<PAGE>
SUPPLEMENT
To Prospectus Dated August 18, 1999 and Prospectus Supplement dated September
22, 1999)
Norwest Asset Securities Corporation 1999-25 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR(R))
Seller
$8,106,902
(Approximate)
Mortgage Pass-Through Certificates, Series 1999-25
Class B-1, Class B-2 and Class B-3
Principal and interest payable monthly, commencing in December 1999
The Series 1999-25 Certificates consist of--
. Six Classes of senior Class A Certificates.
. Six Classes of Class B Certificates, all of which are subordinated to, and
provide credit enhancement for, the Class A Certificates. Each Class of Class B
Certificates is also subordinated to each Class of Class B Certificates, if any,
with a lower number.
The Classes of offered certificates are described under the heading "The Series
1999-25 Offered Certificates" in the table on page S1-4.
The Assets of the Trust Include--
. A pool of fully amortizing, one- to four-family, residential first mortgage
loans (excluding the Fixed Retained Yield described in the prospectus
supplement), substantially all of which loans have original terms to stated
maturity of approximately 30 years. All of the Mortgage Loans were made in
connection with the relocation of employees of various employers.
Neither the SEC nor any state securities commission has approved the
certificates offered by this supplement or determined that this supplement, the
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The offered certificates will be purchased by the underwriter and offered by the
underwriter to investors at varying prices to be determined at the time of sale.
The offered certificates will be available for delivery to investors on or about
November 30, 1999. Total proceeds to NASCOR(R) for the offered certificates
will be approximately 91.64% of the principal balance of the Class B-1
Certificates, approximately 89.73% of the principal balance of the Class B-2
Certificates and approximately 84.36% of the principal balance of the Class B-3
Certificates as of November 26, 1999 after giving effect to distributions of
principal on such date before deducting expenses estimated at $30,000, plus
accrued interest from November 1, 1999 to November 30, 1999.
You should carefully consider the risk factors beginning on page S1-4 of this
supplement.
Neither the offered certificates nor the underlying mortgage loans are insured
or guaranteed by any governmental agency or instrumentality.
The offered certificates represent interests in the trust only and do not
represent interests in or obligations of NASCOR(R) or any NASCOR(R)
affiliate.
This supplement may be used to offer and sell the offered certificates only if
accompanied by the prospectus and the prospectus supplement.
<PAGE>
NOTICE ABOUT INFORMATION PRESENTED IN THIS
SUPPLEMENT, THE ACCOMPANYING PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
Information is provided to you about the Offered Certificates in three
separate documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
your Certificates, (b) the accompanying Prospectus Supplement, which provides
more specific information, not all of which may apply to your Certificates and
(c) this Supplement, which describes the specific terms of your Certificates.
If the description of the terms of your Certificates varies among this
Supplement, the accompanying Prospectus Supplement and the accompanying
Prospectus, you should rely on the information in this Supplement.
Cross-references are included in this Supplement, the accompanying
Prospectus Supplement and the accompanying Prospectus to captions in these
materials where you can find further related discussions. The Tables of Contents
included in this Supplement, the accompanying Prospectus Supplement and the
accompanying Prospectus provide the pages on which these captions are located.
You can find a listing of pages where capitalized terms used in this
Supplement, the accompanying Prospectus Supplement and the accompanying
Prospectus are defined under the caption "Index of Supplement Definitions" on
page S1-21 in this Supplement, under the caption "Index of Prospectus Supplement
Definitions" beginning on page S-57 in the Prospectus Supplement and under the
caption "Index of Significant Definitions" beginning on page 95 in the
accompanying Prospectus. Any capitalized terms used but not defined in this
Supplement have the meanings assigned in the Prospectus Supplement or the
Prospectus, as applicable.
The Trust issued the Certificates on September 29, 1999 but did not offer
the Class B-1, Class B-2 and Class B-3 Certificates (the "Offered Certificates")
to the public at that time.
This Supplement, the accompanying Prospectus Supplement and the
accompanying Prospectus contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Such forward-looking
statements, together with related qualifying language and assumptions, are found
in the material, including each of the tables, set forth under "Risks Factors"
and "Prepayment and Yield Considerations." Forward-looking statements are also
found elsewhere in this Supplement, the accompanying Prospectus Supplement and
the Prospectus, and may be identified by, among other things, accompanying
language including the words "expects," "intends," "anticipates," "estimates" or
analogous expressions, or by qualifying language or assumptions. Such statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results or performance to differ materially from such
forward-looking statements. Such risks, uncertainties and other factors include,
among others, general economic and business conditions, competition, changes in
political, social and economic conditions, regulatory initiatives and compliance
with government regulations, customer preference and various other matters, many
of which are beyond the Seller's control. These forward-looking statements speak
only as of the date of this Supplement. The Seller expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to such
forward-looking statements to reflect any change in the Seller's expectations
with regard thereto or any change in events, conditions or circumstances on
which any forward-looking statement is based.
S1-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Risk Factors........................................................................ S1-5
Subordination of Class B Certificates Increases Risk of Loss................... S1-5
Description of the Certificates..................................................... S1-5
General........................................................................ S1-5
Denominations; Form of Certificates............................................ S1-7
Distributions on Offered Certificates.......................................... S1-7
Subordination of Class B Certificates.......................................... S1-8
Restrictions on Transfer of the Class B Certificates........................... S1-8
Description of the Mortgage Loans................................................... S1-9
Delinquency and Foreclosure Experience.............................................. S1-10
Prepayment and Yield Considerations................................................. S1-11
Yield Considerations with Respect to the Class B-2 and Class B-3 Certificates.. S1-13
Pooling and Servicing Agreement..................................................... S1-17
Representations and Warranties................................................. S1-17
Federal Income Tax Considerations................................................... S1-17
ERISA Considerations................................................................ S1-18
Legal Investment Considerations..................................................... S1-18
Secondary Market.................................................................... S1-18
Underwriting........................................................................ S1-19
Legal Matters....................................................................... S1-19
Use of Proceeds..................................................................... S1-19
Ratings............................................................................. S1-19
Index of Supplement Definitions..................................................... S1-21
</TABLE>
S1-3
<PAGE>
<TABLE>
<CAPTION>
THE SERIES 1999-25 OFFERED CERTIFICATES
Initial Rating of
Offered
Certificates(3)
----------------
Class Principal Balance(1) Pass-Through Rate Principal Types(2) Interest Types(2) DCR
- ----------------- -------------------- ----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Class B-1........ $5,704,783 6.500% Subordinated Fixed Rate AA
Class B-2........ $1,501,574 6.500% Subordinated Fixed Rate A
Class B-3........ $ 900,545 6.500% Subordinated Fixed Rate BBB
</TABLE>
___________________
(1) Approximate and after giving effect to distributions of principal on
November 26, 1999.
(2) See "Description of the Certificates - Categories of Classes of
Certificates" in the Prospectus for a description of the principal and
interest categories listed.
(3) A description of the ratings of the Offered Certificates is set forth under
the heading "Ratings" in this Supplement and in the Prospectus Supplement.
A description of the Certificates other than the Offered Certificates is
set forth under the heading "Description of the Certificates" in this
Supplement.
S1-4
<PAGE>
RISK FACTORS
Subordination of Class B Certificates Increases Risk of Loss
The rights of the holders of each Class of Class B Certificates to receive
distributions will be subordinated to such rights of the holders of the Class A
Certificates and the lower-numbered Classes of Class B Certificates, if any. In
addition, Realized Losses, other than Excess Losses, will be allocated to the
Class B Certificates in the reverse order in which they are entitled to
distributions of principal before being allocated to the Class A Certificates.
Accordingly, you will be more likely to experience losses as a result of the
occurrence of losses or interest shortfalls on the Mortgage Loans. See
''Description of the Certificates -- Subordination of Class B Certificates" in
the Prospectus Supplement.
See "Risk Factors" in the Prospectus Supplement and Prospectus for a
description of certain other risks and special considerations applicable to the
Offered Certificates. For purposes of the discussion in the Prospectus
Supplement, the term "Offered Certificates" includes the Class B-1, Class B-2
and Class B-3 Certificates.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates were issued on September 29, 1999. The Certificates
consist of six Classes of senior Class A Certificates and six Classes of
subordinated Class B Certificates. Only the Class B-1, Class B-2 and Class B-3
Certificates are being offered by this Supplement, the accompanying Prospectus
Supplement and the accompanying Prospectus. The Class A, the Class B-4, Class
B-5 and Class B-6 Certificates are not offered by this Supplement.
The following table sets forth the approximate undivided interest in the
principal balance of the Mortgage Loans evidenced in the aggregate by each Class
or group of Classes indicated as of November 26, 1999.
S1-5
<PAGE>
Approximate Initial
Class Undivided Interest
----- ------------------
Class A (other than Class A-PO) 96.18%
Class A-PO* 0.61%
-----
Class A (all Classes) 96.79%
Class B-1 1.91%
Class B-2 0.50%
Class B-3 0.30%
Classes B-4, B-5 and B-6 0.50%
------
Total 100.00%
======
_____________________
* The Class A-PO Certificates in the aggregate represent an approximate
2.53% interest in the principal balance of the Discount Mortgage Loans as of
November 26, 1999.
The following table sets forth for the Class A Certificates (other than the
Class A-PO Certificates) and the Class B Certificates the approximate undivided
interest in the Pool Balance (Non-PO Portion) evidenced in the aggregate thereby
as of November 26, 1999.
Approximate Initial
Undivided Interest
------------------
Class Percentage In Dollars
----- ---------- ----------
Class A (other than Class A-PO) 96.77% $287,700,776
Class B 3.23% $ 9,609,09
------ ------------
Totals 100.00% $297,309,874
====== ============
Each Class of Certificates had the approximate initial Principal Balance
and Pass-Through Rate described in the table on page S-4 of the Prospectus
Supplement. The Class A-PO Certificates are principal only Certificates and are
not entitled to distributions of interest.
S1-6
<PAGE>
The Certificates not offered by this Supplement will have the following
Principal Balances as of November 26, 1999 after giving effect to distributions
of principal on such date:
Class or Group of Certificates Principal Balance/(1)/
------------------------------ ----------------------
Class A (other than Class A-PO) $287,700,776
Class A-PO $ 1,823,044
Class B-4 $ 750,787
Class B-5 $ 300,514
Class B-6 $ 450,894
---------
(1) Approximate.
You may access a Current Report on Form 8-K containing, among other
information, the distributions of principal and interest on the Offered
Certificates for the October 25, 1999 Distribution Date through the SEC's EDGAR
system. See "Where You Can Find More Information" in the Prospectus.
Denominations; Forms of Offered Certificates
The Offered Certificates will be issued in fully-registered, certificated
form in minimum denominations of $100,000 initial Principal Balance and
incremental denominations of $1,000 in excess thereof. The Offered Certificates
will be transferable and exchangeable at the offices of the Trust Administrator
or other certificate registrar. No service charge will be imposed for any
registration of transfer or exchange, but the Trust Administrator may require a
payment sufficient to cover any associated tax or other governmental charge. The
minimum denomination of the Offered Certificates eligible for wire transfer is
$500,000 initial Principal Balance.
Distributions on Offered Certificates
The Trust Administrator or other paying agent will make distributions of
interest and in reduction of Principal Balance to holders of each Class of
Offered Certificates monthly on the applicable Distribution Date, to the extent
of each Class's entitlement thereto, beginning in December 1999. Distributions
will be made on each Distribution Date to holders of record on the applicable
Record Date, which in the case of the Distribution Date in December will be
November 30, 1999.
The undivided percentage interest represented by any Offered Certificate of
a Class will be equal to the percentage obtained by dividing the initial
principal balance of such Certificate by the aggregate initial Principal Balance
of such Class.
The pass-through rate for each Class of Offered Certificates (the "Pass-
Through Rate"), is the percentage set forth on page S1-4 of this Supplement.
Interest will accrue on the Offered Certificates as described in the Prospectus
Supplement under "Description of the Certificates--Interest."
Distributions of interest and in reduction of the Principal Balances of the
Class B-1, Class B-2 and Class B-3 Certificates will be made on each
Distribution Date, after all amounts due on the Class A Certificates are paid,
first to the Class B-1 Certificates, second to the Class B-2
S1-7
<PAGE>
Certificates and then to the Class B-3 Certificates, pursuant to priority fifth
clause (C) of the Pool Distribution Amount Allocation. Principal distributions
on each Class of Offered Certificates will be made in an amount up to the Class
B Optimal Principal Amount for such Class. See "Description of the
Certificates--Distributions," "--Interest" and "--Principal (Including
Prepayments)" in the Prospectus Supplement.
Subordination of Class B Certificates
The Offered Certificates, together with the Class B-4, Class B-5 and Class
B-6 Certificates, provide credit support for the Class A Certificates.
Accordingly, your rights as a holder of an Offered Certificate to receive
distributions with respect to the Mortgage Loans in the Trust Estate are
subordinated to the rights of the holders of the Class A Certificates. Further,
if you hold a Class B Certificate with a higher numerical designation, your
rights to receive those distributions are also subordinated to the rights of the
holders of Classes of Class B Certificates with lower numerical designations,
all to the extent described under "Subordination of Class B Certificates" in the
Prospectus Supplement. If Realized Losses exceed the credit support provided
through subordination to your Class of Certificates, or if Excess Losses occur,
all or a portion of those losses will be borne by your Class.
See "Subordination of Class B Certificates" in the Prospectus Supplement
for a discussion of the effects of subordination and the allocation of losses on
the Offered Certificates.
