this Indenture as of the related Determination Date;
(m) the aggregate amount of Realized Losses incurred during the related
Collection Period and the Cumulative Realized Losses since the Cut-off Date;
(n) the Rolling Delinquency Percentage, the Rolling Loss Percentage, the
Cumulative Loss Percentage, the Delinquency Loss Factor and Total Expected
Losses (each as defined in the Servicing Agreement) relating to such Payment
Date;
(o) the Rolling Three-Month Average Annualized Losses, the Delinquency
Percentage and the Total Expected Losses (as defined herein) relating to such
Payment Date; and
(p) the percentage of Home Loans (as measured by the Aggregate Principal
Balance of such Home Loans) of the Initial Pool Balance that have been modified
by the Servicer during the related Collection Period and the percentage of Home
Loans (as measured by the Aggregate Principal Balance of such Home Loans) of the
Initial Pool Balance that have been modified by the Servicer since the Cut-off
Date.
In the case of information furnished pursuant to subclauses (a) and (b) above,
the amounts shall be expressed as a dollar amount per Individual Note.
"Percentage Interest": With respect to a Note, the undivided percentage
interest (carried to eight places rounded down) obtained by dividing the
original principal balance of such Note by the Original Note Balance and
multiplying the result by 100.
"Permitted Investments": One or more of the following obligations,
instruments and securities:
(a) direct general obligations of, or obligations fully guaranteed by, the
United States of America, the Federal Home Loan Mortgage Corporation, Federal
National Mortgage Corporation, the Federal Home Loan Banks or any agency or
instrumentality of the United States of America rated Aa3 or higher by Moody's,
the obligations of which are backed by the full faith and credit of the United
States of America;
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(b) (i) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by, or federal funds sold by any depository institution or
trust company (including the Indenture Trustee or its agent acting in their
respective commercial capacities) incorporated under the laws of the United
States of America or any state thereof and subject to supervision and
examination by federal and/or state authorities, so long as, at the time of such
investment or contractual commitment providing for such investment, such
depository institution or trust company or its ultimate parent has a short-term
uninsured debt rating in one of the two highest available rating categories of
[Standard & Poor's][Fitch] and/or [Duff & Phelps] [and the highest available
rating category of Moody's] and provided that each such investment has an
original maturity of no more than 365 days and (ii) any other demand or time
deposit or deposit which is fully insured by the FDIC;
(c) repurchase obligations with a term not to exceed 30 days with respect
to any security described in clause (a) above and entered into with a depository
institution or trust company (acting as a principal) rated A or higher by
[Standard & Poor's][Fitch] and/or [Duff & Phelps] [and rated A2 or higher by
Moody's]; provided, however, that collateral transferred pursuant to such
repurchase obligation must be of the type described in clause (a) above and must
(i) be valued daily at current market price plus accrued interest, (ii) pursuant
to such valuation, be equal, at all times, to 105% of the cash transferred by
the Indenture Trustee in exchange for such collateral, and (iii) be delivered to
the Indenture Trustee or, if the Indenture Trustee is supplying the collateral,
an agent for the Indenture Trustee, in such a manner as to accomplish perfection
of a security interest in the collateral by possession of certificated
securities;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
state thereof which has a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;
(e) commercial paper having an original maturity of less than 365 days and
issued by an institution having a short-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the time of
such investment;
(f) a guaranteed investment contract approved by each of the Rating
Agencies and the Note Insurer and issued by an insurance company or other
corporation having a long-term unsecured debt rating in the highest available
rating category of each of the Rating Agencies at the time of such investment;
(g) money market funds having ratings in [the highest available rating
category of Moody's and] one of the two highest available rating categories of
[Standard & Poor's][Fitch] and/or [Duff & Phelps] at the time of such investment
(any such money market funds which provide for demand withdrawals being
conclusively deemed to satisfy any maturity requirements for Permitted
Investments set forth herein) including money market funds of the Seller or the
Indenture Trustee and any such funds that are managed by the Seller or the
Indenture Trustee or their respective Affiliates or for which the Seller or the
Indenture Trustee or any Affiliate of
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either acts as advisor, as long as such money market funds satisfy the criteria
of this subparagraph (g); and
(h) any investment for which the Master Servicer has received written
evidence that any such investment will not result in a downgrading or withdrawal
of the rating by each Rating Agency on the Notes.
The Indenture Trustee may purchase from or sell to the Seller or itself or an
Affiliate of either, as principal or agent, the Permitted Investments listed
above. All Permitted Investments in a trust account under the Indenture shall be
made in the name of the Indenture Trustee for the benefit of the Noteholders
[and the Note Insurer.]
"Person": Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"Predecessor Notes": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note ; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note .
["Preference Amount": As defined in the Note Insurance Policy.]
"Principal Balance": As defined in the Master Servicing Agreement.
"Principal Prepayment": As defined in the Master Servicing Agreement.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Purchase Price": With respect to any Defective Home Loan, an amount equal
to (i) the sum of (A) the Principal Balance of such Defective Home Loan as of
the beginning of the Collection Period next preceding the Deposit Date on which
such repurchase or purchase is required to occur, (B) interest computed at the
applicable Mortgage Interest Rate on such Principal Balance from the date to
which interest was last paid by the Obligor to the last day of the Collection
Period immediately preceding the Deposit Date on which such repurchase occurs
and (C) any previously unreimbursed Servicing Advances made on or in respect of
such Defective Home Loan, less (ii) any payments of principal and interest in
respect of such Defective Home Loan made by or on behalf of the related Obligor
during such Collection Period.
"Rating Agencies": [Standard & Poor's], [Fitch,] [Duff & Phelps] and
[Moody's] (each, a "Rating Agency"). If either such agency or a successor is no
longer in existence, "Rating Agency" shall be such nationally recognized
statistical credit rating agency, or other comparable Person, designated by the
Servicer, notice of which designation shall be given to the Indenture Trustee.
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"Realized Loss": As defined in the Master Servicing Agreement.
"Record Date": With respect to any Payment Date, the date on which the
Persons entitled to receive any payment of principal of or interest on any Notes
(or notice of a payment in full of principal) due and payable on such Payment
Date are determined; such date shall be the last Business Day of the month
preceding the month of such Payment Date. With respect to a vote of Noteholders
required or allowed hereunder, the Record Date shall be the later of (i) 30 days
prior to the first solicitation of consents or (ii) the date of the most recent
list of Noteholders furnished to the Indenture Trustee pursuant to Section
7.01(a) prior to such solicitation.
"Redemption Date": The Payment Date, if any, on which the Notes are
redeemed pursuant to Article X hereof which date may occur on or after the
Clean-Up Call Date or the Payment Date designated by the Issuer after receipt by
the Indenture Trustee of the Opinion of Counsel referred to in Section 10.01(c).
"Redemption Price": With respect to any Note to be redeemed in whole or in
part, an amount equal to 100% of the Note Balance of the Note to be so redeemed,
together with accrued and unpaid interest on such amount at the Note Interest
Rate, through the end of the Interest Period immediately preceding the
Redemption Date.
"Remittable Funds": As defined in the Master Servicing Agreement.
"REO Property": As defined in the Master Servicing Agreement.
["Required Overcollateralization Amount" means:]
"Responsible Officer": With respect to the Indenture Trustee, the chairman
or vice-chairman of the board of directors, the chairman or vice-chairman of the
executive committee of the board of directors, the president, any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer, any assistant treasurer, the cashier, any trust officer or
assistant trust officer, the controller, any assistant controller or any other
officer of the Indenture Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Rolling Three Month Average Annualized Losses": The average of the
Annualized Loss Percentages for three most recent Collection Periods.
"Sale": The meaning specified in Section 5.17.
"Securities Act": The Securities Act of 1933, as amended.
"Securities Administrator": [ ], as Securities
Administrator hereunder, and any successor Securities Administrator appointed
hereunder.
"Seller": [ ], as Seller under the Asset Sale Agreement.
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"Servicing Advance": As defined in the Master Servicing Agreement.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors in interest.
"Stated Maturity Date": With respect to the Class A Notes, [ ].
"Total Expected Losses": An amount equal to the Cumulative Realized Losses
plus the Delinquency Loss Factor.
"Transferor": [ ], a Delaware corporation.
"Trust Estate": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of the
Noteholders [and the Note Insurer] as of any particular time (including, without
limitation, all property and interests Granted to the Indenture Trustee,
including all proceeds thereof).
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939 as it may
be amended from time to time.
["Trust Insurance Proceeds": As defined in the Master Servicing
Agreement.]
"Trust Paying Agent": The entity appointed to act as paying agent pursuant
to the Owner Trust Agreement with respect to amounts on deposit from time to
time in the Certificate Distribution Account and distributions thereof to
Certificateholders. The initial Trust Paying Agent is the Indenture Trustee.
"Underwriter[s]": [ ]
"U.S. Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
U.S.C. Sections 101, et seq., as amended or supplemented from time to time.
"Vice President": Any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president".
ARTICLE II
THE NOTES
Section 2.01. Form Generally.
--------------
The Class A Notes shall be in substantially the form set forth on Exhibit A
---------
attached hereto. Each Note may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the Authorized
Officers of the Owner Trustee executing such Notes on behalf of
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the Issuer, as evidenced by their execution thereof. Any portion of the text of
any Note may be set forth on the reverse thereof with an appropriate reference
on the face of the Note.
The Definitive Notes may be produced in any manner determined by the
Authorized Officers of the Owner Trustee executing such Notes, as evidenced by
their execution thereof.
Section 2.02. Form of Certificate of Authentication.
-------------------------------------
The form of the Authenticating Agent's certificate of authentication is as
follows:
This is one of the Notes referred to in the within-mentioned
Indenture.
[Trustee]
as Authenticating Agent
By: _____________________________________
Authorized Signatory
Section 2.03. General Provisions With Respect to Principal and Interest
---------------------------------------------------------
Payments.
- --------
The Notes shall be designated generally as the "Asset-Backed Notes, Series
[1999]-[ ]".
The aggregate principal amount of Notes that may be authenticated and
delivered under this Indenture is limited to $[ ], except for the
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Sections 2.06, 2.07, or
9.06 of this Indenture. The Notes shall consist of a single class having an
Original Note Balance, Note Interest Rate and Stated Maturity Date as follows:
Original Note Stated
Designation Note Balance Interest Rate Maturity Date
- ----------- ------------ ------------- -------------
Class A $
The Notes shall be issued in the form specified in Section 2.01.
Subject to the provisions of Section 3.01, Section 5.07, Section 5.09 and
Section 8.02(d), the principal of each Note shall be payable in installments
ending no later than its Stated Maturity Date unless the unpaid principal of
such Notes become due and payable at an earlier date by declaration of
acceleration or call for redemption or otherwise.
The principal and interest payable on each Note are payable in coin or
currency of the United States of America as at the time of payment in legal
tender for payment of public and private debts. All payments made with respect
to any Note shall be applied first to the interest then due and payable on such
Note and then to the principal thereof. All computations of interest accrued on
the Class A Notes shall be made on the basis of a year of 360 days consisting of
twelve 30-day months. Interest on the Notes shall accrue at the Note Interest
Rate during each
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Interest Period on the Note Balance of each Outstanding Note as of the preceding
Payment Date (after giving effect to the payment, if any, in reduction of
principal made on the Notes on such preceding Payment Date). Interest accrued
during an Interest Period shall be payable on the next following Payment Date.
All payments of principal of and interest on any Note shall be made in the
manner specified in Section 2.08. Notwithstanding any of the foregoing
provisions with respect to payments of principal of and interest on the Notes,
if the Notes have become or been declared due and payable following an Event of
Default and such acceleration of maturity and its consequences have not been
rescinded and annulled, then payments of principal of and interest on the Notes
shall be made in accordance with Section 5.07.
Section 2.04. Denominations.
-------------
The Notes shall be issuable only as registered Notes in the minimum
denomination of $[1,000] and integral multiples of $1.00 in excess thereof, with
the exception that one Note may be issued in a lesser amount.
Section 2.05. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Issuer by an Authorized
Officer of the Owner Trustee. The signature of such Authorized Officer of the
Owner Trustee on the Notes may be manual or by facsimile.
Notes bearing the manual or facsimile signature of an individual who was at
any time an Authorized Officer of the Owner Trustee shall bind the Issuer,
notwithstanding that such individual has ceased to be an Authorized Officer of
the Owner Trustee prior to the authentication and delivery of such Notes or was
not an Authorized Officer of the Owner Trustee at the date of such Notes.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Notes executed on behalf of the Issuer to the
Authenticating Agent for authentication; and the Authenticating Agent shall
authenticate and deliver such Notes as in this Indenture provided and not
otherwise.
Each Note authenticated on the Closing Date shall be dated the Closing
Date. All other Notes that are authenticated after the Closing Date for any
other purpose hereunder shall be dated the date of their authentication.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Authenticating Agent by the manual signature of one of its authorized officers
or employees, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
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Section 2.06. Registration; Registration of Transfer and Exchange.
---------------------------------------------------
The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee is hereby initially appointed "Note Registrar" for
the purpose of registering Notes and transfers of Notes as herein provided. The
Indenture Trustee shall remain the Note Registrar throughout the term hereof.
Upon any resignation of the Indenture Trustee, the Issuer shall promptly appoint
a successor, [with the approval of the Note Insurer,] or, in the absence of such
appointment, shall assume the duties of Note Registrar.
The Indenture Trustee shall maintain an office or offices or agency or
agencies where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Indenture Trustee in respect of the
Notes may be served. The Indenture Trustee initially designates [its Corporate
Trust Office] as its office for such purposes. The Indenture Trustee or its
agent shall give prompt written notice to the Depositor[, the Note Insurer] and
the Noteholders of any change in the location of the Note Register or any such
office or agency.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Owner
Trustee on behalf of the Issuer, shall execute, and the Authenticating Agent
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations and of a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of any
authorized denominations, and of a like aggregate initial principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Owner Trustee shall execute, and the
Authenticating Agent shall authenticate and deliver, the Notes that the
Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Note Registrar duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Issuer and the Note Registrar may require payment of
a sum sufficient to cover any tax or other governmental charge as may be imposed
in connection with any registration of transfer or exchange of Notes.
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Section 2.07. Mutilated, Destroyed, Lost or Stolen Notes.
------------------------------------------
If (1) any mutilated Note is surrendered to the Note Registrar or the Note
Registrar receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (2) there is delivered to the Note Registrar such written
indemnity as may be required by the Note Registrar to save each of the Issuer,
[the Note Insurer] and the Note Registrar harmless (provided that no security
shall be required for any indemnity from any institutional investor whose long-
term debt is rated investment grade by any of the Rating Agencies), then, in the
absence of notice to the Issuer or the Note Registrar that such Note has been
acquired by a bona fide purchaser, and provided that the requirements of Section
8-405 of the relevant Uniform Commercial Code have been met, the Owner Trustee
shall execute and upon its request the Note Registrar shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Note, a new Note or Notes of the same tenor and aggregate initial
principal amount bearing a number not contemporaneously outstanding. If, after
the delivery of such new Note, a bona fide purchaser of the original Note in
lieu of which such new Note was issued presents for payment such original Note,
the Issuer and the Note Registrar shall be entitled to recover such new Note
from the person to whom it was delivered or any person taking therefrom, except
a bona fide purchaser, and shall be entitled to recover upon the written
indemnity provided therefor to the extent of any loss, damage, cost or expenses
incurred by the Issuer or the Note Registrar in connection therewith. If any
such mutilated, destroyed, lost or stolen Note shall have become or shall be
about to become due and payable, or shall have become subject to redemption in
full, instead of issuing a new Note, the Issuer may pay such Note without
surrender thereof, except that any mutilated Note shall be surrendered.
Upon the issuance of any new Note under this Section, the Issuer or the
Note Registrar may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Indenture Trustee or
the Note Registrar) connected therewith.
Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Note
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 2.08. Payments of Principal and Interest.
----------------------------------
(a) Payments on Notes issued as Book-Entry Notes will be made by or on
behalf of the Indenture Trustee to the Clearing Agency or its nominee. Any
installment of interest or principal payable on any Definitive Notes that is
punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered at the close of business on the Record Date for
such
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Payment Date by either (i) check mailed to such Person's address as it appears
in the Note Register on such Record Date, or (ii) by wire transfer of
immediately available funds to the account of a Noteholder, if such Noteholder
(A) is the registered holder of Definitive Notes having an initial principal
amount of at least $1,000,000 and (B) has provided the Indenture Trustee with
wiring instructions in writing by five Business Days prior to the related Record
Date or has provided the Indenture Trustee with such instructions for any
previous Payment Date, except for the final installment of principal payable
with respect to such Note (or the Redemption Price for any Note called for
redemption, if such redemption will result in payment of the then entire unpaid
principal amount of such Note ), which shall be payable as provided in
subsection (b) below of this Section 2.08. Any installment of interest or
principal not punctually paid or duly provided for shall be payable as soon as
funds are available to the Indenture Trustee for payment thereof, or if Section
5.07 applies, pursuant to Section 5.07.
(b) All reductions in the principal amount of a Note (or one or more
Predecessor Notes) effected by payments of installments of principal made on any
Payment Date shall be binding upon all Holders of such Note and of any Note
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, whether or not such payment is noted on such Note. The final
installment of principal of each Note (including the Redemption Price of any
Note called for optional redemption, if such optional redemption will result in
payment of the entire unpaid principal amount of such Note) shall be payable
only upon presentation and surrender thereof on or after the Payment Date
therefor at the Indenture Trustee's presenting office located within the United
States of America pursuant to Section 3.02.
(c) Whenever the Indenture Trustee expects that the entire remaining unpaid
principal amount of any Note will become due and payable on the next Payment
Date other than pursuant to a redemption pursuant to Article X, it shall, no
later than two days prior to such Payment Date, telecopy or hand deliver to each
Person in whose name a Note to be so retired is registered at the close of
business on such otherwise applicable Record Date a notice to the effect that:
the Indenture Trustee expects that funds sufficient to pay such final
installment will be available in the Note Account on such Payment Date; and if
such funds are available, (i) such final installment will be payable on such
Payment Date, but only upon presentation and surrender of such Note at the
office or agency of the Note Registrar maintained for such purpose pursuant to
Section 3.02 (the address of which shall be set forth in such notice) and (ii)
no interest shall accrue on such Note after such Payment Date. [A copy of such
form of notice shall be sent to the Note Insurer by the Indenture Trustee.]
Notices in connection with redemptions of Notes shall be mailed to Noteholders
in accordance with Section 10.02.
(d) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to unpaid principal and
interest that were carried by such other Note. Any checks mailed pursuant to
subsection (a) of this Section 2.08 and returned undelivered shall be held in
accordance with Section 3.03.
(e) Each Payment Date Statement, prepared by the Securities Administrator
based on the Servicer Remittance Report delivered to the Securities
Administrator and the Indenture
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Trustee pursuant to the Master Servicing Agreement, shall be delivered by the
Securities Administrator to the Indenture Trustee no later than the related
Deposit Date. The Indenture Trustee shall deliver each such Payment Date
Statement to [the Note Insurer,] the Rating Agencies, the Owner Trustee, the
Underwriter[s], and each Noteholder. In addition, on each Payment Date the
Securities Administrator shall forward to Bloomberg L.P. and the Depositor the
electromagnetic tape or disk containing certain Home Loan information required
to be delivered to the Securities Administrator by the Servicer pursuant to
Section 3.01 of the Master Servicing Agreement[; provided, however, that the
Securities Administrator shall not forward any such tape or disk that separately
sets forth the Note Insurer Premium or the Note Insurer Premium Rate.] Neither
the Securities Administrator, the Indenture Trustee nor the Paying Agent shall
have any responsibility to recalculate, verify, reconcile or recompute
information contained in any such tape or disk or any such Master Servicer
Remittance Report, and in preparing each Payment Date Statement, the Securities
Administrator shall be entitled to rely conclusively on the accuracy of the
information or data contained in the applicable Master Servicer Remittance
Report.
(f) Within 90 days after the end of each calendar year, the Securities
Administrator will be required to furnish to each person who at any time during
the calendar year was a Noteholder (which the Securities Administrator shall
promptly prepare upon the request of the Indenture Trustee), a statement
containing the information set forth in subclauses (a) and (b) in the definition
of "Payment Date Statement," aggregated for such calendar year or the applicable
portion thereof during which such person was a Noteholder. Such obligation will
be deemed to have been satisfied to the extent that substantially comparable
information is provided pursuant to any requirements of the Code as are from
time to time in force. The Note Registrar shall furnish to the Securities
Administrator, promptly following its request, with such information concerning
such Noteholder as the Securities Administrator may reasonably require to
perform its obligations hereunder.
Section 2.09. Persons Deemed Owners.
---------------------
Prior to due presentment for registration of transfer of any Note, the
Issuer, the Indenture Trustee, any Paying Agent and any other agent of the
Issuer, [the Note Insurer] or the Indenture Trustee may treat the Person in
whose name any Note is registered as the owner of such Note (a) on the
applicable Record Date for the purpose of receiving payments of the principal of
and interest on such Note and (b) on any other date for all other purposes
whatsoever, and neither the Issuer, the Indenture Trustee, any Paying Agent nor
any other agent of the Issuer[, the Note Insurer ]or the Indenture Trustee shall
be affected by notice to the contrary.
Section 2.10. Cancellation.
------------
All Notes surrendered for payment, registration of transfer, exchange or
redemption shall, if surrendered to any Person other than the Note Registrar, be
delivered to the Note Registrar and shall be promptly canceled by it. The
Issuer may at any time deliver to the Note Registrar for cancellation any Note
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled
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by the Note Registrar. No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes held by the Note Registrar shall
be held by the Note Registrar in accordance with its standard retention policy,
unless the Issuer shall direct by an Issuer Order that they be destroyed or
returned to it.
Section 2.11. Authentication and Delivery of Notes.
------------------------------------
On the Closing Date, the Notes shall be executed by an Authorized Officer
of the Owner Trustee and delivered to the Authenticating Agent for
authentication, and thereupon the same shall be authenticated and delivered by
the Authenticating Agent, upon Issuer Request and upon receipt by the
Authenticating Agent of all of the following:
(a) An Issuer Order authorizing the execution, authentication and delivery
of the Notes and specifying the Stated Maturity Date, the principal amount and
the Note Interest Rate of such Notes to be authenticated and delivered.
(b) An Issuer Order authorizing the execution and delivery of this
Indenture.
(c) One or more Opinions of Counsel addressed to the Authenticating Agent
[and the Note Insurer] or upon which the Authenticating Agent [and the Note
Insurer] is expressly permitted to rely, complying with the requirements of
Section 12.01, reasonably satisfactory in form and substance to the
Authenticating Agent[ and the Note Insurer].
In rendering the opinions set forth above, such counsel may rely upon
officer's certificates of the Issuer, the Owner Trustee, the Servicer and the
Indenture Trustee, without independent confirmation or verification with respect
to factual matters relevant to such opinions. In rendering the opinions set
forth above, such counsel need express no opinion as to (A) the existence of, or
the priority of the security interest created by the Indenture against, any
liens or other interests that arise by operation of law and that do not require
any filing or similar action in order to take priority over a perfected security
interest or (B) the priority of the security interest created by this Indenture
with respect to any claim or lien in favor of the United States or any agency or
instrumentality thereof (including federal tax liens and liens arising under
Title IV of the Employee Retirement Income Security Act of 1974).
[The acceptability to the Note Insurer of the Opinion of Counsel delivered
to the Indenture Trustee and the Note Insurer at the Closing Date shall be
conclusively evidenced by the delivery on the Closing Date of the Note Insurance
Policy.]
(d) An Officers' Certificate of the Issuer complying with the requirements
of Section 12.01 and stating that:
(i) the Issuer is not in Default under this Indenture and the issuance
of the Notes will not result in any breach of any of the terms, conditions
or provisions of, or constitute a default under, the Issuer's Certificate
of Trust or any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it
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is bound, or any order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may be bound or to
which it may be subject, and that all conditions precedent provided in this
Indenture relating to the authentication and delivery of the Notes have
been complied with; the Issuer is the owner of each Home Loan, free and
clear of any lien, security interest or charge, has not assigned any
interest or participation in any such Home Loan (or, if any such interest
or participation has been assigned, it has been released) and has the right
to Grant each such Home Loan to the Indenture Trustee;
(ii) the information set forth in the Mortgage Asset Schedule
attached as Schedule I to this Indenture is correct;
(iii) the Issuer has Granted to the Indenture Trustee all of its
right, title and interest in each Home Loan; and
(iv) attached thereto is a true and correct copy of letters signed by
each Rating Agency confirming that the Notes have been rated in the highest
rating category of such Rating Agency.
(e) An executed counterpart of the Master Servicing Agreement.
(f) An executed counterpart of the Asset Sale Agreement.
(g) An executed counterpart of the Owner Trust Agreement.
(h) An executed copy of the Custodial Agreement.
Section 2.12. Book-Entry Notes.
----------------
On the Closing Date, the Notes will be issued in the form of typewritten
global Notes representing the Book-Entry Notes, to be delivered to the Indenture
Trustee as custodian for The Depository Trust Company (the initial Clearing
Agency) by, or on behalf of, the Issuer. The Book-Entry Notes shall be
registered initially on the Note Register in the name of Cede & Co., the nominee
of the initial Clearing Agency; no Beneficial Owner thereof will receive or be
entitled to receive a Definitive Note representing such Beneficial Owner's
beneficial interest in such Note, except as provided in Section 2.13 with
respect to Book-Entry Termination; and registration of the Notes may not be
transferred by the Note Registrar except upon Book-Entry Termination. Until the
occurrence of Book-Entry Termination, the Note Registrar shall deal with the
Clearing Agency as the sole Holder of the Notes for purposes of exercising the
rights of Noteholders hereunder. The Indenture Trustee, the Note Registrar, the
Issuer and all other Persons shall recognize the Clearing Agency as the Holder.
All rights and privileges of any Beneficial Owner shall be realized or exercised
solely through the facilities of the Clearing Corporation and the applicable
rules and regulations of the Clearing Corporation and any other financial
intermediary through which a Beneficial Owner claims its interest in any Note.
Each payment of principal of and interest on a Book-Entry Note shall be paid to
the Clearing Agency. Each Clearing Agency Participant shall be responsible for
disbursing such payments to the
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Beneficial Owners of the Book-Entry Notes that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Beneficial Owners of the Book-Entry
Notes that it represents. All such credits and disbursements are to be made by
the Clearing Agency and the Clearing Agency Participants in accordance with
their respective procedures. None of the Indenture Trustee, the Note Registrar,
the Issuer, or any Paying Agent [or the Note Insurer] shall have any
responsibility therefor. Requests and directions from, and votes of, such
representatives shall not be deemed to be inconsistent if they are made with
respect to different Beneficial Owners.
Section 2.13. Termination of Book Entry System.
--------------------------------
(a) The book-entry system through the Clearing Agency with respect to the
Book-Entry Notes may be terminated upon the happening of any of the following:
(i) The Clearing Agency or the Seller advises the Indenture Trustee
that the Clearing Agency is no longer willing or able to discharge properly
its responsibilities as nominee and depositary with respect to the Notes
and the Indenture Trustee or the Seller is unable to locate a qualified
successor clearing agency satisfactory to the Issuer;
(ii) The Seller, in its sole discretion, elects to terminate the
book-entry system by notice to the Clearing Agency and the
Indenture Trustee; or
(iii) After the occurrence of an Event of Default (at which time the
Indenture Trustee shall use all reasonable efforts to promptly notify each
Beneficial Owner through the Clearing Agency of such Event of Default), the
Beneficial Owners of no less than 51% of the Note Balance of the Book-Entry
Notes advise the Indenture Trustee in writing, through the related Clearing
Agency Participants and the Clearing Agency, that the continuation of a
book-entry system through the Clearing Agency to the exclusion of any
Definitive Notes being issued to any person other than the Clearing Agency
or its nominee is no longer in the best interests of the Beneficial Owners.
(b) Upon the occurrence of any event described in subsection (a) above,
the Indenture Trustee shall use all reasonable efforts to notify all Beneficial
Owners, through the Clearing Agency, of the occurrence of such event and of the
availability of Definitive Notes to Beneficial Owners requesting the same, in a
Note Balance representing the interest of each, making such adjustments and
allowances as it may find necessary or appropriate as to accrued interest and
previous calls for redemption. Definitive Notes shall be issued only upon
surrender to the Indenture Trustee of the global Note by the Clearing Agency,
accompanied by registration instructions for the Definitive Notes. Neither the
Issuer nor the Indenture Trustee shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon issuance of the Definitive Notes, all
references herein to obligations imposed upon or to be performed by the Clearing
Agency shall cease to be applicable and the provisions relating to Definitive
Notes shall be applicable.
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ARTICLE III
COVENANTS
Section 3.01. Payment of Notes.
----------------
The Issuer will pay or cause to be duly and punctually paid the principal
of, and interest on, the Notes in accordance with the terms of the Notes and
this Indenture. The Notes shall be non-recourse obligations of the Issuer and
shall be limited in right of payment to amounts available from the Trust Estate
as provided in this Indenture and the Issuer shall not otherwise be liable for
payments on the Notes. No person shall be personally liable for any amounts
payable under any Notes. If any other provision of this Indenture conflicts or
is deemed to conflict with the provisions of this Section 3.01, the provisions
of this Section 3.01 shall control.
Section 3.02. Maintenance of Office or Agency.
-------------------------------
The Issuer will cause the Note Registrar to maintain its corporate trust
office at a location where Notes may be surrendered for registration of transfer
or exchange, and where notices and demands to or upon the Issuer in respect of
the Notes and this Indenture may be served.
The Issuer may also from time to time at its own expense designate one or
more other offices or agencies within the United States of America where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind such designations; provided, however, any designation of an
office or agency for payment of Notes shall be subject to Section 3.03. The
Issuer will give prompt written notice to the Indenture Trustee [and the Note
Insurer] of any such designation or rescission and of any change in the location
of any such other office or agency.
Section 3.03. Money for Note Payments to Be Held In Trust.