Restrictions on Transfer of the Class B Certificates
Under current law the purchase and holding of the Class B Certificates by
or on behalf of a Plan may result in "prohibited transactions" within the
meaning of ERISA and Code Section 4975 or Similar Law. Transfer of the Class B
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trust
Administrator and the Seller stating that (a) it is not, and is not acting on
behalf of, any such Plan or using the assets of any such Plan to effect such
purchase or (b) if it is an insurance company, that the source of funds used to
purchase the Class B Certificates is an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995)), there is no
Plan with respect to which the amount of such general account's reserves and
liabilities for the contract(s) held by or on behalf of such Plan and all other
Plans maintained by the same employer (or affiliate thereof as defined in
Section V(a)(1) of PTE 95-60) or by the same employee organization exceeds 10%
of the total of all reserves and liabilities of such general account (as such
amounts are determined under Section I(a) of PTE 95-60) at the date of
acquisition and the purchase and holding of such Certificates by the transferee
are covered by Sections I and III of PTE 95-60, or (ii) provides (A) an opinion
of counsel in form and substance satisfactory to the Trust Administrator and the
Seller that the purchase or holding of the Class B Certificates by or on behalf
of such Plan will not result in the assets of the Trust Estate being deemed to
be "plan assets" and subject to the prohibited transaction provisions of
ERISA, the Code or Similar Law and will not subject the Seller, the Master
Servicer or the Trust Administrator to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement and (B) such other opinions of
counsel, officers' certificates and agreements as the Seller or the Master
Servicer may require in connection with such transfer. The Class B Certificates
contain a legend describing such
S1-8
<PAGE>
restrictions on transfer and the Pooling and Servicing Agreement provides that
any attempted or purported transfer in violation of these transfer restrictions
will be null and void and will vest no rights in any purported transferee. See
"ERISA Considerations" herein, in the Prospectus Supplement and in the
Prospectus.
The Prospectus Supplement and the Prospectus contain significant additional
information concerning the characteristics of the Offered Certificates. You are
urged to read "Description of the Certificates" in the Prospectus Supplement and
the Prospectus.
DESCRIPTION OF THE MORTGAGE LOANS
The Prospectus Supplement sets forth information about the expected
characteristics of the Mortgage Loans as of September 1, 1999. The Prospectus
Supplement and Prospectus also contain substantial information relating to
mortgage loans generally. You are urged to consider the information with respect
to the Mortgage Loans set forth under "Description of the Mortgage Loans" in the
Prospectus Supplement in addition to the characteristics of the Mortgage Loans
as of November 17, 1999 (which is the Determination Date for the November 26,
1999 distribution) as set forth in the table below.
<TABLE>
<CAPTION>
SELECTED MORTGAGE LOAN DATA
(as of November 17, 1999)
<S> <C>
Number of Mortgage Loans: 820
Aggregate Unpaid Principal Balance /(1)/: $299,164,815
Range of Unpaid Principal Balances /(1)/: 126,089 to $1,296,624
Average Unpaid Principal Balance /(1)/: $384,835
Range of Mortgage Interest Rates: 6.250% to 8.500%
Weighted Average Mortgage Interest Rate /(1)/: 7.189%
Range of Remaining Terms to Stated Maturity: 237 months to 359 months
Weighted Average Remaining Term to Stated Maturity /(1)/: 356 months
Range of Original Loan-to-Value Ratios /(1)/: 21.43% to 95.00%
Weighted Average Original Loan-to-Value Ratio /(1)/: 77.76%
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance /(1)/:
California 21.42%
New Jersey 11.82%
Connecticut 8.78%
Texas 5.75%
Illinois 5.27%
Maximum Five-Digit Zip Code Concentration /(1)/: 1.13%
</TABLE>
__________________
(1) Approximate.
As of November 17, 1999, one Mortgage Loan having an unpaid principal
balance of approximately $439,552 and representing approximately 0.146942% of
the aggregate unpaid principal balance of the Mortgage Loans on that date was
more than 30 days but less than 60 days delinquent. A Mortgage Loan is
considered delinquent for these purposes when one month has passed since its
contractual due date.
S1-9
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning delinquency and foreclosure experience on
certain categories of mortgage loans underlying the Seller's Mortgage Pass-
Through Certificates for the years ended December 31, 1997 and December 31, 1998
and for the six months ended June 30, 1999 is set forth in "Delinquency and
Foreclosure Experience" in the Prospectus. The following tables set forth such
information as of September 30, 1999 for the categories of "Total Loans" and
"30-Year Loans."
TOTAL LOANS
<TABLE>
<CAPTION>
By Dollar
By No. Amount of
of Loans Loans
-------- ---------
As of
September 30, 1999
-------------------------
(Dollar Amounts in
Thousands)
<S> <C> <C>
Total Loans............................................ 84,414 $27,114,581
------ -----------
Period of Delinquency (1)
30 to 59 days......................................... 329 $ 95,324
60 to 89 days......................................... 43 12,414
90 days or more....................................... 52 12,508
------ -----------
Total Delinquent Loans................................. 424 $ 120,246
------ -----------
Percent of Total Loans................................. 0.50% 0.44%
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
------------------
<S> <C>
Foreclosures (2)....................................... $ 11,321
Foreclosure Ratio (3).................................. 0.04%
</TABLE>
<TABLE>
<CAPTION>
30-YEAR LOANS
By Dollar
By No. Amount of
of Loans Loans
-------- -----------
As of
September 30, 1999
------------------------
(Dollar Amounts in
Thousands)
<S> <C> <C>
Total 30-Year Loans.................................... 72,026 $23,236,531
------ -----------
Period of Delinquency (1)
30 to 59 days......................................... 302 $ 87,734
60 to 89 days......................................... 37 10,720
90 days or more....................................... 48 11,487
------ -----------
Total Delinquent Loans................................. 387 $ 109,941
------ -----------
Percent of Total Loans................................. 0.54% 0.47%
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
------------------
<S> <C>
Foreclosures (2)....................................... $ 11,073
Foreclosure Ratio (3).................................. 0.05%
</TABLE>
___________________
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceedings
had been instituted or with respect to which the related property had been
acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
S1-10
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The yield to maturity on the Classes of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Classes with lower numerical designations because the entire amount of such
losses (except for the portion of Excess Losses allocated to the Class A
Certificates and Classes of Class B Certificates with lower numerical
designations) will be allocable to the Classes of Class B Certificates in
reverse numerical order, except as provided herein. To the extent not covered by
Periodic Advances, delinquencies on Mortgage Loans will also have a relatively
greater effect on the yield to maturity on the Classes of Class B Certificates
with higher numerical designations because amounts otherwise distributable to
holders of the Class B Certificates will be made available to protect the
holders of the Class A Certificates against interruptions in distributions due
to such unadvanced mortgagor delinquencies. Such unadvanced delinquencies, even
if subsequently cured, may affect the timing of the receipt of distributions by
the holders of the Class B Certificates.
See "Prepayment and Yield Considerations" in the Prospectus Supplement and
the Prospectus for a discussion of the effect that prepayments on the Mortgage
Loans may have on the yield to maturity and weighted average life of a Class of
Certificates. For purposes of the discussion in the Prospectus Supplement, the
term "Offered Certificates" includes the Class B-1, Class B-2 and Class B-3
Certificates.
For purposes of the following table, the "weighted average life" of the
Class B-1, Class B-2 and Class B-3 Certificates refers to the average amount of
time that will elapse from November 30, 1999 until each dollar in reduction of
the Principal Balance of such Class has been reduced to zero.
The table set forth below has been prepared, assuming, among other things,
the following (the "Structuring Assumptions"): (i) the Trust Estate consists of
one "Assumed Discount Mortgage Loan" and one "Assumed Premium Mortgage Loan"
(collectively, the "Assumed Mortgage Loans") with the characteristics set forth
below, (ii) the scheduled payment in each month for each of the Assumed Mortgage
Loans has been based on its outstanding balance as of the first day of the month
preceding the month of such payment, its Mortgage Interest Rate and its
remaining term to stated maturity, so that such scheduled payments would
amortize the remaining balance over its remaining term to maturity, (iii)
scheduled monthly payments of principal and interest on the Assumed Mortgage
Loans will be timely received on the first day of each month (with no defaults),
commencing in December 1999, (iv) the Company does not repurchase any of the
Assumed Mortgage Loans and the Company does not exercise its option to purchase
the Assumed Mortgage Loans and thereby cause a termination of the Trust Estate,
(v) principal payments on the Assumed Mortgage Loans representing principal
prepayments in full of individual mortgage loans will be received on the last
day of each month commencing in November 1999 at the respective constant
percentages of SPA set forth in the table and there are no partial principal
prepayments or Prepayment Interest Shortfalls, (vi) distributions to
Certificateholders will be made on the 25th day of each month, commencing in
December 1999, (vii) the sum of the Servicing Fee Rate and the Master Servicing
Fee Rate for each Assumed
S1-11
<PAGE>
Mortgage Loan (the "Expense Rate") is as set forth below; and (viii) the
Principal Balance of each Class of Certificates will be as set forth on pages
S1-4 and S1-7 of this Supplement.
Assumed Mortgage Loan Characteristics
-------------------------------------
<TABLE>
<CAPTION>
Remaining Term Original Term to
Principal Balance as of Mortgage to Stated Maturity Stated Maturity
November 17, 1999 Interest Rate Expense Rate (in Months) (in Months)
---------------------- ------------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Assumed $ 72,106,812.92 6.6571818903% 0.3215184790% 354 360
Discount
Mortgage Loan
Assumed $227,026,106.52 7.3580769898% 0.2670000000% 356 360
Premium
Mortgage Loan
</TABLE>
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate, that all of the Mortgage Loans will prepay at the same rate or that the
Mortgage Loans will not experience any losses.
Based upon the Structuring Assumptions, the following table indicates the
weighted average life of each Class of Offered Certificates, and sets forth the
percentages of the Principal Balance, after giving effect to distributions of
principal on November 26, 1999, of each Class of Offered Certificates that would
be outstanding after each of the dates shown at the constant percentages of SPA
presented.
S1-12
<PAGE>
Percentage of Principal Balance/(1)/ Outstanding
for the Offered Certificates
at the Following Percentages of SPA:
<TABLE>
<CAPTION>
0% 125% 300% 400% 500%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distribution Date
Initial 100 100 100 100 100
November 2000 99 99 99 99 99
November 2001 98 98 98 98 98
November 2002 97 97 97 97 97
November 2003 95 95 95 95 95
November 2004 94 94 93 93 92
November 2005 93 90 86 84 81
November 2006 91 86 78 73 69
November 2007 89 80 67 61 54
November 2008 88 74 56 47 39
November 2009 86 66 45 35 27
November 2010 84 60 36 26 18
November 2011 81 54 29 19 13
November 2012 79 49 23 14 9
November 2013 77 43 18 10 6
November 2014 74 39 14 8 4
November 2015 71 34 11 6 3
November 2016 68 30 9 4 2
November 2017 64 27 7 3 1
November 2018 61 23 5 2 1
November 2019 57 20 4 1 1
November 2020 52 17 3 1 *
November 2021 48 15 2 1 *
November 2022 43 12 2 * *
November 2023 38 10 1 * *
November 2024 32 8 1 * *
November 2025 26 6 1 * *
November 2026 20 4 * * *
November 2027 13 2 * * *
November 2028 5 1 * * *
November 2029 0 0 0 0 0
Weighted Average 19.73 13.85 10.34 9.31 8.61
Life (years)/(2)/
</TABLE>
___________________________
(1) As of November 26, 1999, after giving effect to distributions of principal
on such date.
(2) The weighted average life of an Offered Class B Certificate is determined
by (i) multiplying the amount of each distribution in reduction of Principal
Balance by the number of years from November 30, 1999 to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
aggregate distributions in reduction of Principal Balance referred to in clause
(i).
* Indicates an amount greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
Yield Considerations with Respect to the Class B-2 and Class B-3 Certificates
Defaults on mortgage loans may be measured relative to a default standard
or model. The model used in this Supplement, the standard default assumption
("SDA"), represents an assumed
S1-13
<PAGE>
rate of default each month relative to the then-outstanding performing principal
balance of a pool of new mortgage loans. A default assumption of 100% SDA
assumes constant default rates of 0.02% per annum of the then-outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans and an additional 0.02% per annum in each month thereafter until
the 30th month. Beginning in the 30th month and in each month thereafter through
the 60th month of the life of the mortgage loans, 100% SDA assumes a constant
default rate of 0.60% per annum each month. Beginning in the 61st month and in
each month thereafter through the 120/th/ month of the life of the mortgage
loans, 100% SDA assumes that the constant default rate declines each month by
0.0095% per annum, and that the constant default rate remains at 0.03% per annum
in each month after the 120th month. For the purposes of the following tables,
it is assumed that there is no delay between the default and liquidation of the
mortgage loans. As used in the following tables, ''0% SDA'' assumes default
rates equal to 0% of SDA (no defaults). SDA does not purport to be a historical
description of default experience or a prediction of the anticipated rate of
default of any pool of mortgage loans, including the Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Class B-2 and Class B-3 Certificates to various rates of
prepayment and varying levels of aggregate Realized Losses. The tables set forth
below are based upon, among other things, the Structuring Assumptions (other
than the assumption that no defaults shall have occurred with respect to the
Mortgage Loans) and the additional assumption that liquidations (other than
those scenarios indicated as 0% of SDA (no defaults)) occur monthly on the last
day of the preceding month at the percentages of SDA set forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of 20%
or 40% of the outstanding principal balance of such liquidated Mortgage Loans,
as indicated in the tables below (referred to as a "Loss Severity Percentage")
will occur at the time of liquidation, (ii) there are no Special Hazard Losses,
Fraud Losses or Bankruptcy Losses and (iii) the Class B-2 and Class B-3
Certificates are purchased on November 30, 1999 at assumed purchase prices equal
to 91.25% and 86.25%, respectively, of the Principal Balances thereof as of
November 26, 1999 after giving effect to distributions of principal on such date
plus accrued interest from November 1, 1999 to (but not including) November 30,
1999.
The actual Mortgage Loans included in the Trust Estate had characteristics
differing from those assumed in preparing the following tables and may be
changed as a result of permitted substitutions. In addition, it is unlikely that
the Mortgage Loans will prepay or liquidate at any of the rates specified or
that Realized Losses will be incurred according to one particular pattern. The
assumed percentages of SDA and SPA and the loss severities shown in the tables
below are for illustrative purposes only and the Seller makes no representations
with respect to the reasonableness of such assumptions or that the actual rates
of prepayment and liquidation and loss severity experience of the Mortgage Loans
will in any way correspond to any of the assumptions made herein. For these
reasons, and because the timing of cash flows is critical to determining yield,
the pre-tax yields to maturity of the Class B-2 and Class B-3 Certificates are
likely to differ from the pre-tax yields to maturity shown below in the tables.
The pre-tax yields to maturity set forth in the following tables were
calculated by determining the monthly discount rates which, when applied to the
assumed streams of cash
S1-14
<PAGE>
flows to be paid on the Class B-2 and Class B-3 Certificates, would cause the
discounted present value of such assumed streams of cash flows to equal the
aggregate assumed purchase prices of the Class B-2 and Class B-3 Certificates
set forth above. In all cases, monthly rates were then converted to the
corporate bond equivalent yields shown below. Implicit in the use of any
discounted present value or internal rate of return calculations such as these
is the assumption that intermediate cash flows are reinvested at the discount
rate or internal rate of return. Thus, these calculations do not take into
account the different interest rates at which investors may be able to reinvest
funds received by them as distributions on the Class B-2 and Class B-3
Certificates. Consequently, these yields do not purport to reflect the total
return on any investment in the Class B-2 and Class B-3 Certificates when such
reinvestment rates are considered.
S1-15
<PAGE>
Sensitivity of Pre-Tax Yields to Maturity/*/ of the Class B-2
Certificates to Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss
Percentage Severity Percentages of SPA
------------------------------------------------------------------------
of SDA Percentage 0% 125% 300% 400% 500%
---------- ---------- --------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
0% N/A 7.46% 7.66% 7.86% 7.94% 8.01%
25% 20% 7.41% 7.67% 7.86% 7.94% 8.01%
25% 40% 7.36% 7.68% 7.86% 7.94% 8.01%
50% 20% 7.37% 7.68% 7.86% 7.94% 8.01%
50% 40% 7.31% 7.66% 7.87% 7.94% 8.01%
100% 20% 7.32% 7.68% 7.87% 7.94% 8.01%
100% 40% (25.33)% 1.33% 7.49% 7.95% 8.01%
150% 20% 2.67% 6.85% 7.88% 7.95% 8.02%
150% 40% (46.87)% (39.59)% (4.20)% 1.60% 6.30%
</TABLE>
Sensitivity of Pre-Tax Yields to Maturity* of the Class B-3
Certificates to Prepayments and Realized Losses
<TABLE>
<CAPTION>
Loss
Percentage Severity Percentages of SPA
------------------------------------------------------------------------------------
of SDA Percentage 0% 125% 300% 400% 500%
---------- --------------- ------------------ --------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
0% N/A 8.06% 8.38% 8.70% 8.84% 8.95%
25% 20% 7.90% 8.40% 8.70% 8.84% 8.95%
25% 40% 7.83% 8.41% 8.71% 8.84% 8.95%
50% 20% 7.83% 8.41% 8.72% 8.84% 8.96%
50% 40% (1.28)% 6.34% 8.72% 8.84% 8.95%
100% 20% (0.57)% 6.45% 8.72% 8.84% 8.96%
100% 40% (49.61)% (42.94)% (27.67)% (0.35)% 5.28%
150% 20% (34.03)% (24.27)% 4.60% 8.37% 8.96%
150% 40% (73.52)% (68.78)% (60.22)% (53.60)% (44.27)%
</TABLE>
* On a corporate bond equivalent basis.
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans under the assumptions used to
generate the pre-tax yields to maturity in the preceding tables, expressed as a
percentage of the aggregate outstanding principal balance of the Mortgage Loans
as of November 17, 1999.
S1-16
<PAGE>
Aggregate Realized Losses
<TABLE>
<CAPTION>
Loss
Percentage Severity Percentages of SPA
---------------------------------------------------
of SDA Percentage 0% 125% 300% 400% 500%
------------- ---------- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
25% 20% 0.20% 0.15% 0.10% 0.09% 0.07%
25% 40% 0.39% 0.29% 0.21% 0.17% 0.15%
50% 20% 0.39% 0.29% 0.21% 0.17% 0.15%
50% 40% 0.78% 0.58% 0.42% 0.35% 0.30%
100% 20% 0.77% 0.58% 0.41% 0.35% 0.29%
100% 40% 1.55% 1.16% 0.83% 0.69% 0.59%
150% 20% 1.15% 0.86% 0.62% 0.52% 0.44%
150% 40% 2.30% 1.73% 1.23% 1.04% 0.88%
</TABLE>
_______________
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment and Realized Losses under a
variety of scenarios. Investors in Offered Certificates should fully consider
the risk that Realized Losses on the Mortgage Loans could result in the failure
of such investors to fully recover their investments.
POOLING AND SERVICING AGREEMENT
Representations and Warranties
At the time of initial issuance of the Certificates, the Seller made
certain representations and warranties to the Trustee relating to the Mortgage
Loans. Those representations and warranties were made as of the date of initial
issuance, and are not made as of any date or with respect to any period after
such issuance, or in connection with the sale of the Offered Certificates. See
"Mortgage Loan Programs--Representations and Warranties" in the Prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
An election has been made to treat the Trust Estate as a REMIC for federal
income tax purposes. Each Class of Offered Certificates and each Class of
Certificates not offered hereby (other than the Class A-R Certificate) were
designated as regular interests in the REMIC and the Class A-R Certificate was
designated as the residual interest in the REMIC.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" for a
domestic building and loan association, "real estate assets" for a real estate
investment trust and "qualified mortgages" for a REMIC and "permitted
assets" for a financial asset securitization investment trust, to the extent
described in the Prospectus.
S1-17
<PAGE>
The Offered Certificates were issued with original issue discount equal to
the excess of their initial Principal Balances (plus four days of interest at
the Pass-Through Rate thereon) over their respective issue prices (including
accrued interest).
ERISA CONSIDERATIONS
Because the Class B Certificates are subordinated to the Class A
Certificates with respect to certain losses, the Class B Certificates may not be
transferred unless the transferee has delivered (i) a representation letter to
the Trust Administrator and Seller stating either (a) that the transferee is not
a Plan and is not acting on behalf of a Plan or using the assets of a Plan to
effect such purchase or (b) subject to the conditions described herein, that the
source of funds used to purchase the Class B Certificates is an "insurance
company general account" as defined in Section V(e) of PTE 95-60 and the
purchase and holding of such Certificates are covered by Sections I and III of
PTE 95-60, or (ii) an opinion of counsel and such other documentation as
described herein under "Description of the Certificates -- Restrictions on
Transfer of the Class B Certificates."
LEGAL INVESTMENT CONSIDERATIONS
The Class B-1 Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") so long as they are rated in one of the two highest rating categories
by at least one nationally recognized statistical rating organization. The Class
B-2 and Class B-3 Certificates do not constitute "mortgage related securities"
under SMMEA.
Prospective purchasers whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the
Offered Certificates and should consult their own legal, tax and accounting
advisors in determining the suitability of and consequences to them of the
purchase, ownership and disposition of the Offered Certificates. See "Legal
Investment" in the Prospectus.
SECONDARY MARKET
There was not any market for the Offered Certificates prior to their
issuance. The Underwriter intends to act as a market maker in the Offered
Certificates subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so.
There can be no assurance that a secondary market in the Offered Certificates
will develop or, if such a market does develop, that it will provide holders of
Offered Certificates with liquidity of investment at any particular time or for
the life of the Offered Certificates. As a source of information concerning the
Certificates and the Mortgage Loans, prospective investors in Certificates may
obtain copies of the Monthly Reports to Certificateholders described under "The
Pooling and Servicing Agreement -- Reports to Certificateholders" in the
Prospectus upon written request to the Trust Administrator at the Corporate
Trust Office.
Sl-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
November 12, 1999 (the "Underwriting Agreement") among Norwest Mortgage, the
Seller and PaineWebber Incorporated, as underwriter (the "Underwriter"), the
Offered Certificates are being purchased from the Seller by the Underwriter on
November 30, 1999. The Underwriter is committed to purchase all of the Offered
Certificates if any Offered Certificates are purchased. The Underwriter has
advised the Seller that it proposes to offer the Offered Certificates, from time
to time, for sale in negotiated transactions or otherwise at prices determined
at the time of sale. Proceeds to the Seller from the sale of the Offered
Certificates are expected to be approximately 91.64% of the aggregate Principal
Balance of the Class B-1 Certificates, approximately 89.73% of the aggregate
Principal Balance of the Class B-2 Certificates and approximately 84.36% of the
aggregate Principal Balance of the Class B-3 Certificates, in each case, as of
November 26, 1999 after giving effect to distributions of principal on such date
plus, in each case, accrued interest thereon at the rate of 6.500% per annum,
from November 1, 1999 to (but not including) November 30, 1999, before deducting
expenses payable by the Seller estimated to be $30,000. The Underwriter is not
an affiliate of the Seller. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Offered Certificates may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of Offered Certificates by them may be deemed to be
underwriting discounts or commissions under the Securities Act.
The Underwriting Agreement provides that the Seller or Norwest Mortgage
will indemnify the Underwriter against certain civil liabilities under the
Securities Act or contribute to payments which the Underwriter may be required
to make in respect thereof.
This Supplement, the Prospectus Supplement and the Prospectus may be used
by Norwest Investment Services. Inc., an affiliate of the Seller, the Master
Servicer and Norwest Mortgage, to the extent required, in connection with market
making transactions in the Offered Certificates. Norwest Investment Services,
Inc. may act as principal or agent in such transactions.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with
respect thereto will be passed upon for the Seller by Cadwalader, Wickersham &
Taft, New York, New York. Certain legal matters will be passed upon for the
Underwriter by Brown & Wood LLP, New York, New York.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from an affiliate of the Offered
Certificates.
Sl-19
<PAGE>
RATINGS
The Class B-1, Class B-2 and Class B-3 Certificates have been rated "AA,"
"A" and "BBB," respectively, by Duff & Phelps Credit Rating Co. ("DCR"). See
"Ratings" in the Prospectus Supplement for a further discussion of what the
ratings of DCR address.
Sl-20
<PAGE>
INDEX OF SUPPLEMENT DEFINITIONS
Assumed Discount Mortgage Loan...................................... S1-11
Assumed Mortgage Loans.............................................. S1-11
Assumed Premium Mortgage Loan....................................... S1-11
DCR................................................................. S1-20
Expense Rate........................................................ S1-12
Loss Severity Percentage............................................ S1-14
Offered Certificates...................................................S1-2
Pass-Through Rate......................................................S1-7
PTE 95-60..............................................................S1-8
SDA................................................................. S1-13
SMMEA............................................................... S1-18
Structuring Assumptions............................................. S1-11
Underwriter......................................................... S1-19
Underwriting Agreement.............................................. S1-19
Weighted Average Life............................................... S1-11
Sl-21
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated August 18, 1999) [LOGO OF NORWEST]
Norwest Asset Securities Corporation 1999-25 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR (R))
Seller
$289,304,600
(Approximate)
Mortgage Pass-Through Certificates, Series 1999-25
Principal and interest payable monthly, commencing in October 1999
- --------------------------------------------------------------------------------
You should carefully consider the risk factors beginning on page S-12 of this
prospectus supplement.
Neither the offered certificates nor the underlying mortgage loans are insured
or guaranteed by any governmental agency or instrumentality.
The offered certificates will represent interests in the trust only and will
not represent interests in or obligations of NASCOR(R) or any NASCOR(R)
affiliate.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
The Trust Will Issue--
. Six Classes of senior Class A Certificates.
. Six Classes of Class B Certificates, all of which are
subordinated to, and provide credit enhancement for, the
Class A Certificates. Each Class of Class B Certificates
is also subordinated to each Class of Class B
Certificates, if any, with a lower number.
The Classes of offered certificates are listed under the
heading "Offered Certificates" in the table on page S-4.
The Assets of the Trust Will Include--
. A pool of fully amortizing, one- to four-family,
residential first mortgage loans (excluding the Fixed
Retained Yield described in this prospectus supplement),
substantially all of which loans have original terms to
stated maturity of approximately 30 years. All of the
mortgage loans were made in connection with the
relocation of employees of various corporate employers.
Neither the SEC nor any state securities commission has approved the
certificates offered by this prospectus supplement or determined that this
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The offered certificates will be purchased by the underwriter and offered by
the underwriter to investors at varying prices to be determined at the time of
sale. The offered certificates will be available for delivery to investors on
or about September 29, 1999.
[LOGO OF GREENWICH CAPITAL APPEARS HERE]
September 22, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information is provided to you about the Offered Certificates in two separate
documents that progressively provide more detail: (a) the accompanying Prospec-
tus, which provides general information, some of which may not apply to your
Certificates and (b) this Prospectus Supplement, which describes the specific
terms of your Certificates.
If the description of the terms of your Certificates varies between this Pro-
spectus Supplement and the accompanying Prospectus, you should rely on the in-
formation in this Prospectus Supplement.
Cross-references are included in this Prospectus Supplement and the accompa-
nying Prospectus to captions in these materials where you can find further re-
lated discussions. The following Table of Contents and the Table of Contents
included in the accompanying Prospectus provide the pages on which these cap-
tions are located.