-------------------------------------------
All payments of amounts due and payable with respect to any Notes that are
to be made from amounts withdrawn from the Note Account pursuant to Section
8.02(c) or Section 5.07 shall be made on behalf of the Issuer by the Paying
Agent, and no amounts so withdrawn from the Note Account for payments of Notes
shall be paid over to the Issuer under any circumstances except as provided in
this Section 3.03 or in Section 5.07 or Section 8.02. With respect to
Definitive Notes, if the Issuer shall have a Paying Agent that is not also the
Note Registrar, such Note Registrar shall furnish, no later than the fifth
calendar day after each Record Date, a list, in such form as such Paying Agent
may reasonably require, of the names and addresses of the Holders of Notes and
of the number of Individual Notes held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the Indenture
Trustee, it will, on or before the Business Day next preceding each Payment Date
direct the Indenture Trustee to deposit with such Paying Agent an aggregate sum
sufficient to pay the amounts then becoming due (to the extent funds are then
available for such purpose in the Note Account), such sum to be held in trust
for the benefit of the Persons entitled thereto. Any moneys deposited with a
Paying
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Agent in excess of an amount sufficient to pay the amounts then becoming due on
the Notes with respect to which such deposit was made shall, upon Issuer Order,
be paid over by such Paying Agent to the Indenture Trustee for application in
accordance with Article VIII.
Subject to the prior consent of [the Note Insurer,] any Paying Agent other
than the Indenture Trustee shall be appointed by Issuer Order and at the expense
of the Issuer. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) that is not, at the time of such appointment, a depository
institution or trust company whose obligations would be Permitted Investments
pursuant to clause (c) of the definition of the term Permitted Investments. The
Issuer will cause each Paying Agent other than the Indenture Trustee to execute
and deliver to the Indenture Trustee an instrument in which such Paying Agent
shall agree with the Indenture Trustee (and if the Indenture Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section,
that such Paying Agent will:
(a) allocate all sums received for payment to the Holders of Notes on each
Payment Date among such Holders in the proportion specified in the applicable
Payment Date Statement, in each case to the extent permitted by applicable law;
(b) hold all sums held by it for the payment of amounts due with respect to
the Notes in trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as herein provided
and pay such sums to such Persons as herein provided;
(c) if such Paying Agent is not the Indenture Trustee, immediately resign
as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it
in trust for the payment of the Notes if at any time the Paying Agent ceases to
meet the standards set forth above required to be met by a Paying Agent at the
time of its appointment;
(d) if such Paying Agent is not the Indenture Trustee, give the Indenture
Trustee notice of any Default by the Issuer (or any other obligor upon the
Notes) in the making of any payment required to be made with respect to any
Notes for which it is acting as Paying Agent;
(e) if such Paying Agent is not the Indenture Trustee, at any time during
the continuance of any such Default, upon the written request of the Indenture
Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by
such Paying Agent; and
(f) comply with all requirements of the Code, and all regulations
thereunder, with respect to withholding from any payments made by it on any
Notes of any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith; provided,
however, that with respect to withholding and reporting requirements applicable
to original issue discount (if any) on any of the Notes, the Issuer has provided
the calculations pertaining thereto to the Indenture Trustee and the Paying
Agent.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or any other purpose, by Issuer Order direct any
Paying Agent, if other than the Indenture Trustee, to pay to the Indenture
Trustee all sums held in trust by such Paying Agent,
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such sums to be held by the Indenture Trustee upon the same trusts as those upon
which such sums were held by such Paying Agent; and upon such payment by any
Paying Agent to the Indenture Trustee, such Paying Agent shall be released from
all further liability with respect to such money.
Any money held by the Indenture Trustee or any Paying Agent in trust for
the payment of any amount due with respect to any Note and remaining unclaimed
for two and one-half years after such amount has become due and payable to the
Holder of such Note (or if earlier, three months before the date on which such
amount would escheat to a governmental entity under applicable law) shall be
discharged from such trust and paid to the Issuer; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease.
The Indenture Trustee may adopt and employ, at the expense of the Issuer,
any reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or any Agent, at the last address of record for
each such Holder).
Section 3.04. Existence of Issuer.
-------------------
The Issuer will keep in full effect its existence, rights and franchises as
a business trust under the laws of the State of Delaware or under the laws of
any other state or the United States of America, and will obtain and preserve
its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Master Servicing Agreement, the
Custodial Agreement[, the Insurance Agreement]and the Owner Trust Agreement.
Section 3.05. Protection of Trust Estate.
--------------------------
(a) The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action as may be necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry out
more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
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(iv) enforcing the provisions of any of the Home Loans, the Master
Servicing Agreement, the Asset Sale Agreement, the Custodial Agreement, the
Insurance Agreement or the Owner Trust Agreement; or
(v) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee, and of the Noteholders [and the Note Insurer,] in
the Home Loans and the other property held as part of the Trust Estate
against the claims of all Persons and parties.
(b) The Indenture Trustee shall not remove any portion of the Trust Estate
that consists of money or is evidenced by an instrument, certificate or other
writing from the jurisdiction in which it was held at the date of the most
recent Opinion of Counsel delivered pursuant to this Section 3.05 (or cause or
permit ownership or the pledge of any portion of the Trust Estate that consists
of book-entry securities to be recorded on the books of a Person located in a
different jurisdiction from the jurisdiction in which it was held, or to which
it is intended to be removed, as described in the Opinion of Counsel delivered
at the Closing Date pursuant to Section 2.11(c), if no Opinion of Counsel has
yet been delivered pursuant to this Section 3.05) or cause or permit ownership
or the pledge of any portion of the Trust Estate that consists of book-entry
securities to be recorded on the books of a Person located in a different
jurisdiction from the jurisdiction in which such ownership or pledge was
recorded at such time unless the Indenture Trustee shall have first received an
Opinion of Counsel addressed to the Indenture Trustee [and the Note Insurer] to
the effect that the lien and security interest created by this Indenture with
respect to such property will continue to be maintained after giving effect to
such action or actions.
Section 3.06. Opinions as to Trust Estate.
---------------------------
On or before April 30th in each calendar year, beginning with the first
calendar year commencing after the Closing Date, the Issuer shall furnish to the
Indenture Trustee [and the Note Insurer] an Opinion of Counsel reasonably
satisfactory in form and substance to the Indenture Trustee [and the Note
Insurer] either stating that, in the opinion of such counsel, such action has
been taken as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe all such action,
if any, that will, in the opinion of such counsel, be required to be taken to
maintain the lien and security interest of this Indenture with respect to the
Trust Estate until May 1st in the following calendar year.
Section 3.07. Performance of Obligations; Servicing Agreement.
-----------------------------------------------
(a) The Issuer shall punctually perform and observe all of its obligations
under this Indenture and the Servicing Agreement.
(b) The Issuer shall not take any action and will use its Best Efforts not
to permit any action to be taken by others that would release any Person from
any of such Person's covenants or obligations under any of the Home Loan Files
or under any instrument included in the Trust Estate, or that would result in
the amendment, hypothecation, subordination, termination or
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discharge of, or impair the validity or effectiveness of, any of the documents
or instruments contained in the Home Loan Files, except as expressly permitted
in this Indenture, the Servicing Agreement or such document included in the Home
Loan File or other instrument or unless such action will not adversely affect
the interests of the Holders of the Notes.
(c) If the Issuer shall have knowledge of the occurrence of a default under
the Master Servicing Agreement, the Issuer shall promptly notify the Indenture
Trustee, [the Note Insurer] and the Rating Agencies thereof, and shall specify
in such notice the action, if any, the Issuer is taking with respect to such
default.
(d) Upon any termination of the Master Servicer's rights and powers
pursuant to the Master Servicing Agreement, the Indenture Trustee shall promptly
notify the Rating Agencies and each Noteholder. As soon as any successor Master
Servicer is appointed, the Indenture Trustee shall notify the Rating Agencies
and each Noteholder, specifying in such notice the name and address of such
successor Master Servicer.
Section 3.08. Investment Company Act.
----------------------
The Issuer shall at all times conduct its operations so as not to be
subject to, or shall comply with, the requirements of the Investment Company Act
of 1940, as amended (or any successor statute), and the rules and regulations
thereunder.
Section 3.09. Negative Covenants.
------------------
The Issuer shall not:
(a) sell, transfer, exchange or otherwise dispose of any portion of the
Trust Estate except as expressly permitted by this Indenture or the Master
Servicing Agreement;
(b) claim any credit on, or make any deduction from, the principal of, or
interest on, any of the Notes by reason of the payment of any taxes levied or
assessed upon any portion of the Trust Estate;
(c) engage in any business or activity other than as permitted by the
Owner Trust Agreement or other than in connection with, or relating to, the
issuance of the Notes pursuant to this Indenture or amend the Owner Trust
Agreement, as in effect on the Closing Date, other than in accordance with
Section 9.06;
(d) incur, issue, assume or otherwise become liable for any indebtedness
other than the Notes;
(e) incur, assume, guaranty or agree to indemnify any Person with respect
to any indebtedness of any Person, except for such indebtedness as may be
incurred by the Issuer in connection with the issuance of the Notes pursuant to
this Indenture;
(f) dissolve or liquidate in whole or in part (until the Notes are paid in
full); or
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(g) (A) permit the validity or effectiveness of this Indenture or any
Grant to be impaired, or permit the lien of this Indenture to be impaired,
amended, hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations under this Indenture,
except as may be expressly permitted hereby, (B) permit any lien, charge,
security interest, mortgage or other encumbrance (other than the lien of this
Indenture or any encumbrance permitted hereunder) to be created on or extend to
or otherwise arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof, or (C) permit the lien of this
Indenture not to constitute a valid perfected first priority security interest
in the Trust Estate; or take any other action that should reasonably be expected
to, or fail to take any action if such failure should reasonably be expected to,
cause the Issuer to be taxable as an association pursuant to Section 7701 of the
Code or a taxable mortgage pool pursuant to Section 7701(i) of the Code.
Section 3.10. Annual Statement as to Compliance.
---------------------------------
On or before July 31, 200[ ], and each July 31st thereafter, the Issuer
shall deliver to the Indenture Trustee [and the Note Insurer] a written
statement, signed by an Authorized Officer of the Owner Trustee, stating that:
(a) a review of the fulfillment by the Issuer during such year of its
obligations under this Indenture has been made under such Authorized Officer's
supervision; and
(b) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under this
Indenture throughout such year, or, if there has been a Default in the
fulfillment of any such covenant or condition, specifying each such Default
known to such Authorized Officer and the nature and status thereof.
Promptly following its receipt of such statement, the Indenture Trustee
shall forward a copy thereof to each Noteholder.
Section 3.11. Restricted Payments.
-------------------
The Issuer shall not, directly or indirectly, (i) pay any dividend or make
any distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, to the Owner Trustee or any owner
of a beneficial interest in the Issuer or otherwise with respect to any
ownership or equity interest or security in or of the Issuer or to the Master
Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that the Issuer
may make, or cause to be made, distributions to the Servicer, the Indenture
Trustee, the Master Servicer, the Owner Trustee[, the Note Insurer] and the
Certificateholders as contemplated by, and to the extent funds are available for
such purpose under, the Master Servicing Agreement or the Owner Trust Agreement
and the Issuer will not, directly or indirectly, make or cause to be made
payments to or distributions from the Note Account except in accordance with
this Indenture.
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Section 3.12. Treatment of Notes as Debt for Tax Purposes.
-------------------------------------------
The Issuer shall treat the Notes as indebtedness for all federal and state
tax purposes.
Section 3.13. Notice of Events of Default.
---------------------------
The Issuer shall give the Indenture Trustee[, the Note Insurer] and the
Rating Agencies prompt written notice of each Event of Default hereunder, each
default on the part of the Master Servicer of its obligations under the Master
Servicing Agreement and each default on the part of the Seller of its
obligations under the Asset Sale Agreement.
Section 3.14. Further Instruments and Acts.
----------------------------
Upon request of the Indenture Trustee[ or the Note Insurer], the Issuer
will execute and deliver such further instruments and do such further acts as
may be reasonably necessary or proper to carry out more effectively the purpose
of this Indenture.
Section 3.15. Covenants of the Indenture Trustee.
----------------------------------
(a) The Indenture Trustee shall perform, on behalf of the Trust acting
through the Owner Trustee, the duties of the Issuer hereunder specified below,
and shall consult with the Owner Trustee regarding such duties:
(i) the determination of the form of the Notes under Section 2.01;
(ii) directing the Owner Trustee to execute the Notes for the Issuer
and to return them to the Indenture Trustee for authentication and delivery
under Section 2.05;
(iii) direction of the Owner Trustee to execute and deliver Notes for
registration of transfer and exchange under Section 2.06;
(iv) direction of the Owner Trustee as to actions to be taken with
respect to Notes alleged to have been lost, stolen, destroyed or mutilated
under Section 2.07;
(v) maintenance of Note Registrar's Office and designation of any
offices where Notes may be presented or surrendered under Section 3.02;
(vi) if an additional Paying Agent is to be appointed, the
solicitation and review of bids, examination of the qualifications of
bidders, and submission to the Owner Trustee of a list of candidates from
which such appointment may be made by the Owner Trustee; preparation and
submission to each such Paying Agent for execution of an agreement to the
effect that such Paying Agent holds funds in trust; the direction of a
Paying Agent to remit all funds it is holding to the Indenture Trustee; the
direction of the Indenture Trustee to deposit moneys with such Paying
Agent; and notifications to Holders of Notes of availability of their last
payments, all under Section 3.03;
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(vii) direction of Owner Trustee in connection with anything required
of the Issuer relating to the appointment of any co-Trustee under Section
6.13;
(viii) if an Authenticating Agent is to be appointed, the
solicitation and review of bids, examination of the qualifications of
bidders, and submission to the Owner Trustee of a list of qualified
candidates from which such appointment may be made by the Owner Trustee
under Section 6.14;
(ix) furnishing to the Indenture Trustee the names and addresses of
Noteholders to the extent required by Section 7.01;
(x) direction of the Owner Trustee's execution of documents, if
any, as provided by the Servicer as necessary to reconvey title to
repurchased Home Loans to the Seller under Section 8.05; and
(xi) notifying the Owner Trustee when the Securities Administrator
is of the opinion that a supplemental indenture may be necessary or
appropriate and determining, based on advice of counsel, whether notations
of amendments should be made on Note Certificates, under Sections 9.01,
9.02, and 9.07.
(b) The Indenture Trustee hereby agrees that it will not take any action
that is not related to the administration of the Trust Estate to (i) impair the
validity or effectiveness of the Indenture or the Grant of the Trust Estate
thereunder or release any Person from any covenant or obligation under this
Indenture, except as expressly permitted thereby, (ii) creating any lien,
charge, security interest, or similar encumbrance (other than the lien of this
Indenture or other permitted encumbrance or as otherwise permitted under the
provisions of this Indenture) on the Trust Estate, or (iii) cause the lien of
the Indenture not to constitute a valid perfected first priority security
interest in the Trust Estate, except as otherwise expressly permitted hereunder.
The Indenture Trustee shall not take any action that, to the actual knowledge of
the Indenture Trustee, would result in the Issuer becoming taxable as a
corporation for federal income tax purposes.
(c) The Indenture Trustee shall pay, from its own funds, the annual fee of
the Owner Trustee as described in Section 8.1 of the Owner Trust Agreement.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture.
---------------------------------------
Whenever the following conditions shall have been satisfied:
(a) either
(i) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced
or paid as provided in
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Section 2.07, and (ii) Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Issuer, as provided in
Section 3.03) have been delivered to the Note Registrar for cancellation;
or
(ii) all Notes not theretofore delivered to the Note Registrar for
cancellation
(A) have become due and payable, or
(B) will become due and payable at the Stated Maturity Date
within one year, or
(C) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Indenture Trustee for the
giving of notice of redemption by the Indenture Trustee in the name,
and at the expense, of the Issuer or the Master Servicer, and the
Issuer or the Master Servicer, in the case of clauses (B)(i), (B)(ii)
or (B)(iii) above, has irrevocably deposited or caused to be deposited
with the Indenture Trustee, in trust for such purpose, an amount
sufficient to pay and discharge the entire indebtedness on such Notes
not theretofore delivered to the Indenture Trustee for cancellation,
for principal and interest to the Stated Maturity Date or to the
applicable Redemption Date, as the case may be, and in the case of
Notes that were not paid at the Stated Maturity Date of their entire
unpaid principal amount, for all overdue principal and all interest
payable on such Notes to the next succeeding Payment Date therefor;
(b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer [(including, without limitation, any amounts due the
Note Insurer hereunder)]; and
(c) the Issuer has delivered to the Indenture Trustee [and the Note
Insurer] an Officers' Certificate and an Opinion of Counsel satisfactory in form
and substance to the Indenture Trustee [and the Note Insurer] each stating that
all conditions precedent herein providing for the satisfaction and discharge of
this Indenture have been complied with;
then, upon Issuer Request, this Indenture and the lien, rights and interests
created hereby and thereby shall cease to be of further effect, and the
Indenture Trustee and each co-trustee and separate trustee, if any, then acting
as such hereunder shall, at the expense of the Issuer (or of the Master Servicer
in the case of a redemption by the Master Servicer), execute and deliver all
such instruments furnished to the Indenture Trustee as may be necessary to
acknowledge the satisfaction and discharge of this Indenture and shall pay, or
assign or transfer and deliver, to the Issuer or upon Issuer Order all cash,
securities and other property held by it as part of the Trust Estate remaining
after satisfaction of the conditions set forth in clauses (1) and (2) above.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Indenture Trustee and the Paying Agent to the Issuer and the
Holders of Notes under Section 3.03, the obligations of the Indenture Trustee to
the Holders of Notes under Section 4.02 and the provisions of Section 2.07 with
respect to lost, stolen, destroyed or mutilated Notes, registration
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of transfers of Notes and rights to receive payments of principal of and
interest on the Notes shall survive.
Section 4.02. Application of Trust Money.
--------------------------
All money deposited with the Indenture Trustee pursuant to Sections 3.03
and 4.01 shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent, as the Indenture Trustee may determine, to the Persons
entitled thereto, of the principal and interest for whose payment such money has
been deposited with the Indenture Trustee.
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.01. Event of Default.
----------------
"Event of Default", wherever used herein, means, with respect to Notes
issued hereunder, any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) if the Issuer, after payment of any Insured Payment in respect of such
Payment Date, shall default in the payment on any Payment Date of any
Deficiency Amount or fail to pay the Notes in full on or before its Stated
Maturity Date (and in the case of any such default, such default or failure
shall continue for a period of 5 days unremedied);
(2) if the Issuer shall breach or default in the due observance of any one or
more of the covenants set forth in clauses (a) through (g) of Section 3.09;
(3) if the Issuer shall breach, or default in the due observance or performance
of, any other of its covenants in this Indenture, and such Default shall
continue for a period of 30 days after the earlier of (i) the date on which
the Issuer obtains knowledge thereof or (ii) the date on which there shall
have been given to the Issuer by the Indenture Trustee[ at the direction of
the Note Insurer], or to the Issuer and the Indenture Trustee by the
Holders of Notes representing at least 25% of the Note Balance of the
Outstanding Notes[, with the prior written consent of the Note Insurer,] a
written notice specifying such Default and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder;
(4) if any representation or warranty of the Issuer made in this Indenture or
any certificate or other writing delivered by the Issuer pursuant hereto or
in connection herewith shall prove to be incorrect in any material respect
as of the time when the same shall have been made and, within 30 days after
the earlier of (i) the date on which the Issuer obtains
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knowledge thereof or (ii) the date on which there shall have been given
written notice thereof to the Issuer by the Indenture Trustee [at the
direction of the Note Insurer], or to the Issuer and the Indenture Trustee
by the Holders of Notes representing at least 25% of the Note Balance of
the Outstanding Notes[, with the prior written consent of the Note
Insurer], the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured; provided, however, that in the event that there exists a
remedy with respect to any such breach that consists of a purchase
obligation or repurchase obligation under the Basic Documents, then such
purchase obligation or repurchase obligation shall be the sole remedy with
respect to such breach and shall not constitute an Event of Default
hereunder;
(5) the entry of a decree or order for relief by a court having jurisdiction in
respect of the Issuer in an involuntary case under the federal bankruptcy
laws, as now or hereafter in effect, or any other present or future federal
or state bankruptcy, insolvency or similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Issuer or of any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(6) the commencement by the Issuer of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or the
consent by the Issuer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any substantial part of its property
or the making by the Issuer of an assignment for the benefit of creditors
or the failure by the Issuer generally to pay its debts as such debts
become due or the taking of corporate action by the Issuer in furtherance
of any of the foregoing.
[The payment by the Note Insurer of any Insured Payment in an amount
sufficient to cover the related Deficiency Amount pursuant to the Note Insurance
Policy in respect of any Payment Date shall not constitute an Event of Default
with respect to the Notes.]
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default occurs and is continuing, then and in every such
case[, but with the consent of the Note Insurer in the absence of a Note Insurer
Default,] the Indenture Trustee may, and on request of the Holders of Notes
representing not less than 50% of the Note Balance of the Outstanding Notes,
shall, declare all the Notes to be immediately due and payable by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration such Notes, in an amount equal to the Note Balance
of such Notes, together with accrued and unpaid interest thereon to the date of
such acceleration, shall become immediately due and payable[, all subject to the
prior written consent of the Note Insurer in the absence of a Note Insurer
Default].
At any time after such a declaration of acceleration of maturity of the
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the
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Indenture Trustee as hereinafter in this Article provided [the Note Insurer or]
the Holders of Notes representing more than 50% of the Note Balance of the
Outstanding Notes, [with the prior written consent of the Note Insurer,] by
written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of, and interest on, all Notes and all
other amounts that would then be due hereunder or upon such Notes if the
Event of Default giving rise to such acceleration had not occurred; and
(ii) all sums paid or advanced by the Indenture Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee, its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal of
Notes that have become due solely by such acceleration, have been cured or
waived as provided in Section 5.14. No such rescission shall affect any
subsequent Default or impair any right consequent thereon.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee.
- -----------------
Subject to the provisions of Section 3.01 and the following sentence, if an
Event of Default occurs and is continuing, the Indenture Trustee may[, with the
prior written consent of the Note Insurer,] proceed to protect and enforce its
rights and the rights of the Noteholders [and the Note Insurer] by any
Proceedings the Indenture Trustee deems appropriate to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or
enforce any other proper remedy. Any proceedings brought by the Indenture
Trustee on behalf of the Noteholders [and the Note Insurer] or any Noteholder
[or the Note Insurer] against the Issuer shall be limited to the preservation,
enforcement and foreclosure of the liens, assignments, rights and security
interests under the Indenture and no attachment, execution or other unit or
process shall be sought, issued or levied upon any assets, properties or funds
of the Issuer, other than the Trust Estate relative to the Notes in respect of
which such Event of Default has occurred. If there is a foreclosure of any such
liens, assignments, rights and security interests under this Indenture, by
private power of sale or otherwise, no judgment for any deficiency upon the
indebtedness represented by the Notes may be sought or obtained by the Indenture
Trustee or any Noteholder against the Issuer. The Indenture Trustee shall be
entitled to recover the costs and expenses expended by it pursuant to this
Article V including reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee, its agents and counsel.
Section 5.04. Remedies.
--------
If an Event of Default shall have occurred and be continuing and the Notes
have been declared due and payable and such declaration and its consequences
have not been rescinded and
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annulled, the Indenture Trustee, [at the direction of the Note Insurer] (subject
to Section 5.17, to the extent applicable) may, for the benefit of the
Noteholders [and the Note Insurer], do one or more of the following:
(a) institute Proceedings for the collection of all amounts then payable on
the Notes, or under this Indenture, whether by declaration or otherwise, enforce
any judgment obtained, and collect from the Issuer moneys adjudged due, subject
in all cases to the provisions of Sections 3.01 and 5.03;
(b) in accordance with Section 5.17, sell the Trust Estate or any portion
thereof or rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(c) institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate;
(d) exercise any remedies of a secured party under the Uniform Commercial
Code and take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee or the Holders of the Notes [and the Note
Insurer hereunder]; and
(e) refrain from selling the Trust Estate and apply all Remittable Funds
pursuant to Section 5.07.
Section 5.05. Indenture Trustee May File Proofs of Claim.
------------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
Proceeding relative to the Issuer or any other obligor upon any of the Notes or
the property of the Issuer or of such other obligor or their creditors, the
Indenture Trustee (irrespective of whether the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Indenture Trustee shall have made any demand on the Issuer for the
payment of any overdue principal or interest) shall[, with the prior written
consent of the Note Insurer,] be entitled and empowered, by intervention in such
Proceeding or otherwise to:
(a) file and prove a claim for the whole amount of principal and interest
owing and unpaid in respect of the Notes and file such other papers or documents
as may be necessary or advisable in order to have the claims of the Indenture
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and counsel) and
of the Noteholders [and the Note Insurer] allowed in such Proceeding, and (ii)
collect and receive any moneys or other property payable or deliverable on any
such claims and to distribute the same; and any receiver, assignee, trustee,
liquidator, or sequestrator (or other similar official) in any such Proceeding
is hereby authorized by each Noteholder [and the Note Insurer] to make such
payments to the Indenture Trustee and, in the event that the Indenture Trustee
shall consent to the making of such payments directly to the Noteholders [and
the Note Insurer], to pay to the Indenture Trustee any amount due to it for the
reasonable
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compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel.
Nothing herein contained shall be deemed to authorize the Indenture Trustee
to authorize or consent to or accept or adopt on behalf of any Noteholder [or
the Note Insurer] any plan of reorganization, arrangement, adjustment or
composition affecting any of the Notes or the rights of any Holder thereof[, or
the Note Insurer,] or to authorize the Indenture Trustee to vote in respect of
the claim of any Noteholder [or the Note Insurer] in any such Proceeding. [Any
plan of reorganization, arrangement, adjustment or composition relative to the
Issuer or any other obligor upon any of the Notes or the property of the Issuer
or of such obligor or their creditors and affecting the Notes or the rights of
the Note Insurer under this Indenture or the Insurance Agreement must be
acceptable to the Note Insurer and, as long as no Note Insurer Default exists
and is continuing, the Note Insurer shall be entitled to exercise the voting
rights of the Holders of the Notes regarding such plan, reorganization,
arrangement, adjustment or composition.]
Section 5.06. Indenture Trustee May Enforce Claims Without Possession of
----------------------------------------------------------
Notes.
- -----
All rights of action and claims under this Indenture or any of the Notes
may be prosecuted and enforced by the Indenture Trustee without the possession
of any of the Notes or the production thereof in any Proceeding relating
thereto, and any such Proceeding instituted by the Indenture Trustee, [at the
direction of the Note Insurer], shall be brought in its own name as trustee of
an express trust, and any recovery of judgment shall be for the ratable benefit
of the Holders of the Notes [and the Note Insurer] in respect of which such
judgment has been recovered after payment of amounts required to be paid
pursuant to clause first of Section 5.07.
-----
Section 5.07. Application of Money Collected.
------------------------------
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Indenture Trustee with respect to such
Notes pursuant to this Article or otherwise and any other monies that may then
be held or thereafter received by the Indenture Trustee as security for such
Notes shall be applied in the following order, at the date or dates fixed by the
Indenture Trustee and, in case of the payment of the entire amount due on
account of principal of, and interest on, such Notes, upon presentation and
surrender thereof:
first, to the Indenture Trustee, any unpaid Indenture Trustee's Fees then
-----
due and any other amounts payable and due to the Indenture Trustee under
this Indenture, including any costs or expenses incurred by it in
connection with the enforcement of the remedies provided for in this
Article V, but only to the extent such costs and expenses have not
previously been reimbursed to the Indenture Trustee for such costs and
expenses pursuant to Section 6.15 hereof;
second, to the Servicer, any amounts required to pay the Servicer for any
------
unpaid Servicing Fees then due and, upon the final liquidation of the
related Home Loan (as determined by the Servicer pursuant to the provisions
of the related Servicing Agreement) or the final liquidation of the Trust
Estate, to reimburse the Servicer for unreimbursed
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Servicing Advances, and to the Master Servicer, any unpaid Master Servicing
Fees then due;
third, to the payment of Note Interest then due and unpaid upon the
-----
Outstanding Notes through the day preceding the date on which such payment
is made, ratably, without preference or priority of any kind;
fourth, to the payment of the Note Balance of the Outstanding Notes, up to
------
the amount of their respective Note Balances, ratably, without preference
or priority of any kind;
[fifth, to the payment to the Note Insurer, as subrogee to the rights of
------
the Noteholders, (A) the aggregate amount necessary to reimburse the Note
Insurer for any unreimbursed Insured Payments paid by the Note Insurer on
prior Payment Dates, together with interest thereon at the "Late Payment
Rate" specified in the Insurance Agreement from the date such Insured
Payments were paid by the Note Insurer to such Payment Date, (B) the amount
of any unpaid Note Insurer Premium then due, together with interest thereon
at the "Late Payment Rate" specified in the Insurance Agreement from the
date such amounts were due and (C) any other amounts due and owing to the
Note Insurer under the Insurance Agreement;] and
sixth, to the payment of the remainder, if any, to the Issuer or its designee.
- -----
Section 5.08. Limitation on Suits.
-------------------
No Holder of a Note shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Indenture
Trustee [and the Note Insurer] of a continuing Event of Default;
(b) the Holders of Notes representing not less than 25% of the Note Balance
of the Outstanding Notes shall have made written request to the Indenture
Trustee to institute Proceedings in respect of such Event of Default in its own
name as Indenture Trustee hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee indemnity
in full against the costs, expenses and liabilities to be incurred in compliance
with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such Proceeding;
(e) no direction inconsistent with such written request has been given to
the Indenture Trustee during such 60-day period by the Holders of Notes
representing more than 50% of the Note Balance of the Outstanding Notes; and
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(f) the consent of [the Note Insurer] shall have been obtained; it being
understood and intended that no one or more Holders of Notes shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders
of Notes or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders of
Notes.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than 50% of the Note Balance of the Outstanding Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken notwithstanding any other provision herein to the contrary.
Section 5.09. Unconditional Rights of Noteholders to Receive Principal and
------------------------------------------------------------
Interest.
- --------
Subject to the provisions in this Indenture (including Sections 3.01 and
5.03) limiting the right to recover amounts due on a Note to recovery from
amounts in the Trust Estate, the Holder of any Note shall have the right, to the
extent permitted by applicable law, which right is absolute and unconditional,
to receive payment of each installment of interest on such Note on the
respective Payment Date for such installments of interest, to receive payment of
each installment of principal of such Note when due (or, in the case of any Note
called for redemption, on the date fixed for such redemption) and to institute
suit for the enforcement of any such payment, and such right shall not be
impaired without the consent of such Holder.
Section 5.10. Restoration of Rights and Remedies.