You can find a listing of the pages where capitalized terms used in this Pro-
spectus Supplement and the accompanying Prospectus are defined under the cap-
tion "Index of Prospectus Supplement Definitions" beginning on page S-57 in
this document and under the caption "Index of Significant Definitions" begin-
ning on page 95 in the accompanying Prospectus. Any capitalized terms used but
not defined in this Prospectus Supplement have the meanings assigned in the
Prospectus.
------------------
This Prospectus Supplement and the accompanying Prospectus contain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended. Such forward-looking statements, together with related quali-
fying language and assumptions, are found in the material, including each of
the tables, set forth under "Risk Factors" and "Prepayment and Yield Considera-
tions." Forward-looking statements are also found elsewhere in this Prospectus
Supplement and the Prospectus, and may be identified by, among other things,
accompanying language including the words "expects," "intends," "anticipates,"
"estimates" or analogous expressions, or by qualifying language or assumptions.
Such statements involve known and unknown risks, uncertainties and other impor-
tant factors that could cause the actual results or performance to differ mate-
rially from such forward-looking statements. Such risks, uncertainties and
other factors include, among others, general economic and business conditions,
competition, changes in political, social and economic conditions, regulatory
initiatives and compliance with government regulations, customer preference and
various other matters, many of which are beyond the Seller's control. These
forward-looking statements speak only as of the date of this Prospectus Supple-
ment. The Seller expressly disclaims any obligation or undertaking to dissemi-
nate any updates or revisions to such forward-looking statements to reflect any
change in the Seller's expectations with regard thereto or any change in
events, conditions or circumstances on which any forward-looking statement is
based.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary Information.................. S-5
Risk Factors......................... S-12
Prepayments May Adversely Affect
Yield.............................. S-12
Geographic Concentration May
Increase Risk of Loss Because of
Adverse Economic Conditions or
Natural Disasters.................. S-12
Rights of Beneficial Owners May Be
Limited By Book-Entry System for
Certain Classes of Class A
Certificates....................... S-13
Certificates May Not Be Appropriate
for Individual Investors........... S-13
Year 2000 Readiness Disclosure...... S-13
Year 2000 Legislation May Affect
Timely Exercise of Remedies........ S-14
Description of the Certificates...... S-16
Denominations; Form of
Certificates....................... S-16
Distributions....................... S-16
Interest............................ S-19
Principal (Including Prepayments)... S-22
Calculation of Amount to be
Distributed on the Certificates... S-22
Allocation of Amount to be
Distributed on the Class A
Certificates...................... S-26
Additional Rights of the Class A-R
Certificateholder.................. S-27
Periodic Advances................... S-27
Restrictions on Transfer of the
Class A-R Certificate.............. S-28
Subordination of Class B
Certificates....................... S-29
Allocation of Losses............... S-29
Description of the Mortgage Loans.... S-32
General............................. S-32
Mortgage Loan Underwriting.......... S-33
Selected Mortgage Loan Data......... S-34
Mortgage Loan Data.................. S-36
Mandatory Repurchase or Substitution
of Mortgage Loans.................. S-39
Optional Repurchase of Defaulted
Mortgage Loans..................... S-40
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Delinquency and Foreclosure
Experience.......................... S-40
Prepayment and Yield Considerations.. S-40
Pooling and Servicing Agreement...... S-48
General............................. S-48
Distributions....................... S-48
Voting.............................. S-48
Trustee............................. S-48
Trust Administrator................. S-48
Master Servicer..................... S-49
Special Servicing Agreements........ S-49
Optional Termination................ S-49
Servicing of the Mortgage Loans...... S-49
The Servicers....................... S-50
Servicer Custodial Accounts......... S-50
Unscheduled Principal Receipts...... S-50
Anticipated Changes in Servicing.... S-51
Fixed Retained Yield; Servicing
Compensation and Payment of
Expenses........................... S-51
Servicer Defaults................... S-52
Federal Income Tax Considerations.... S-52
Regular Certificates................ S-52
Residual Certificate................ S-53
ERISA Considerations................. S-54
Legal Investment..................... S-54
Secondary Market..................... S-54
Underwriting......................... S-55
Recent Developments.................. S-55
Legal Matters........................ S-55
Use of Proceeds...................... S-56
Ratings.............................. S-56
Index of Prospectus Supplement
Definitions......................... S-57
</TABLE>
S-3
<PAGE>
THE SERIES 1999-25 CERTIFICATES
<TABLE>
<CAPTION>
Initial Rating
of Offered
Certificates(3)
---------------
Initial Pass-Through
Class Principal Balance(1) Rate Principal Types(2) Interest Types(2) DCR S&P
- ----- -------------------- ------------ -------------------------- ------------------- ------- -------
Offered Certificates
<S> <C> <C> <C> <C> <C> <C>
Class A-1............... $ 222,612,500 6.500% Senior, Accretion Directed Fixed Rate AAA AAA
Class A-2............... $ 26,468,000 6.500% Senior, Accretion Directed Fixed Rate AAA AAA
Class A-3............... $ 10,224,000 6.500% Senior, Sequential Pay Accrual, Fixed Rate AAA AAA
Class A-4............... $ 30,000,000 6.500% Senior, Lockout Fixed Rate AAA AAA
Class A-R............... $ 100 6.500% Senior, Sequential Pay Fixed Rate AAA AAA
Non-Offered Certificates
Class A-PO.............. $ 1,837,405 (4) Senior, Ratio Strip Principal Only N/A N/A
Class B-1............... $ 5,714,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-2............... $ 1,504,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-3............... $ 902,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-4............... $ 752,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-5............... $ 301,000 6.500% Subordinated Fixed Rate N/A N/A
Class B-6............... $ 451,623 6.500% Subordinated Fixed Rate N/A N/A
</TABLE>
- ------------------
(1) Approximate. The initial Principal Balances are subject to adjustment as
described in this Prospectus Supplement.
(2) See "Description of the Certificates -- Categories of Classes of Certifi-
cates" in the Prospectus for a description of the principal and interest
categories listed.
(3) A description of the ratings of the Offered Certificates is set forth under
the heading "Rating of Certificates" on page S-5 of the Summary Information
and under "Ratings" in the main text of this Prospectus Supplement.
(4) The Class A-PO Certificates are principal only certificates and will not be
entitled to distributions in respect of interest.
S-4
<PAGE>
SUMMARY INFORMATION
. This summary highlights selected information from this document, but does not
contain all of the information that you should consider in making your in-
vestment decision. Please read this entire Prospectus Supplement and the ac-
companying prospectus (the "Prospectus") carefully for additional detailed
information about the Offered Certificates.
RELEVANT PARTIES
Issuer
The Norwest Asset Securities Corporation 1999-25 Trust (the "Trust") will own
the Mortgage Loans and issue the Certificates.
Seller
Norwest Asset Securities Corporation (the "Seller") will acquire the Mortgage
Loans from Norwest Mortgage, Inc. ("Norwest Mortgage"), an affiliate of the
Seller and the Master Servicer, and will transfer the Mortgage Loans into the
Trust.
Master Servicer
Norwest Bank Minnesota, National Association, an affiliate of the Seller and
Norwest Mortgage ("Norwest Bank" and, in its capacity as master servicer, the
"Master Servicer"), will supervise the Servicers and perform certain other du-
ties with respect to the Certificates.
Servicers
Norwest Mortgage and one or more other Servicers approved by the Master
Servicer will provide customary servicing functions with respect to the Mort-
gage Loans under servicing agreements (each, an "Underlying Servicing Agree-
ment") assigned to the Trust.
Trustee
United States Trust Company of New York (the "Trustee") will be the trustee of
the Trust.
Trust Administrator
First Union National Bank (the "Trust Administrator") will be the trust admin-
istrator of the Trust.
RATING OF CERTIFICATES
The Trust will not issue the Offered Certificates unless they have received at
least the ratings set forth on page S-4 from Duff & Phelps Credit Rating Co.
("DCR") and Standard & Poor's ("S&P" and, together with DCR, the "Rating Agen-
cies").
. The ratings of the Rating Agencies are not recommendations to buy, sell or
hold the Certificates rated. A rating may be revised or withdrawn at any time
by the assigning Rating Agency.
. The ratings do not address the possibility that, as a result of principal
prepayments, the yield on your Certificate may be lower than anticipated.
See "-- Effects of Prepayments on Investment Expectations" below and "Ratings"
in this Prospectus Supplement.
DESCRIPTION OF CERTIFICATES
The Mortgage Pass-Through Certificates, Series 1999-25 (the "Certificates")
will be issued on or about September 29, 1999 (the "Closing Date").
The Certificates consist of:
. the six Classes of senior certificates designated as "Senior" Certificates in
the table on page S-4 (collectively, the "Class A Certificates"); and
. the six Classes of junior certificates designated as "Subordinated" Certifi-
cates in the table on page S-4 (collectively, the "Subordinated Certificates"
or the "Class B Certificates").
Only the Class A Certificates (other than the Class A-PO Certificates) (the
"Offered Certificates") are being offered by this Prospectus Supplement and the
accompanying Prospectus. The Class A-PO and Class B Certificates are not being
offered pursuant to this Prospectus Supplement and the accompanying Prospectus,
and the Seller may retain or sell such Classes.
See page S-4 for more information with respect to each Class of Certificates.
Principal Balance and Interests Evidenced by the Certificates
The Certificates will have an approximate aggregate initial Principal Balance
of $300,766,628. Any difference between the aggregate Principal Balance of the
Certificates as of the date of issuance of the Certificates and the approximate
aggregate initial Principal Balance of the Certificates as of the date of this
Prospectus Supplement will not exceed 5% of the aggregate initial Principal
Balance of the Certificates. Any such difference will be allocated among the
various Classes of Certificates so as to materially retain the characteristics
of the Offered Certificates described in this Prospectus Supplement.
S-5
<PAGE>
The following table sets forth the approximate undivided interest in the prin-
cipal balance of the Mortgage Loans that the Seller expects each Class or group
of Classes indicated to evidence as of the Closing Date.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Class Undivided Interest
- ------------------------------- ---------------------
<S> <C> <C>
Class A (other than Class A-PO) 96.19%
Class A-PO* 0.61%
---------
Class A (all Classes) 96.80%
Class B 3.20%
----------
Total 100.00%
==========
</TABLE>
- -------
* The Class A-PO Certificates in the aggregate represent an approximate 2.53%
initial interest in the principal balance of the Discount Mortgage Loans.
- --------------------------------------------------------------------------------
The following table sets forth for the Class A and Class B Certificates the ap-
proximate undivided interest in the Pool Balance (Non-PO Portion) that the
Seller expects such Class or group of Classes indicated to evidence as of the
Closing Date.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Approximate Initial
Undivided Interest
-----------------------
Class Percentage In dollars
- ------------------------------- ---------- ------------
<S> <C> <C>
Class A (other than Class A-PO) 96.78% $289,304,600
Class B 3.22% $ 9,624,623
------ ------------
Totals 100.00% $298,929,223
====== ============
- --------------------------------------------------------
</TABLE>
The relative interests in the initial Pool Balance (Non-PO Portion) represented
by the Class A Certificates in the aggregate (other than the Class A-PO Certif-
icates) and the Class B Certificates in the aggregate are subject to change
over time because:
. certain unscheduled principal payments will be disproportionally allocated to
the Class A Certificates (other than the Class A-PO Certificates) for a spec-
ified period; and
. certain losses and certain shortfalls will be allocated first to the Classes
of Class B Certificates in reverse numerical order prior to the allocation of
such losses and shortfalls to the Class A Certificates, as discussed in "De-
scription of the Certificates -- Distributions" and "-- Subordination
of Class B Certificates" in this Prospectus Supplement.
Forms of Certificates; Denominations
Your Certificates will be issued either in book-entry form or in fully regis-
tered, certificated form. The table under "Description of the Certificates --
Denominations; Form of Certificates" in this Prospectus Supplement sets forth
the original certificate form, the minimum denomination and the incremental de-
nomination of the Offered Certificates. The Offered Certificates are not in-
tended to be directly or indirectly held or beneficially owned by anyone in
amounts lower than such minimum denominations.
MORTGAGE POOL
The Mortgage Loans, which are the source of distributions to holders of the
Certificates, will consist of conventional, fixed interest rate, monthly pay,
fully amortizing, one- to four-family, residential first mortgage loans, sub-
stantially all of which have original terms to stated maturity of approximately
30 years. Some of the Mortgage Loans may be loans secured by shares issued by
non-profit cooperative housing corporations.
All of the Mortgage Loans were made in connection with the relocation of em-
ployees of various corporate employers. Some of these corporate employers par-
ticipate in Norwest Mortgage's relocation program. In addition, some of the
Mortgage Loans are expected to be subject to subsidy agreements. These agree-
ments, except under limited circumstances, require the employer of a mortgagor
to pay a portion of the mortgagor's monthly payments for a specified period.
The Seller expects the Mortgage Loans to have the further specifications set
forth in the table below and under the heading "Description of the Mortgage
Loans" in this Prospectus Supplement.
S-6
<PAGE>
- --------------------------------------------------------------------------------
SELECTED MORTGAGE LOAN DATA(/1/)
(as of the Cut-Off Date)
<TABLE>
<S> <C>
Cut-Off Date: September 1, 1999
Number of Mortgage Loans: 823
Aggregate Unpaid Principal Balance(/2/): $300,766,629
Range of Unpaid Principal Balances(/2/): $126,325 to $1,298,881
Average Unpaid Principal Balance(/2/): $365,452
Aggregate Unpaid Principal Balance of Subsidy
Loans(/2/): $42,926,957
Subsidy Loans as a Percentage of the Aggregate Unpaid
Principal Balance(/2/): 14.28%
Range of Mortgage Interest Rates: 6.250% to 8.500%
Weighted Average Mortgage Interest Rate(/2/): 7.189%
Range of Remaining Terms to Stated Maturity: 239 months to 360 months
Weighted Average Remaining Term to Stated
Maturity(/2/): 358 months
Range of Original Loan-to-Value Ratios(/2/): 21.43% to 95.00%
Weighted Average Original Loan-to-Value Ratio(/2/): 77.86%
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Unpaid Principal Balance(/2/): California 21.37%
New Jersey 11.97%
Connecticut 8.75%
Texas 5.73%
Illinois 5.25%
Maximum Five-Digit Zip Code Concentration(/2/): 1.12%
</TABLE>
- -----------------
(1) Information concerning the Discount Mortgage Loans and Premium Mortgage
Loans is set forth under "Description of the Mortgage Loans -- General."
(2) Approximate.
- --------------------------------------------------------------------------------
Changes to Mortgage Pool
The Seller may remove Mortgage Loans from the pool, or may make substitutions
for certain Mortgage Loans, in advance of the Closing Date.
After the issuance of the Certificates, the Seller may remove certain Mortgage
Loans from the pool through repurchase or, under certain circumstances, may
make substitutions for certain Mortgage Loans.
See "Description of the Mortgage Loans" in this Prospectus Supplement.
Optional Termination of the Trust
The Seller may, subject to certain conditions including the then-remaining size
of the pool, purchase all outstanding Mortgage Loans in the pool and thereby
effect early retirement of the Certificates. See "Pooling and Servicing Agree-
ment -- Optional Termination" in this Prospectus Supplement.
Underwriting Standards
Approximately 86.56% (by aggregate unpaid principal balance as of the Cut-Off
Date) of the Mortgage Loans were generally originated in conformity with the
underwriting standards described in the Prospectus under the heading "The Mort-
gage Loan Programs -- Mortgage Loan Underwriting -- Norwest Mortgage Underwrit-
ing" (the "Underwriting Standards"). In certain instances, Norwest Mortgage may
have granted exceptions to the Underwriting Standards.
The remaining approximate 13.44% of the Mortgage Loans were purchased by
Norwest Mortgage in bulk purchase transactions and were underwritten using un-
derwriting standards which may vary from the Underwriting Standards (the "Bulk
Purchase Underwritten Loans"). However, Norwest Mortgage has in each case re-
viewed the underwriting standards applied to such Bulk Purchase Underwritten
Loans and determined that such standards were not materially different than the
Underwriting Standards.
See "Description of the Mortgage Loans" in this Prospectus Supplement and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
S-7
<PAGE>
DISTRIBUTIONS OF PRINCIPAL AND INTEREST TO CERTIFICATEHOLDERS
On each Distribution Date the Pool Distribution Amount, which consists of those
payments, recoveries, advances and other receipts in respect of the Mortgage
Loans which are available for distribution on such date, will be distributed
generally in the following order of priority:
. first, pro rata, to the holders of the Class A Certificates in respect of in-
terest which they are entitled to receive on such Distribution Date;
. second, to the holders of the Class A Certificates in respect of principal
which they are entitled to receive on such Distribution Date; and
. third, to the holders of the Class B Certificates in numerical order (i.e.,
first to the Class B-1 Certificates, then the Class B-2 Certificates, etc.)
in respect of interest and principal which they are entitled to receive on
such Distribution Date.
However, if you are purchasing Class A-3 Certificates you will not receive in-
terest distributions with respect to your Certificates until the Accretion Ter-
mination Date. Prior to the Accretion Termination Date, interest which would
otherwise be distributed on your Class A-3 Certificates will be added to the
Principal Balance of the Class A-3 Certificates and will be distributed instead
as principal to the holders of the Class A-1, Class A-2 and Class A-3 Certifi-
cates as specified under "Description of the Certificates -- Principal (In-
cluding Prepayments)" in this Prospectus Supplement.
In addition, the portion, if any, of principal to which the Class A-PO Certifi-
cates are entitled on a Distribution Date which consists of the Class A-PO De-
ferred Amount will only be paid out of amounts otherwise distributable as prin-
cipal to the Class B Certificates on such Distribution Date.
Interest Distributions
The amount of interest which will accrue on your Certificates each month is
equal to:
. 1/12th of the Pass-Through Rate for your Class of Certificates multiplied by
the outstanding Principal Balance of such Class on the related Distribution
Date minus
. the amount of certain interest shortfalls arising from the timing of prepay-
ments on the Mortgage Loans and interest losses allocated to your Class of
Certificates, as described under "Description of the Certificates -- Inter-
est" in this Prospectus Supplement.
The allocation of interest distributions among the Class A Certificates will be
made as described under "Description of the Certificates -- Distributions" and
"Interest" in this Prospectus Supplement.
Principal Distributions
The calculation of the amount of principal which each Class of Offered Certifi-
cates is entitled to receive on each Distribution Date and the priority of
principal distributions among the Class A Certificates are described under "De-
scription of the Certificates -- Distributions" and "-- Principal (Including
Prepayments)" in this Prospectus Supplement.
Credit Enhancement
The rights of the holders of each Class of Class B Certificates to receive dis-
tributions will be subordinated to the rights of the holders of the Class A
Certificates and the holders of the Classes of Class B Certificates, if any,
with lower numerical designations to receive distributions.
In general, the protection afforded the holders of more senior Classes of Cer-
tificates by means of this subordination will be effected in two ways:
. by the preferential right of the holders of such Classes to receive, prior to
any distribution being made on any Distribution Date to the holders of the
more junior Classes of Certificates, the amounts of interest and principal
due on the more senior Classes of Certificates (other than the Class A-PO De-
ferred Amount) and, if necessary, by the right of such more senior holders to
receive future distributions on the Mortgage Loans that would otherwise have
been allocated to the holders of the more junior Classes of Certificates; and
. by the allocation to the more junior Classes of Certificates (in inverse or-
der of seniority), until their respective Principal Balances have been re-
duced to zero, of losses resulting from the liquidation of defaulted Mortgage
Loans or the bankruptcy of mortgagors prior to the allocation of such losses
to the more senior Classes of Certificates (other than certain excess losses
arising from special hazards, mortgagor fraud or mortgagor bankruptcy).
See "Description of the Certificates -- Distributions" and "-- Subordination of
Class B Certificates" in this Prospectus Supplement.
In addition, in order to increase the period during which the Principal Bal-
ances of the Class B Certificates remain available as credit enhancement to the
Class A Certificates, a disproportionate amount of
S-8
<PAGE>
prepayments and certain unscheduled recoveries with respect to the Mortgage
Loans will be allocated to the Class A Certificates in the aggregate (other
than the Class A-PO Certificates). This allocation will accelerate the amorti-
zation of the Class A Certificates (other than the Class A-PO Certificates)
while, in the absence of losses due to the liquidation of defaulted Mortgage
Loans or losses resulting from the bankruptcy of mortgagors, increasing the
percentage interest in the principal balance of the Mortgage Loans evidenced by
the Class B Certificates. See "Description of the Certificates" and "Prepayment
and Yield Considerations" in this Prospectus Supplement.
After the Principal Balances of the Class B Certificates have been reduced to
zero, the principal portion of all losses (other than the portion attributable
to the Discount Mortgage Loans) will be allocated to the Class A Certificates
(other than the Class A-PO Certificates). To the extent such losses arise with
respect to Discount Mortgage Loans, principal losses will be shared among the
Class A Certificates according to their respective interests in such Mortgage
Loans. The principal portion of any losses borne by the Class A Certificates
(other than losses borne by the Class A-PO Certificates) will be allocated pro
rata to the Classes of Class A Certificates (other than the Class A-PO Certifi-
cates) based on their then-outstanding Principal Balances (or, in the case of
the Class A-3 Certificates, their initial Principal Balance, if lower) and the
interest portion of such losses will be shared pro rata by such Classes based
on interest accrued. See "Description of the Certificates -- Interest" and "--
Subordination of Class B Certificates -- Allocation of Losses" in this Pro-
spectus Supplement.
EFFECTS OF PREPAYMENTS ON YOUR INVESTMENT EXPECTATIONS
The Offered Certificates were structured assuming, among other things, that
prepayments on the Mortgage Loans occur at a constant rate of 300% SPA. Howev-
er, no one can predict the actual rate of prepayment of principal on the Mort-
gage Loans.
In deciding whether to purchase any Offered Certificates, you should make an
independent decision as to the appropriate prepayment assumptions to use. If
prepayments on the Mortgage Loans are higher or lower than you anticipate, the
investment performance of the Offered Certificates may vary materially and ad-
versely from your investment expectations.
In addition, if you are purchasing Class A Certificates you should consider
that the Class A Certificates (other than the Class A-PO Certificates) in the
aggregate will be more sensitive to prepayments on the Mortgage Loans than the
Class B Certificates because such prepayments will be disproportionately allo-
cated to the Class A Certificates then entitled to principal distributions dur-
ing the nine years beginning on the first Distribution Date. See "Description
of the Certificates -- Principal (Including Prepayments)" and "Prepayment and
Yield Considerations" in this Prospectus Supplement.
The actual yield on your Certificates may not be equal to the yield you antici-
pated at the time of purchase. In addition, even if the actual yield is equal
to the yield you anticipated at the time of purchase, the total return on in-
vestment you expected or the expected weighted average life of your Certifi-
cates may not be realized. These effects are summarized below.
Yield
The actual yield on your Certificates in relation to the related Pass-Through
Rate will vary depending upon the price you paid for your Certificates.
. If you purchase an Offered Certificate at an amount equal to its unpaid Prin-
cipal Balance (that is, at "par"), your effective yield (assuming that there
are no interest shortfalls and assuming the full return of your invested
principal) will approximate the Pass-Through Rate on that Certificate.
. If you pay less or more than the unpaid Principal Balance of an Offered Cer-
tificate (that is, buy the Certificate at a "discount" or "premium," respec-
tively), then, your effective yield (assuming that there are no interest
shortfalls and assuming the full return of your invested principal) will be
higher or lower, respectively, than the Pass-Through Rate on the Certificate,
because such discount or premium will be amortized over the life of the Cer-
tificate.
The yield on your Certificates will also be affected by the rate and timing of
prepayments on the Mortgage Loans. Any deviation in the actual rate of prepay-
ments on the Mortgage Loans from the rate you assumed will affect the period of
time over which, or the rate at which, the discount or premium will be amor-
tized and, consequently, will cause your actual yield to differ from that which
you anticipated.
If you are purchasing Offered Certificates at a discount, you should consider
the risk that a slower than anticipated rate of principal payments on the Mort-
gage Loans will have a negative effect on the yield to maturity of your Certif-
icates.
S-9
<PAGE>
If you are purchasing Offered Certificates at a premium, you should consider
the risk that a faster than anticipated rate of principal payments on the Mort-
gage Loans will have a negative effect on the yield to maturity of your Certif-
icates and that a rapid rate of principal payments on the Mortgage Loans could
result in the loss of all or part of your initial investment.
Reinvestment Risk
As stated above, if you purchase an Offered Certificate at par, fluctuations in
the rate of distributions of principal will generally not affect your yield to
maturity. However, the total return on your investment, even if you purchase
your Certificates at par, will be reduced if principal distributions received
on your Certificates cannot be reinvested at a rate as high as the stated Pass-
Through Rate or your expected yield.
You should consider the risk that rapid rates of prepayments on the Mortgage
Loans may coincide with periods of low prevailing market interest rates. During
periods of low prevailing market interest rates, mortgagors may be expected to
prepay or refinance Mortgage Loans that carry interest rates significantly
higher than then-current interest rates for mortgage loans. Consequently, the
amount of principal distributions available to you for reinvestment at such low
prevailing interest rates may be relatively large.
Conversely, slow rates of prepayments on the Mortgage Loans may coincide with
periods of high prevailing market interest rates. During such periods, it is
less likely that mortgagors will elect to prepay or refinance Mortgage Loans
and, therefore, the amount of principal distributions available to you for re-
investment at such high prevailing interest rates may be relatively small.
Weighted Average Life Volatility
One indication of the impact of varying prepayment speeds on a security is the
change in its weighted average life.
. The "weighted average life" of an Offered Certificate is the average amount
of time that will elapse between the date of issuance of the Certificate and
the date on which each dollar in reduction of the principal balance of the
Certificate is distributed to the investor.
Low rates of prepayment may result in the extension of the weighted average
life of a Certificate. High rates of prepayment may result in the shortening of
the weighted average life of a Certificate.
In general, if you purchase your Certificates at par and the weighted average
life of your Certificates is extended beyond your anticipated time period, the
market value of your Certificates may be adversely affected even though the
yield to maturity on your Certificates is unaffected.
The sensitivity of the weighted average lives of the Offered Certificates to
prepayments is illustrated in the tables appearing under the heading "Prepay-
ment and Yield Considerations" in this Prospectus Supplement. These illustra-
tions are based on prepayment and other assumptions which are unlikely to match
the actual experience on the Mortgage Loans. Therefore, your results will vary.
See "Risk Factors -- Prepayments May Adversely Affect Yield," "Prepayment and
Yield Considerations" and "Description of the Certificates -- Principal (In-
cluding Prepayments)" in this Prospectus Supplement.
FEDERAL INCOME TAX STATUS
For federal income tax purposes, the Trust Estate will be treated as a real es-
tate mortgage investment conduit (the "REMIC"). The Offered Certificates (other
than the Class A-R Certificate) (collectively, the "Regular Certificates"), the
Class A-PO Certificates and each Class of Class B Certificates will constitute
"regular interests" in the REMIC. The Class A-R Certificate will be the "resid-
ual interest" in the REMIC.