----------------------------------
If the Indenture Trustee, [the Note Insurer] or any Noteholder has
instituted any Proceeding to enforce any right or remedy under this Indenture
and such Proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Indenture Trustee, [the Note Insurer] or to
such Noteholder, then and in every such case the Issuer, the Indenture Trustee,
[the Note Insurer] and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee, [the Note Insurer] and the Noteholders shall continue as though no such
Proceeding had been instituted.
Section 5.11. Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon or reserved to the Indenture
Trustee, [the Note Insurer] or to the Noteholders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
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Section 5.12. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Indenture Trustee, [the Note Insurer] or of any
Holder of any Note to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article or by law to the Indenture Trustee, [the Note Insurer] or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Indenture Trustee, [the Note Insurer] or by the Noteholders
[with the prior consent of the Note Insurer, as the case may be.]
Section 5.13. Control by Noteholders.
----------------------
The Holders of Notes representing more than 50% of the Note Balance of the
Outstanding Notes on the applicable Record Date shall, [with the consent of the
Note Insurer,] have the right to direct the time, method and place of conducting
any Proceeding for any remedy available to the Indenture Trustee or exercising
any trust or power conferred on the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture;
(b) any direction to the Indenture Trustee to undertake a Sale of the Trust
Estate shall be by the Holders of Notes representing the percentage of the Note
Balance of the Outstanding Notes specified in Section 5.17(b) (i), unless
Section 5.17(b) (ii) is applicable; and
(c) the Indenture Trustee may take any other action deemed proper by the
Indenture Trustee that is not inconsistent with such direction; provided,
however, that, subject to Section 6.01, the Indenture Trustee need not take any
action that it determines might involve it in liability or be unjustly
prejudicial to the Noteholders not consenting.
Section 5.14. Waiver of Past Defaults.
-----------------------
The Holders of Notes representing more than 50% of the Note Balance of the
Outstanding Notes on the applicable Record Date may on behalf of the Holders of
all the Notes, [and with the consent of the Note Insurer,] waive any past
Default hereunder and its consequences, except a Default:
(a) in the payment of principal or any installment of interest on any
Note; or
(b) in respect of a covenant or provision hereof that under Section 9.02
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
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Section 5.15. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Indenture Trustee for any action
taken, suffered or omitted by it as Indenture Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by the
Indenture Trustee, to any suit instituted by [the Note Insurer,] any Noteholder,
or group of Noteholders [with the prior consent of the Note Insurer], holding in
the aggregate Notes representing more than 10% of the Note Balance of the
Outstanding Notes, or to any suit instituted by any Noteholder for the
enforcement of the payment of any Deficiency Amount on any Note on or after the
related Payment Date or for the enforcement of the payment of principal of any
Note on or after the Stated Maturity Date (or, in the case of any Note called
for redemption, on or after the applicable Redemption Date).
Section 5.16. Waiver of Stay or Extension Laws.
--------------------------------
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension of law wherever enacted,
now or at any time hereafter in force, that may affect the covenants in, or the
performance of, this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.17. Sale of Trust Estate.
--------------------
(a) The power to effect any sale (a "Sale") of any portion of the Trust
Estate pursuant to Section 5.04 shall not be exhausted by any one or more Sales
as to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired until the entire Trust Estate shall have been sold or all amounts
payable on the Notes and under this Indenture with respect thereto shall have
been paid. The Indenture Trustee may from time to time postpone any public Sale
by public announcement made at the time and place of such Sale.
(b) To the extent permitted by law, the Indenture Trustee shall not in any
private Sale sell or otherwise dispose of the Trust Estate, or any portion
thereof, unless:
(i) the Holders of Notes representing not less than 50% of the Note
Balance of the Notes then Outstanding consent to or direct the Indenture
Trustee to make such Sale; or
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(ii) the proceeds of such Sale would be not less than the entire
amount that would be payable to the Holders of the Notes, in full payment
thereof in accordance with Section 5.07, on the Payment Date next
succeeding the date of such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust
Estate at a private Sale shall not be deemed a Sale or disposition thereof for
purposes of this Section 5.17(b). [In the absence of a Note Insurer Default, no
sale hereunder shall be effective without the consent of the Note Insurer.]
(c) Unless the Holders of all Outstanding Notes have otherwise consented or
directed the Indenture Trustee, at any public Sale of all or any portion of the
Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (ii) of subsection (b) of this Section 5.17 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee, acting in its capacity as
Indenture Trustee on behalf of the Noteholders [and the Note Insurer], shall
prevent such sale and bid an amount (which shall include the Indenture Trustee's
right, in its capacity as Indenture Trustee, to credit bid) at least $1.00 more
than the highest other bid in order to preserve the Trust Estate on behalf of
the Noteholders[ and the Note Insurer].
(d) In connection with a Sale of all or any portion of the Trust Estate:
(i) any Holder or Holders of Notes may bid for and purchase the
property offered for Sale, and upon compliance with the terms of sale may
hold, retain and possess and dispose of such property, without further
accountability, and may, in paying the purchase money therefor, deliver any
Outstanding Notes or claims for interest thereon in lieu of cash up to the
amount that shall, upon distribution of the net proceeds of such Sale, be
payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(ii) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any public Sale thereof, and, in lieu
of paying cash therefor, may make settlement for the purchase price by
crediting the gross Sale price against the sum of (A) the amount that would
be payable to the Holders of the Notes as a result of such Sale in
accordance with Section 5.07 on the Payment Date next succeeding the date
of such Sale and (B) the expenses of the Sale and of any Proceedings in
connection therewith which are reimbursable to it, without being required
to produce the Notes in order to complete any such Sale or in order for the
net Sale price to be credited against such Notes, and any property so
acquired by the Indenture Trustee shall be held and dealt with by it in
accordance with the provisions of this Indenture;
(iii) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof;
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(iv) the Indenture Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to
take all action necessary to effect such Sale; and
(v) no purchaser or transferee at such a Sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any moneys.
Section 5.18. Action on Notes.
---------------
The Indenture Trustee's right to seek and recover judgment under this
Indenture shall not be affected by the seeking, obtaining or application of any
other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Indenture Trustee, [the Note
Insurer] or the Holders of Notes shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Trust Estate.
Section 5.19. Application of Section 316(a) of the Trust Indenture Act.
--------------------------------------------------------
Pursuant to Section 316(a) of the TIA, all provisions automatically
provided for in Section 316(a) are hereby expressly excluded.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee.
---------------------------
(a) If an Event of Default has occurred and is continuing, the Indenture
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Indenture Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) In the absence of bad faith on its part, the Indenture Trustee
may request and conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture. The Indenture Trustee shall, however,
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examine such certificates and opinions to determine whether they conform on
their face to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of subsection (b) of
this Section 6.01;
(ii) The Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) The Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.13 or 5.17 or exercising any
trust or power conferred upon the Indenture Trustee under this Indenture.
(d) For all purposes under this Indenture, the Indenture Trustee shall not
be deemed to have notice or knowledge of any Event of Default described in
Section 5.01(2), 5.01(5) or 5.01(6) or any Default described in Section 5.01(3)
or 5.01(4) or of any event described in Section 3.05 unless a Responsible
Officer assigned to and working in the Indenture Trustee's corporate trust
department has actual knowledge thereof or unless written notice of any event
that is in fact such an Event of Default or Default is received by the Indenture
Trustee at the Corporate Trust Office, and such notice references the Notes
generally, the Issuer, the Trust Estate or this Indenture.
(e) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it under the Master Servicing Agreement or otherwise.
(f) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and interest of
the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the Maturity of the Notes, whether
such extinguishment occurs through a Sale of the Trust Estate to another Person,
the acquisition of the Trust Estate by the Indenture Trustee or otherwise, the
rights, powers and duties of the Indenture Trustee with respect to the Trust
Estate (or the proceeds thereof) and the Noteholders [and the Note Insurer] and
the rights of Noteholders [and the Note Insurer] shall continue to be governed
by the terms of this Indenture.
(h) The Indenture Trustee or any Custodian appointed pursuant to Section
8.13 shall at all times retain possession of the Home Loan Files in the State of
[ ], except for those
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Home Loan Files or portions thereof released to the Servicer pursuant to this
Indenture or the related Servicing Agreement.
Section 6.02. Notice of Default.
-----------------
[Immediately after the occurrence of any Default known to the Indenture
Trustee, the Indenture Trustee shall transmit by mail to the Note Insurer notice
of each such Default and,] within 10 days after the occurrence of any Default
known to the Indenture Trustee, the Indenture Trustee shall transmit by mail and
by telecopy to all Holders of Notes notice of each such Default, unless such
Default shall have been cured or waived; provided, however, that in no event
shall the Indenture Trustee provide notice, or fail to provide notice of a
Default known to the Indenture Trustee in a manner contrary to the requirements
of the Trust Indenture Act. For the purposes of this Section 6.02, the
Indenture Trustee shall not be deemed to have knowledge of any Default unless a
Responsible Officer assigned to and working in the Indenture Trustee's Corporate
Trust Office has actual knowledge thereof or unless written notice of any
Default is received by the Indenture Trustee, [which written notice may be given
by Note Insurer,] and such notice references the Notes, the Trust Estate or this
Agreement. Concurrently with the mailing of any such notice to the Holders of
the Notes, the Indenture Trustee shall transmit by mail a copy of such notice to
the Rating Agencies.
Section 6.03. Rights of Indenture Trustee.
---------------------------
(a) Except as otherwise provided in Section 6.01, the Indenture Trustee may
rely on any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Indenture Trustee need not investigate any
fact or matter stated in any such document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel reasonably
satisfactory in form and substance to the Indenture Trustee. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on any such Officer's Certificate or Opinion of Counsel.
(c) [With the consent of the Note Insurer, which consent shall not be
unreasonably withheld,] the Indenture Trustee may act through agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within its
rights or powers.
Section 6.04. Not Responsible for Recitals or Issuance of Notes.
-------------------------------------------------
The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Issuer, and
the Indenture Trustee and the Authenticating Agent assume no responsibility for
their correctness. The Indenture Trustee makes no representations with respect
to the Trust Estate or as to the validity or sufficiency of
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this Indenture or of the Notes. The Indenture Trustee shall not be accountable
for the use or application by the Issuer of the Notes or the proceeds thereof or
any money paid to the Issuer or upon Issuer Order pursuant to the provisions
hereof.
Section 6.05. May Hold Notes.
--------------
The Indenture Trustee, any Agent, or any other agent of the Issuer, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to Section 6.07, may otherwise deal with the Issuer or any Affiliate of
the Issuer with the same rights it would have if it were not Indenture Trustee,
Agent or such other agent.
Section 6.06. Money Held in Trust.
-------------------
Money held by the Indenture Trustee in trust hereunder need not be
segregated from other funds except to the extent required by this Indenture or
by law. The Indenture Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Issuer and
except to the extent of income or other gain on investments that are obligations
of the Indenture Trustee, in its commercial capacity, and income or other gain
actually received by the Indenture Trustee on investments, which are obligations
of others.
Section 6.07. Eligibility; Disqualification.
-----------------------------
Irrespective of whether this Indenture is qualified under the TIA, this
indenture shall always have an Indenture Trustee who satisfies the requirements
of TIA Sections 310(a)(1) and 310(a)(5). The Indenture Trustee shall always
have a combined capital and surplus as stated in Section 6.08. The Indenture
Trustee shall be subject to TIA Section 310(h).
Section 6.08. Indenture Trustee's Capital and Surplus.
---------------------------------------
The Indenture Trustee shall at all times have a combined capital and
surplus of at least $100,000,000 or shall be a member of a bank holding company
system, the aggregate combined capital and surplus of which is at least
$100,000,000 and shall at all times be rated "BBB" or better by [Standard &
Poor's][Fitch] and/or [Duff & Phelps] [and "Baa2" by Moody's]; provided,
however, that the Indenture Trustee's separate capital and surplus shall at all
times be at least the amount required by TIA Section 310(a)(2). If the
Indenture Trustee publishes annual reports of condition of the type described in
TIA Section 310(a)(1), its combined capital and surplus for purposes of this
Section 6.08 shall be as set forth in the latest such report. If at any time
the Indenture Trustee shall cease to be eligible in accordance with the
provisions of this Section 6.08, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
Section 6.09. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Indenture Trustee and no appointment
of a successor Indenture Trustee pursuant to this Article shall become effective
until the acceptance of appointment by the successor Indenture Trustee under
Section 6.10.
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(b) The Indenture Trustee may resign at any time by giving written notice
thereof to the Issuer, the Master Servicer, [the Note Insurer] and each Rating
Agency. If an instrument of acceptance by a successor Indenture Trustee shall
not have been delivered to the Indenture Trustee within 30 days after the giving
of such notice of resignation, the resigning Indenture Trustee may petition any
court of competent jurisdiction for the appointment of a successor Indenture
Trustee.
(c) The Indenture Trustee may be removed at any time [with the consent of
the Note Insurer,] by Act of the Holders representing more than 50% of the Note
Balance of the Outstanding Notes, by notice delivered to the Indenture Trustee
and to the Issuer.
(d) If at any time: (1) the Indenture Trustee shall have a conflicting
interest prohibited by Section 6.07 and shall fail to resign or eliminate such
conflicting interest in accordance with Section 6.07 after written request
therefor by the Issuer, [the Note Insurer] or by any Noteholder; or (2) the
Indenture Trustee shall cease to be eligible under Section 6.08 or shall become
incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver
of the Indenture Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Indenture Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation; then,
in any such case, (i) the Issuer by an Issuer Order, [with the consent of the
Note Insurer,] may remove the Indenture Trustee, and the Issuer shall join with
the Indenture Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint a successor Indenture
Trustee [acceptable to the Note Insurer] and to vest in such successor Indenture
Trustee any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Indenture; provided, however, if the
Issuer [and the Note Insurer] do[es] not join in such appointment within fifteen
(15) days after the receipt by it of a request to do so, or in case an Event of
Default has occurred and is continuing, the Indenture Trustee may petition a
court of competent jurisdiction to make such appointment, or (ii) subject to
Section 5.15, and, in the case of a conflicting interest as described in clause
(1) above, unless the Indenture Trustee's duty to resign has been stayed as
provided in TIA Section 310(b), [the Note Insurer or] any Noteholder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, [with the consent of the Note
Insurer,] petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
(e) If the Indenture Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of the Indenture Trustee
for any cause, the Issuer, by an Issuer Order shall promptly appoint a successor
Indenture Trustee [acceptable to the Note Insurer]. If within one year after
such resignation, removal or incapability or the occurrence of such vacancy a
successor Indenture Trustee shall be appointed by [the Note Insurer or, with the
consent of the Note Insurer, by] Act of the Holders of Notes representing more
than 50% of the Note Balance of the Outstanding Notes delivered to the Issuer
and the retiring Indenture Trustee, the successor Indenture Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the successor
Indenture Trustee and supersede the successor Indenture Trustee appointed by the
Issuer. If no successor Indenture Trustee shall have been so appointed by the
Issuer, [the Note Insurer] or Noteholders and shall have accepted appointment in
the
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manner hereinafter provided, any Noteholder who has been a bona fide Holder of a
Note for at least six months may, on behalf of himself and all others similarly
situated, [with the consent of the Note Insurer], petition any court of
competent jurisdiction for the appointment of a successor Indenture Trustee.
(f) The Issuer shall give notice of each resignation and each removal of
the Indenture Trustee and each appointment of a successor Indenture Trustee to
the Holders of Notes [and the Note Insurer]. Each notice shall include the name
of the successor Indenture Trustee and the address of its Corporate Trust
Office.
Section 6.10. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Indenture Trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuer, [the Note Insurer] and the retiring
Indenture Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective
and such successor Indenture Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Indenture Trustee. Notwithstanding the foregoing, on request of
the Issuer or the successor Indenture Trustee, such retiring Indenture Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Indenture Trustee all the rights, powers and
trusts of the retiring Indenture Trustee, and shall duly assign, transfer and
deliver to such successor Indenture Trustee all property and money held by such
retiring Indenture Trustee hereunder. Upon request of any such successor
Indenture Trustee, the Issuer shall execute and deliver any and all instruments
for more fully and certainly vesting in and confirming to such successor
Indenture Trustee all such rights, powers and trusts.
No successor Indenture Trustee shall accept its appointment unless at the
time of such acceptance such successor Indenture Trustee shall be qualified and
eligible under this Article.
Section 6.11. Merger, Conversion, Consolidation or Succession to Business
-----------------------------------------------------------
of Indenture Trustee.
- --------------------
Any corporation into which the Indenture Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Indenture Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Indenture Trustee, shall be the successor of the
Indenture Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Notes have been authenticated, but not delivered, by the Indenture Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Indenture Trustee may adopt such authentication and deliver the
Notes so authenticated with the same effect as if such successor Indenture
Trustee had authenticated such Notes.
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Section 6.12. Preferential Collection of Claims Against Issuer.
------------------------------------------------
The Indenture Trustee (and any co-trustee or separate trustee) shall be
subject to TIA Section 311(a), excluding any creditor relationship listed in TIA
Section 311(b), and an Indenture Trustee (and any co-trustee or separate
trustee) who has resigned or been removed shall be subject to TIA Section 311(a)
to the extent indicated.
Section 6.13. Co-Indenture Trustees and Separate Indenture Trustees.
-----------------------------------------------------
At any time or times, for the purpose of meeting the legal requirements of
any jurisdiction in which any of the Trust Estate may at the time be located,
the Indenture Trustee shall have power to appoint, and, upon the written request
of the Indenture Trustee, [of the Note Insurer] or of the Holders of Notes
representing more than 50% of the Note Balance of the Outstanding Notes with
respect to which a co-trustee or separate trustee is being appointed [with the
consent of the Note Insurer], the Issuer shall for such purpose join with the
Indenture Trustee in the execution, delivery and performance of all instruments
and agreements necessary or proper to appoint, one or more Persons approved by
the Indenture Trustee either to act as co-trustee, jointly with the Indenture
Trustee, of all or any part of the Trust Estate, or to act as separate trustee
of any such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. If the Issuer does not join in
such appointment within 15 days after the receipt by it of a request to do so,
or in case an Event of Default has occurred and is continuing, the Indenture
Trustee alone shall have power to make such appointment. All fees and expenses
of any co-trustee or separate trustee shall be payable by the Issuer.
Should any written instrument from the Issuer be required by any co-trustee
or separate trustee so appointed for more fully confirming to such co-trustee or
separate trustee such property, title, right or power, any and all such
instruments shall, on request, be executed, acknowledged and delivered by the
Issuer.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms:
(a) The Notes shall be authenticated and delivered and all rights, powers,
duties and obligations hereunder in respect of the custody of securities, cash
and other personal property held by, or required to be deposited or pledged
with, the Indenture Trustee hereunder, shall be exercised, solely by the
Indenture Trustee.
(b) The rights, powers, duties and obligations hereby conferred or imposed
upon the Indenture Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Indenture Trustee or by the Indenture Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Indenture
Trustee shall be incompetent or
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unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(c) The Indenture Trustee at any time, by an instrument in writing executed
by it, with the concurrence of the Issuer evidenced by an Issuer Order, may
accept the resignation of or remove any co-trustee or separate trustee appointed
under this Section, and, in case an Event of Default has occurred and is
continuing, the Indenture Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Issuer upon the written request of the Indenture Trustee, the Issuer shall
join with the Indenture Trustee in the execution, delivery and performance of
all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Indenture Trustee, or any other such
trustee hereunder.
(e) Any Act of Noteholders delivered to the Indenture Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
Section 6.14. Authenticating Agents.
---------------------
The Issuer shall appoint an Authenticating Agent with power to act on its
behalf and subject to its direction in the authentication and delivery of the
Notes designated for such authentication by the Issuer and containing provisions
therein for such authentication (or with respect to which the Issuer has made
other arrangements, satisfactory to the Indenture Trustee and such
Authenticating Agent, for notation on the Notes of the authority of an
Authenticating Agent appointed after the initial authentication and delivery of
such Notes) in connection with transfers and exchanges under Section 2.06, as
fully to all intents and purposes as though the Authenticating Agent had been
expressly authorized by that Section to authenticate and deliver Notes. For all
purposes of this Indenture (other than in connection with the authentication and
delivery of Notes pursuant to Sections 2.05 and 2.11 in connection with their
initial issuance), the authentication and delivery of Notes by the
Authenticating Agent pursuant to this Section shall be deemed to be the
authentication and delivery of Notes "by the Indenture Trustee." Such
Authenticating Agent shall at all times be a Person that both meets the
requirements of Section 6.08 for the Indenture Trustee hereunder and has an
office for presentation of Notes in the United States of America. The Indenture
Trustee shall initially be the Authenticating Agent and shall be the Note
Registrar as provided in Section 2.06. The office from which the Indenture
Trustee shall perform its duties as Note Registrar and Authenticating Agent
shall be the Corporate Trust Office. Any Authenticating Agent appointed pursuant
to the terms of this Section 6.13 or pursuant to the terms of any supplemental
indenture shall deliver to the Indenture Trustee as a condition precedent to the
effectiveness of such appointment an instrument accepting the trusts, duties and
responsibilities of Authenticating Agent and of Note Registrar or co-Note
Registrar and indemnifying the Indenture Trustee for and holding the Indenture
Trustee harmless against, any loss, liability or expense (including reasonable
attorneys' fees) incurred without negligence
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or bad faith on its part, arising out of or in connection with the acceptance,
administration of the trust or exercise of authority by such Authenticating
Agent, Note Registrar or co-Note Registrar.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of the Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any further act on the part of the
parties hereto or the Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving written notice of
resignation to the Issuer. The Issuer may at any time terminate the agency of
any Authenticating Agent by giving written notice of termination to such
Authenticating Agent and the Issuer. Upon receiving such a notice of resignation
or upon such a termination, or in case at any time any Authenticating Agent
shall cease to be eligible under this Section, the Issuer shall promptly appoint
a successor Authenticating Agent, shall give written notice of such appointment
to the Indenture Trustee, and shall mail notice of such appointment to all
Holders of Notes.
The Indenture Trustee agrees, subject to Section 6.01(e), to pay to any
Authenticating Agent from time to time reasonable compensation for its services
and the Indenture Trustee shall be entitled to be reimbursed for such payments
pursuant to Section 8 of the Asset Sale Agreement. The provisions of Sections
2.09, 6.04 and 6.05 shall be applicable to any Authenticating Agent.
Section 6.15. Waiver of Setoff.
----------------
The Indenture Trustee hereby expressly waives any and all rights of setoff
that the Indenture Trustee may otherwise at any time have under the applicable
law with respect to the Asset Proceeds Account or the Note Account and agrees
that amounts in the Asset Proceeds Account or the Note Proceeds Account shall at
all times be held and applied solely in accordance with the Basic Documents.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of
----------------------------------------------------------
Noteholders.
- -----------
(a) The Issuer shall furnish or cause to be furnished to the Indenture
Trustee (i) semi-annually, not less than 45 days nor more than 60 days after the
Payment Date occurring closest to six months after the Closing Date and each
Payment Date occurring at six-month intervals thereafter, all information in the
possession or control of the Issuer, in such form as the Indenture Trustee may
reasonably require, as to names and addresses of the Holders of Notes, and (ii)
at such other times, as the Indenture Trustee may request in writing, within 30
days after receipt by
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the Issuer of any such request, a list of similar form and content as of a date
not more than 10 days prior to the time such list is furnished; provided,
however, that so long as the Indenture Trustee is the Note Registrar, no such
list shall be required to be furnished.
(b) In addition to furnishing to the Indenture Trustee the Noteholder
lists, if any, required under subsection (a), the Issuer shall also furnish all
Noteholder lists, if any, required under Section 3.03 at the times required by
Section 3.03.
Section 7.02. Preservation of Information; Communications to Noteholders.
----------------------------------------------------------
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list, if any, furnished to the Indenture Trustee as
provided in Section 7.01 and the names and addresses of the Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in Section
7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate with other Noteholders [and the Note
Insurer] with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have the
protection of TIA Section 312(c).
Section 7.03. Reports by Indenture Trustee.
----------------------------
(a) Within 60 days after December 31 of each year (the "Reporting Date"),
commencing with the year after the issuance of the Notes, (i) the Indenture
Trustee shall, if required by TIA Section 313(a), mail to all Holders [and to
the Note Insurer] a brief report dated as of such Reporting Date that complies
with TIA Section 313(a); (ii) the Indenture Trustee shall, to the extent not set
forth in the Payment Date Statement pursuant to Section 2.08(d), also mail to
the Noteholders with respect to which the Indenture Trustee has made advances,
[and to the Note Insurer,] any reports with respect to such advances that are
required by TIA Section 313(b)(2); and (iii) the Indenture Trustee shall also
mail to the Noteholders [and the Note Insurer] any reports required by TIA
Section 313(b)(1). For purposes of the information required to be included in
any such reports pursuant to TIA Sections 313(a)(2), 313(b)(1) (if applicable),
or 313(b)(2), the principal amount of indenture securities outstanding on the
date as of which such information is provided shall be the balance of the then
Outstanding Notes covered by the report.
(b) A copy of each report required under this Section 7.03 shall, at the
time of such transmission to the Noteholders [and the Note Insurer] be filed by
the Indenture Trustee with the Commission and with each securities exchange upon
which the Notes are listed. The Issuer will notify the Indenture Trustee when
the Notes are listed on any securities exchange.
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Section 7.04. Reports by Issuer.
-----------------
The Issuer (a) shall deliver to the Indenture Trustee [and to the Note
Insurer] within 15 days after the Issuer is required to file the same with the
Commission copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Issuer is required
to file with the Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, and (b) shall also comply with the other
provisions of TIA Section 314(a).
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
Section 8.01. Collection of Moneys.
--------------------
Except as otherwise expressly provided herein, the Indenture Trustee may
demand payment or delivery of, and shall receive and collect, directly and
without intervention or assistance of any fiscal agent or other intermediary,
all money and other property payable to or receivable by the Indenture Trustee
pursuant to this Indenture. The Indenture Trustee shall hold all such money and
property received by it as part of the Trust Estate and shall apply it as
provided in this Indenture.
If the Indenture Trustee shall not have received the Remittable Funds by
close of business on any related Payment Date, the Indenture Trustee shall,
unless the Issuer or the Servicer shall have made provisions satisfactory to the
Indenture Trustee for delivery to the Indenture Trustee of an amount equal to
such Remittable Funds, deliver a notice to the Master Servicer, [with a copy to
the Note Insurer,] the Issuer and the Servicer, of their failure to remit such
Remittable Funds and that such failure, if not remedied by the close of business
on the fifth day following the related Payment Date, shall constitute an Event
of Default under this Indenture. Notwithstanding any other provision hereof,
the Indenture Trustee shall deliver to the Issuer or the Servicer, or their
respective designee or assignee, any Remittable Funds received with respect to a
Home Loan after the related Payment Date to the extent that the Issuer or the
Servicer, respectively, previously made payment or provision for payment with
respect to such Remittable Funds in accordance with this Section 8.01, and any
such Remittable Funds shall not be deemed part of the Trust Estate.
Except as otherwise expressly provided in this Indenture and the Master
Servicing Agreement, if, following delivery by the Indenture Trustee of the
notice described above, the Issuer or the Master Servicer shall fail to remit
the Remittable Funds on any Payment Date, the Indenture Trustee shall take such
actions, if any, as are required of the Indenture Trustee under Article VI of
the Master Servicing Agreement.
In addition, if a Master Servicer Default occurs under the Master Servicing
Agreement, the Indenture Trustee may, and [upon the request of the Note Insurer
or, with the consent of the Note Insurer (unless a Note Insurer Default then
exists),] the Holders of Notes representing more
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than 50% of the Note Balance of the Outstanding Notes shall, take such action as
may be appropriate to enforce performance by the Master Servicer of its
obligations under the Master Servicing Agreement, including the institution and
prosecution of appropriate Proceedings. [If at the time a Master Servicer
Default occurs there also exists a Note Insurer Default, such Noteholders may
take such action directly in the event that the Indenture Trustee and the Master
Servicer are one and the same Person.] Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture and to proceed thereafter as provided in Article V.
Section 8.02. Note Account.
------------
(a) The Issuer hereby directs the Indenture Trustee to establish one or
more accounts that shall collectively be the "Note Account" on or before the
Closing Date. The Indenture Trustee shall promptly deposit in the Note Account
(i) all Remittable Funds received by it from the Servicer pursuant to the
Servicing Agreement, (ii) any other funds from any deposits to be made by the
Servicer pursuant to the Servicing Agreement, (iii) any amount required to be
deposited in the Note Account pursuant to Section 8.01, (iv) all amounts
received pursuant to Section 8.03, and (v) all other amounts received for
deposit in the Note Account, including the payment of any Purchase Price
received by the Indenture Trustee. All amounts that are deposited from time to
time in the Note Account are subject to withdrawal by the Indenture Trustee for
the purposes set forth in subsections (c) and (d) of this Section 8.02. All
funds withdrawn from the Note Account pursuant to subsection (c) of this Section
8.02 for the purpose of making payments to the Holders of Notes shall be applied
in accordance with Section 3.03.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, amounts held in the Note Account shall be invested at the direction
of the Transferor in Permitted Investments, which Permitted Investments shall
mature no later than the Business Day preceding the immediately following
Payment Date or, if such Permitted Investments are an obligation of the
Indenture Trustee or are money market funds for which the Indenture Trustee or
any Affiliate is the manager or the advisor, such Permitted Investments shall
mature no later than the immediately following Payment Date. All income or
other gains, if any, from investment of moneys deposited in the Note Account
shall be for the benefit of the Transferor and on each Payment Date, any such
amounts may be released from the Note Account and paid to the Transferor. Any
loss resulting from such investment of moneys deposited in the Note Account
shall be reimbursed immediately as incurred to the Note Account by the
Transferor. Subject to Section 6.01 and unless the Indenture Trustee is the
obligor on any Permitted Investment, the Indenture Trustee shall not in any way
be held liable by reason of any insufficiency in the Note Account.