The Regular Certificates will be treated as newly-originated debt instruments
for most federal income tax purposes. You must report income received on your
Regular Certificates as it accrues from Distribution Date to Distribution Date,
which will be before such income is distributed in cash to you. Additionally,
as described under "Federal Income Tax Consequences in this Prospectus Supple-
ment, certain Classes of Regular Certificates may be issued with "original is-
sue discount" ("OID"). If your class of Regular Certificates is issued with
OID, you must report OID income over the life of the Regular Certificate, often
well before such income is distributed in cash to you.
The Class A-R Certificate will not be treated as a debt instrument for federal
income tax purposes. Instead, if you are the holder of the Class A-R Certifi-
cate, you must include the taxable income or loss of the REMIC in determining
your federal taxable income. All or most of the taxable income of the
S-10
<PAGE>
REMIC includible by the Class A-R Certificateholder will be treated as "excess
inclusion" income which is subject to special limitations for federal tax pur-
poses. As a result of this tax treatment, your after-tax return on the Class A-
R Certificate may be significantly lower than would be the case if the Class A-
R Certificate were taxed as a debt instrument, or may be negative (i.e., you
may have to use funds other than distributions on your certificate to meet the
tax liabilities resulting from the ownership of the Class A-R Certificate).
Additionally, the Class A-R Certificate will be considered a "non-economic re-
sidual interest" for tax purposes. As a result, certain transfers of the Class
A-R Certificate may be disregarded for federal tax purposes, with the trans-
feror continuing to have tax liabilities for the transferred Certificate. See
"Description of the Certificates -- Restrictions on Transfer of the Class A-R
Certificate" and "Federal Income Tax Considerations" in this Prospectus Supple-
ment and "Certain Federal Income Tax Consequences -- Federal Income Tax Conse-
quences for REMIC Certificates" in the Prospectus.
ERISA CONSIDERATIONS
If you are a fiduciary of an employee benefit plan or other retirement plan or
arrangement subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), or a governmental plan, as defined in Sec-
tion 3(32) of ERISA, subject to any federal, state or local law ("Similar Law")
which is, to a material extent, similar to the foregoing provisions of ERISA or
the Code (collectively, a "Plan"), you should carefully review with your legal
advisors whether the purchase or holding of Offered Certificates could give
rise to a transaction prohibited or not otherwise permissible under ERISA, the
Code or Similar Law.
The Class A-R Certificate may not be purchased by or transferred to a Plan or a
person acting on behalf of or investing the assets of a Plan. See "Description
of the Certificates -- Restrictions on Transfer of the Class A-R Certificate"
and "ERISA Considerations" in this Prospectus Supplement.
LEGAL INVESTMENT
. The Class A Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") so long as they are rated in one of the two highest rating catego-
ries by at least one nationally recognized statistical rating organization.
If your investment activities are subject to legal investment laws and regula-
tions, regulatory capital requirements or review by regulatory authorities you
may be subject to restrictions on investment in the Offered Certificates and
should consult your own legal, tax and accounting advisors in determining the
suitability of and consequences to you of the purchase, ownership and disposi-
tion of the Offered Certificates.
See "Legal Investment" in the Prospectus.
MONTHLY REPORTS AND ADDITIONAL INFORMATION
The Master Servicer will prepare, and the Trust Administrator will forward to
Certificateholders with each distribution, a copy of the Monthly Report de-
scribed under "Reports to Certificateholders" and "Pooling and Servicing Agree-
ment -- Reports to Certificateholders" in the Prospectus. In addition, the
Seller intends to make the information contained in the Monthly Report, to-
gether with certain additional information, available to any interested in-
vestor via the internet and other electronic means described under "Where You
Can Find More Information" in the Prospectus.
S-11
<PAGE>
RISK FACTORS
Prepayments May Adversely Affect Yield
The rate of distributions of principal and the yield to maturity on your Cer-
tificates will be directly related to the rate of payments of principal on the
Mortgage Loans and the amount and timing of mortgagor defaults resulting in Re-
alized Losses. Mortgagors are permitted to prepay the Mortgage Loans, in whole
or in part, at any time without penalty. The rate of principal payments on the
Mortgage Loans will be affected by, among other things:
. the amortization schedules of the Mortgage Loans;
. the rate of principal prepayments (including partial prepayments and
those resulting from refinancing) thereon by mortgagors;
. liquidations of defaulted Mortgage Loans;
. repurchases of Mortgage Loans by the Seller as a result of defective
documentation or breaches of representations and warranties, optional
purchase by the Seller of defaulted Mortgage Loans; and
. the optional purchase by the Seller of all of the Mortgage Loans in con-
nection with the termination of the Trust Estate.
See "Prepayment and Yield Considerations" and "Pooling and Servicing Agree-
ment -- Optional Termination" herein and "The Pooling and Servicing Agree-
ment -- Assignment of Mortgage Loans to the Trustee," "-- Optional Purchases"
and "-- Termination; Optional Purchase of Mortgage Loans" in the Prospectus.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors.
. If prevailing rates for similar mortgage loans fall below the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would gen-
erally be expected to increase.
. Conversely, if interest rates on similar mortgage loans rise above the
Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment
would generally be expected to decrease.
The rate of prepayment on the Mortgage Loans may also be influenced by pro-
grams offered by mortgage originators (including Norwest Mortgage), on a gen-
eral or targeted basis, to encourage refinancing. See "Prepayment and Yield
Considerations -- Refinancings" in the Prospectus.
If you are purchasing Offered Certificates at a discount, you should consider
the risk that if principal payments on the Mortgage Loans occur at a rate
slower than you expected, there will be a negative effect on the yield to matu-
rity of your Certificates.
If you are purchasing Offered Certificates at a premium, you should consider
the risk that if principal payments on the Mortgage Loans occur at a rate
faster than you expected, there will be a negative effect on the yield to matu-
rity of your Certificates.
See "Summary Information -- Effects of Prepayments on Investment Expecta-
tions" and "Prepayment and Yield Considerations" herein.
Geographic Concentration May Increase Risk of Loss Because of Adverse Economic
Conditions or Natural Disasters
The yield to maturity on your Certificates may be affected by the geographic
concentration of the Mortgaged Properties securing the Mortgage Loans. Certain
geographic regions of the United States from time to time will experience
weaker regional economic conditions and housing markets and, consequently, will
experience higher rates of loss and delinquency on mortgage loans generally.
Any concentration of the Mortgage Loans in such a region may present risk con-
siderations in addition to those generally present for similar mortgage-backed
securities without such concentration. In addition, California, Florida, Texas
and several other regions have experienced natural disasters, including earth-
quakes, fires, floods and hurricanes, which may adversely affect property val-
ues. Any deterioration in housing prices in the states in which there is a sig-
nificant concentration of Mortgaged Properties, as well as the other states in
which the Mortgaged Properties are located, and any deterioration of economic
conditions in such states which adversely affects the ability of borrowers to
make payments on the Mortgage Loans may increase the likelihood of losses on
the Mortgage Loans. Such losses, if they occur, may
S-12
<PAGE>
have an adverse effect on the yield to maturity of your Certificates. The
states and geographic areas where there are large concentrations of Mortgaged
Properties are identified under "Description of the Mortgage Loans".
Rights of Beneficial Owners May Be Limited By Book-Entry System for Certain
Classes of Class A Certificates
Transactions in the Book-Entry Certificates generally can only be carried out
through DTC, DTC Participants and Indirect DTC Participants. If you are a Bene-
ficial Owner of Book Entry Certificates, your ability to pledge your Certifi-
cates, and the liquidity of your Certificates in general, may be limited due to
the fact that you will not have a physical certificate. In addition, you may
experience delays in receiving payments on your Certificates. See "Risk Fac-
tors -- Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay" and "Description of the Certificates -- Book-Entry Form" in the Prospec-
tus.
Certificates May Not Be Appropriate For Individual Investors
If you are an individual investor who does not have sufficient resources or
expertise to evaluate the particular characteristics of the applicable Class of
Offered Certificates, the Offered Certificates may not be an appropriate in-
vestment for you. This may be the case because, among other things:
. if you purchase your Certificates at a price other than par, your yield
to maturity will be sensitive to the uncertain rate and timing of prin-
cipal prepayments on the Mortgage Loans;
. the rate of principal distributions on, and the weighted average life
of, the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans and the priority
of principal distributions among the Classes of Certificates, and as
such the Offered Certificates may be inappropriate investments for you
if you require a distribution of a particular amount of principal on a
specific date or an otherwise predictable stream of distributions;
. you may not be able to reinvest amounts distributed in respect of prin-
cipal on your Certificates (which distributions in general, are expected
to be greater during periods of relatively low interest rates) at a rate
at least as high as the applicable Pass-Through Rate or your expected
yield;
. a secondary market for the Offered Certificates may not develop or pro-
vide you with liquidity of investment; and
. you must report interest as well as original issue discount, if any, on
the accrual method of accounting, even if you are otherwise using the
cash method of accounting.
If you are an individual investor considering the purchase of an Offered Cer-
tificate, you should also carefully consider the further risks and other spe-
cial considerations discussed above and under the headings "Summary Informa-
tion -- Effects of Prepayments on Investment Expectations" and "Prepayment and
Yield Considerations" herein and "Risk Factors -- Rate of Prepayment on Mort-
gage Loans May Adversely Affect Average Lives and Yields on Certificates" in
the Prospectus.
Year 2000 Readiness Disclosure
The Seller is aware of the issues associated with the programming code in ex-
isting computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive infor-
mation when the year changes to 2000. Systems that do not properly recognize
such information could generate erroneous data, fail or cause another system to
fail. "Systems" include all hardware, networks, system and application soft-
ware, commercial "off-the-shelf" software, data and voice communication de-
vices, and embedded technology such as date-impacted processors in automated
systems such as elevators, telephone systems, security systems, vault systems,
heating and cooling systems and others.
Norwest Mortgage and the Master Servicer have informed the Seller that their
respective year 2000 readiness projects are divided into four phases:
. Phase I: comprehensive assessment and inventory of Systems intended to
determine year 2000 vulnerability and risk;
. Phase II: date detection on Systems intended to determine which Systems
must be remediated and which Systems are compliant and require testing
only; determination of required resources and costs;
S-13
<PAGE>
and the development of schedules and high-level testing plans for the
repair, replacement and/or retirement of Systems that are not determined
to be year 2000 compliant;
. Phase III: repair, replacement and/or retirement of Systems that are not
determined to be year 2000 compliant; conduct testing of individual Sys-
tems; and plan the integration testing for those Systems that have in-
terfaces with other Systems both internal and external to the company,
such as those of customers and suppliers; and
. Phase IV: integration testing of applicable Systems to validate that in-
terfaces with other Systems are year 2000 compliant; and the development
of contingency plans, such as plans to recover operations and alterna-
tives to mitigate the effects of counterparties whose own failure to
properly address year 2000 issues may adversely impact their ability to
perform certain functions.
Each of Norwest Mortgage and the Master Servicer also has informed the Seller
with respect to its respective year 2000 project that it has substantially com-
pleted Phases I, II, III and IV. The Trust Administrator has advised the Seller
that it has implemented a plan to either (i) make modifications to its existing
Systems in an effort to make them year 2000 compliant or (ii) acquire computer
Systems that are believed to be year 2000 compliant, in each case prior to Jan-
uary 1, 2000. The Seller has been advised by the Trustee that its Systems are
either year 2000 compliant or are undergoing testing and remediation.
Norwest Mortgage, the Master Servicer, the Trustee and the Trust Administra-
tor may be impacted by the year 2000 compliance issues of governmental agen-
cies, businesses and other entities who provide data to or receive data from
them, and by entities, such as borrowers, vendors, customers and business part-
ners (including Other Servicers), whose financial condition or operational ca-
pability is significant to them. Each of Norwest Mortgage and the Master
Servicer has advised the Seller that its respective year 2000 project includes
assessments of the year 2000 readiness of such parties. The Master Servicer has
informed the Seller that each Other Servicer has indicated that it intends to
be year 2000 ready by January 1, 2000. However, neither the Seller nor any af-
filiate of the Seller has made any independent investigation of the Systems of
the Trustee, the Trust Administrator or of any of the Other Servicers.
DTC has informed its DTC Participants and other members of the financial com-
munity (the "Industry") 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 securityholders, book-entry deliv-
eries, 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:
(i) impress upon them the importance of such services being year 2000 compli-
ant; and (ii) determine the extent of their efforts for year remediation (and,
as appropriate, testing) of their services. In addition, DTC is in the process
of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been pro-
vided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
In the event that computer problems arise out of a failure of the efforts de-
scribed above to be completed on time, or in the event that the Systems of the
Trustee, the Trust Administrator, the Master Servicer, Norwest Mortgage, an
Other Servicer or DTC are not fully year 2000 compliant, any resulting disrup-
tions in the collection and distribution of receipts on or in respect of the
Mortgage Loans could materially adversely affect your Certificates.
Year 2000 Legislation May Affect Timely Exercise of Remedies
In July 1999, Congress approved, and the President signed into law, legisla-
tion that limits legal liability for losses due to year 2000 computer-related
errors. This legislation, among other things, also protects borrowers
S-14
<PAGE>
from foreclosure if their residential mortgage loans become delinquent because
an actual year 2000 failure results in the inability to accurately or timely
process their mortgage payments.
This legislation is not intended to extinguish or otherwise affect a borrow-
er's payment obligations but instead delays the enforcement of obligations on
an otherwise defaulted mortgage loan. Borrowers seeking foreclosure protection
under this legislation must provide timely written notice and documentation to
the servicer of the failure of their mortgage payments to be accurately or
timely applied. Absent an extension from the servicer, borrowers will then have
four weeks to make up late payments on their loans. This legislation does not
apply to mortgage loans for which a default occurs before December 15, 1999, or
for which an imminent default is foreseeable before that date. Moreover, this
legislation does not protect borrowers who deliver notice of a year 2000 fail-
ure after March 15, 2000. Mortgage loans that remain in default after the ap-
plicable grace period will be subject to foreclosure or other enforcement.
This legislation could delay the applicable Servicer's ability to foreclose
on some Mortgage Loans during the first quarter of the year 2000. These delays
could consequently affect the timing of distributions on the Certificates.
See "Risk Factors" in the Prospectus for a description of certain other risks
and special considerations applicable to the Offered Certificates.
S-15
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Denominations; Form of Certificates
Offered Certificates issued in fully registered, certificated form are re-
ferred to herein as "Definitive Certificates." The Trust Administrator or other
paying agent will make distributions of principal of, and interest on, the De-
finitive Certificates directly to holders of Definitive Certificates in accor-
dance with the procedures set forth in the Pooling and Servicing Agreement. The
Definitive Certificates will be transferable and exchangeable at the offices of
the Trust Administrator or other certificate registrar. No service charge will
be imposed for any registration of transfer or exchange, but the Trust Adminis-
trator may require payment of a sum sufficient to cover any tax or other gov-
ernmental charge imposed in connection therewith.
Offered Certificates, other than those initially issued as Definitive Certif-
icates, will be issued in book-entry form and are referred to herein as "Book-
Entry Certificates." Each Class of the Book-Entry Certificates initially will
be represented by one or more physical certificates registered in the name of
Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"), which
will be the "holder" or "Certificateholder" of such Certificates, as such terms
are used herein. A person acquiring an interest in the Book-Entry Certificates
(a "Beneficial Owner") will not be entitled to receive a Definitive Certificate
representing such person's interest in the Book-Entry Certificates, except as
set forth under "Description of the Certificates -- Book-Entry Form" in the
Prospectus. Unless and until Definitive Certificates are issued under the lim-
ited circumstances described therein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry Certifi-
cates, refer to actions taken by DTC upon instructions from its DTC Partici-
pants (as defined under "Description of the Certificates -- Book-Entry Form" in
the Prospectus), and all references herein to distributions, notices, reports
and statements to Certificateholders or holders shall, in the case of the Book-
Entry Certificates, refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Beneficial Owners in accordance with DTC pro-
cedures. See "Description of the Certificates -- Book-Entry Form" in the Pro-
spectus.
The following table sets forth the original certificate form, the minimum de-
nomination and the incremental denomination of the Offered Certificates. The
Offered Certificates are not intended to be directly or indirectly held or ben-
eficially owned in amounts lower than such minimum denominations.
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
Original Certificate Minimum Incremental
Class Form Denomination Denomination(/1/)
----- -------------------- ------------ -----------------
<S> <C> <C> <C>
Classes A-1, A-2, A-3 and
A-4...................... Book-Entry $100,000 $1,000
Class A-R ................ Definitive $ 100 N/A
</TABLE>
- ------------------
(1) If necessary, in order to aggregate the initial Principal Balance of a
Class, one Certificate of such Class will be issued in an incremental de-
nomination of less than that shown.
Distributions
The Trust Administrator or other paying agent will make distributions of in-
terest and in reduction of Principal Balance to holders of each Class of Cer-
tificates monthly, to the extent of each Class's entitlement thereto, on the
25th day of each month or, if such day is not a business day, on the succeeding
business day (each, a "Distribution Date"), beginning in October 1999. The "De-
termination Date" with respect to each Distribution Date will be the 17th day
of each month or, if such day is not a business day, the preceding business
day. Distributions will be made on each Distribution Date to holders of record
(which, in the case of the Book-Entry Certificates, will be Cede, as nominee
for DTC) at the close of business on the last business day of the preceding
month (each, a "Record Date").
The aggregate amount available for distribution to Certificateholders on each
Distribution Date will be the Pool Distribution Amount. The "Pool Distribution
Amount" for a Distribution Date will be the sum of:
(i) all previously undistributed payments or other receipts on account of
principal (including principal prepayments and Liquidation Proceeds in re-
spect of principal, if any), and interest on or in respect of the Mortgage
Loans received by the Master Servicer, including without limitation any re-
lated insurance proceeds and the proceeds of any purchase of a related
Mortgage Loan for breach of a representation or
S-16
<PAGE>
warranty or the sale of a Mortgaged Property by a Servicer in connection
with the liquidation of the related Mortgage Loan on or prior to the Remit-
tance Date in the month in which such Distribution Date occurs;
(ii) all Periodic Advances made; and
(iii) all other amounts (including any insurance proceeds and Compensat-
ing Interest) placed in the Certificate Account by any Servicer on or be-
fore the Remittance Date or by the Master Servicer on or before the Distri-
bution Date pursuant to the Pooling and Servicing Agreement, but excluding
the following:
(a) amounts received as late payments of principal or interest re-
specting which one or more unreimbursed Periodic Advances has been made;
(b) to the extent permitted by the Pooling and Servicing Agreement,
that portion of Liquidation Proceeds with respect to a Mortgage Loan
that represents any unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular Mort-
gage Loan which represent (i) the applicable Servicing Fee, (ii) the
Master Servicing Fee and (iii) the Fixed Retained Yield, if any;
(d) all amounts representing scheduled payments of principal and in-
terest due after the Due Date occurring in the month in which such Dis-
tribution Date occurs;
(e) all principal prepayments in full, all partial principal prepay-
ments, all proceeds of any Mortgage Loans or property acquired in re-
spect thereof, or liquidated pursuant to the Pooling and Servicing
Agreement, including Net Partial Liquidation Proceeds but excluding any
Net Foreclosure Profits (as defined under "Description of the Certifi-
cates" in the Prospectus), and other unscheduled receipts in respect of
principal of the Mortgage Loans other than proceeds of a repurchase of a
Mortgage Loan by the Seller or amounts deposited by the Seller in the
Certificate Account in connection with the substitution of a Mortgage
Loan (collectively, "Unscheduled Principal Receipts") that were received
by each Servicer after the Unscheduled Principal Receipt Period (as de-
scribed under "Servicing of the Mortgage Loans --Unscheduled Principal
Receipts" below) relating to the Distribution Date for the applicable
type of Unscheduled Principal Receipt, and all related payments of in-
terest on such amounts;
(f) all repurchase proceeds with respect to Mortgage Loans repurchased
by the Seller on or following the Due Date in the month in which such
Distribution Date occurs and the excess of the unpaid principal balance
of any defective Mortgage Loan for which a Mortgage Loan was substituted
over the unpaid principal balance of such substituted Mortgage Loan on
or following the Due Date in the month in which such Distribution Date
occurs;
(g) to the extent permitted by the Pooling and Servicing Agreement,
that portion of Liquidation Proceeds or insurance proceeds with respect
to a Mortgage Loan or proceeds of any Mortgaged Property that becomes
owned by the Trust Estate which represents any unpaid Servicing Fee or
Master Servicing Fee to which such Servicer or the Master Servicer, re-
spectively, is entitled, or which represents unpaid Fixed Retained
Yield, and the portion of net Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances;
(h) all amounts representing certain expenses reimbursable to the Mas-
ter Servicer and other amounts permitted to be retained by the Master
Servicer or withdrawn by the Master Servicer from the Certificate Ac-
count pursuant to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the Mort-
gage Loans or on other amounts on deposit in the Certificate Account;
(j) Net Foreclosure Profits;
(k) Month End Interest; and
(l) generally, the amount of any recoveries in respect of principal
which had previously been allocated as a loss to one or more Classes of
Certificates.
The "Remittance Date" with respect to any Distribution Date and (i) any Mort-
gage Loan serviced by an Other Servicer will be the 18th day of each month or,
if any such day is not a business day, the preceding business day and (ii) any
Mortgage Loan serviced by Norwest Mortgage will, except as described below un-
der "Servicing of the Mortgage Loans -- Anticipated Changes in Servicing," be
the 24th day of each month or, if any such day is not a business day, the pre-
ceding business day.
S-17
<PAGE>
"Partial Liquidation Proceeds" are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and "Net Partial Liquidation Proceeds" are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation.
Each Servicer is required to deposit in the Certificate Account by the Remit-
tance Date certain amounts in respect of the Mortgage Loans as set forth herein
under "Servicing of the Mortgage Loans -- Custodial Accounts." The Master
Servicer is required to remit to the Trust Administrator on or before the Dis-
tribution Date any payments constituting part of the Pool Distribution Amount
that are received by the Master Servicer or are required to be made with the
Master Servicer's own funds. Except as described below under "Description of
the Certificates -- Periodic Advances," neither the Master Servicer nor the
Trust Administrator is obligated to remit any amounts which a Servicer was re-
quired but failed to deposit in the Certificate Account.
On each Distribution Date, the Pool Distribution Amount will be allocated
among the Classes of Certificates and distributed to the holders thereof of
record as of the related Record Date as follows (the "Pool Distribution Amount
Allocation"):
first, to the Classes of Class A Certificates, pro rata, based on their re-
spective Interest Accrual Amounts, in an aggregate amount up to the sum of
their Interest Accrual Amounts with respect to such Distribution Date; provided
that prior to the Accretion Termination Date, an amount equal to the amount
that would otherwise be distributable in respect of interest to the Class A-3
Certificates pursuant to this provision will be distributed in reduction of the
Principal Balances of the Class A-1, Class A-2 and Class A-3 Certificates as
set forth below under "-- Principal (Including Prepayments) -- Allocation of
Amount to be Distributed on the Class A Certificates";
second, to the Classes of Class A Certificates, pro rata, based on their re-
spective unpaid Interest Shortfall Amounts, in an aggregate amount up to the
sum of their unpaid Interest Shortfall Amounts; provided that prior to the Ac-
cretion Termination Date, an amount equal to the amount that would otherwise be
distributable in respect of interest shortfalls to the Class A-3 Certificates
pursuant to this provision will be distributed in reduction of the Principal
Balances of the Class A-1, Class A-2 and Class A-3 Certificates as set forth
below under "-- Principal (Including Prepayments) -- Allocation of Amount to be
Distributed on the Class A Certificates";
third, concurrently, pro rata, to the Class A Certificates (other than the
Class A-PO Certificates), based on the Class A Non-PO Optimal Principal Amount,
and the Class A-PO Certificates, based on the Class A-PO Optimal Principal
Amount, (A) to the Classes of Class A Certificates (other than the Class A-PO
Certificates) in an aggregate amount up to the Class A Non-PO Optimal Principal
Amount, such distribution to be allocated among such Classes in accordance with
the priorities set forth below under "-- Principal (Including Prepayments) --
Allocation of Amount to be Distributed on the Class A Certificates" and (B) to
the Class A-PO Certificates in an amount up to the Class A-PO Optimal Principal
Amount;
fourth, to the Class A-PO Certificates in an amount up to the Class A-PO De-
ferred Amount, but only from amounts otherwise distributable (without regard to
this priority) to the Class B Certificates, in inverse order of priority pursu-
ant to priority fifth clause (C) of this Pool Distribution Amount Allocation;
and
fifth, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Certificates so that each such Class shall receive (A) first,
an amount up to its Interest Accrual Amount with respect to such Distribution
Date, (B) then, an amount up to its previously unpaid Interest Shortfall
Amounts and (C) finally, an amount up to its Class B Optimal Principal Amount
before any Classes of Class B Certificates with higher numerical designations
receive any payments in respect of interest or principal; provided, however,
that the amount distributable pursuant to this priority fifth clause (C) to any
Classes of Class B Certificates will be reduced by the amount, if any, other-
wise distributable as principal hereunder used to pay the Class A-PO Deferred
Amount in accordance with priority fourth.
The undivided percentage interest (the "Percentage Interest") represented by
any Offered Certificate of a Class will be equal to the percentage obtained by
dividing the initial principal balance of such Certificate by the aggregate
initial Principal Balance of such Class.
S-18
<PAGE>
Interest
The amount of interest that will accrue on each Class of Certificates, other
than the Class A-PO Certificates, during each month, after taking into account
any Non-Supported Interest Shortfalls and the interest portion of certain
losses allocated to such Class, is referred to herein as the "Interest Accrual
Amount" for such Class.
The Interest Accrual Amount for each Class of Certificates (other than the
Class A-PO Certificates) will equal (a) the product of (i) 1/12th of the Pass-
Through Rate for such Class and (ii) the outstanding Principal Balance of such
Class minus (b) the sum of (i) any Non-Supported Interest Shortfall allocable
to such Class, (ii) the interest portion of any Excess Losses allocable to such
Class and (iii) the interest portion of any Realized Losses, other than the in-
terest portion of any Excess Losses, allocable to such Class on or after the
Cross-Over Date. The pass-through rate for each Class of Offered Certificates
(the "Pass-Through Rate") is the percentage set forth on page S-4 of this Pro-
spectus Supplement. Interest on each Class of Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
No interest will accrue on the Class A-PO Certificates.
The "Principal Balance" of a Class of Class A Certificates (other than the
Class A-PO Certificates) as of any Determination Date will be the principal
balance of such Class on the date of initial issuance of the Class A Certifi-
cates plus, in the case of the Class A-3 Certificates, the Class A-3 Accrual
Distribution Amounts, as described under "-- Principal (Including Prepayments)"
below, previously added to the Principal Balance of the Class A-3 Certificates,
less (i) all amounts previously distributed to holders of Certificates of such
Class in reduction of the principal balance of such Class and (ii) such Class's
pro rata share of the principal portion of Excess Losses allocated through such
Determination Date to the holders of Class A Certificates (other than the Class
A-PO Certificates) in the manner described herein under "-- Subordination of
Class B Certificates -- Allocation of Losses." After the Cross-Over Date, the
Principal Balance of a Class of Class A Certificates (other than the Class A-PO
Certificates) may be subject to further reduction in an amount equal to such
Class's pro rata share of the difference, if any, between (a) the Class A Non-
PO Principal Balance as of such Determination Date without regard to this pro-
vision and (b) the difference between (i) the Adjusted Pool Amount for the pre-
ceding Distribution Date and (ii) the Adjusted Pool Amount (PO Portion) for the
preceding Distribution Date. Any pro rata allocation among the Classes of Class
A Certificates (other than the Class A-PO Certificates) described in this para-
graph will be made among the Classes on the basis of their then-outstanding
Principal Balances or, in the case of the Class A-3 Certificates, their initial
Principal Balance, if lower.