(c) On each Payment Date, the Indenture Trustee shall withdraw amounts on
deposit in the Note Account and pay on a pari passu basis the [Note Insurer
Premium,] the Indenture Trustee Fee, the [Custodial Fee] and the [Master
Servicing Fee.] After payment of such amounts, unless the Notes have been
declared due and payable pursuant to Section 5.02 and moneys collected by the
Indenture Trustee are being applied in accordance with Section 5.07, Available
Funds on deposit in the Note Account on any Payment Date or Redemption Date
shall
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be withdrawn from the Note Account, in the amounts required, for application on
such Payment Date as follows:
first, [to the payment to the Note Insurer, as subrogee to the rights of
-----
the Noteholders, the aggregate amount necessary to reimburse the Note
Insurer for any unreimbursed Insured Payments paid by the Note Insurer on
prior Payment Dates, together with interest thereon at the "Late Payment
Rate" specified in the Insurance Agreement from the date such Insured
Payments were paid by the Note Insurer to such Payment Date and the amount
of any unpaid Note Insurer Premium for any prior Payment Date together with
interest thereon at the "Late Payment Rate" specified in the Insurance
Agreement from the date such amounts were due; provided, however, that the
Note Insurer shall be paid such amounts only after the Noteholders have
received the Deficiency Amount with respect to such Payment Date;]
second, to the Noteholders the Note Interest for such Payment Date;
------
third, to the Noteholders, the amount of Monthly Principal for such Payment
-----
Date in reduction of the Note Balance until the Note Balance reduced to
zero;
fourth, to the Noteholders in reduction of the Note Balance, the amount, if
------
any, equal to the lesser of (A) the Excess Cash with respect to such
Payment Date, and (B) the lesser of (1) the amount necessary for the
Overcollateralization Amount to equal the Required Overcollateralization
Amount on such Payment Date (after giving effect to application of Monthly
Principal for such Payment Date) and (2) the amount necessary to reduce the
Note Balance to zero (the "Excess Cash Payment");
fifth, to the Note Insurer, any amounts due and owing under the Insurance
-----
Agreement that are not described in clause "first" above;
sixth, to the Servicer any unreimbursed Servicing Advances not recoverable
-----
by the Servicer on a priority basis pursuant to the related Servicing
Agreement (as reported in writing by the Servicer to the Indenture
Trustee).
(d) On or after each Payment Date, so long as the Indenture Trustee shall
have prepared a Payment Date Statement in respect of such Payment Date and (1)
shall have made, or, in accordance with Section 3.03, set aside from amounts in
the Note Account an amount sufficient to make, the payments required to be made
as set forth in Section 8.02(c) as indicated in such Payment Date Statement, and
(2) shall have set aside any amounts that have been deposited in the Note
Account prior to such time that represent amounts that are to be used to make
payments on the Notes on the next succeeding Payment Date, the cash balance, if
any, then remaining in the Note Account shall be withdrawn from the Note Account
by the Indenture Trustee and, so long as no Default or Event of Default shall
have occurred and be continuing, shall be released from the lien of this
Indenture and paid by the Indenture Trustee to the Certificateholders.
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(e) Any payments made by the Indenture Trustee to the Issuer pursuant to
this Section 8.02 shall be remitted to the Certificate Distribution Account
established and maintained pursuant to the Owner Trust Agreement.
[Section 8.03. Claims against the Note Insurance Policy.
----------------------------------------
(a) (i) The Indenture Trustee shall (A) receive as attorney-in-fact
of each Noteholder any Insured Payment from the Note Insurer or on behalf
of the Note Insurer and (B) disburse such Insured Payment to such
Noteholders in accordance with Section 8.02(c) hereof for the benefit of
the related Noteholders. Any Insured Payment received by the Indenture
Trustee shall be held by the Indenture Trustee uninvested. Insured Payments
disbursed by the Indenture Trustee from proceeds of the Note Insurance
----
Policy shall not be considered payment by the Issuer with respect to the
Notes, nor shall such payments discharge the obligation of the Issuer with
respect to such Notes, and the Note Insurer shall become the owner of such
unpaid amounts due from the Issuer in respect of such Insured Payments as
the deemed assignee and subrogee of such Noteholders and shall be entitled
to receive the reimbursement in respect thereof. The Indenture Trustee
hereby agrees on behalf of each Noteholder for the benefit of the Note
Insurer that it recognizes that to the extent the Note Insurer makes
Insured Payments for the benefit of the Noteholders, the Note Insurer will
be entitled to receive the related reimbursement in accordance with the
priority of distributions referenced in Section 8.02(c) hereof.
(ii) The Indenture Trustee shall promptly notify the Note
Insurer of any proceeding or the institution of any action, of which a
Responsible Officer of the Indenture Trustee has actual knowledge,
constituting a Preference Amount in respect of any payment made on the
Notes. Each Noteholder that pays any amount pursuant to a Preference Amount
theretofore received by such Noteholder on account of a Note will be
entitled to receive reimbursement for such amounts from the Note Insurer in
accordance with the terms of the Note Insurance Policy. Each Noteholder, by
----
its purchase of Notes, and the Indenture Trustee hereby agree that, the
Note Insurer (so long as no Note Payment Default exists) may at any time
----
during the continuation of any proceeding relating to a Preference Amount
direct all matters relating to such Preference Amount, including, without
limitation, (i) the direction of any appeal of any order relating to such
Preference Amount and (ii) the posting of any surety, supersedeas or
performance Note pending any such appeal. In addition and without
limitation of the foregoing, the Note Insurer shall be subrogated to the
rights of the Indenture Trustee and each Noteholder in the conduct of any
such Preference Amount, including, without limitation, all rights of any
party to any adversary proceeding action with respect to any court order
issued in connection with any such Preference Amount.
(iii) Each Noteholder, by its purchase of Notes, and the
Indenture Trustee hereby agree that, unless a Note Insurer Payment Default
exists and is continuing, the Note Insurer shall have the right to direct
all matters relating to the Notes in any Proceeding in a bankruptcy of the
Issuer, including without limitation any Proceeding
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relating to a Preference Amount and the posting of any surety or Note
pending any such appeal.
(iv) With respect to a Preference Amount, the Indenture Trustee shall
be responsible for procuring and delivering the items set forth in the Note
Insurance Policy to the Note Insurer.
(b) Unless a Note Insurer Default exists and is continuing, the Indenture
Trustee shall cooperate in all respects with any reasonable request by the Note
Insurer for action to preserve or enforce the Note Insurer's rights or interests
hereunder without limiting the rights or affecting the interests of the
Noteholders as otherwise set forth herein.
(c) The Indenture Trustee shall surrender the Note Insurance Policy to the
Note Insurer for cancellation upon the expiration of the term of the Note
Insurance Policy as provided in the Note Insurance Policy.
(d) With respect to any Payment Date on which an Insured Payment is
required to be made, the Indenture Trustee shall deliver to the Note Insurer a
Notice of Claim (in the manner specified in the Note Insurance Policy) by no
later than noon on the third Business Day prior to such Payment Date in the
manner set forth in the Note Insurance Policy.]
Section 8.04. General Provisions Regarding the Note Account and Home
------------------------------------------------------
Loans.
- -----
(a) The Note Account shall relate solely to the Notes and to the Home
Loans, Permitted Investments and other property securing the Notes. Funds and
other property in the Note Account shall not be commingled with any other moneys
or property of the Issuer or any Affiliate thereof. Notwithstanding the
foregoing, the Indenture Trustee may hold any funds or other property received
or held by it as part of the Note Account in collective accounts maintained by
it in the normal course of its business and containing funds or property held by
it for other Persons (which may include the Issuer or an Affiliate), provided
that such accounts are under the sole control of the Indenture Trustee and the
Indenture Trustee maintains adequate records indicating the ownership of all
such funds or property and the portions thereof held for credit to the Note
Account.
(b) If any amounts are needed for payment from the Note Account and
sufficient uninvested funds are not available therein to make such payment, the
Indenture Trustee shall cause to be sold or otherwise converted to cash a
sufficient amount of the investments in the Note Account.
(c) The Indenture Trustee shall, at all times while any Notes are
Outstanding, maintain in its possession, or in the possession of an agent whose
actions with respect to such items are under the sole control of the Indenture
Trustee, all certificates or other instruments, if any, evidencing any
investment of funds in the Note Account. The Indenture Trustee shall relinquish
possession of such items, or direct its agent to do so, only for purposes of
collecting the final payment receivable on such investment or certificate or, in
connection with the sale of
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any investment held in the Note Account, against delivery of the amount
receivable in connection with any sale.
(d) The Indenture Trustee shall not invest any part of the Trust Estate in
Permitted Investments that constitute uncertificated securities (as defined in
Section 8-102 of the Uniform Commercial Code, as enacted in the relevant
jurisdiction) or in any other book-entry securities unless it has received an
Opinion of Counsel reasonably satisfactory in form and substance to the
Indenture Trustee setting forth, with respect to each type of security for which
authority to invest is being sought, the procedures that must be followed to
maintain the lien and security interest created by this Indenture with respect
to the Trust Estate.
Section 8.05. Releases of Defective Home Loans.
--------------------------------
Upon notice or discovery that any of the representations or warranties of
the Seller set forth in Section 4 of the Asset Sale Agreement was materially
incorrect or otherwise misleading with respect to any Home Loan as of the time
made, the Indenture Trustee shall direct the Seller to either (i) within 60 days
after the Seller receives actual knowledge of such incorrectness, eliminate or
otherwise cure the circumstance or condition in respect of which such
representation or warranty was incorrect as of the time made, or (ii) withdraw
such Defective Home Loan from the lien of this Indenture following the
expiration of such 60-day period by depositing to the Note Account an amount
equal to the Purchase Price for such Home Loan. Notwithstanding the foregoing,
the Seller shall be required pursuant to Section 7(b) of the Asset Sale
Agreement to promptly purchase and withdraw from the lien of this Indenture,
without the opportunity for cure, any Home Loan as to which the Final
Certification notes as an exception the absence of a duly executed Assignment of
Mortgage [unless such repurchase is waived by the Note Insurer.] Upon any
purchase of a Defective Home Loan by the Seller in accordance with Section 7 of
the Asset Sale Agreement, the Indenture Trustee shall deliver or cause the
Custodian to deliver the Home Loan File relating to such Defective Home Loan to
the Seller, and the Issuer and the Indenture Trustee shall execute such
instruments of transfer furnished to them by the Servicer as are necessary to
convey title to such Defective Home Loan to the Seller from the lien of this
Indenture.
Section 8.06. Reports by Indenture Trustee to Noteholders; Access to
------------------------------------------------------
Certain Information.
- -------------------
On each Payment Date, the Indenture Trustee shall deliver the Payment Date
Statement to Noteholders of record as of the related Record Date (including the
Clearing Agency, if any).
The Indenture Trustee shall make available at its Corporate Trust Office,
during normal business hours, for review by any Noteholder or any person
identified to the Indenture Trustee as a prospective Noteholder, originals or
copies of the following items: (a) the Indenture and any amendments thereto,
(b) all Payment Date Statements delivered to the Issuer since the Closing Date,
(c) any Officers' Certificates delivered to the Indenture Trustee since the
Closing Date as described in the Indenture and (d) any Accountants' reports
delivered to the Indenture Trustee since the Closing Date as required under the
Servicing Agreement. Copies of any and all of the foregoing items will be
available from the Indenture Trustee upon request; however, the
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Indenture Trustee will be permitted to require payment of a sum sufficient to
cover the reasonable costs and expenses of providing such copies and shall not
be required to provide such copies without reasonable assurances that such sum
will be paid.
Section 8.07. Amendment to Master Servicing Agreement.
---------------------------------------
The Indenture Trustee may, without the consent of any Holder, enter into or
consent to any amendment or supplement to the Master Servicing Agreement for the
purpose of increasing the obligations or duties of any party other than the
Indenture Trustee or the Holders of the Notes. The Indenture Trustee may, in
its discretion, decline to enter into or consent to any such supplement or
amendment: (i) unless the Indenture Trustee receives an Opinion of Counsel that
the position of the Holders would not be materially adversely affected or
written confirmation from the Rating Agencies that the then-current implied
ratings on the Notes [(without taking into account the Note Insurance Policy)]
would not be adversely affected by such supplement or amendment or (ii) if its
own rights, duties or immunities would be adversely affected. The Indenture
Trustee will send a copy of each such amendment to each Noteholder by telecopy
promptly after the adoption thereof.
Section 8.08. Servicer as Agent.
-----------------
In order to facilitate the servicing of the Home Loans by the Servicer of
such Home Loans, the Servicer of the Home Loans has been appointed by the Issuer
to retain, in accordance with the provisions of the Servicing Agreement and this
Indenture, all Remittable Funds on such Home Loans prior to their deposit into
the Asset Proceeds Account on or prior to the related Deposit Date.
Section 8.09. Termination of Master Servicer.
------------------------------
Upon the occurrence and during the continuance of a Master Servicer Default
(as defined in the Servicing Agreement) specified in Section 3.05 of the Master
Servicing Agreement, the Indenture Trustee may, [with the consent of the Note
Insurer,] and shall, [upon the direction of the Note Insurer (or as otherwise
provided in the Master Servicing Agreement),] terminate the Master Servicer as
provided in Section 3.05 of the Master Servicing Agreement. If the Indenture
Trustee terminates the Master Servicer, the Indenture Trustee shall pursuant to
Section 3.05 of the Master Servicing Agreement assume the duties of the Master
Servicer or appoint a successor Master Servicer acceptable to the Issuer, [the
Note Insurer] and the Rating Agencies and meeting the requirements set forth in
the Master Servicing Agreement. Notwithstanding the foregoing, if upon the
occurrence of a Master Servicer Default the Indenture Trustee and the Master
Servicer are one and the same Person, [then the Note Insurer shall appoint a
successor Master Servicer that satisfies the foregoing requirements unless at
such time a Note Insurer Default exists, in which event] such successor Master
Servicer shall be appointed by the percentage of Noteholders authorized to act
upon the occurrence of an Event of Default hereunder.
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Section 8.10. Opinion of Counsel.
------------------
The Indenture Trustee shall be entitled to receive at least five Business
Days' notice of any action to be taken pursuant to Section 8.06, accompanied by
copies of any instruments involved, and the Indenture Trustee shall be entitled
to receive an Opinion of Counsel, in form and substance reasonably satisfactory
to the Indenture Trustee, stating the legal effect of any such action, outlining
the steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Indenture Trustee in connection with any such action.
Section 8.11. Appointment of Custodians.
-------------------------
The Indenture Trustee shall, [with the consent of the Issuer and the Note
Insurer,] appoint one or more Custodians to hold all or a portion of the Home
Loan Files as bailee of the Indenture Trustee on behalf of the Holders of the
Notes and the Note Insurer. Each Custodian shall (i) be a financial institution
supervised and regulated by the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Office of Thrift Supervision, or
the FDIC; (ii) have combined capital and surplus of at least $10,000,000; (iii)
be equipped with secure, fireproof storage facilities, and have adequate
controls on access to assure the safety and security of the Home Loan Files;
(iv) utilize in its custodial function employees who are knowledgeable in the
handling of mortgage documents and the functions of a mortgage document
custodian; (v) shall not be an Affiliate of the Issuer, the Depositor, the
Seller or the Master Servicer; and (vi) satisfy any other reasonable
requirements that the Indenture Trustee may from time to time deem necessary to
protect the interests of Noteholders [and the Note Insurer] in the Home Loan
Files. Each Custodian shall be subject to the same obligations and standard of
care as would be imposed on the Indenture Trustee hereunder assuming the
Indenture Trustee retained the Home Loan Files directly.
[Section 8.12. Rights of the Note Insurer to Exercise Rights of
------------------------------------------------
Noteholders.
- -----------
By accepting its Notes, each Noteholder agrees that unless a Note Insurer
Default exists, the Note Insurer shall have the right to exercise all rights of
the Noteholders under this Agreement without any further consent of the
Noteholders (except those rights requiring consent of all such holders under
Section 9.02 hereof) including, without limitation:
(i) the right to require the Master Servicer to enforce the
Servicer's obligations under the related Servicing Agreement;
(ii) the right to require the Seller to repurchase Defective Home
Loans pursuant to the Asset Sale Agreement;
(iii) the right to direct the actions of the Indenture Trustee during
the continuance of an Event of Default; and
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(iv) the right to vote on proposed amendments to this Indenture.
In addition, each Noteholder agrees that, unless a Note Insurer Default exists,
the rights specifically set forth above may be exercised by the Noteholders only
with the prior written consent of the Note Insurer.
Except as otherwise provided in Section 8.03 and notwithstanding any
provision in this Indenture to the contrary, so long as a Note Insurer Default
has occurred and is continuing, the Note Insurer shall have no rights to
exercise any voting rights of the Noteholders hereunder, nor shall the Indenture
Trustee be required to obtain the consent of, or act at the direction of, the
Note Insurer.]
[Section 8.13. Trust Estate and Accounts Held for Benefit of the Note
------------------------------------------------------
Insurer.
- -------
The Indenture Trustee shall hold the Trust Estate and the Home Loan Files
for the benefit of the Noteholders and the Note Insurer and all references in
this Agreement and in the Notes to the benefit of Holders of the Notes shall be
deemed to include the Note Insurer (provided there does not exist a Note Insurer
Default).
All notices, statements, reports, certificates or opinions required by this
Agreement to be sent to any other party hereto or to the Noteholders shall also
be sent to the Note Insurer.]
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
[With the consent of the Note Insurer and without the consent of the
Holders of any Notes,] the Issuer and the Indenture Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Indenture Trustee, for any of the following purposes:
(a) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and confirm
unto the Indenture Trustee any property subject or required to be subjected to
the lien of this Indenture, or to subject to the lien of this Indenture
additional property;
(b) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of the issuance, authentication and
delivery of any Notes, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed;
(c) to evidence the succession of another Person to the Issuer to the
extent permitted herein, and the assumption by any such successor of the
covenants of the Issuer herein and in the Notes contained;
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(d) to add to the covenants of the Issuer, for the benefit of the Holders
of all Notes [and the Note Insurer] or to surrender any right or power herein
conferred upon the Issuer;
(e) to cure any ambiguity, to correct or supplement any provision herein
that may be defective or inconsistent with any other provision herein, or to
amend any other provisions with respect to matters or questions arising under
this Indenture, which shall not be inconsistent with the provisions of this
Indenture, provided that such action shall not adversely affect in any material
respect the interests of the Holders of the Notes; and provided, further, that
-------- -------
the amendment shall not be deemed to adversely affect in any material respect
the interests of the Holders of the Notes [and the Note Insurer] if the Person
requesting the amendment obtains an Opinion of Counsel to such effect or obtains
written confirmation from each Rating Agency that such supplemental indenture
will not adversely effect the then-current ratings assigned to the Notes; or
(f) to modify, eliminate or add to the provisions of this Indenture to such
extent as shall be necessary to effect the qualification of this Indenture under
the TIA or under any similar federal statute hereafter enacted, and to add to
this Indenture such other provisions as may be expressly required by the TIA.
Section 9.02. Supplemental Indentures With Consent of Noteholders.
---------------------------------------------------
With [the consent of the Note Insurer and with] the consent of Holders of
Notes representing not less than a majority of the Note Balance of all
Outstanding Notes by Act of said Holders delivered to the Issuer and the
Indenture Trustee, the Issuer and the Indenture Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(a) change the date of any Payment Date or the Stated Maturity Date of the
Notes or reduce the principal amount thereof, the Note Interest Rate thereon or
the Redemption Price with respect thereto, change the earliest date on which any
Note may be redeemed at the option of the Issuer, change any place of payment
where, or the coin or currency in which, any Note or any interest thereon is
payable, or impair the right to institute suit for the enforcement of the
payment of any installment of interest due on any Note on or after the Stated
Maturity Date thereof or for the enforcement of the payment of the entire
remaining unpaid principal amount of any Note on or after the Stated Maturity
Date (or, in the case of redemption, on or after the applicable Redemption
Date);
(b) reduce the percentage of the Note Balance of the Outstanding Notes, the
consent of the Holders of which is required for any such supplemental indenture,
or the consent of the Holders of which is required for any waiver of compliance
with provisions of this Indenture or Defaults hereunder and their consequences
provided for in this Indenture;
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(c) modify any of the provisions of this Section, Section 5.13 or Section
5.17(b), except to increase any percentage specified therein or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Note affected thereby;
(d) modify or alter the provisions of the proviso to the definition of the
term "Outstanding";
(e) permit the creation of any lien other than the lien of this Indenture
with respect to any part of the Trust Estate (except as otherwise permitted or
contemplated herein) or terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the security
afforded by the lien of this Indenture;
(f) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the Deficiency Amount for any Payment Date (including
the calculation of any of the individual components of such Deficiency Amount)
or to affect rights of the Holders of the Notes to the benefits of any
provisions for the mandatory redemption of Notes contained herein; or
(g) incur any indebtedness, other than the Notes, that would cause the
Issuer or the Trust Estate to be treated as a "taxable mortgage pool" within the
meaning of Code Section 7701(i).
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such determination
shall be conclusive upon the Holders of all Notes, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of any
supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail such supplemental indenture and a notice setting forth in general terms the
substance of such supplemental indenture to the Holders of the Notes to which
such supplemental indenture relates. Any failure of the Indenture Trustee to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and (subject to Section 6.01) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Indenture Trustee may, but
shall not
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be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties or immunities under this Indenture or
otherwise. The Issuer shall cause executed copies of any supplemental indentures
to be delivered to the Rating Agencies.
Section 9.04. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes to which such supplemental indenture relates that have theretofore been
or thereafter are authenticated and delivered hereunder shall be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.
Section 9.06. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer shall so
determine, new Notes so modified as to conform, in the opinion of Indenture
Trustee and the Issuer, to any such supplemental indenture may be prepared and
executed by the Issuer and authenticated and delivered by the Indenture Trustee
in exchange for Outstanding Notes.
Section 9.07. Amendments to Governing Documents.
---------------------------------
The Indenture Trustee shall, upon Issuer Request, consent to any proposed
amendment to the Issuer's governing documents, or an amendment to or waiver of
any provision of any other document relating to the Issuer's governing
documents, such consent to be given without the necessity of obtaining the
consent of the Holders of any Notes upon receipt by the Indenture Trustee of:
(i) an Officers' Certificate, to which such proposed amendment or
waiver shall be attached, stating that such attached copy is a true copy of
the proposed amendment or waiver and that all conditions precedent to such
consent specified in this Section 9.07 have been satisfied; and
(ii) written confirmation from the Rating Agencies that the
implementation of the proposed amendment or waiver will not adversely
affect their implied ratings of the Notes [(without taking into account the
Note Insurance Policy)].
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Notwithstanding the foregoing, the Indenture Trustee may decline to consent
to a proposed waiver or amendment that adversely affects its own rights, duties
or immunities under this Indenture or otherwise.
Nothing in this Section 9.07 shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Redemption.
----------
(a) All the Notes may be redeemed in whole, but not in part, on the
Redemption Date at the Redemption Price at the option of the holders of a
majority of the percentage interests of the Certificates, [or at the option of
the Note Insurer,] if such Certificateholders shall not have exercised their
option to redeem the Notes on such Redemption Date, provided, however, that
funds in an amount equal to the Redemption Price, [plus any amounts owed to the
Note Insurer under the Insurance Agreement,] any unreimbursed Servicing Advances
and any unreimbursed amounts due and owing to the Indenture Trustee hereunder,
must have been deposited with the Indenture Trustee prior to the Indenture
Trustee's giving notice of such redemption pursuant to Section 10.02 or the
Issuer shall have complied with the requirements for satisfaction and discharge
of the Notes specified in Section 4.01. Notice of the election to redeem the
Notes shall be furnished to the Indenture Trustee and each Noteholder not later
than thirty (30) days prior to the Payment Date selected for such redemption,
whereupon all such Notes shall be due and payable on such Payment Date upon the
furnishing of a notice pursuant to Section 10.02 to each Holder of such Notes
[and the Note Insurer].
(b) Upon receipt of the notice from the party exercising its election to
redeem the Notes pursuant to Section 10.01(a), the Indenture Trustee shall
prepare and deliver to the Issuer, no later than the related Redemption Date, a
Payment Date Statement stating therein that it has determined that the
conditions to redemption at the option of the Issuer have been satisfied and
setting forth the amount, if any, to be withdrawn from the Note Account and paid
to the Servicer as reimbursement for Servicing Advances and such other
information as may be required to accomplish such redemption.
(c) The Notes may be redeemed in whole, but not in part, on a Payment
Date specified by the Issuer at any time upon a determination by the Issuer,
based on an Opinion of Counsel addressed to the Issuer, the Indenture Trustee,
[the Note Insurer] and the Noteholders, that a substantial risk exists that the
Notes will not be treated for federal income tax purposes as evidences of
indebtedness.
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Section 10.02. Form of Redemption Notice.
-------------------------
Notice of redemption shall be given by the Indenture Trustee in the name of
and at the expense of the Issuer by first class mail, postage prepaid, mailed
not less than ten days prior to the Redemption Date to each Holder of Notes to
be redeemed (with a copy sent to each Noteholder by telecopy), such Holders
being determined as of the Record Date for such Payment Date, [and to the Note
Insurer.] All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price at which such Notes will be redeemed; and
(c) the fact of payment in full on such Notes, the place where such Notes
are to be surrendered for payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as provided in Section 3.02),
and that no interest shall accrue on such Note for any period after the date
fixed for redemption.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Note selected for redemption shall not impair or affect the validity of the
redemption of any other Note.
Section 10.03. Notes Payable on Optional Redemption.
------------------------------------
Notice of redemption having been given as provided in Section 10.02, the
Notes to be redeemed shall, on the applicable Redemption Date, become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on such Redemption
Price for any period after such Redemption Date; provided, however, that if such
Redemption Price is not paid on the Redemption Date, the Note Balance shall,
until paid, bear interest from the Redemption Date at the Note Interest Rate.
ARTICLE XI
NOTE ADMINISTRATION
Section 11.01. Powers and Duties of the Securities Administrator.
-------------------------------------------------
(a) In addition to the other obligations of the Securities Administrator
set forth in this Indenture, the Securities Administrator shall perform, on
behalf of the Trust acting through the Owner Trustee, the duties of the Issuer
specified below, and shall consult with the Owner Trustee regarding such duties.
(i) The monitoring of and compliance with the Trust's
obligations under Section 3.12 (but only to the extent of the Securities
Administrator's obligations under clause (ii) below);
(ii) The preparation and delivery of the income tax returns, tax
elections, financial statements, and such annual or other reports of the
Trust pursuant to Section
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2.11(k) of the Owner Trust Agreement; provided, however, that the
Securities Administrator shall not be required to compute the Trust's gross
income except to the extent it can do so without unreasonable effort or
expense based upon income statements furnished to it; and provided,
further, that the Securities Administrator shall not be required to prepare
and file partnership tax returns on behalf of the Issuer unless it receives
an opinion of counsel (which shall not be at the Securities Administrator's
expense, but shall be at the expense of the Seller or other party
furnishing such opinion) as to the necessity of such filings; and
(iii) The Depositor shall prepare or cause to be prepared the initial
current reports on Form 8-K to be filed prior to the first Payment Date and
thereafter the Securities Administrator will prepare or cause to be
prepared Form 10-Ks and Form 10-Qs (if necessary), or monthly current
reports on Form 8-K, on behalf of the Trust, as may be required by
applicable law, for filing with the Securities and Exchange Commission (the
"SEC"). The Owner Trustee will sign each such report on behalf of the
Trust. The Securities Administrator will forward a copy of such report to
the Indenture Trustee and the Depositor promptly after such report has been
filed with the SEC. The Securities Administrator agrees to use its best
efforts to seek to terminate such filing obligation after the period during
which such filings are required under the Securities Exchange Act of 1934.
Promptly after filing a Form 15 or other applicable form with the SEC in
connection with such termination, the Securities Administrator shall
deliver to the Indenture Trustee and the Depositor a copy of such form
together with copies of confirmations of receipt by the SEC of each report
filed therewith on behalf of the Trust.
(b) The Securities Administrator shall carry out in timely fashion all
duties which the Securities Administrator is required to perform hereunder on
behalf of the Issuer. The Securities Administrator shall have absolute
discretion in the performance of such duties and shall have no obligation to
notify the Owner Trustee of its actions except as set forth herein.
Section 11.02. Compensation; Payment of Certain Expenses.
-----------------------------------------
The Securities Administrator will provide the services called for hereunder
for the compensation provided in the Servicing Agreement for so long as the
Indenture remains in effect.
Section 11.03. Instructions.
------------
If in performing its duties under this Article XI, the Securities
Administrator is required to determine any matter or perform any function above
which is non-ministerial in nature, then the Securities Administrator shall
properly deliver notice to the Indenture Trustee or to the Owner Trustee and the
Certificateholders, as applicable, requesting written instructions as to the
course of action to be taken. If the Securities Administrator does not receive
such instructions within ten days after it has delivered such notice, it may,
but shall be under no duty to, take or refrain from taking such action not
inconsistent with this Indenture or the Owner Trust Agreement as it shall deem
advisable in the best interest of the holders of the Notes and the Trust.
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Section 11.04. Benefit of the Agreement.
------------------------
It is expressly agreed that, in performing its duties pursuant to this
Article XI, the Securities Administrator will act for the benefit of holders of
the Notes [and the Note Insurer ]as well as for the benefit of the Trust, and
that such obligations on the part of the Securities Administrator shall be
enforceable at the instance of the Indenture Trustee and the Trust.
Section 11.05. Limitation of Responsibility of the Securities
----------------------------------------------
Administrator.
- -------------
(a) The Securities Administrator will have no responsibility under this
Indenture other than to render the services provided for hereunder in good
faith. The Securities Administrator, its affiliates, its directors, officers,
shareholders, and employees will not be liable to the Trust, the Owner Trustee,
the Indenture Trustee, the Certificateholders, the Noteholders, or others,
except by reason of acts constituting bad faith, willful misfeasance, gross
negligence, or reckless disregard of the duties of the Securities Administrator
hereunder. The Issuer will reimburse, indemnify, and hold harmless the
Securities Administrator and its affiliates, shareholders, directors, officers,
and employees with respect to all expenses, losses, damages, liabilities,
demands, charges, and claims of any nature in respect of any acts or omissions
performed or omitted by the Securities Administrator in good faith and in
accordance with the standard set forth above.
(b) The Issuer undertakes to pay or cause to be paid any amount due the
Securities Administrator or its affiliates, shareholders, directors, officers
and employees, under this Article XI and such amounts shall be paid as provided
for under this Indenture or out of the assets of the Trust that are free of the
lien of this Indenture (and in no event by Wilmington Trust Company in its
individual capacity).
Section 11.06. Termination of Securities Administrator.
---------------------------------------
(a) The Securities Administrator, at its election, may resign as
Securities Administrator hereunder and be discharged of its duties hereunder
upon at least 30 days' prior notice to the Owner Trustee, [the Note Insurer,]
and the Indenture Trustee; provided, however, that at any time while the Notes
-------- -------
are outstanding no such resignation and discharge shall become effective until a
Person selected by the Securities Administrator in its discretion and acceptable
to the Owners, [the Note Insurer,] and the Rating Agencies shall have assumed
and agreed to perform the duties of the Securities Administrator hereunder as
evidenced by a written instrument to such effect delivered to the Owner Trustee.
Upon delivery of such written instrument to the Owner Trustee, the Trust shall
promptly deliver to the successor Securities Administrator a written instrument
acknowledging and accepting the assignment of the resigning Securities
Administrator's rights hereunder to the successor Securities Administrator. Each
such successor Securities Administrator shall be deemed to be the Securities
Administrator for all purposes of this Indenture.
(b) If any of the following events shall occur and be continuing:
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(i) The Securities Administrator shall violate any provision of this
Indenture and such default is not cured within ten days after notice
thereof is given to the Securities Administrator by the Owner Trustee, [the
Note Insurer, ]or the Indenture Trustee; or
(ii) A court having jurisdiction over the premises shall enter a
decree or order for relief in respect of the Securities Administrator in an
involuntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect, or appoint a receiver, liquidation,
assignee, custodian, trustee, sequestrator (or other similar official) of
the Securities Administrator or for any substantial part of its property,
or order the winding-up or liquidation of its affairs; or
(iii) The Securities Administrator shall commence a voluntary case
under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief
in an involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Securities Administrator or for any substantial part of its property, or
shall make any general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due;
then in any such event the Securities Administrator may be terminated by the
Owner Trustee upon notice to the Securities Administrator; provided, however,
-------- -------
that the Securities Administrator shall nevertheless be entitled to any amounts
due to it pursuant to Section 11.05 accruing prior to the date of such
termination.
(c) Following receipt of instructions from [the Note Insurer] or the
Holders of the Notes, [with the prior consent of the Note Insurer,] and upon 30
days' written notice to the Securities Administrator, the Owner Trustee may
remove the Securities Administrator; provided, however, that the Securities
-------- -------
Administrator shall nevertheless be entitled to any amounts due to it pursuant
to Section 11.05 accruing prior to the date of such termination.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Compliance Certificates and Opinions.
------------------------------------
(a) Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel, if requested
by the Indenture Trustee, stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of
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this Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
(b) Every certificate, opinion or letter with respect to compliance with a
condition or covenant provided for in this Indenture, including one furnished
pursuant to specific requirements of this Indenture relating to a particular
application or request (other than certificates provided pursuant to TIA Section
314(a)(4)) shall include and shall be deemed to include (regardless of whether
specifically stated therein) the following:
(i) statement that each individual signing such certificate,
opinion or letter has read such covenant or condition and the definitions
herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate, opinion or letter are based;
(iii) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 12.02. Form of Documents Delivered to Indenture Trustee.
------------------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of the Issuer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
Opinion of Counsel may be based on the written opinion of other counsel, in
which event such Opinion of Counsel shall be accompanied by a copy of such other
counsel's opinion and shall include a statement to the effect that such counsel
believes that such counsel and the Indenture Trustee may reasonably rely upon
the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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Wherever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Section 6.01(b)(2). Whenever in this Indenture it is provided that the
absence of the occurrence and continuation of a Default or Event of Default is a
condition precedent to the taking of any action by the Indenture Trustee at the
request or direction of the Issuer, then, notwithstanding that the satisfaction
of such condition is a condition precedent to the Issuer's right to make such
request or direction, the Indenture Trustee shall be protected in acting in
accordance with such request or direction if it does not have knowledge of the
occurrence and continuation of such Default or Event of Default as provided in
Section 6.01(d).
Section 12.03. Acts of Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Noteholders
[or the Note Insurer] may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in person
or by an agent duly appointed in writing [or the Note Insurer]; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Indenture Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Whenever such execution is
by an officer of a corporation or a member of a partnership on behalf of such
corporation or partnership, such certificate or affidavit shall also constitute
sufficient proof of his authority.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by [the Note Insurer in accordance with the provisions hereof
or] the Holders of any Notes shall bind the Holders of every Note issued upon
the registration of transfer thereof or in
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exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Indenture Trustee or the Issuer in reliance thereon,
whether or not notation of such action is made upon such Notes.
Section 12.04. Notices, etc. to Indenture Trustee[, the Note Insurer] and
----------------------------------------------------------
Issuer.
- ------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Noteholders or other documents provided or permitted by this Indenture
shall be in writing and shall be deemed to have been given if personally
delivered at, telecopied to (provided confirmation of such telecopy has been
received), or mailed by certified mail, return receipt requested, to:
(a) the Indenture Trustee at its Corporate Trust Office with a copy to the
Securities Administrator; or
(b) the Issuer, at [ ] Owner Trust [1999]-[ ], in care of [ ]
Wilmington, Delaware 19890, Attention: Corporate Trust Administration;
(c) the Note Insurer, at [ ];
(d) the Seller, at [ ] Attention: [ ];
(e) the Master Servicer at [ ] Attention: [ ];
(f) the Servicer at [ ] Attention: [ ];
(g) the Securities Administrator, at [ ], Attention: [ ]; or
(h) the Custodian, at [ ], Attention: [ ];
or in each case, at such other address as may be designated by written notice to
the other parties;
Notices required to be given to the Rating Agencies by the Issuer or the
Indenture Trustee shall be in writing, personally delivered or mailed first-
class postage pre-paid, to
(i) [in the case of Moody's, at the following address: Moody's
Investors Service, Inc., Residential Mortgage Monitoring
Department, 99 Church Street, New York, New York 10007;]
(ii) [in the case of Standard & Poor's, at the following address:
Standard & Poor's Ratings Group, 55 Water Street, New York, New
York, 10041, Attention: Asset Backed Surveillance Department;]
(iii) [in the case of Duff & Phelps [ ]; or]
(iv) [in the case of Fitch [ ];]
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or as to each of the foregoing, at such other address as shall be designed
by written notice to the other parties.
Section 12.05. Notices and Reports to Noteholders; Waiver of Notices.
-----------------------------------------------------
Where this Indenture provides for notice to Noteholders of any event or the
mailing of any report to Noteholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder as
it appears on the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report, with a copy thereof sent by telecopy. In any case where a
notice or report to Noteholders is mailed and telecopied in the manner provided
above, neither the failure to mail and telecopy such notice or report, nor any
defect in any notice or report so mailed and telecopied, to any particular
Noteholder shall affect the sufficiency of such notice or report with respect to
other Noteholders, and any notice or report that is mailed and telecopied in the
manner herein provided shall be conclusively presumed to have been duly given or
provided.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Indenture Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Section 12.06. Rules by Indenture Trustee.
--------------------------
The Indenture Trustee may make reasonable rules for any meeting of
Noteholders.
Section 12.07. The Trust Indenture Act.
-----------------------
If any provision hereof limits, qualifies or conflicts with any other
provision hereof that is required to be included in this Indenture by any of the
provisions of the TIA, such required provision shall control.
Section 12.08. Effect of Headings and Table of Contents; References.
-----------------------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof. References
herein to "Articles" and "Sections" without reference to a document are to
designated Articles and Sections of this Indenture.
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Section 12.09. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Issuer shall bind its
successors and assigns, whether so expressed or not.
Section 12.10. Separability.
------------
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 12.11. Benefits of Indenture.
---------------------
Subject to Section 12.20 of this Indenture, nothing in this Indenture or in
the Notes, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, any separate trustee or co-
trustee appointed under Section 6.13, [the Note Insurer] and the Noteholders,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 12.12. Legal Holidays.
--------------
In any case where the date of any Payment Date, Redemption Date or any
other date on which principal of or interest on any Note is proposed to be paid
shall not be a Business Day, then (notwithstanding any other provision of the
Notes or this Indenture) payment need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the nominal date of any such Payment Date, Redemption Date or other date for the
payment of principal of or interest on any Note and no interest shall accrue for
the period from and after any such nominal date, provided such payment is made
in full on such next succeeding Business Day.
Section 12.13. Governing Law.
-------------
IN VIEW OF THE FACT THAT NOTEHOLDERS MAY RESIDE IN MANY STATES AND OUTSIDE
THE UNITED STATES AND THE DESIRE TO ESTABLISH WITH CERTAINTY THAT THIS INDENTURE
WILL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW OF
A STATE HAVING A WELL-DEVELOPED BODY OF COMMERCIAL AND FINANCIAL LAW RELEVANT TO
TRANSACTIONS OF THE TYPE CONTEMPLATED HEREIN, THIS INDENTURE AND EACH NOTE SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
Section 12.14. Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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Section 12.15. Debt Instruments.
----------------
By its acceptance of any Note, each Noteholder will be deemed to have
agreed to treat its Note as a debt instrument for purposes of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income.
Section 12.16. Issuer Obligation.
-----------------
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under this Indenture or any certificate or other writing delivered in
connection herewith or therewith, against (i) the Indenture Trustee or the Owner
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director,
employee or agent of the Indenture Trustee or the Owner Trustee in its
individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of the
Owner Trust Agreement.
Section 12.17. No Petition.
-----------
The Indenture Trustee, by entering into this Indenture, and each Noteholder
and Beneficial Owner, by accepting a Note [and the Note Insurer], hereby
covenant and agree that they will not at any time institute against the
Depositor or the Issuer, or join in any institution against the Depositor or the
Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Basic Documents. In addition, the
Indenture Trustee will on behalf of the holders of the Notes, (a) file a
written objection to any motion or other proceeding seeking the substantive
consolidation of the Seller with the Depositor or the Issuer, (b) file an
appropriate memorandum of points and authorities or other brief in support of
such objection, or (c) endeavor to establish at the hearing on such objection
that the substantive consolidation of such entity would be materially
prejudicial to the Noteholders. This Section 12.17 will survive for one year
and one day following the termination of this Indenture.
Section 12.18. Inspection.
----------
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Indenture Trustee, [the Note Insurer] and any Noteholder
(provided that such Noteholder, together with its affiliates, owns 40% or more
of the then outstanding Note Balance), during the Issuer's normal business
hours, to examine all of books of account, records, reports and other
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papers of the Issuer, to make copies and extracts therefrom, to cause such books
to be audited by Independent Accountants selected by the Indenture Trustee [or
the Note Insurer], as the case may be, and to discuss its affairs, finances and
accounts with its officers, employees and Independent Accountants (and by this
provision the Issuer hereby authorizes its Accountants to discuss with such
representatives such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any expense incident to the
exercise by the Indenture Trustee of any right under this Section 12.18 shall be
borne by the Seller.
Section 12.19. Third Party Beneficiary.
-----------------------
[The Note Insurer is intended as a third party beneficiary of this
Indenture and this Indenture shall be binding upon and inure to the benefit of
the Note Insurer; provided that, notwithstanding the foregoing, for so long as a
Note Insurer Default is continuing with respect to its obligations under the
Note Insurance Policy, the Noteholders shall succeed to the Note Insurer's
rights hereunder. Without limiting the generality of the foregoing, all
covenants and agreements in this Indenture that expressly confer rights upon the
Note Insurer shall be for the benefit of and run directly to the Note Insurer,
and the Note Insurer shall be entitled to rely on and enforce such covenants to
the same extent as if it were a party to this Indenture.] The Depositor is an
intended third-party beneficiary of this Indenture for purposes of Section
8.02(b) hereof and Section 8.02(b) shall be binding upon and inure to the
benefit of the Depositor; and the Depositor shall be entitled to rely on and
enforce the covenants contained therein for its benefit to the same extent as if
it were a party to this Indenture.
Section 12.20. Limitation of Liability.
-----------------------
It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by [ ], not individually
or personally but solely as trustee of [ ] Owner Trust [1999]-[ ]
under the Owner Trust Agreement in the exercise of the powers and authority
conferred and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by [ ]
but is made and intended for the purpose for binding only the Trust, (c)
nothing herein contained shall be construed as creating any liability on
[ ], individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by an Person claiming by, through or
under the parties hereto (d) under no circumstances shall [ ]
be personally liable for the payment of any indebtedness or expenses of the
Trust or be liable for the breach or failure of any obligation, representation,
warranty or covenant made or undertaken by the Trust under this Agreement.
83
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Indenture Trustee, the Securities
Administrator and the Custodian have caused this Indenture to be duly executed
by their respective officers thereunto duly authorized, all as of the day and
year first above written.
[ ]OWNER TRUST [1999]-[ ]
By: [ ], not in its individual
capacity,but solely as Owner Trustee
By: ______________________________________
Name: ______________________________________
Title:______________________________________
[ ],
as Indenture Trustee[, Securities Administrator and
Custodian]
By: ______________________________________
Name: ______________________________________
Title:______________________________________
84
<PAGE>
SCHEDULE I
ASSET SCHEDULE
<PAGE>
EXHIBIT A
FORM OF CLASS A NOTE
<PAGE>
[ ] OWNER TRUST [1999]-1
ASSET-BACKED NOTES, SERIES [1999]-[ ], CLASS A
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS NOTE. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE
HEREOF. ANYONE ACQUIRING THIS NOTE MAY ASCERTAIN ITS CURRENT NOTE PRINCIPAL
BALANCE BY INQUIRY OF THE INDENTURE TRUSTEE.
A-1
<PAGE>
No. _______________ $____________
[ ] OWNER TRUST [1999]-[ ]
ASSET-BACKED NOTES, SERIES [1999]-[ ],
[ ]% CLASS A
DUE [ ]
CUSIP No.
[ ] Owner Trust [1999]-[ ], a business trust organized and existing under
the laws of the State of Delaware (herein referred to as the "Issuer"), for
value received, hereby promises to pay to
or registered assigns, the principal sum of __________________
____________________________________ DOLLARS ($_____________) payable pursuant
to the Indenture (the "Indenture") dated as of [ ], among the Issuer and
[ ], a national banking association, as Indenture Trustee (the
"Indenture Trustee") [and as Securities Administrator and Custodian.]
Capitalized terms used but not defined herein are defined in Article I of the
Indenture.
THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE [AND THE NOTE INSURANCE
POLICY REFERRED TO BELOW], AS PROVIDED IN THE INDENTURE. THE ISSUER IS NOT
OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON THIS NOTE. EACH HOLDER AND
BENEFICIAL OWNER HEREOF, BY ITS ACCEPTANCE OF THIS NOTE, AGREES THAT SUCH HOLDER
OR BENEFICIAL OWNER SHALL HAVE NO RECOURSE TO THE ISSUER, THE OWNER TRUSTEE, THE
INDENTURE TRUSTEE, THE DEPOSITOR, THE SELLER, THE SERVICER, THE MASTER SERVICER
OR ANY OF THEIR RESPECTIVE AFFILIATES, OR TO THE ASSETS OF ANY OF THE FOREGOING
ENTITIES, EXCEPT THE ASSETS OF THE ISSUER PLEDGED TO SECURE THE NOTES PURSUANT
TO THE INDENTURE.
Pursuant to the terms of the Indenture, payments will be made on the 25th day of
each month or, if such day is not a Business Day, on the Business Day
immediately following such 25th day (each a "Payment Date"), commencing on the
first Payment Date specified above, to the Person in whose name this Note is
registered at the close of business on the applicable Record Date, in an amount
equal to the product of (a) the Percentage Interest evidenced by this Note and
(b) the sum of the amounts to be paid on the Notes with respect to such Payment
Date, all as more specifically set forth in the Indenture.
So long as this Note is registered in the name of a Clearing Agency or its
nominee, the Indenture Trustee will make payments of principal of and interest
on this Note by wire transfers of immediately available funds to the Clearing
Agency or its nominee. Notwithstanding the above,
A-2
<PAGE>
the final distribution on this Note will be made after due notice by the
Indenture Trustee of the pendency of such distribution and only upon
presentation and surrender of this Note at its Corporate Trust Office or such
other offices or agencies appointed by the Indenture Trustee for that purpose
and such other locations provided in the Indenture.
On each Payment Date, the Noteholders will be entitled to receive interest
payments in an aggregate amount equal to the Note Interest for such Payment
Date, together with principal payments in an aggregate amount equal to the
Monthly Principal, plus, until the related Overcollateralization Amount is equal
to the Required Overcollateralization Amount, Excess Cash, if any, for such
Payment Date. The "Note Balance" of a Note as of any date of determination is
equal to the initial principal balance thereof as of the Closing Date, reduced
by the aggregate of all amounts previously paid with respect to such Note on
account of principal.
This Note is one of a duly authorized issue of Notes of the Issuer, designated
as its Asset-Backed Notes, Series [1999]-[ ] (herein called the "Notes"), issued
under the Indenture, to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. To the extent that any provision of this Note contradicts or is
inconsistent with the provisions of the Indenture, the provisions of the
Indenture shall control and supersede such contradictory or inconsistent
provision herein. The Notes are subject to all terms of the Indenture. Each
Noteholder or Beneficial Owner, by acceptance of a Note, or in the case of a
Beneficial Owner, a beneficial interest in a Note, covenants and agrees to be
bound by all the terms and provisions of the Indenture.
As described above, the entire unpaid principal amount of this Note shall be due
and payable on the earlier of the Stated Maturity Date and the Redemption Date,
if any, pursuant to Article X of the Indenture. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable on the
date on which an Event of Default shall have occurred and be continuing if the
Indenture Trustee[, at the direction or upon the prior written consent of [ ]
(the "Note Insurer") in the absence of a Note Insurer Default,] or the Holders
of the Notes representing not less than 50% of the Note Balance of the
Outstanding Notes [(with the prior written consent of the Note Insurer in the
absence of a Note Insurer Default),] shall have declared the Notes to be
immediately due and payable in the manner provided in Section 5.02 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Noteholders entitled thereto.
[[ ] (the "Note Insurer"), in consideration of the payment of the
premium and subject to the terms of the financial guaranty insurance policy (the
"Note Insurance Policy") issued thereby, has unconditionally and irrevocably
guaranteed the payment of the Insured Payments. ]
[Pursuant to the Indenture, unless a Note Insurer Default exists (i) the Note
Insurer shall be deemed to be the holder of the Notes for certain purposes
specified in the Indenture and will be entitled to exercise all rights of the
Noteholders thereunder, including the rights of Noteholders relating to the
occurrence of, and the remedies with respect to, an Event of Default, without
the consent of such Noteholders, and (ii) the Indenture Trustee may take actions
which would
A-3
<PAGE>
otherwise be at its option or within its discretion, including actions relating
to the occurrence of, and the remedies with respect to, an Event of Default,
only at the direction of the Note Insurer. In addition, on each Payment Date,
after the Noteholders have been paid all amounts to which they are entitled, the
Note Insurer will be entitled to be reimbursed for any unreimbursed Insured
Payments, unreimbursed Premium Amounts (each with interest thereon at the "Late
Payment Rate" specified in the Insurance Agreement) and any other amounts owed
under the Note Insurance Policy.]
As provided in the Indenture, the Notes may be redeemed in whole, but not in
part, at the option of the holder(s) of a majority of the ownership interest of
the Issuer or, if not so redeemed, [at the option of the Note Insurer,] on any
Payment Date on and after the date on which the Note Balance is equal to or less
than 5% of the Original Note Balance.
Subject to the terms of the Indenture, the Notes will be registered as one or
more certificates held by a Clearing Agency or its nominee and beneficial
interests will be held by Beneficial Owners through the book-entry facilities of
such Clearing Agency or its nominee in minimum denominations of $1,000 and
increments of $1 in excess thereof.
As provided in the Indenture and subject to any limitations on transfer of this
Note by a Clearing Agency or its nominee and certain limitations set forth in
the Indenture, the transfer of this Note is registrable on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees.
Each Noteholder or Beneficial Owner, by acceptance of this Note or, in the case
of a Beneficial Owner, a beneficial interest in a Note, covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Indenture Trustee or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed and except that any such partner, owner or beneficiary shall be
fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Each Noteholder or Beneficial Owner, by acceptance of this Note or, in the case
of a Beneficial Owner, a beneficial interest in this Note, covenants and agrees
by accepting the benefits of the Indenture that such Noteholder or Beneficial
Owner will not at any time institute against the Seller, the Depositor or the
Issuer, or join in any institution against the Seller, the Depositor or
A-4
<PAGE>
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture, the Asset Sale Agreement, the Owner Trust Agreement, the Master
Servicing Agreement, the Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement (the "Basic Documents").
The Issuer has entered into the Indenture and this Note is issued with the
intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Trust Estate. Each Noteholder, by acceptance of this Note (and
each Beneficial Owner by acceptance of a beneficial interest in this Note),
agrees to treat the Notes for federal, state and local income, single business
and franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Indenture Trustee, [the Note Insurer] and any agent of the Issuer or
the Indenture Trustee may treat the Person in whose name this Note (as of the
day of determination or as of such other date as may be specified in the
Indenture) is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and none of the Issuer, the Indenture Trustee, [the Note
Insurer] or any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer [with the consent of the Note Insurer] and the Holders of
Notes representing a majority of the Note Balance of all Outstanding Notes. The
Indenture also contains provisions permitting the [(i) Note Insurer or (ii) if a
Note Insurer Default exists,] the Holders of Notes representing specified
percentages of the Note Balance of Outstanding Notes, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver [by the Note Insurer or] by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note. The Indenture also permits the amendment thereof, in certain limited
circumstances, or the waiver of certain terms and conditions set forth in the
Indenture, without the consent of Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
THIS NOTE AND THE INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Authenticating Agent whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
A-6
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
DATE: __, [ ] [ ] OWNER TRUST 1999-1
By: [ ],
not in its individual capacity but solely as
Owner Trustee under the Owner Trust Agreement
By: _____________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Notes designated above and referred to in the
within-mentioned Indenture.
Date: __, [ ] [ ]
, Authenticating Agent
By: _______________________________
Authorized Signatory
A-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
____________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _________________________________, attorney, to transfer said Note
on the books kept for registration thereof, with full power of substitution in
the premises.
Dated:__________*/
Signature Guaranteed:
________________*/
*/ NOTICE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-8
<PAGE>
[ATTACH STATEMENT OF INSURANCE]
A-9
<PAGE>
EXHIBIT B
ASSET SALE AGREEMENT
<PAGE>
EXHIBIT C
CUSTODIAL AGREEMENT
<PAGE>
Exhibit 4.4
OWNER TRUST AGREEMENT
among
NATIONAL MORTGAGE SECURITIES CORPORATION,
as Depositor,
[_____________________________],
as the Company,
[and]
[________________________________],
as Owner Trustee
[and
[__________________________________],
as Paying Agent]
Dated as of _____ 1, ____
[ ] OWNER TRUST ____-__
Asset Backed Notes, Series ____-__
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Capitalized Terms.......................................................................... 1
SECTION 1.2 Other Definitional Provisions.............................................................. 4
ARTICLE II
ORGANIZATION
SECTION 2.1 Name....................................................................................... 5
SECTION 2.2 Office..................................................................................... 5
SECTION 2.3 Purposes and Powers........................................................................ 5
SECTION 2.4 Appointment of Owner Trustee............................................................... 6
SECTION 2.5 Initial Capital Contribution of Trust Estate............................................... 6
SECTION 2.6 Declaration of Trust....................................................................... 6
SECTION 2.7 Title to Trust Property.................................................................... 6
SECTION 2.8 Situs of Trust............................................................................. 7
SECTION 2.9 Representations and Warranties of the Depositor and the Company;
Covenants of the Company................................................................. 7
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 Initial Ownership......................................................................... 9
SECTION 3.2 The Residual Interest Certificates........................................................ 9
SECTION 3.3 Execution, Authentication and Delivery of Residual Interest Certificates.................. 9
SECTION 3.4 Registration of Transfer and Exchange of Residual Interest Certificates................... 10
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest Certificates....................... 11
SECTION 3.6 Persons Deemed Owners..................................................................... 11
SECTION 3.7 Access to List of Owners' Names and Addresses............................................. 11
SECTION 3.8 Maintenance of Office or Agency........................................................... 11
[SECTION 3.9 Appointment of Paying Agent............................................................... 12]
SECTION 3.10 Restrictions on Transfer of Residual Interest Certificates................................ 12
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters; Covenants.......................... 15
SECTION 4.2 Action by Owners with Respect to Certain Matters........................................... 19
SECTION 4.3 Action by Owners with Respect to Bankruptcy................................................ 19
SECTION 4.4 Restrictions on Owners' Power.............................................................. 19
SECTION 4.5 Majority Control........................................................................... 19
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 Establishment of Trust Account............................................................ 19
SECTION 5.2 Application Of Trust Funds................................................................ 20
SECTION 5.3 Method of Payment......................................................................... 21
SECTION 5.4 Segregation of Moneys; No Interest........................................................ 21
SECTION 5.5 Accounting and Reports to the Certificateholder, Owners, the Internal
Revenue Service and Others.............................................................. 21
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 General Authority.......................................................................... 22
SECTION 6.2 General Duties............................................................................. 22
SECTION 6.3 Action upon Instruction.................................................................... 23
SECTION 6.4 No Duties Except as Specified in this Agreement, the Basic Documents or in Instructions.... 24
SECTION 6.5 No Action Except Under Specified Documents or Instructions................................. 24
SECTION 6.6 Restrictions............................................................................... 24
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties............................................................ 24
SECTION 7.2 Furnishing of Documents.................................................................... 26
SECTION 7.3 Representations and Warranties............................................................. 26
SECTION 7.4 Reliance; Advice of Counsel................................................................ 27
SECTION 7.5 Not Acting in Individual Capacity.......................................................... 27
SECTION 7.6 Owner Trustee Not Liable for Residual Interest Certificates or Mortgage Assets............. 27
SECTION 7.7 Owner Trustee May Own Residual Interest Certificates and Notes............................. 28
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 7.8 Licenses................................................................................... 28
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE[ AND PAYING AGENT]
SECTION 8.1 Fees and Expenses.......................................................................... 28
SECTION 8.2 Indemnification............................................................................ 28
SECTION 8.3 Payments to the Owner Trustee[ and Paying Agent]........................................... 29
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 Termination of Owner Trust Agreement....................................................... 29
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee................................................ 30
SECTION 10.2 Resignation or Removal of Owner Trustee................................................... 30
SECTION 10.3 Successor Owner Trustee................................................................... 31
SECTION 10.4 Merger or Consolidation of Owner Trustee.................................................. 32
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee................................. 32
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Supplements and Amendments................................................................ 33
SECTION 11.2 No Legal Title to Trust Estate in Owners.................................................. 34
SECTION 11.3 Limitations on Rights of Others........................................................... 35
SECTION 11.4 Notices................................................................................... 35
SECTION 11.5 Severability.............................................................................. 35
SECTION 11.6 Separate Counterparts..................................................................... 35
SECTION 11.7 Successors and Assigns.................................................................... 35
SECTION 11.8 No Petition............................................................................... 36
SECTION 11.9 No Recourse............................................................................... 36
SECTION 11.10 Headings.................................................................................. 36
SECTION 11.11 GOVERNING LAW............................................................................. 36
SECTION 11.12 Residual Interest Transfer Restrictions................................................... 36
SECTION 11.13 Third-Party Beneficiary................................................................... 36
</TABLE>
EXHIBIT A Form of Residual Interest Certificate
-iii-
<PAGE>
EXHIBIT B Form of Certificate of Trust
-iv-
<PAGE>
THIS OWNER TRUST AGREEMENT, dated as of ____ 1, ____ ("Agreement"),
---------
among NATIONAL MORTGAGE SECURITIES CORPORATION, a Virginia corporation, as
Depositor (the "Depositor"), [ ], a _______________ corporation (the
---------
"Company"), [ ], a __________ [banking] corporation, as Owner Trustee (the
-------
"Owner Trustee") [and [ ], a [national banking association] (the "Paying
------
Agent")].
- -----
WITNESSETH:
In consideration of the mutual agreements and covenants herein
contained, the Depositor, the Company[, the Paying Agent] and the Owner Trustee
hereby agree for the benefit of each of them and the holders of the Residual
Interest Certificates as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement,
-----------------
the following terms shall have the meanings set forth below:
"Administration Agreement" shall mean the Administration Agreement,
------------------------
dated as of _____ 1, ____, among the Issuer, the Company, as the Company and the
Master Servicer, and [ ], as Administrator, as the same may be amended from
time to time.
"Administrator" shall mean [ ], or any successor in interest
-------------
thereto, in its capacity as Administrator under the Administration Agreement.
"Agreement" shall mean this Owner Trust Agreement, as the same may be
---------
amended and supplemented from time to time.
"Basic Documents" shall mean the [Certificate of Trust, this
---------------
Agreement, the Indenture, the Master Servicing Agreement, the Administration
Agreement, the Insurance Agreement, the Indemnification Agreement, the Custodial
Agreement, the Note Depository Agreement, the Notes, the Asset Sale Agreement,
the Contribution Agreement, the Servicing Agreement] and other documents and
certificates delivered in connection herewith or therewith.
"Benefit Plan Investor" shall have the meaning assigned to such term
---------------------
in Section 3.10(b).
---------------
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
----------------------
Delaware Code, 12 Del. Code (S) 3801 et seq., as the same may be amended from
-- ---
time to time.
"Certificate Distribution Account" shall mean the account described in
--------------------------------
Section 5.1.
- -----------
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<PAGE>
"Certificate of Trust" shall mean the Certificate of Trust in the form
--------------------
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
-------------------- ---------------------
register mentioned and the registrar appointed pursuant to Section 3.4.
-----------
"Certificateholder" or "Holder" shall mean a Person in whose name a
----------------- ------
Residual Interest Certificate is registered.
"Corporate Trust Office" shall mean, with respect to the Trust, the
----------------------
principal corporate trust office of the Trust located at [_____________________
_______________________________________________________________________________
______], Attention: [Corporate Trust Administration]; or at such other address
in the State of Delaware as the Owner Trustee may designate by notice to the
Owners[, the Securities Insurer] and the Company, or the principal corporate
trust office of any successor Owner Trustee (the address (which shall be in the
State of Delaware) of which the successor owner trustee will notify the Owners[,
the Securities Insurer] and the Company).
"Definitive Certificate" means a certificated form of security that
----------------------
represents a Residual Interest Certificate.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Expenses" shall have the meaning assigned to such term in Section
-------- -------
8.2.
- ---
["Indemnification Agreement" shall mean the Indemnification Agreement,
-------------------------
dated as of ______ 1, ____, among [the Securities Insurer,] the Company, the
Issuer, the Depositor, [ ].]
"Indenture" shall mean the Indenture, dated as of _____ 1, ____, by
---------
and between the Issuer and the Indenture Trustee, as the same may be amended or
supplemented from time to time.
"Indenture Trustee" means [ ], as Indenture Trustee under the
-----------------
Indenture.
"Issuer" shall mean [ ] Owner Trust ____-__, the Delaware
------
business trust created pursuant to this Agreement.
"Majority Residual Interestholders" shall mean the Holders of more
---------------------------------
than an aggregate 50% Percentage Interest of the Residual Interest.
"Master Servicing Agreement" shall mean the Master Servicing Agreement
--------------------------
dated as of the date hereof, among the Owner Trust as Issuer, [ ], as
Indenture Trustee
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<PAGE>
and the Company, as Transferor and Master Servicer, as the same may be amended
or supplemented from time to time.
"Owner" shall mean each holder of a Residual Interest Certificate.
-----
"Owner Trustee" shall mean [ ], a __________ banking
-------------
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor owner trustee hereunder.
["Paying Agent" shall mean the Indenture Trustee or any successor in
------------
interest thereto or any other paying agent or co-paying agent appointed pursuant
to Section 3.9 hereunder and authorized by the Issuer to make payments to and
-----------
distributions from the Certificate Distribution Account.]
"Percentage Interest" shall mean with respect to each Residual
-------------------
Interest Certificate, the percentage portion of all of the Residual Interest
evidenced thereby as stated on the face of such Residual Interest Certificate.
"Prospective Owner" shall have the meaning set forth in Section
----------------- -------
3.10(a).
- -------
"Rating Agency Condition" means, with respect to any action to which a
-----------------------
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Depositor, the Servicer, the Master
Servicer, [the Securities Insurer,] the Owner Trustee and the Issuer shall have
been notified by the Rating Agencies in writing that such action will not result
in a reduction, withdrawal or qualification of the then current internal ratings
assigned to the Notes by each of the Rating Agencies [without respect to the
Securities Insurer].
"Record Date" shall mean as to each Payment Date the last Business Day
-----------
of the month immediately preceding the month in which such Payment Date occurs.
"Residual Interest" shall mean the right to receive distributions on
-----------------
each Payment Date, pursuant to Section 5.2 of this Agreement, [Section 4.02(c)
----------- ---------------
of] the Master Servicing Agreement and Section 5.04(b) of the Indenture.
"Residual Interest Certificate" shall mean a certificate substantially
-----------------------------
in the form attached as Exhibit A hereto and evidencing the Residual Interest.
---------
"Residual Interestholder" shall mean any Holder of a Percentage
-----------------------
Interest of the Residual Interest.
"Secretary of State" shall mean the Secretary of State of the State of
------------------
__________.
["Securities Insurer" shall mean [ ].]
------------------
"Servicer" shall mean [ ], a [ ] corporation, or any successor
--------
in interest thereto.
-3-
<PAGE>
"Servicing Agreement" shall mean the Servicing Agreement incorporating
-------------------
by reference the Agreement Regarding Standard Servicing Terms, each dated as of
the date hereof, between the Company and the Servicer, as the same may be
amended or supplemented from time to time.
"Trust" shall mean the trust established by this Agreement.
-----
"U.S. Person" shall mean a citizen or resident of the United States,
------------
a corporation or partnership (except as provided in applicable Treasury
regulations) created or organized in or under the laws of the United States, any
state or the District of Columbia, including any entity treated as a corporation
or partnership for federal income tax purposes, an estate that is subject to
U.S. federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more such U.S. Persons have authority to
control all substantial decisions of the trust (or, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to be treated as U.S. Persons).
SECTION 1.2 Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Master Servicing Agreement or, if not
defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
-4-
<PAGE>
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "[ ]
----
Owner Trust ____-__", in which name the Owner Trustee may conduct the business
of the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued.
SECTION 2.2 Office. The office of the Trust shall be in care of the
------
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners[, the
Securities Insurer] and the Company.
SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust is to
-------------------
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and to sell
such Notes;
(ii) with the proceeds of the sale of the Notes, to pay the
organizational, start-up and transactional expenses of the Trust and
to pay the balance to the Depositor and the Company, as their
interests may appear pursuant to the Master Servicing Agreement;
(iii) to purchase, hold, assign, grant, transfer, pledge,
mortgage and convey the Trust Estate pursuant to the Indenture and to
hold, manage and distribute to the Owners pursuant to the terms of the
Master Servicing Agreement any portion of the Trust Estate released
from the lien of, and remitted to the Trust pursuant to, the
Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith;
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Trust Estate and the making of distributions to
the Owners and the Noteholders; and
(vii) to issue the Residual Interest Certificates pursuant to
this Agreement.
-5-
<PAGE>
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4 Appointment of Owner Trustee. The Depositor hereby
----------------------------
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5 Initial Capital Contribution of Trust Estate. The
--------------------------------------------
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Trust Estate and
shall be deposited in the Certificate Distribution Account. The Depositor or the
Company shall pay reasonable organizational expenses of the Trust as they may
arise or shall, upon the request of the Owner Trustee, promptly reimburse the
Owner Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
--------------------
that it will hold the Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Owners, subject to the
obligations of the Trust under the Basic Documents. It is the intention of the
parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Agreement constitute the governing instrument of
such business trust. It is the intention of the parties hereto that, solely for
federal, state and local income and franchise tax purposes (i) so long as there
is a sole Owner, the Trust shall be treated as a security arrangement, with the
assets of the Trust being the Mortgage Assets and the other assets held by the
Trust, the owner of the Mortgage Assets being the sole Owner and the Notes being
non-recourse debt of the sole Owner, and (ii) if there is more than one Owner,
the Trust shall be treated as a partnership, with the assets of the partnership
being the Mortgage Assets and other assets held by the Trust, the partners of
the partnership being the holders of the Mortgage Assets and the Notes being
non-recourse debt of the partnership. The Trust shall not elect to be treated as
an association under Treasury Regulations Section 301.7701-3(a) for federal
income tax purposes. The parties agree that, unless otherwise required by
appropriate tax authorities, the sole Owner or the Trust will file or cause to
be filed annual or other necessary returns, reports and other forms consistent
with the characterization of the Trust as provided in the second preceding
sentence for such tax purposes. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein and in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
SECTION 2.7 Title to Trust Property.
-----------------------
(a) Subject to the Indenture, legal title to all the Trust Estate
shall be vested at all times in the Trust as a separate legal entity except
where applicable law in any jurisdiction requires title to any part of the Trust
Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Owner Trustee and/or a separate trustee, as the case
may be.
-6-
<PAGE>
(b) The Owners shall not have legal title to any part of the Trust
Estate. No transfer by operation of law or otherwise of any interest of the
Owners shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of any part of
the Trust Estate.
SECTION 2.8 Situs of Trust. The Trust will be located and
--------------
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware [or the
State of [New York]], except with respect to accounts maintained by the
Indenture Trustee on behalf of the Owner Trustee. The Trust shall not have any
employees; provided, however, that nothing herein shall restrict or prohibit the
Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware [or New York], and
payments will be made by the Trust only from Delaware [or New York], except with
respect to payments made by the Indenture Trustee on behalf of the Owner
Trustee. The only offices of the Trust will be at the Corporate Trust Office in
Delaware.
SECTION 2.9 Representations and Warranties of the Depositor and the
-------------------------------------------------------
Company; Covenants of the Company.
- ---------------------------------
[(a) The Depositor hereby represents and warrants to the Owner
Trustee [and the Securities Insurer] that:
(i) (A) it is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Virginia and has all
licenses necessary to carry on its business as now being conducted,
(B) it has the power and authority to execute and deliver this
Agreement and to perform in accordance herewith; (C) the execution,
delivery and performance of this Agreement (including all instruments
of transfer to be delivered pursuant to this Agreement) by the
Depositor and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action of the
Depositor; (D) this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and (E) all requisite action
has been taken by the Depositor to make this Agreement valid, binding
and enforceable upon the Depositor in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization,
moratorium and other, similar laws relating to or affecting creditors'
rights generally or the application of equitable principles in any
proceeding, whether at law or in equity;
(ii) The consummation of the transactions contemplated by this
Agreement will not result in (A) the breach of any terms or provisions
of the Articles of Incorporation or Bylaws of the Depositor, (B) the
breach of any term or provision of, or conflict with or constitute a
default under or result in the acceleration of any obligation under,
any material agreement, indenture or loan or credit agreement or other
material instrument to which the Depositor, or its property is
subject, or (C) the violation of any law, rule, regulation, order,
-7-
<PAGE>
judgment or decree to which the Depositor or its respective property
is subject; and
(iii) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any
federal, state, municipal or other governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or
its properties or might have consequences that would materially and
adversely affect its performance hereunder.]
[(b) The Company hereby represents and warrants to the Owner Trustee
[and the Securities Insurer] that:
(i) The Company is duly organized and validly existing as a
_________ [corporation] in good standing under the laws of the State
of [__________], with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted;
(ii) The Company is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of
property or the conduct of its business shall require such
qualifications;
(iii) The Company has the power and authority to execute and
deliver this Agreement and to carry out its terms; and the execution,
delivery and performance of this Agreement has been duly authorized by
the Company by all necessary corporate action;
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the [articles/certificate] of incorporation or [by-laws] of the
Company, or any indenture, agreement or other instrument to which the
Company is a party or by which it is bound; nor result in the creation
or imposition of any lien upon any of its properties pursuant to the
terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or, to the best
of the Company's knowledge, any order, rule or regulation applicable
to the Company of any court or of any Federal or state regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the Company or its properties;
(v) There are no proceedings or investigations pending or, to
the Company's best knowledge, threatened, before any court, regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the Company or its properties: (A) asserting
the invalidity of this
-8-
<PAGE>
Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Company of its obligations under, or the validity
or enforceability of, this Agreement;
(vi) The Company is not (A) an "employee benefit plan" within the
meaning of Section 3(3) of ERISA, or (B) a "plan" within the meaning
of Section 4975(e)(1) of the Code or (C) an entity, including an
insurance company separate account or general account, whose
underlying assets include plan assets by reason of a plan's investment
in the entity (each, a "Benefit Plan Investor") and is not directly or
---------------------
indirectly purchasing such Residual Interest Certificate on behalf of,
as investment manager of, as named fiduciary of, as trustee of, or
with the assets of a Benefit Plan Investor; and
(vii) The Company is a U.S. Person.]
[(c) The Company covenants with the Owner Trustee that during the
continuance of this Agreement it will comply in all respects with the provisions
of its [Articles/Certificate] of Incorporation in effect from time to time.]
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 Initial Ownership. Upon the formation of the Trust by
-----------------
the contribution by the Depositor pursuant to Section 2.5 and until the issuance
------------
of the Residual Interest Certificates, the Depositor shall be the sole Owner of
the Trust.
SECTION 3.2 The Residual Interest Certificates. The Residual
----------------------------------
Interest Certificates shall not be issued with a principal amount. The Residual
Interest Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of a Trust Officer of the Owner Trustee. Residual Interest
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Residual Interest
Certificates or did not hold such offices at the date of authentication and
delivery of such Residual Interest Certificates.
A transferee of a Residual Interest Certificate shall become an Owner,
and shall be entitled to the rights and subject to the obligations of an Owner
hereunder and under the Master Servicing Agreement, upon such transferee's
acceptance of a Residual Interest Certificate duly registered in such
transferee's name pursuant to Section 3.4.
-----------
SECTION 3.3 Execution, Authentication and Delivery of Residual
--------------------------------------------------
Interest Certificates. Concurrently with the initial sale of the Mortgage Assets
- ---------------------
to the Trust pursuant to the Master Servicing Agreement, the Owner Trustee on
behalf of the Trust shall cause the Residual
-9-
<PAGE>
Interest Certificates representing 100% of the Percentage Interests of the
Residual Interest to be executed, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Residual Interest Certificate shall
entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Residual Interest Certificate a
certificate of authentication substantially in the form set forth in Exhibit A,
---------
Owner Trustee or the Administrator, as the Owner Trustee's authenticating agent,
by manual or facsimile signature; such authentication shall constitute
conclusive evidence that such Residual Interest Certificate shall have been duly
authenticated and delivered hereunder. All Residual Interest Certificates shall
be dated the date of their authentication. [No Certificates, except the Residual
Interest Certificates, shall be issued by the Trust without the prior written
consent of the Securities Insurer.]
SECTION 3.4 Registration of Transfer and Exchange of Residual
-------------------------------------------------
Interest Certificates. The Certificate Registrar shall keep or cause to be
- ---------------------
kept, at the office or agency maintained pursuant to Section 3.8 a Certificate
-----------
Register in which, subject to such reasonable regulations as it may prescribe,
the Owner Trustee shall provide for the registration of Residual Interest
Certificates and of transfers and exchanges of Residual Interest Certificates as
herein provided. The Administrator shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Residual Interest
Certificate at the office or agency maintained pursuant to Section 3.8, the
-----------
Owner Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in the
name of the designated transferee or transferees, one or more new Residual
Interest Certificates in authorized denominations of a like aggregate amount
dated the date of authentication by the Owner Trustee or any authenticating
agent, provided that prior to such execution, authentication and delivery, the
--------
Owner Trustee, the Administrator[, the Securities Insurer] and the Certificate
Registrar shall have received an Opinion of Counsel to the effect that the
proposed transfer will not cause the Trust to be characterized as an association
(or a publicly traded partnership) taxable as a corporation or alter the tax
characterization of the Notes for federal income tax or Delaware state law
purposes. At the option of an Owner, Residual Interest Certificates may be
exchanged for other Residual Interest Certificates of authorized denominations
of a like aggregate amount upon surrender of the Residual Interest Certificates
to be exchanged at the office or agency maintained pursuant to Section 3.8.
-----------
Every Residual Interest Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Owner or his attorney duly authorized
in writing. In addition, each Residual Interest Certificate presented or
surrendered for registration of transfer and exchange must be accompanied by a
letter from the Prospective Owner certifying as to the representations set forth
in Sections 3.10(a) and (b). Each Residual Interest Certificate surrendered for
------------------------
registration of transfer or exchange shall be in substantially the form attached
hereto as Exhibit A and shall be canceled and disposed of by the Owner Trustee
---------
or the Certificate Registrar in accordance with its customary practice.
-10-
<PAGE>
No service charge shall be made for any registration of transfer or
exchange of Residual Interest Certificates, but the Owner Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer or
exchange of Residual Interest Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register
transfers or exchanges of Residual Interest Certificates for a period of 15 days
preceding the due date for any payment with respect to the Residual Interest
Certificates.
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest
------------------------------------------------------
Certificates. If (a) any mutilated Residual Interest Certificate shall be
- ------------
surrendered to the Certificate Registrar, or if the Certificate Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Residual Interest Certificate and (b) there shall be delivered to the
Certificate Registrar and the Owner Trustee such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Residual Interest Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee, or the Administrator as the Owner Trustee's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Residual Interest Certificate, a new Residual Interest
Certificate of like tenor and denomination. In connection with the issuance of
any new Residual Interest Certificate under this Section, the Owner Trustee or
the Certificate Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Residual Interest Certificate issued pursuant to this
Section shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Residual
Interest Certificate shall be found at any time.
SECTION 3.6 Persons Deemed Owners. Prior to due presentation of a
---------------------
Residual Interest Certificate for registration of transfer, the Owner Trustee or
the Certificate Registrar may treat the Person in whose name any Residual
Interest Certificate shall be registered in the Certificate Register as the
owner of such Residual Interest Certificate for the purpose of receiving
distributions pursuant to Section 5.2 and for all other purposes whatsoever, and
-----------
neither the Owner Trustee nor the Certificate Registrar shall be bound by any
notice to the contrary.
SECTION 3.7 Access to List of Owners' Names and Addresses. The Owner
---------------------------------------------
Trustee shall furnish or cause to be furnished to the Master Servicer, the
Servicer, the Depositor[, the Securities Insurer] and the Indenture Trustee,
within 15 days after receipt by the Owner Trustee of a request therefor from the
Master Servicer, the Servicer, the Depositor[, the Securities Insurer] or the
Indenture Trustee in writing, a list, in such form as the Master Servicer, the
Servicer, the Depositor[, the Securities Insurer] or the Indenture Trustee may
reasonably require, of the names and addresses of the Owners as of the most
recent Record Date. If a Certificateholder applies in writing to the Owner
Trustee, and such application states that the applicant desires to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Residual Interest Certificates and such application is accompanied
by a copy of the communication that such applicants propose to transmit, then
the Owner Trustee shall, within five Business Days after the receipt of such
application, afford such applicants
-11-
<PAGE>
access during normal business hours to the current list of Certificateholders.
Each Owner, by receiving and holding a Residual Interest Certificate, shall be
deemed to have agreed not to hold any of the Depositor, the Company, the
Certificate Registrar[, the Securities Insurer] or the Owner Trustee accountable
by reason of the disclosure of its name and address, regardless of the source
from which such information was derived.
SECTION 3.8 Maintenance of Office or Agency. The Owner Trustee shall
-------------------------------
maintain an office or offices or agency or agencies where Residual Interest
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Owner Trustee in respect of the
Residual Interest Certificates and the Basic Documents may be served. The Owner
Trustee initially designates the Administrator's office in the city of
[__________, _________] as its principal corporate trust office for such
purposes. The Owner Trustee shall give prompt written notice to the Company[,
the Securities Insurer] and to the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
[SECTION 3.9 Appointment of Paying Agent. The Owner Trustee hereby
---------------------------
appoints the Indenture Trustee as Paying Agent under this Agreement. The Owner
Trustee hereby appoints the Paying Agent to establish and maintain the
Certificate Distribution Account. The Paying Agent shall make distributions to
Residual Interestholders from the Certificate Distribution Account pursuant to
Section 5.2 hereof and [Section 4.02 of] the Master Servicing Agreement and
- ----------- ------------
shall report the amounts of such distributions to the Owner Trustee. The Paying
Agent shall have the revocable power to withdraw funds from the Certificate
Distribution Account for the purpose of making the distributions referred to
above. In the event that the Indenture Trustee shall no longer be the Paying
Agent hereunder, the Owner Trustee shall appoint a successor to act as Paying
Agent (which shall be a bank or trust company) [acceptable to the Securities
Insurer]. The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Owners in trust for the benefit of the
Residual Interestholders entitled thereto until such sums shall be paid to such
Owners. The Paying Agent shall return all unclaimed funds to the Owner Trustee,
and upon removal of a Paying Agent, such Paying Agent shall also return all
funds in its possession to the Owner Trustee. The provisions of Sections 7.1,
-------------
7.3, 7.4 and 8.1 shall apply to the Indenture Trustee also in its role as Paying
- ----------------
Agent, for so long as the Indenture Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise. [Notwithstanding anything herein
to the contrary, the Paying Agent shall be the same entity as the Indenture
Trustee under the Indenture and the Master Servicing Agreement, unless the
Securities Insurer consents to a different Paying Agent or a Securities Insurer
Default has occurred and is continuing. Notwithstanding any other provision, if
a Securities Insurer Default occurs, then the Securities Insurer's consent or
direction is not required. If the Paying Agent ceases to be the same entity as
the Indenture Trustee under the Indenture and the Master Servicing Agreement,
then, unless the Securities Insurer otherwise
-12-
<PAGE>
consents, the Paying Agent shall resign and the Owner Trustee shall assume the
duties and obligations of the Paying Agent hereunder and under the Master
Servicing Agreement.]]
SECTION 3.10 Restrictions on Transfer of Residual Interest
---------------------------------------------
Certificates.
- ------------
(a) Each prospective purchaser and any subsequent transferee of a
Residual Interest Certificate (each, a "Prospective Owner"), other than the
-----------------
Company, shall represent and warrant, in writing, to the Owner Trustee[, the
Securities Insurer] and the Certificate Registrar and any of their respective
successors that:
(i) Such Person is (A) a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), and is aware that the seller of the Residual
--------------
Interest Certificate may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
and is acquiring such Residual Interest Certificate for its own
account or for the account of one or more qualified institutional
buyers for whom it is authorized to act, or (B) an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2),
(3) or (7) of Rule 501 under the Securities Act (an "Institutional
-------------
Accredited Investor") that is acquiring the Residual Interest
-------------------
Certificate for its own account, or for the account of such an
Institutional Accredited Investor, for investment purposes and not
with a view to, or for offer or sale in connection with any
distribution in violation of the Securities Act;
(ii) Such Person understands that the Residual Interest
Certificate have not been and will not be registered under the
Securities Act and may be offered, sold or otherwise transferred only
to a person whom the seller reasonably believes is (A) a qualified
institutional buyer or (B) an Institutional Accredited Investor, and
in accordance with the terms hereof and any applicable securities laws
of any state of the United States;
(iii) Such Person understands that the Residual Interest
Certificates bear a legend to the following effect:
"THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS
RESIDUAL INTEREST CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL INTEREST
----
CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR
OTHERWISE DISPOSED OF BY THE HOLDER HEREOF ONLY TO (I) A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES
-13-
<PAGE>
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT PURSUANT TO RULE 144A OR (II) AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE ACT (INCLUDING,
BUT NOT LIMITED TO, [______________________]) IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED
TO REGISTER THIS RESIDUAL INTEREST CERTIFICATE UNDER THE ACT OR
ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of Section
-------
3.10(b), as applicable, relating to the ERISA restrictions with
-------
respect to the acceptance or acquisition of such Residual Interest
Certificate.
(b) Each Prospective Owner shall either:
(i) represent and warrant, in writing, to the Owner Trustee[, the
Securities Insurer] and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an
"employee benefit plan" within the meaning of Section 3(3) of ERISA,
or (B) a "plan" within the meaning of Section 4975(e)(1) of the Code
or (C) an entity, including an insurance company separate account or
general account, whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Benefit Plan Investor")
---------------------
and is not directly or indirectly purchasing such Residual Interest
Certificate on behalf of, as investment manager of, as named fiduciary
of, as trustee of, or with the assets of a Benefit Plan Investor; or
(ii) furnish to the Owner Trustee[, the Securities Insurer] and
the Certificate Registrar and any of their respective successors an
opinion of counsel acceptable to such persons that (A) the proposed
transfer of the Residual Interest Certificate to such Prospective
Owner will not cause any assets of the Trust to be deemed "plan
assets" within the meaning of United States Department of Labor
Regulation Section 2510.3-101, or (B) the proposed transfer of the
Residual Interest Certificate will not give rise to a transaction
described in Section 406 of ERISA or Section 4975(c)(1) of the Code
for which a statutory or administrative exemption is unavailable.
(c) The Residual Interest Certificates shall bear an additional legend
referring to the foregoing restrictions contained in paragraph (b) above.
-14-
<PAGE>
(d) Each Prospective Owner, other than the Company, shall represent
and warrant, in writing, to the Owner Trustee[, the Securities Insurer] and the
Certificate Registrar and any of their respective successors that it is a person
who is either (A)(i) a citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States,
any state or the District of Columbia, including any entity treated as a
corporation or partnership for federal income tax purposes or (iii) a person not
described in (A)(i) or (ii) whose ownership of the Residual Interest Certificate
is effectively connected with such person's conduct of a trade or business
within the United States (within the meaning of the Code) and its ownership of
any interest in a Residual Interest Certificate will not result in any
withholding obligation with respect to any payments with respect to the Residual
Interest Certificates by any person (other than withholding, if any, under
Section 1446 of the Code) or (B) an estate the income of which is subject to
United States federal income tax, regardless of source, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of such trust and one or more persons described in this paragraph
have the authority to control all substantial decisions of such trust (a person
described in (A)(i), (A)(ii), or B, a "U.S. Person"). It agrees that it will
-----------
provide a certification of non-foreign status signed under penalties of perjury
and, alternatively, that if it is a person described in clause (A)(iii) above,
it will furnish to the Administrator a properly executed IRS Form 4224 (or
successor form thereto) and a new IRS Form 4224 (or successor form thereto) upon
the expiration or obsolescence of any previously delivered form (and such other
certifications, representations or opinions of counsel as may be requested by
the Company).
(e) Each Certificateholder that is not a U.S. Person agrees that,
subsequent to delivery to the Owner Trustee[, the Securities Insurer] and the
Certificate Registrar of IRS Form 4224 or appropriate successor forms required
to evidence that the Certificateholder holds its Residual Interest
Certificate(s) in connection with a U.S. trade or business (within the meaning
of the Code), it will deliver to the Company and the Owner Trustee further
copies of the said IRS Form 4224 or such appropriate successor forms or other
manner of certification, as the case may be, on or before the date that any such
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the Company and
the Owner Trustee, and such extensions or renewals thereof as may reasonably be
requested by the Company and the Owner Trustee. Further, each Certificateholder
that is not a U.S. Person covenants as a condition to acquiring its Residual
Interest Certificate that for so long as it shall hold such Residual Interest
Certificate it shall be held in such manner that the income therefrom shall be
effectively connected with the conduct of a U.S. trade or business. In the
event that any Certificateholder shall breach the certifications,
representations, warranties or covenants set forth in this Article III, such
-----------
Certificateholder shall indemnify the Company, the Owner Trustee and the Trust
for any amounts (including interest and penalties thereon) payable by the
Company, the Owner Trustee or the Trust as a result of such breach.
-15-
<PAGE>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters;
-------------------------------------------------------
Covenants. (a) With respect to the following matters, the Owner Trustee shall
- ---------
not take action, and the Owners shall not direct the Owner Trustee to take any
action, unless at least [30] days before the taking of such action, the Owner
Trustee shall have notified the Owners [and the Securities Insurer] in writing
of the proposed action and [(i) the Securities Insurer shall have consented
thereto and (ii)] the Owners shall not have notified the Owner Trustee in
writing prior to the [30th] day after such notice is given that such Owners have
withheld consent or the Owners have provided alternative direction [(any
direction by the Owners shall require the prior consent of the Securities
Insurer)]:
(i) the initiation of any claim or lawsuit by the Trust
(except claims or lawsuits brought in connection with the collection
of the Mortgage Assets) and the compromise of any action, claim or
lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of the Mortgage
Assets);
(ii) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute);
(iii) the amendment or other change to this Agreement or any
Basic Document in circumstances where the consent of any Noteholder
[or the Securities Insurer] is required;
(iv) the appointment pursuant to the Indenture of a successor
Note Registrar[, Paying Agent] or Indenture Trustee or pursuant to
this Agreement of a successor Certificate Registrar, or the consent to
the assignment by the Note Registrar[, Paying Agent] or Indenture
Trustee or Certificate Registrar of its obligations under the
Indenture or this Agreement, as applicable;
(v) the consent to the calling or waiver of any default of any
Basic Document;
(vi) the consent to the assignment by the Indenture Trustee,
the Master Servicer or Servicer of their respective obligations under
any Basic Document;
(vii) except as provided in Article IX hereof, dissolve,
----------
terminate or liquidate the Trust in whole or in part;
(viii) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's
assets to any other entity;
-16-
<PAGE>
(ix) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement or the
Indenture;
(x) do any act that conflicts with any other Basic Document;
(xi) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(xii) confess a judgment against the Trust;
(xiii) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(xiv) cause the Trust to lend any funds to any entity; or
(xv) change the Trust's purpose and powers from those set forth
in this Agreement.
(b) Notwithstanding any provision of Section 4.1(a), the Owner Trustee
--------------
on behalf of the Trust agrees to abide by the following restrictions:
(i) other than as contemplated by the Basic Documents and
related documentation, the Trust shall not incur any indebtedness;
(ii) other than as contemplated by the Basic Documents and
related documentation, the Trust shall not engage in any dissolution,
liquidation, consolidation, merger or sale of assets;
(iii) the Trust shall not engage in any business activity in
which it is not currently engaged other as contemplated by the Basic
Documents and related documentation;
(iv) the Trust shall not form, or cause to be formed, any
subsidiaries and shall not own or acquire any asset other than as
contemplated by the Basic Documents and related documentation; and
(v) other than as contemplated by the Basic Documents and
related documentation, the Trust shall not follow the directions or
instructions of the Company.
(c) The Owner Trustee on behalf of the Trust shall:
(i) maintain the Trust's books and records separate from any
other person or entity;
(ii) maintain the Trust's bank accounts separate from any other
person or entity;
-17-
<PAGE>
(iii) not commingle the Trust's assets with those of any other
person or entity;
(iv) conduct the Trust's own business in its own name;
(v) other than as contemplated by the Basic Documents and
related documentation, pay the Trust's own liabilities and expenses
only out of its own funds;
(vi) observe all formalities required under the Business Trust
Statute;
(vii) enter into transactions with Affiliates or the Company
only if each such transaction is intrinsically fair, commercially
reasonable, and on the same terms as would be available in an arm's
length transaction with a person or entity that is not an Affiliate;
(viii) not guarantee or become obligated for the debts of any
other entity or person;
(ix) not hold out the Trust's credit as being available to
satisfy the obligation of any other person or entity;
(x) not acquire the obligations or securities of the Trust's
Affiliates or the Company;
(xi) other than as contemplated by the Basic Documents and
related documentation, not make loans to any other person or entity or
buy or hold evidence of indebtedness issued by any other person or
entity;
(xii) other than as contemplated by the Basic Documents and
related documentation, not pledge the Trust's assets for the benefit
of any other person or entity;
(xiii) hold the Trust out as a separate entity and conduct any
business only in its own name;
(xiv) correct any known misunderstanding regarding the Trust's
separate identity;
(xv) not identify the Trust as a division of any other person
or entity; and
(xvi) maintain appropriate minutes or other records of
appropriate actions and shall maintain its office separate from the
office of the Company, the Depositor and the Master Servicer.
-18-
<PAGE>
So long as the Notes or any other amounts owed under the Indenture
remain outstanding, the Trust shall not amend this Section 4.1 without the prior
-----------
written consent of 100% of the Voting Interests of the Notes and the consent of
each Rating Agency, in addition to the requirements under Section 11.1.
------------
(d) The Owner Trustee shall not have the power, except upon the
direction of the Owners [with the consent of the Securities Insurer or upon the
direction of the Securities Insurer], and, subject to Section 11.18 of the
-------------
Indenture, 100% of the Noteholders, and to the extent otherwise consistent with
the Basic Documents, to (i) remove or replace the Servicer, the Master Servicer
or the Indenture Trustee, (ii) institute proceedings to have the Trust declared
or adjudicated a bankrupt or insolvent, (iii) consent to the institution of
bankruptcy or insolvency proceedings against the Trust, (iv) file a petition or
consent to a petition seeking reorganization or relief on behalf of the Trust
under any applicable federal or state law relating to bankruptcy, (v) consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
any similar official) of the Trust or a substantial portion of the property of
the Trust, (vi) make any assignment for the benefit of the Trust's creditors,
(vii) cause the Trust to admit in writing its inability to pay its debts
generally as they become due or (viii) take any action, or cause the Trust to
take any action, in furtherance of any of the foregoing (any of the above, a
"Bankruptcy Action"). So long as the Indenture and the Insurance Agreement
- ------------------
remain in effect [and no Securities Insurer Default exists,] no
Certificateholder shall have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or direct the Owner Trustee to take
any Bankruptcy Action with respect to the Trust.
SECTION 4.2 Action by Owners with Respect to Certain Matters. The
------------------------------------------------
Owner Trustee shall not have the power, except upon the direction of the Owners
[and with the consent of the Securities Insurer or upon the direction of the
Securities Insurer], to (a) remove the Administrator under the Administration
Agreement pursuant to Section 9 thereof, (b) appoint a successor Administrator
---------
pursuant to Section 9 of the Administration Agreement, (c) remove the Master
---------
Servicer under the Master Servicing Agreement pursuant to Section 10.01 thereof
-------------
or (d) sell the Mortgage Assets after the termination of the Indenture. The
Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Owners [and, so long as no Securities
Insurer Default exists, only after obtaining the consent of the Securities
Insurer].
SECTION 4.3 Action by Owners with Respect to Bankruptcy. The Owner
-------------------------------------------
Trustee shall not have the power to commence a voluntary Bankruptcy Action
relating to the Trust unless the conditions specified in Section 4.1(d) are
--------------
satisfied and the Trust is insolvent.
SECTION 4.4 Restrictions on Owners' Power. The Owners shall not
-----------------------------
direct the Owner Trustee to take or refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the Owner
Trustee under this Agreement or any of the Basic Documents or would be contrary
to Section 2.3 nor shall the Owner Trustee be obligated to follow any such
-----------
direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein,
----------------
any action that may be taken by the Owners under this Agreement may be taken by
the Majority Residual
-19-
<PAGE>
Interestholders. Except as expressly provided herein, any written notice of the
Owners delivered pursuant to this Agreement shall be effective if signed by the
Majority Residual Interestholders at the time of the delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 Establishment of Trust Account. The Owner Trustee shall
------------------------------
cause the Master Servicer, for the benefit of the Owners[, the Securities
Insurer] and the Noteholders, to establish and maintain with the Indenture
Trustee for the benefit of the Owner Trustee one or more Eligible Accounts
which, so long as the Indenture Trustee holds such Trust Account on behalf of
the Owner Trustee, shall be entitled ["Certificate Distribution Account],
[________________________], as Indenture Trustee on behalf of the Owner Trustee,
the Owners[, the Securities Insurer] and the Noteholders, in trust for the
[________________] Owner Trust ____-__". Funds shall be deposited in the
Certificate Distribution Account as required by the Master Servicing Agreement.
All of the right, title and interest of the Owner Trustee [and the
Paying Agent] in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Owners and such other persons entitled to distributions therefrom.
Except as otherwise expressly provided herein or in the Master Servicing
Agreement, the Certificate Distribution Account shall be under the sole dominion
and control of the Owner Trustee [or Paying Agent] for the benefit of the
Owners[, the Securities Insurer] and the Noteholders.
In addition to the foregoing, the Certificate Distribution Account is
a Trust Account under the Master Servicing Agreement and constitutes part of the
Trust Estate pledged by the Trust to the Indenture Trustee under the Indenture.
The Certificate Distribution Account shall be subject to and established and
maintained in accordance with the applicable provisions of the Master Servicing
Agreement and the Indenture, including, without limitation, the provisions of
[Section 4.02(b) of] the Master Servicing Agreement regarding distributions from
- ----------------
the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to
direct the Owner Trustee or Indenture Trustee or their successor in interest, as
to the Permitted Investments in which the funds on deposit in the Trust Accounts
(as such term is defined in the Master Servicing Agreement) may be invested.
SECTION 5.2 Application Of Trust Funds.
--------------------------
(a) On each Payment Date, the Owner Trustee or Indenture Trustee, on
behalf of the Owner Trustee, shall direct the [Paying Agent] to distribute to
the Master Servicer and the Residual Interestholders from amounts on deposit in
the Certificate Distribution Account the distributions as provided in [Section
-------
4.02(b) of] the Master Servicing Agreement with respect to such Payment Date.
- -------
-20-
<PAGE>
(b) On each Payment Date, the Owner Trustee shall cause the [Paying
Agent] to send to each Residual Interestholder the statement provided to the
Owner Trustee by the Master Servicer pursuant to [Section 5.01 of] the Master
------------
Servicing Agreement with respect to such Payment Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to an
Owner shall be treated as cash distributed to such Owner at the time it is
withheld by the Trust and remitted to the appropriate taxing authority. In the
event of any claimed overwithholding, Owners shall have no claim for recovery
against the Trust or other Owners. If the amount withheld was not withheld from
actual distributions, the Trust may, at its option, (i) require the Owner to
reimburse the Trust for such withholding (and each Owner agrees to reimburse the
Trust promptly following such request) or (ii) reduce any subsequent
distributions by the amount of such withholding. If the Owner Trustee
determines that a withholding tax is payable with respect to a distribution
(such as a distribution to an Owner (or any other beneficial owner of the Owner
Trust) that is not a U.S. Person and that has not established an applicable
exemption from withholding (such as an effective Form W-8 or Form 1001), the
Owner Trustee shall in its sole discretion withhold such amounts as it
determines are required to be withheld in accordance with this paragraph (c).
In the event that an Owner wishes to apply for a refund of any such withholding
tax, the Owner Trustee shall reasonably cooperate with such owner in making such
claim so long as such Owner agrees to reimburse the Owner Trustee for any out-
of-pocket expenses incurred.
SECTION 5.3 Method of Payment. Subject to Section 3.10,
----------------- ------------
distributions required to be made to Owners on any Payment Date shall be made to
each Owner of, record on the preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Holder at a bank or other
entity having appropriate facilities therefor, if such Owner shall have provided
to the Certificate Registrar appropriate written instructions at least five
Business Days prior to such Payment Date; or, if not, by check mailed to such
Owner at the address of such holder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections
---------------------------------- --------
4.1, 5.1 and 5.2, moneys received by the Owner Trustee hereunder and deposited
- ----------------
into the Certificate Distribution Account will be segregated except to the
extent required otherwise by law or the Master Servicing Agreement and shall be
invested in Permitted Investments at the direction of the Company. The Owner
Trustee shall not be liable for payment of any interest in respect of such
moneys.
SECTION 5.5 Accounting and Reports to the Certificateholder, Owners,
--------------------------------------------------------
the Internal Revenue Service and Others. The Owner Trustee shall deliver to
- ---------------------------------------
each Owner [and the Securities Insurer], as may be required by the Code and
applicable Treasury Regulations, or as
-21-
<PAGE>
may be requested by such Owner [and the Securities Insurer], such information,
reports or statements as may be necessary to enable each Owner to prepare its
federal and state income tax returns. Consistent with the Trust's
characterization for tax purposes as a security arrangement for the issuance of
non-recourse debt so long as the Company or any other Person is the sole Owner,
no federal income tax return shall be filed on behalf of the Trust unless either
(i) the Owner Trustee [and the Securities Insurer] shall receive an Opinion of
Counsel that, based on a change in applicable law occurring after the date
hereof, or as a result of a transfer by the Company permitted by Section 3.4,
the Code requires such a filing or (ii) the Internal Revenue Service shall
determine that the Trust is required to file such a return. In the event that
there shall be two or more beneficial owners of the Trust, the Owner Trustee
shall inform the Indenture Trustee [and the Securities Insurer] in writing of
such event, (x) the Owner Trustee shall prepare or shall cause to be prepared
federal and, if applicable, state or local partnership tax returns required to
be filed by the Trust and shall remit such returns to the Company (or if the
Company no longer owns any Residual Interest Certificates, the Owner designated
for such purpose by the Company to the Owner Trustee in writing) at least (5)
days before such returns are due to be filed, and (y) capital accounts shall be
maintained for each Owner (or beneficial owner) in accordance with the Treasury
Regulations under Section 704(b) of the Code reflecting each such Owner's (or
beneficial owner's) share of the income, gains, deductions, and losses of the
Trust and/or guaranteed payments made by the Trust and contributions to, and
distributions from, the Trust. The Company (or such designee Owner, as
applicable) shall promptly sign such returns and deliver such returns after
signature to the Owner Trustee and such returns shall be filed by the Owner
Trustee with the appropriate tax authorities. In the event that a "tax matters
partner" (within the meaning of Code Section 6231(a)(7)) is required to be
appointed with respect to the Trust, the Company is hereby designated as tax
matters partner or, if the Company is not an Owner, the Owner selected by a
majority of the Owners (by Percentage Interest) shall be designated as tax
matters partner. In no event shall the Owner Trustee or the Company (or such
designee Owner, as applicable) be liable for any liabilities, costs or expenses
of the Trust or the Noteholders arising out of the application of any tax law,
including federal, state, foreign or local income or excise taxes or any other
tax imposed on or measured by income (or any interest, penalty or addition with
respect thereto or arising from a failure to comply therewith) except for any
such liability, cost or expense attributable to any act or omission by the Owner
Trustee or the Company (or such designee Owner, as applicable), as the case may
be, in breach of its obligations under this Agreement.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
-----------------
directed to execute and deliver or cause to be executed and delivered the Notes,
the Residual Interest Certificates and the Basic Documents to which the Trust is
to be a party and each certificate or other document attached as an exhibit to
or contemplated by the Basic Documents to which the Trust is to be a party and
any amendment or other agreement or instrument described in Article III, in each
-----------
case, in such form as the Company shall approve, as evidenced conclusively by
the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to
-22-
<PAGE>
authenticate and deliver the Notes in the aggregate principal amount of
$XX,XXX,XXX. In addition to the foregoing, the Owner Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust, pursuant to
the Basic Documents.
SECTION 6.2 General Duties. It shall be the duty of the Owner
--------------
Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Basic Documents
to which the Trust is a party and to administer the Trust in the interest of the
Owners, subject to the Basic Documents and in accordance with the provisions of
this Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator or the Indenture Trustee has
agreed in the Administration Agreement or this Agreement, respectively, to
perform any act or to discharge any duty of the Owner Trustee or the Trust
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator or the Indenture Trustee
to carry out its obligations under the Administration Agreement or this
Agreement, respectively; and
(b) to obtain and preserve, the Issuer's qualification to do business
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, the
Collateral and each other instrument and agreement included in the Trust Estate.
SECTION 6.3 Action upon Instruction.
-----------------------
(a) Subject to the terms of this Agreement and in accordance with the
terms of the Basic Documents, the Owners may by written instruction direct the
Owner Trustee in the management of the Trust but only to the extent consistent
with the limited purpose of the Trust. Such direction may be exercised at any
time by written instruction of the Owners pursuant to Article IV.
----------
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Owners [and the
Securities Insurer] requesting instruction from the Owners [and the Securities
Insurer] as to the course of action to be adopted, and to the extent the Owner
Trustee acts in good faith [in accordance with any written instruction of the
Securities Insurer, or with the prior consent of the Securities Insurer, the
Owners received], the Owner Trustee shall not be liable on account of such
action to any Person. [Upon the occurrence of a Securities Insurer Default no
consent, approval or direction of the Securities Insurer shall be required.] If
the Owner Trustee shall not have received appropriate instruction within 10 days
of such notice
-23-
<PAGE>
(or within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action, not inconsistent with this
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Owners, and shall have no liability to any Person for such action or
inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to [the Securities
Insurer and] the Owners requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received [from the Securities Insurer, or with the prior consent of
the Securities Insurer,] from the Owners, the Owner Trustee shall not be liable,
on account of such action or inaction, to any Person. If the Owner Trustee
shall not have received appropriate instruction within 10 days of such notice
(or within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action, not inconsistent with this
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Owners, and shall have no liability to any Person for such action or
inaction.
[(e)Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of a Securities Insurer Default no consent, approval or direction
of the Securities Insurer shall be required for any action otherwise permitted
hereunder.]
SECTION 6.4 No Duties Except as Specified in this Agreement, the
----------------------------------------------------
Basic Documents or in Instructions. The Owner Trustee shall not have any duty
- ----------------------------------
or obligation to manage, make any payment with respect to, register, record,
sell, dispose of, or otherwise deal with the Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Basic Document or in any document
or written instruction received by the Owner Trustee pursuant to Section 6.3;
-----------
and no implied duties or obligations shall be read into this Agreement or any
Basic Document against the Owner Trustee. The Owner Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Basic Document. The Owner Trustee nevertheless agrees that it
will, at its own cost and expense, promptly take all action as may be necessary
to discharge any liens on any part of the Trust Estate that result from actions
by, or claims against, the Owner Trustee that are not related to the ownership
or the administration of the Trust Estate.
SECTION 6.5 No Action Except Under Specified Documents or
---------------------------------------------
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose
- ------------
of or otherwise deal with any part
-24-
<PAGE>
of the Trust Estate except (i) in accordance with the powers granted to and the
authority conferred upon the Owner Trustee pursuant to this Agreement, (ii) in
accordance with the Basic Documents and (iii) in accordance with any document or
instruction delivered to the Owner Trustee pursuant to Section 6.3.
-----------
SECTION 6.6 Restrictions. The Owner Trustee shall not take any
------------
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
- -----------
result in the Trust's becoming taxable as a corporation for Federal income tax
purposes. The Owners shall not direct the Owner Trustee to take action that
would violate the provisions of this Section.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. The Owner Trustee
-------------------------------
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement and the
Basic Documents. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct or gross negligence or (ii) in the
case of the inaccuracy of any representation or warranty contained in Section
-------
7.3 expressly made by the Owner Trustee. In particular, but not by way of
- ---
limitation (and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Owners;
(c) no provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or under
any Basic Document if the Owner Trustee shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution hereof by
the Depositor or the Company or for the form, character, genuineness,
sufficiency, value or validity of any of the Trust Estate or for or in respect
of the validity or sufficiency of the Basic Documents, other than the
certificate
-25-
<PAGE>
of authentication on the Residual Interest Certificates, and the Owner Trustee
shall in no event assume or incur any liability, duty, or obligation to any
Noteholder or to any Owner, other than as expressly provided for herein and in
the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Depositor, the Company, the Indenture
Trustee, the Master Servicer or the Servicer under any of the Basic Documents or
otherwise and the Owner Trustee shall have no obligation or liability to perform
the obligations of the Trust under this Agreement or the Basic Documents that
are required to be performed by the Administrator under the Administration
Agreement, the Indenture Trustee under the Indenture or the Master Servicer
under the Master Servicing Agreement or the Servicer under the Servicing
Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of any of
the Owners, unless such Owners have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its gross negligence or willful misconduct in the
performance of any such act provided, that the Owner Trustee shall be liable for
its negligence or willful misconduct in the event that it assumes the duties and
obligations of the Indenture Trustee under the Master Servicing Agreement
pursuant to Section 10.5.
------------
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
-----------------------
(a) to the Owners [and the Securities Insurer] promptly upon receipt of a
written request therefor, duplicates or copies of all reports, notices,
requests, demands, certificates, financial statements and any other instruments
furnished to the Owner Trustee under the Basic Documents and (b) to Noteholders
promptly upon written request therefor, copies of the Master Servicing
Agreement, the Administration Agreement and the Owner Trust Agreement.
SECTION 7.3 Representations and Warranties.
------------------------------
[(a) The Owner Trustee hereby represents and warrants to the
Depositor[, the Securities Insurer] and the Company, for the benefit of the
Owners, that:
(i) It is a [banking corporation] duly organized and validly
existing in good standing under the laws of the State of [__________].
It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
-26-
<PAGE>
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or [____________] law, governmental rule
or regulation governing the banking or trust powers of the Owner
Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.]
[(b) The Paying Agent hereby represents and warrants to the
Depositor[, the Securities Insurer] and the Company that:
(i) It is a [national banking association] duly organized and
validly existing in good standing under the laws of [the United
States]. It has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement.
(ii) It has taken all action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or State law, governmental rule or
regulation governing the banking or trust powers of the Paying Agent
or any judgment or order binding on it, or constitute any default
under its charter documents or by-laws or any indenture, mortgage,
contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.]
SECTION 7.4 Reliance; Advice of Counsel.
---------------------------
(a) The Owner Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond, or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
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<PAGE>
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the opinion or advice of any such counsel,
accountants or other such persons and not contrary to this Agreement or any
Basic Document.
SECTION 7.5 Not Acting in Individual Capacity. Except as provided in
---------------------------------
this Agreement, in accepting the trusts hereby created [_____________________]
acts solely as Owner Trustee hereunder and not in its individual capacity and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Document shall look
only to the Trust Estate for payment or satisfaction thereof.
SECTION 7.6 Owner Trustee Not Liable for Residual Interest
----------------------------------------------
Certificates or Mortgage Assets. The recitals contained herein and in the
- -------------------------------
Residual Interest Certificates (other than the signature and countersignature of
the Owner Trustee on the Residual Interest Certificates) shall be taken as the
statements of the Depositor and the Company, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Agreement, of any
Basic Document or of the Residual Interest Certificates (other than the
signature and countersignature of the Owner Trustee on the Residual Interest
Certificates and as specified in Section 7.3) or the Notes, or of any Mortgage
-----------
Assets or related documents. The Owner Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Mortgage Asset, or the perfection and priority of any
security interest created by any Mortgage Asset or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Trust
Estate or its ability to generate the payments to be distributed to Owners under
this Agreement or the Noteholders under the Indenture, including, without
limitation: the existence, condition and ownership of any Mortgaged Property;
the existence and enforceability of any insurance thereon; the existence and
contents of any Mortgage Asset on any computer or other record thereof, the
validity of the assignment of the Mortgage Assets to the Trust or of any
intervening assignment; the completeness of any Mortgage Asset; the performance
or enforcement of any Mortgage Asset; the compliance by the Depositor, the
Company, the Master Servicer or the Servicer with any warranty or representation
made under any Basic Document or in any related document or the accuracy of any
such warranty or representation or any action of the Administrator, the
Indenture Trustee, the Master Servicer or the Servicer or any subservicer taken
in the name of the Owner Trustee.
SECTION 7.7 Owner Trustee May Own Residual Interest Certificates and
--------------------------------------------------------
Notes. The Owner Trustee in its individual or any other capacity may become the
- -----
owner or pledgee of Residual Interest Certificates or Notes and may deal with
the Depositor, the Company, the Administrator, the Indenture Trustee and the
Master Servicer in banking transactions with the same rights as it would have if
it were not Owner Trustee.
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<PAGE>
SECTION 7.8 Licenses. The Owner Trustee shall cause the Trust to use
--------
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Basic Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE [AND PAYING AGENT]
SECTION 8.1 Fees and Expenses. The Owner Trustee shall receive as
-----------------
compensation for its services hereunder such fees as have been separately agreed
upon before the date hereof between the Company and the Owner Trustee, and the
Owner Trustee shall be entitled to be reimbursed by the Company for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Owner Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder. [The Paying Agent shall receive as
compensation for its services hereunder such fees, if any, as have been
separately agreed upon before the date hereof between the Company and the Paying
Agent.]
SECTION 8.2 Indemnification. The Company shall be liable as primary
---------------
obligor, and the Master Servicer as secondary obligor pursuant to the
Administration Agreement, for, and shall indemnify the Owner Trustee[, the
Paying Agent] and [its/their] successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
-------------------
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may at any time be imposed on, incurred by, or asserted
- ---------
against the Owner Trustee or any Indemnified Party in any way relating to or
arising out of this Agreement, the Basic Documents, the Trust Estate, the
administration of the Trust Estate or the action or inaction of the Owner
Trustee [or the Paying Agent] hereunder. The indemnities contained in this
Section shall survive the resignation or termination of the Owner Trustee or the
termination of this Agreement. In any event of any claim, action or proceeding
for which indemnity will be sought pursuant to this Section, the Owner Trustee's
[or Paying Agent's] choice of legal counsel shall be subject to the approval of
the Company, which approval shall not be unreasonably withheld.
SECTION 8.3 Payments to the Owner Trustee [and Paying Agent]. Any
------------------------------------------------
amounts paid to the Owner Trustee [and/or Paying Agent] pursuant to this Article
-------
VIII shall be deemed not to be a part of the Trust Estate immediately after such
- ----
payment.
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 Termination of Owner Trust Agreement.
------------------------------------
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<PAGE>
(a) This Agreement (other than Article VIII) and the Trust shall
------------
terminate and be of no further force or effect on the earlier of: (i) the
satisfaction and discharge of the Indenture pursuant to Section 4.01 of the
------------
Indenture and the termination of the Master Servicing Agreement and the
Insurance Agreement; and (ii) the expiration of 21 years from the death of the
last survivor of the descendants of Joseph P. Kennedy (the late ambassador of
the United States to the Court of St. James's) alive on the date hereof. The
bankruptcy, liquidation, dissolution, death or incapacity of any Owner shall not
(x) operate to terminate this Agreement or the Trust, nor (y) entitle such
Owner's legal representatives or heirs to claim an accounting or to take any
action or proceeding in any court for a partition or winding up of all or any
part of the Trust or Trust Estate nor (z) otherwise affect the rights,
obligations and liabilities of the parties hereto.
(b) The Residual Interest Certificates shall be subject to an early
redemption or termination at the option of the Majority Residual
Interestholders[, the Securities Insurer] or the Servicer in the manner and
subject to the provisions of [Section 9.02 of] the Master Servicing Agreement.
------------
(c) Except as provided in Sections 9.1(a) and (b) above, none of the
-----------------------
Depositor, the Company[, the Securities Insurer] nor any Owner shall be entitled
to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the Payment
Date upon which the Certificateholders shall surrender their Residual Interest
Certificates to the [Paying Agent] for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders[,
the Securities Insurer] and the Rating Agencies mailed within five Business Days
of receipt by the Owner Trustee of notice of such termination pursuant to
Section 9.1(a) or (b) above, which notice given by the Owner Trustee shall state
- -------------- ---
(i) the Payment Date upon or with respect to which final payment of the Residual
Interest Certificates shall be made upon presentation and surrender of the
Residual Interest Certificates at the office of the [Paying Agent] therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Payment Date is not applicable, payments being
made only upon presentation and surrender of the Residual Interest Certificates
at the office of the [Paying Agent] therein specified. The Owner Trustee shall
give such notice to the Certificate Registrar (if other than the Owner Trustee)
[and the Paying Agent] at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Residual Interest Certificates, the
[Paying Agent] shall cause to be distributed to Certificateholders amounts
distributable on such Payment Date pursuant to [Section 4.02 of] the Master
------------
Servicing Agreement.
In the event that all of the Certificateholders shall not surrender
their Residual Interest Certificates for cancellation within six months after
the date specified in the above mentioned written notice, the Owner Trustee
shall give a second written notice to the remaining Certificateholders to
surrender their Residual Interest Certificates for cancellation and receive the
final distribution with respect thereto. If within one year after the second
notice all the Residual Interest Certificates shall not have been surrendered
for cancellation, the Owner Trustee may take appropriate steps, or may appoint
an agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Residual Interest Certificates, and the cost
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<PAGE>
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the [Paying Agent] to the Residual
Interestholders on a pro rata basis.
(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
------------------------------------------
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers
having a combined capital and surplus of at least $[50,000,000] and subject to
supervision or examination by Federal or state authorities; having (or having a
parent which has) a long-term rating of at least "A" by S&P and Moody's [and
being acceptable to the Securities Insurer]. If such corporation shall publish
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Owner Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
------------
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner
----------------------------------------
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator[, the Securities Insurer]
and the Indenture Trustee. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor Owner Trustee [(acceptable to
the Securities Insurer)] by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to the
successor Owner Trustee. If no successor Owner Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Owner Trustee [or the Securities Insurer]
may petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
------------
written request therefor by the Administrator [or the Securities Insurer], or if
at any time the Owner Trustee shall be legally unable to act, or shall be
adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or of its
property shall be appointed, or any public officer shall take charge or control
of the Owner Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then [the Securities Insurer, or]
the Administrator [with the consent of the Securities Insurer,] may remove the
Owner Trustee. If [the Securities Insurer or] the Administrator shall remove
the Owner Trustee under the authority of the immediately preceding sentence,
[the Securities Insurer,
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<PAGE>
or] the Administrator [with the prior consent of the Securities Insurer,] shall
promptly appoint a successor Owner Trustee by written instrument in duplicate,
one copy of which instrument shall be delivered to the outgoing Owner Trustee so
removed and one copy to the successor Owner Trustee and payment of all fees owed
to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3[, Securities Insurer provides written approval
-------------
and payment of all fees and expenses owed to the outgoing Owner Trustee]. The
Administrator shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies [and the Securities Insurer].
SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
-----------------------
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
------------
Administrator[, the Securities Insurer] and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee [(if acceptable to the Securities Insurer)],
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Administrator and the predecessor Owner Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
------------
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Administrator shall mail notice of the successor of such
Owner Trustee to all Owners, the Indenture Trustee, the Noteholders[, the
Securities Insurer] and the Rating Agencies. If the Administrator fails to mail
such notice within 10 days after acceptance of appointment by the successor
Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed
at the expense of the Administrator.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any
----------------------------------------
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
-------- ------------
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee shall mail notice of such merger or
- -------- -------
consolidation to [the Securities Insurer and] the Rating Agencies.
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<PAGE>
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner
-------------------------------------------------
Trustee. Notwithstanding any other provisions of this Agreement, at any time,
- -------
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate or any Mortgaged Property may at the time be
located, and for the purpose of performing certain duties and obligations of the
Owner Trustee with respect to the Trust and the Residual Interest Certificates
under the Master Servicing Agreement, the Administrator and the Owner Trustee
acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Owner Trustee [and
acceptable to the Securities Insurer] to act as co-owner trustee, jointly with
the Owner Trustee, or separate trustee or separate trustees, of all or any part
of the Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the
Administrator[, the Securities Insurer] and the Owner Trustee may consider
necessary or desirable. If the Administrator shall not have joined in such
appointment within 25 days after the receipt by it of a request so to do, the
Owner Trustee [(with the consent of the Securities Insurer)] shall have the
power to make such appointment. No co-owner trustee or separate owner trustee
under this Agreement shall be required to meet the terms of eligibility as a
successor trustee pursuant to Section 10.1 and no notice of the appointment of
------------
any co-trustee or separate owner trustee shall be required pursuant to Section
-------
10.3 [except that notice to, and the written consent of, the Securities Insurer
- ----
shall be required for the appointment of a co-trustee].
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised
or performed by the Owner Trustee and such separate owner trustee or
co-owner trustee jointly (it being understood that such separate owner
trustee or co-owner trustee is not authorized to act separately
without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or
acts are to be performed, the Owner Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate owner trustee or co-
owner trustee, but solely at the direction of the Owner Trustee;
[provided that Paying Agent, in performing its duties and obligations
---------
under the Master Servicing Agreement, may act separately in its
capacity as Indenture Trustee without the Owner Trustee joining in
such Acts;]
(ii) no owner trustee under this Agreement shall be personally
liable by reason of any act or omission of any other owner trustee
under this Agreement; and
(iii) the Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate owner
trustee or co-owner trustee.
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<PAGE>
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to the separate owner trustees and co-owner
trustees, as if given to each of them. Every instrument appointing any separate
owner trustee or co-owner trustee, other than this Agreement, shall refer to
this Agreement and to the conditions of this Article. Each separate owner
trustee and co-owner trustee, upon its acceptance of appointment, shall be
vested with the estates specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Owner Trustee. Each such instrument shall
be filed with the Owner Trustee and a copy thereof given to the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate owner
trustee or co-owner trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
[The Indenture Trustee, in its capacity as Paying Agent, shall not
have any rights, duties or obligations except as expressly provided in this
Agreement and the Master Servicing Agreement.]
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Supplements and Amendments. This Agreement may be
--------------------------
amended by the Depositor, the Company and the Owner Trustee[, with the prior
consent of the Securities Insurer] and with prior written notice to the Rating
Agencies, but without the consent of any of the Noteholders or the Owners or the
Indenture Trustee, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the Owners provided,
--------
however, that such action shall not adversely affect in any material respect the
- -------
interests of any Noteholder or Owner[, or, without its consent, the Paying
Agent]. An amendment described above shall be deemed not to adversely affect in
any material respect the interests of any Noteholder or Owner if (i) an opinion
of counsel is obtained to such effect, and (ii) the party requesting the
amendment satisfies the Rating Agency Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the Rating
Agencies[, the Securities Insurer] and with the prior written consent of the
Indenture Trustee, the Holders (as defined in the Indenture) of Notes evidencing
more than 50% of the Outstanding Amount of the Notes and the Majority Residual
Interestholders, [and if affected thereby, the Paying Agent,] for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
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<PAGE>
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Owners; provided, however, that no such amendment shall (a)
-------- -------
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Mortgage Assets or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes or the Percentage Interests required to consent to any such
amendment, in either case of clause (a) or (b) without the consent of the
holders of all the outstanding Notes, and in the case of clause (b) without the
consent of the holders of all the outstanding Residual Interest Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee[, the
Securities Insurer] and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders
or the Indenture Trustee pursuant to this Section to approve the particular form
of any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Owners provided for in this Agreement or in any other
Basic Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2 No Legal Title to Trust Estate in Owners. The Owners
----------------------------------------
shall not have legal title to any part of the Trust Estate. The Owners shall be
entitled to receive distributions with respect to their undivided ownership
interest therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title, or interest of the Owners to
and in their ownership interest in the Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Trust
Estate.
SECTION 11.3 Limitations on Rights of Others. The provisions of this
-------------------------------
Agreement are solely for the benefit of the Owner Trustee, the Depositor, the
Company, the Owners, the Administrator[, the Paying Agent][, the Securities
Insurer] and, to the extent expressly provided herein, the Indenture Trustee and
the Noteholders, and nothing in this Agreement, whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Trust Estate or under or in respect of this Agreement or
any covenants, conditions or provisions contained herein.
-35-
<PAGE>
SECTION 11.4 Notices. (a) Unless otherwise expressly specified or
-------
permitted by the terms hereof, all notices shall be in writing, mailed by
certified mail, postage prepaid, return receipt requested, and shall be deemed
given upon actual receipt by the intended recipient, at the following addresses:
(i) if to the Owner Trustee, its [Corporate Trust Office]; (ii) if to the
Depositor, National Mortgage Securities Corporation, 909 East Main Street,
Richmond, Virginia 23218, Attention: [____________]; (iii) if to the Company,
[____________________________________________], Attention: [____________]; (iv)
if to the Indenture Trustee [or the Paying Agent], [___________________
_________________________________________________________________], Attention:
[____________]; [(v) if to the Securities Insurer, [[ ],
Attention: [ ] Re: [____________________] Owner Trust ____- ___
telephone: ( ) [ ]-[ ], confirmation [_________]]]; or, as to each
such party, at such other address as shall be designated by such party in a
written notice to each other party.
(b) Any notice required or permitted to be given to an Owner shall be
given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Owner receives such notice.
SECTION 11.5 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6 Separate Counterparts. This Agreement may be executed
---------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7 Successors and Assigns. All covenants and agreements
----------------------
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company[, the Securities Insurer], the Owner Trustee and its
successors and each owner and its successors and permitted assigns, all as
herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by an Owner shall bind the successors and assigns of such
Owner.
SECTION 11.8 No Petition. The Owner Trustee, by entering into this
-----------
Agreement, each Owner, by accepting a Residual Interest Certificate, the
Depositor, the Company and the Indenture Trustee and each Noteholder by
accepting the benefits of this Agreement, hereby covenant and agree that they
will not at any time institute against the Company, the Depositor or the Trust,
as the case may be, or join in any institution against the Company or the Trust
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or law in connection with any obligations relating to the Residual
Interest Certificates, the Notes, this Agreement or any of the Basic Documents.
-36-
<PAGE>
SECTION 11.9 No Recourse. Each Owner by accepting a Residual
-----------
Interest Certificate acknowledges that such Residual Interest Certificate
represents a beneficial interest in the Trust only and does not represent an
interest in or an obligation of the Company, the Master Servicer, the Depositor,
the Administrator, the Owner Trustee[, the Indenture Trustee, the Securities
Insurer] or any Affiliate thereof and no recourse may be had against such
parties or their assets, except as may be expressly set forth or contemplated in
this Agreement, the Residual Interest Certificates or the Basic Documents.
SECTION 11.10 Headings. The headings of the various Articles and
--------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF [____________], WITHOUT REFERENCE TO
ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.12 Residual Interest Transfer Restrictions. The Residual
---------------------------------------
Interest may not be acquired by or for the account of a Benefit Plan Investor.
By accepting and holding a Residual Interest Certificate, the Owner thereof
shall be deemed to have represented and warranted that it is not a Benefit Plan
Investor.
[SECTION 11.13 Third-Party Beneficiary. The parties hereto
-----------------------
acknowledge that the Securities Insurer is an express third party beneficiary
hereof entitled to enforce any rights reserved to it hereunder as if it were
actually a party hereto.]
[SIGNATURE PAGE FOLLOWS]
-37-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused to be
executed in its name and on its behalf by a duly authorized officer, as of the
day and year first above written, this OWNER TRUST AGREEMENT.
NATIONAL MORTGAGE SECURITIES
CORPORATION, as Depositor
By: ______________________________
Name: [____________]
Title: [__________]
[_______________________________], as
Transferor
By: ______________________________
Name: [____________]
Title: [__________]
[____________] OWNER TRUST ____-__, as Issuer
By: [_________________], not in its individual
capacity but solely as Owner Trustee
By: ______________________________
Name:
Title:
[[____________________________],
not in its individual capacity but solely as
Paying Agent
By: ______________________________
Name:
Title:]
<PAGE>
EXHIBIT A
TO THE OWNER TRUST AGREEMENT
FORM OF RESIDUAL INTEREST CERTIFICATE
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
---
INTEREST CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE
DISPOSED OF BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE ACT (INCLUDING, BUT NOT LIMITED TO,
[___________________]) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS
RESIDUAL INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
EXCEPT AS PROVIDED IN SECTION 3.10(B) OF THE OWNER TRUST AGREEMENT, NO TRANSFER
OF THIS RESIDUAL INTEREST CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN SHALL BE
MADE UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO
THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" WITHIN
THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, (B) A "PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (C) AN ENTITY WHOSE UNDERLYING
ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY (EACH,
A "BENEFIT PLAN INVESTOR"), AND (II) IS NOT DIRECTLY OR INDIRECTLY PURCHASING
SUCH RESIDUAL INTEREST CERTIFICATE ON BEHALF OF, AS INVESTMENT MANAGER OF, AS
NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH THE ASSETS OF A BENEFIT PLAN
INVESTOR.
A-1
<PAGE>
[_________________] OWNER TRUST ____-__
RESIDUAL INTEREST CERTIFICATE
No. ______
THIS CERTIFIES THAT _______________________________ (the "Owner") is
-----
the registered owner of a ____% residual interest in [____________] Owner Trust
____- (the "Trust") existing under the laws of the State of Delaware and
-----
created pursuant to the Owner Trust Agreement, dated as of _____ 1, ____ (the
"Owner Trust Agreement") between National Mortgage Securities Corporation, as
- ----------------------
Depositor, [____________], as the Company, [____________], not in its individual
capacity but solely in its fiduciary capacity as owner trustee under the Owner
Trust Agreement (the "Owner Trustee") [and [____________], as Paying Agent (the
-------------
"Paying Agent")]. Initially capitalized terms used but not defined herein have
------------
the meanings assigned to them in the Owner Trust Agreement. The Owner Trustee,
on behalf of the Issuer and not in its individual capacity, has executed this
Residual Interest Certificate by one of its duly authorized signatories as set
forth below. This Residual Interest Certificate is one of the Residual Interest
Certificates referred to in the Owner Trust Agreement and is issued under and is
subject to the terms, provisions and conditions of the Owner Trust Agreement to
which the holder of this Residual Interest Certificate by virtue of the
acceptance hereof agrees and by which the holder hereof is bound. Reference is
hereby made to the Owner Trust Agreement and the Master Servicing Agreement for
the rights of the holder of this Residual Interest Certificate, as well as for
the terms and conditions of the Trust created by the Owner Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Residual Interest Certificate except in accordance with terms and provisions of
the Owner Trust Agreement.
THIS RESIDUAL INTEREST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF [____________], WITHOUT REFERENCE TO ITS CONFLICT
OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
[SIGNATURE PAGE FOLLOWS]
A-2
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Residual Interest Certificate to be
duly executed.
[____________] OWNER TRUST ____- ___
By: [____________], not in its individual
capacity but solely as Owner Trustee under
the Owner Trust Agreement
By: _________________________________
Authorized Signatory
DATED: __________ __, ____
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Owner Trust Agreement.
By: [____________], not in its individual
capacity but solely as Owner Trustee under
the Owner Trust Agreement, as
Authenticating Agent
By: _________________________________
Authorized Signatory
A-3
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
______________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
______________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________________________________________________________ Attorney to
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated: _______________
____________________________________*/
Signature Guaranteed:
____________________________________*/
___________________
*/ NOTICE: The signature to this assignment must correspond with the name as
- -
it appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-4
<PAGE>
EXHIBIT B
TO THE OWNER TRUST AGREEMENT
CERTIFICATE OF TRUST OF
[____________] OWNER TRUST ____-__
--------------------
THIS Certificate of Trust of [____________] Owner Trust ____- ___ (the
"Trust"), dated ____ __, ____, is being duly executed and filed by
-----
[____________], a [____________] [banking] corporation, as trustee, [and
[____________], as paying agent], to form a business trust under the Delaware
Business Trust Act (12 Del. Code, (S) 3801 et seq.).
----------
1. Name. The name of the business trust formed hereby is
----
[____________] Owner Trust ____-__.
2. Delaware Trustee. The name and business address of the trustee of
----------------
the Trust, in the State of Delaware is [____________],[______________________],
Attention: [Corporate Trust Administration].
* * *
B-1
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the owner trustee of the
Trust, have executed this Certificate of Trust as of the date first above
written.
[_____________________________],
not in its individual capacity but solely as
owner trustee under an Owner Trust Agreement
dated as of _______ 1, ____
By: _____________________________
Name:
Title:
B-2
<PAGE>
Exhibit 99.1
ASSET SALE AGREEMENT
This Asset Sale Agreement dated as of _____1, ____ (the "Agreement"),
---------
by and between NATIONAL MORTGAGE SECURITIES CORPORATION, as purchaser ("NMSC"),
----
and [_____________________], as loan seller ("Seller").
------
Subject to the terms hereof, Seller agrees to sell, and NMSC agrees to
purchase, a pool of certain [fixed-rate, conventional, monthly pay, fully-
amortizing one-to-four family residential first lien mortgage loans] (the
"Mortgage Assets") having original terms to stated maturity of [30 years] and
---------------
having an aggregate scheduled principal balance as of ______ 1, ____ (the "Cut-
---
off Date") of approximately $_______________.
- --------
It is the intention of Seller and NMSC that NMSC shall, simultaneously
with the purchase hereunder, sell the Mortgage Assets to a trust formed pursuant
to a Pooling and Master Servicing Agreement dated as of _____ 1, ____ (the
"Pooling and Servicing Agreement") by and among NMSC, as seller, [ ], as
-------------------------------
master servicer and loan seller, and [ ], as trustee (the "Trustee"),
-------
pursuant to which the Pass-Through Certificates, Series ____-__ (the
"Securities") evidencing ownership interests in the Mortgage Assets will be
----------
issued.
NMSC and Seller wish to prescribe the terms and conditions of the
purchase by NMSC of the Mortgage Assets.
In consideration of the premises and the mutual agreements hereinafter
set forth, NMSC and Seller agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Pooling and Servicing Agreement. The following
words and phrases are defined as follows:
"Mortgage Assets": Each mortgage asset (including mortgage loans)
---------------
listed in the Mortgage Asset Schedule.
"Mortgage Asset Schedule": A schedule of Mortgage Assets attached
-----------------------
hereto as Exhibit A, containing the information with respect to each Mortgage
---------
Asset as set forth in the definition of "Mortgage Asset Schedule" in the Pooling
-----------------------
and Servicing Agreement.
"Mortgage Rate": As to any Mortgage Asset, the per annum rate at
-------------
which interest accrues on the unpaid principal balance thereof as set forth in
the related Mortgage Note.
<PAGE>
"Net Mortgage Rate": As to each Mortgage Asset, the Mortgage Interest
-----------------
Rate less the Servicing Fee.
"Pooling and Servicing Agreement": As defined on the first page of
-------------------------------
this Agreement, pursuant to which the Securities, evidencing ownership interests
in the Mortgage Assets, will be issued.
"Securities": As defined on the first page of this Agreement.
----------
"Servicer": [ ], and its successors as loan seller and
--------
master servicer under the Pooling and Servicing Agreement.
ARTICLE II
SALE AND CONVEYANCE OF MORTGAGE ASSETS;
POSSESSION OF MORTGAGE FILES
SECTION 2.01. Sale and Conveyance of Mortgage Assets.
--------------------------------------
(a) Seller, concurrently with the execution and delivery hereof, does
hereby sell, transfer, assign, set over and otherwise convey to NMSC, without
recourse, all of the right, title and interest of Seller in and to the Mortgage
Assets (including, without limitation, the security interests created thereby),
including all principal and interest due on or with respect to the Mortgage
Assets after the Cut-off Date (other than payments of principal and interest due
on the Mortgage Assets on or before the Cut-off Date). NMSC acknowledges that on
or prior to the date hereof, the Mortgage Files have been delivered to the
[Trustee][Custodian], subject to any exceptions noted in the
[Trustee's][Custodian's] review of the Mortgage Files pursuant to [Section [ ]
of the Custodial Agreement][Section 2.02 of the Pooling and Servicing
Agreement], and any other documents relating to the Mortgage Assets shall be
retained by the Servicer pursuant to the terms of the [Custodial
Agreement][Pooling and Servicing Agreement].
(b) Although the parties intend that the conveyance of Seller's
right, title and interest in and to the Mortgage Assets pursuant to this
Agreement shall constitute a purchase and sale and not a loan, if such
conveyances are deemed to be a loan, the parties intend that the rights and
obligations of the parties to such loan shall be established pursuant to the
terms of this Agreement. The parties also intend and agree that Seller shall be
deemed to have granted to NMSC, and Seller does hereby grant to NMSC, a
perfected first-priority security interest in all of the right, title and
interest in, to and under the collateral to the extent described in Section 2.01
hereof, and that this Agreement shall constitute a security agreement under
applicable law.
SECTION 2.02. Purchase Price; Payments on the Mortgage Assets.
-----------------------------------------------
(a) The purchase price for the Mortgage Assets (the "Purchase Price")
--------------
shall be equal to $__________________ which includes accrued interest at the
weighted average Net Mortgage Rate from and including the Cut-off Date through
but excluding the Closing Date).
-2-
<PAGE>
Such purchase price shall be payable in immediately available funds via wire
transfer to an account designated by Seller.
(b) NMSC shall be entitled to all scheduled payments of principal and
interest due after the Cut-off Date and all principal prepayments received after
the Cut-off Date. The principal balance of each Mortgage Asset as of the Cut-off
Date is determined after deduction of payments of principal due on or before the
Cut-off Date, whether or not collected, and of any principal prepayments
received or applied on or before the Cut-off Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND NMSC
SECTION 3.01. Representations and Warranties of Seller.
----------------------------------------
Seller hereby warrants and represents to, and covenants with, NMSC as
of the Closing Date hereof that:
(a) Due Organization and Authority. Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
[_____________] and is licensed to carry on its business as now being conducted;
Seller has the full corporate power, authority, and legal right to transfer and
convey the Mortgage Assets and to execute and deliver this Agreement and to
perform in accordance herewith;
(b) Ordinary Course of Business. The consummation of the
---------------------------
transactions contemplated by this Agreement are in the ordinary course of
business of Seller, and the transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by Seller pursuant to this Agreement are not subject to
the bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction;
(c) No Conflicts. Neither the execution and delivery of this
------------
Agreement, the acquisition of the Mortgage Assets by Seller, the sale of the
Mortgage Assets to NMSC or the transactions contemplated hereby, nor the
fulfillment of or compliance with the terms and conditions of this Agreement,
(i) will conflict with or result in a breach of any of the terms, conditions or
provisions of Seller's charter or by-laws or, any legal restriction or any
agreement or instrument to which Seller is now a party or by which it is bound,
or (ii) constitute a default or result in an acceleration under any such
agreement or instrument, or (iii) result in the violation of any law, rule,
regulation, order, judgment or decree to which Seller or its property is
subject, or (iv) result in the creation or imposition of any lien, charge or
encumbrance that would have an adverse effect upon any of its properties
pursuant to the terms of any mortgage, contract, deed of trust or other
instrument, or (v) impair the value of the Mortgage Assets;
(d) Ability to Perform. Seller does not believe, nor does it have
------------------
any reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement. Seller is solvent and the sale of the Mortgage
Assets will not cause Seller to become insolvent.
-3-
<PAGE>
The sale of the Mortgage Assets is not undertaken with the intent to hinder,
delay or defraud any of Seller's creditors;
(e) No Litigation Pending. There is no action, suit, proceeding or
---------------------
investigation pending or, to Seller's knowledge, threatened against Seller
which, either in any one instance or in the aggregate, if decided adversely to
Seller, may result in any material adverse change in the business, operations,
financial condition, properties or assets of Seller, or in any material
impairment of the right or ability of Seller to carry on its business
substantially as now conducted, or in any material liability on the part of
Seller, or which would draw into question the validity of this Agreement or the
Mortgage Assets or of any action taken or to be taken in connection with the
obligations of Seller contemplated herein, or which would impair materially the
ability of Seller to perform under the terms of this Agreement;
(f) No Consent Required. No consent, approval, authorization or
-------------------
order of any court or governmental agency or body is required for the execution,
delivery and performance by Seller of or compliance by Seller with this
Agreement or the Mortgage Assets, the delivery of a portion of the Mortgage
Files to NMSC or its designee, or the sale of the Mortgage Assets to NMSC or the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the Closing Date; and
(g) Ownership of Mortgage Assets. Immediately prior to the sale of
----------------------------
the Mortgage Assets to NMSC, Seller will be the lawful owner of the Mortgage
Assets with the right to transfer the Mortgage Assets, subject to no lien,
adverse claim, mortgage, security interest, pledge, charge or other encumbrance
created by Seller. Immediately following the sale of the Mortgage Assets, NMSC
will own such Mortgage Assets, free and clear of any lien, adverse claim,
mortgage, security interest, pledge, charge or other encumbrance created by
Seller; and
(h) Representations and Warranties with respect to Mortgage Assets.
--------------------------------------------------------------
The representations and warranties set forth in Exhibit B is true and correct
with respect to each Mortgage Asset as of the Closing Date.
SECTION 3.02. Representations and Warranties of NMSC.
--------------------------------------
NMSC hereby warrants and represents to, and covenants with, Seller as
of the Closing Date hereof that:
(a) Due Organization and Authority. NMSC is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and NMSC has the full corporate power, authority, and
legal right to purchase, acquire and own the Mortgage Assets and to execute and
deliver this Agreement and to perform in accordance herewith;
(b) Ordinary Course of Business. The consummation of the
---------------------------
transactions contemplated by this Agreement are in the ordinary course of
business of NMSC;
-4-
<PAGE>
(c) No Conflicts. Neither the execution and delivery of this
------------
Agreement, the purchase and acquisition of the Mortgage Assets by NMSC or the
transactions contemplated hereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, (i) will conflict with or result in a
breach of any of the terms, conditions or provisions NMSC's charter or by-laws
or any legal restriction or any agreement or instrument to which NMSC is now a
party or by which it is bound, or (ii) constitute a default or result in an
acceleration under any such agreement or instrument, or (iii) result in the
violation of any law, rule, regulation, order, judgment or decree to which NMSC
or its property is subject, or (iv) result in the creation or imposition of any
lien, charge or encumbrance that would have an adverse effect upon any of its
properties pursuant to the terms of any mortgage, contract, deed of trust or
other instrument or (v) impair the value of the Mortgage Assets;
(d) Ability to Perform. NMSC does not believe, nor does it have any
------------------
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement;
(e) No Litigation Pending. There is no action, suit, proceeding or
---------------------
investigation pending or, to NMSC's knowledge, threatened against NMSC which,
either in any one instance or in the aggregate, if decided adversely to NMSC,
may result in any material adverse change in the business, operations, financial
condition, properties or assets of NMSC, or in any material impairment of the
right or ability of NMSC to carry on its business substantially as now
conducted, or in any material liability on the part of NMSC, or which would draw
into question the validity of this Agreement or the Mortgage Assets or of any
action taken or to be taken in connection with the obligations of NMSC
contemplated herein, or which would impair materially the ability of NMSC to
perform under the terms of this Agreement;
(f) No Consent Required. No consent, approval, authorization or
-------------------
order of any court or governmental agency or body is required for the execution,
delivery and performance by NMSC of or compliance by NMSC with this Agreement or
the Mortgage Assets, or the purchase of the Mortgage Assets by NMSC or the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the Closing Date; and
(g) Pooling and Servicing Agreement. NMSC shall enter into the
-------------------------------
Pooling and Servicing Agreement on the Closing Date.
ARTICLE IV
[RESERVED]
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.01. Amendment. This Agreement may be amended from time to
---------
time by Seller and NMSC by written agreement signed by Seller and NMSC.
-5-
<PAGE>
SECTION 5.02. Counterparts. For the purpose of facilitating the
------------
execution of this Agreement as herein provided and for other purposes, this
Agreement may be executed simultaneously in any number of counterparts, each of
which counterparts shall be deemed to be an original, and such counterparts
shall constitute but one and the same instrument.
SECTION 5.03. Governing Law. This Agreement shall be construed in
-------------
accordance with the substantive laws of the State of New York (without regard to
conflicts of laws principles) and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 5.04. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, telecopies (with receipt confirmed by telephone call to
the person, or a member of the department, specified for attention) or mailed by
first class mail, postage prepaid, to (i) in the case of Seller: [ ]
Attention: [ ], or such other address as may hereafter be furnished to
- ---------
NMSC in writing by Seller, or (ii) in the case of NMSC: National Mortgage
Securities Corporation, 909 East Main Street, Richmond, Virginia 23218,
Attention: [ ], or such other address as may hereafter be furnished to
- ---------
Seller in writing by NMSC.
SECTION 5.05. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
SECTION 5.06. No Partnership. Nothing herein contained shall be
--------------
deemed or construed to create a co-partnership or joint venture between the
parties hereto.
SECTION 5.07. Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of and be binding upon Seller and NMSC and their respective
successors and assigns, as may be permitted hereunder.
[SIGNATURES COMMENCE ON FOLLOWING PAGES]
-6-
<PAGE>
IN WITNESS WHEREOF, Seller and NMSC have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
NATIONAL MORTGAGE SECURITIES CORPORATION, as
purchaser
By: __________________________
Name:
Title:
[ ], as loan seller
By: __________________________
Name:
Title:
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<PAGE>
EXHIBIT A
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MORTGAGE ASSET SCHEDULE
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EXHIBIT B
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REPRESENTATIONS AND WARRANTIES WITH RESPECT TO MORTGAGE ASSETS
As to each Mortgage Loan, the Seller hereby represents and warrants to
the Purchaser that as of the date hereof and as of the Closing Date:
1. Mortgage Loans as Described. The information set forth in the Mortgage
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Asset Schedule is true and correct in all material respects;
2. Original Terms Unmodified. In the event a forbearance agreement has been
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executed with respect to any Mortgage Loan, such forbearance agreement is
in the related Mortgage Loan File. Any modification to the interest rate,
terms, principal balance, or amortization period of such Mortgage Loan has
been reflected on the Mortgage Asset Schedule. No Borrower has been
released, in whole or in part, except in connection with an assumption or
modification agreement
3. No Satisfaction of Mortgage. The Mortgage has not been satisfied, canceled,
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subordinated or rescinded, in whole or in part, and the Mortgaged Property
has not been released from the lien of the Mortgage, in whole or in part,
except as set forth on the Mortgage Asset Schedule for which a partial
release has been executed with respect to such Mortgage Loan, a copy of
which release is in the related Mortgage Loan File, nor has any instrument
been executed that would effect any such release, cancellation,
subordination or rescission. Except for a forbearance agreement or
assumption and modification agreement executed with respect to such
Mortgage Loan, a copy of which agreement is in the related Mortgage Loan
File, the Seller has not waived the performance by the Borrower of any
action, if the Borrower's failure to perform such action would cause the
Mortgage Loan to be in material default, nor has the Seller waived any
material default resulting from any action or inaction by the Borrower;
4. Valid Lien. With respect to Mortgage Loans, each Mortgage is a valid,
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subsisting enforceable and perfected first lien on the Mortgaged Property.
The lien of such Mortgage is subject only to (a) the lien of real property
taxes and assessments; (b) the lien of condominium association fees
previously due and payable; (c) covenants, conditions and restrictions,
rights of way, easements and other matters of the public record as of the
date of recording acceptable to mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy or an
opinion of counsel delivered to the originator of the Mortgage Loan and
either (A) referred to or otherwise considered in the appraisal made for
the originator of the Mortgage Loan, or (B) that do not materially
adversely affect the appraised value of the Mortgaged Property set forth in
such appraisal; and (d) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property;
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Any security agreement, chattel mortgage or equivalent document related to
and delivered in connection with the Mortgage Loan establishes and creates
a valid, subsisting and enforceable first lien and first priority security
interest on the property described therein and the Seller has full right to
sell and assign the same to the Purchaser;
5. Validity of Mortgage Loan Documents. Each Note and Mortgage is genuine, and
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each is the legal, valid and binding obligation of the maker thereof
enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors, rights generally and (ii)general
principles of equity regardless of whether such enforcement is considered
in a proceeding in equity or at law. To the best of Seller's knowledge, no
fraud was committed in connection with the origination of the Mortgage Loan
which would prevent the enforceability of such documents;
6. Full Disbursement of Proceeds. Each Mortgage Loan has been closed, and the
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proceeds of each Mortgage Loan have been fully disbursed and there is no
requirement for future advances. All costs, fees and expenses incurred in
making or closing the Mortgage Loans and the recording of the Mortgage were
paid, and the Borrower is not entitled to any, refund of any amounts paid
or due under the Mortgage Loans;
7. Ownership. The Seller is the sole owner of record and holder of the
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Mortgage Loans. The Mortgage Loans are not assigned or pledged, and the
Seller has good and marketable title thereto, and has full right to
transfer and sell the Mortgage Loans therein to the Purchaser free and
clear of any encumbrance, equity, participation interest, lien, pledge,
charge, claim or security interest, and has full right and authority
subject to no interest or participation of, or agreement with, any other
party, to sell and assign each Mortgage Loan pursuant to this Agreement. No
Mortgage Loan is subject to any participation agreement or arrangement;
8. Hazard Insurance. Pursuant to the terms of the Mortgage, all buildings or
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other improvements upon the Mortgaged Property are insured by a generally
acceptable insurer or by the Seller's force-placed insurance policy against
loss by fire, hazards of extended coverage and such other hazards as are
customary in the area where the Mortgaged Property is located in an amount
that is at least the lesser of the Stated Principal Balance or the
replacement cost of the Mortgaged Property. Such insurance policy is in
full force and effect until the transfer of the Mortgage Loans to the
Purchaser. If upon origination of the Mortgage Loan, the Mortgaged Property
was in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards (and such flood insurance
has been made available and required by law) a flood insurance policy
meeting the requirements of the current guidelines of the Federal insurance
Administration is in effect. Such insurance policy is in full force and
effect until the transfer of the Mortgage Loans to the Purchaser. The
Seller has not engaged in, and has no knowledge of the Borrower's or any
servicer's having engaged in, any act or omission which would impair the
coverage of any such policy;
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9. Provisions. The Mortgage contains enforceable provisions such as to render
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the rights and remedies of the holder thereof adequate for the realization
against the Mortgaged Property of the benefits of the security provided
thereby;
10. Title Insurance. The Mortgage Loan is covered by either (i) an attorney's
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opinion of title and abstract of title, or a certificate of title, the
form and substance of which is acceptable to lending institutions making
Mortgage Loans in the area where the Mortgaged Property is located or (ii)
a lender's title insurance policy or other generally acceptable form of
policy of insurance issued by a title insurer generally acceptable to
mortgage lending institutions making Mortgage Loans in the area where the
Mortgaged Property is located, insuring the mortgagee, its successors and
assigns, as to the first priority lien of the Mortgage in the original
principal amount of the Mortgage Loan against any loss by reason of the
invalidity or unenforceability of the lien, subject only to the exceptions
contained in clauses (i), (ii), (iii) and (iv) of paragraph (a) of section
4.1.4. To the best of Seller's knowledge, no claims have been made under
such lenders title insurance policy. The Seller and, to the best of
Seller's knowledge, each prior holder of the Mortgage, has not done, by
act or omission, anything which would impair the coverage of such lender's
title insurance policy;
11. Delivery of Mortgage Loan Documents. As of the Closing Date, the Mortgage
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Loan File shall have been delivered to the Purchaser; provided that, with
respect to the Mortgage Loans listed in Schedule II, certain of the loan
documents are out for recording;
12. Collection Practices; Escrow Deposits. The origination and collection
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practices used by Seller with respect to the Mortgage Loans have been in
accordance with Accepted Servicing Practices and in all material respects
in compliance with all applicable laws and regulations;
13. Environmental Matters. Except as set forth in the Mortgage Loan Files for
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the Mortgage Loans that are the subject of this Agreement, the Seller has
no knowledge of the presence of Hazardous Substances in the soil or
groundwater at or beneath any Mortgaged Property that constitutes the real
property interest securing a Mortgage Loan;
14. Taxes. The real property taxes due and owing as of the Closing Date with
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respect to each Mortgage Loan have been paid, or an escrow of funds has
been established in an amount sufficient to pay such taxes;
15. Primary Mortgage Insurance. Any primary mortgage insurance listed on the
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Mortgage Asset Schedule is in full force and effect and will be in full
force and effect upon the Closing Date. To the Seller's knowledge, no
claims have been made under such insurance policy, and no prior holders of
the related Mortgage, including the Seller, has done, by act or omission,
anything which would impair the coverage of such insurance policy;
16. REO Properties. As to each REO Property, the Seller hereby represents and
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warrants to the Purchaser that as of the Closing Date;
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17. REO Properties as Described. The information set forth in the REO Property
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Schedule is true and correct;
18. No Outstanding Charges. All taxes, governmental assessments insurance
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premiums, water, sewer and municipal charges, leasehold payments or ground
rents that are due and owing as of the Closing Date have been paid;
19. Hazard Insurance. All buildings or other improvements upon the REO
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Property are insured by a generally acceptable insurer or by the Seller's
force-placed insurance policy against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area where the REO
Property is located in an amount that is at least the lesser of the
principal balance at the time the property was transferred to the Seller
or the replacement cost of the REO Property. Each such insurance policy is
in full force and effect until the transfer of the REO Property to the
Purchaser. The Seller has not engaged in, and has no knowledge of any
servicer's having engaged in, any act or omission which would impair the
coverage of any such policy;
20. Validity of REO Property Documents. The Deed is genuine, and constitutes
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the legal, valid and binding conveyance of the REO Property;
21. Ownership. The Seller or one of its subsidiaries is the sole owner of
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record and holder of the REO Property. The REO Property has not been
assigned or pledged, and the Seller has good and marketable title thereto,
and has full right to transfer and sell the REO Property to the Purchaser
free and clear of any equity or right of redemption, encumbrance, dower or
homestead, participation interest, lien, pledge, charge, claim or security
interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to sell and assign
each REO Property pursuant to this Agreement. No REO Property is subject
to any participation agreement or arrangement;
22. Title. There are no covenants, conditions, restrictions, rights of way,
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easements or other matters of public record that materially adversely
affect the marketability of title to the REO Property;
23. Delivery of REO Property Documents. The Deed and the REO File shall have
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been delivered to the Purchaser;
24. Transfer of REO Properties. The Deed is in recordable form and is
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acceptable for recording under the laws of the jurisdiction in which the
REO Property is located;
25. REO Properties Undamaged. There is no proceeding pending or, to the
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Seller's knowledge, threatened for the total or partial condemnation of
the REO Property. The REO Property is materially undamaged by fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty
so as to affect adversely the value of the REO Property or the use for
which the premises were intended; and
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26. Appraisal. The REO File contains an appraisal of the related REO Property.
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