The "Principal Balance" of the Class A-PO Certificates as of any Determina-
tion Date will be the Principal Balance of such Class on the date of initial
issuance of the Class A Certificates less (i) all amounts previously distrib-
uted to the holders of the Class A-PO Certificates pursuant to priorities third
clause (B) and fourth of the Pool Distribution Amount Allocation and (ii) the
principal portion of Excess Losses allocated through such Determination Date to
the Class A-PO Certificates in the manner described herein under "-- Subordina-
tion of Class B Certificates -- Allocation of Losses." After the Cross-Over
Date, the Principal Balance of the Class A-PO Certificates will be subject to
further reduction in an amount equal to the excess, if any, of (a) the Princi-
pal Balance of the Class A-PO Certificates as of such Determination Date with-
out regard to this provision over (b) the Adjusted Pool Amount (PO Portion) for
the preceding Distribution Date.
The "Principal Balance" of a Class of Class B Certificates as of any Determi-
nation Date will be the lesser of (a) the principal balance of such Class on
the date of initial issuance of the Class B Certificates less (i) all amounts
previously distributed to holders of such Class in reduction of the principal
balance thereof and (ii) the principal portion of Excess Losses allocated
through such Determination Date to the holders of such Class in the manner de-
scribed under "-- Subordination of Class B Certificates -- Allocation of Loss-
es" and (b) the Adjusted Pool Amount as of the preceding Distribution Date less
the sum of (i) the Class A Principal Balance and (ii) the Principal Balances of
the Classes of Class B Certificates with lower numerical designations, each as
of such Determination Date.
The "Class A Principal Balance" as of any Determination Date will be equal to
the sum of the Principal Balances of the Classes of Class A Certificates as of
such date.
The "Class A Non-PO Principal Balance" as of any Determination Date will be
equal to the sum of the Principal Balances of the Classes of Class A Certifi-
cates (other than the Class A-PO Certificates) as of such date.
S-19
<PAGE>
The "Class B Principal Balance" as of any date will be equal to the sum of
the Principal Balances of the Classes of Class B Certificates as of such date.
The "Aggregate Principal Balance" as of any date will be equal to the sum of
the Class A Principal Balance and the Class B Principal Balance as of such
date.
The "Aggregate Non-PO Principal Balance" as of any date will be equal to the
sum of the Class A Non-PO Principal Balance and the Class B Principal Balance
as of such date.
With respect to any Distribution Date, the "Adjusted Pool Amount" will equal
the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off-
Date minus the sum of (i) all amounts in respect of principal received in re-
spect of the Mortgage Loans (including amounts received as Periodic Advances,
principal prepayments and Liquidation Proceeds in respect of principal) and
distributed to holders of the Certificates on such Distribution Date and all
prior Distribution Dates and (ii) the principal portion of all Realized Losses
(other than Debt Service Reductions) incurred on the Mortgage Loans from the
Cut-Off Date through the end of the month preceding such Distribution Date.
With respect to any Distribution Date, the "Adjusted Pool Amount (PO Por-
tion)" will equal the sum as to each Mortgage Loan outstanding at the Cut-Off
Date of the product of (A) the PO Fraction for such Mortgage Loan and (B) the
principal balance of such Mortgage Loan as of the Cut-Off Date less the sum of
(i) all amounts in respect of principal received in respect of such Mortgage
Loan (including amounts received as Periodic Advances, principal prepayments
and Liquidation Proceeds in respect of principal) and distributed to holders of
the Certificates on such Distribution Date and all prior Distribution Dates and
(ii) the principal portion of any Realized Loss (other than a Debt Service Re-
duction) incurred on such Mortgage Loan from the Cut-Off Date through the end
of the month preceding the month in which such Distribution Date occurs.
The "Net Mortgage Interest Rate" on each Mortgage Loan will be equal to the
Mortgage Interest Rate on such Mortgage Loan as stated in the related mortgage
note minus the sum of (i) the applicable Servicing Fee Rate, (ii) the Master
Servicing Fee Rate and (iii) the Fixed Retained Yield rate, if any, for such
Mortgage Loan. See "Servicing of the Mortgage Loans -- Fixed Retained Yield;
Servicing Compensation and Payment of Expenses" herein.
When mortgagors prepay principal, or when principal is recovered through
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in inter-
est shortfalls to the extent that such payment or recovery is not included in
the distribution to Certificateholders made in the month in which it is re-
ceived. Interest shortfalls resulting from principal prepayments in full made
by mortgagors ("Prepayments in Full") are referred to herein as "Prepayment In-
terest Shortfalls." The Master Servicer will be obligated, on or before each
Distribution Date, to pay to the Trust Administrator for the benefit of
Certificateholders, from the Master Servicer's own funds (including amounts
otherwise payable to the Master Servicer in respect of such Distribution Date
as Master Servicing Fees) an amount (such amount, "Compensating Interest")
equal to the lesser of (i) the aggregate Prepayment Interest Shortfall with re-
spect to such Distribution Date and (ii) the lesser of (X) the product of (A)
1/12th of 0.20% and (B) the aggregate Scheduled Principal Balance of the Mort-
gage Loans for such Distribution Date and (Y) the Available Master Servicing
Compensation for such Distribution Date.
The "Available Master Servicing Compensation" for any Distribution Date will
be equal to the sum of (a) the Master Servicing Fee for such Distribution Date,
(b) interest earned through the business day preceding the applicable Distribu-
tion Date on any Prepayments in Full remitted to the Master Servicer and depos-
ited in the Certificate Account (which amount of interest with respect to Pre-
payments in Full on the Mortgage Loans serviced by Norwest Mortgage is expected
to be zero unless the Remittance Date for such Mortgage Loans changes as de-
scribed below under "Servicing of the Mortgage Loans -- Anticipated Changes in
Servicing") and (c) the aggregate amount of Month End Interest remitted by the
Servicers to the Master Servicer pursuant to the related Underlying Servicing
Agreements. With respect to the Mortgage Loans serviced by Norwest Mortgage,
"Month End Interest" for each Distribution Date will be equal to the lesser of
(i) the aggregate Prepayment Interest Shortfalls with respect to the Mortgage
Loans serviced by Norwest Mortgage and (ii) the product of 1/12th of 0.20% and
the aggregate scheduled principal balance (as determined in the applicable Un-
derlying
S-20
<PAGE>
Servicing Agreement) of the Mortgage Loans serviced by Norwest Mortgage. With
respect to the Mortgage Loans serviced by each Other Servicer, "Month End In-
terest" for each Distribution Date depends in part on whether such Other
Servicer is required to remit to the Master Servicer Prepayments in Full for
deposit into the Certificate Account daily on a specified business day follow-
ing the receipt thereof. "Month End Interest" for Other Servicers will gener-
ally equal the lesser of (a) (i) with respect to Other Servicers required to
remit Prepayments in Full on a daily basis, the aggregate Curtailment Interest
Shortfalls with respect to the Mortgage Loans serviced by such Other Servicer
or (ii) with respect to Other Servicers not required to remit Prepayments in
Full on a daily basis, the sum of the aggregate Prepayment Interest Shortfalls
and aggregate Curtailment Interest Shortfalls with respect to the Mortgage
Loans serviced by such Other Servicer and (b) the sum of (X) for each Mortgage
Loan serviced by such Other Servicer, the product of 1/12th of the applicable
Servicing Fee Rate and the scheduled principal balance (as determined in the
applicable Underlying Servicing Agreement) of such Mortgage Loan serviced by
such Other Servicer and (Y) reinvestment earnings on payments received in re-
spect of the Mortgage Loans or on other amounts on deposit in the related
Servicer Custodial Account pursuant to the related Underlying Servicing Agree-
ment on such Distribution Date. As described below under "Servicing of the
Mortgage Loans --Anticipated Changes in Servicing," a Servicer not currently
remitting Prepayments in Full on a daily basis may agree to begin to do so at
some time in the future and, in conjunction therewith, the amount of Month End
Interest such Servicer is required to remit may be decreased or such Servicer
may be relieved of its obligation to remit any Month End Interest. If an Other
Servicer that is not currently remitting Prepayments in Full on a daily basis
begins to do so, such change may have an impact on the amount of Compensating
Interest by increasing the amount described in clause (b) of the definition of
Available Master Servicing Compensation and decreasing the amount described in
clause (c) of the definition thereof. No assurance can be given as to the tim-
ing of any such changes or that any such changes will occur.
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest are referred to herein as "Non-Supported
Interest Shortfalls" and will be allocated to (i) the Class A Certificates ac-
cording to the percentage obtained by dividing the then-outstanding Class A
Non-PO Principal Balance by the Aggregate Non-PO Principal Balance and (ii) the
Class B Certificates according to the percentage obtained by dividing the then-
outstanding Class B Principal Balance by the Aggregate Non-PO Principal Bal-
ance. Such allocation of Non-Supported Interest Shortfalls will reduce the
amount of interest due to be distributed to holders of Certificates then enti-
tled to distributions in respect of interest. Any such reduction in respect of
interest allocated to the Class A Certificates will be allocated among the
Classes of Class A Certificates, pro rata, on the basis of their respective In-
terest Accrual Amounts, without regard to any reduction pursuant to this para-
graph, for such Distribution Date. Any such reduction in respect of interest
allocated to the Class B Certificates will be allocated among such Classes of
Class B Certificates, pro rata, on the basis of their respective Interest Ac-
crual Amounts, without regard to any reduction pursuant to this paragraph, for
such Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors ("Curtail-
ment Interest Shortfalls") or of other partial Unscheduled Principal Receipts
with respect to the Mortgage Loans will not be offset by Compensating Interest,
but instead will be borne first by the Classes of Class B Certificates in re-
verse numerical order and then pro rata by the Class A Certificates based on
interest accrued. See "-- Subordination of Class B Certificates" herein. After
the Cross-Over Date all interest shortfalls arising from Unscheduled Principal
Receipts, other than Prepayment Interest Shortfalls covered by Compensating In-
terest, will be treated as Non-Supported Interest Shortfalls and allocated in
reduction of interest accrued on the Class A Certificates.
The interest portion of any Excess Losses will be allocated among the Classes
of Certificates, pro rata, based on their respective Interest Accrual Amounts,
without regard to any reduction pursuant to this paragraph, for such Distribu-
tion Date.
Allocations of the interest portion of Realized Losses (other than Excess
Losses) first to the Classes of Class B Certificates in reverse numerical order
will result from the priority of distribution first to the holders of the Class
A Certificates and then to the holders of the Classes of Class B Certificates
in numerical order of the Pool Distribution Amount as described above under "--
Distributions."
S-21
<PAGE>
On each Distribution Date on which the amount available to be distributed in
respect of interest on a Class of Certificates pursuant to the Pool Distribu-
tion Amount Allocation is less than such Class's Interest Accrual Amount, the
amount of any such deficiency (as to each Class, an "Interest Shortfall
Amount") will be added to the amount of interest distributable on such Class on
subsequent Distribution Dates, but only for so long as such Class's Principal
Balance is greater than zero. No interest will accrue on any Interest Shortfall
Amounts.
Prior to the Accretion Termination Date, interest in an amount equal to the
Interest Accrual Amount for the Class A-3 Certificates will accrue on such
Class, but such amount will not be distributed as interest to such Class until
such Accretion Termination Date. Prior to such time, an amount equal to the ac-
crued and unpaid interest on such Class will be added to the Principal Balance
thereof and distributed as described under "-- Principal (Including Prepay-
ments) -- Allocation of Amount to be Distributed on the Class A Certificates"
below. The "Accretion Termination Date" for the Class A-3 Certificates will be
the earlier to occur of (i) the Distribution Date following the Distribution
Date on which the Principal Balance of the Class A-2 Certificates has been re-
duced to zero or (ii) the Cross-Over Date.
Principal (Including Prepayments)
The principal balance of a Certificate at any time is equal to the product of
the related Class's Principal Balance and such Certificate's Percentage Inter-
est, and represents the maximum specified dollar amount (exclusive of (i) any
interest that may accrue on such Certificate (other than interest added to the
Principal Balance of the Class A-3 Certificates) and (ii) in the case of the
Class A-R Certificate, any additional amounts to which the holder of such Cer-
tificate may be entitled as described below under "-- Additional Rights of the
Class A-R Certificateholder") to which the holder thereof is entitled from the
cash flow on the Mortgage Loans at such time, and will decline to the extent of
distributions in reduction of the principal balance of, and allocations of
losses to, such Certificate. The approximate initial Principal Balance of each
Class of Certificates is set forth on page S-4 of this Prospectus Supplement.
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the Principal Balances of the Class A Certifi-
cates (other than the Class A-PO Certificates) will be made on each Distribu-
tion Date pursuant to the Pool Distribution Amount Allocation, in an aggregate
amount equal to the Class A Non-PO Principal Distribution Amount. The "Class A
Non-PO Principal Distribution Amount" with respect to any Distribution Date
will be equal to the sum of (i) the Class A-3 Accrual Distribution Amount, if
any, with respect to such Distribution Date and (ii) the Class A Non-PO Princi-
pal Amount with respect to such Distribution Date.
The "Class A-3 Accrual Distribution Amount" with respect to any Distribution
Date will be equal to the sum of (i) the current interest allocated but not
distributed to the Class A-3 Certificates on such Distribution Date in accor-
dance with priority first of the Pool Distribution Amount Allocation and (ii)
the unpaid Interest Shortfall Amount allocated but not distributed to the Class
A-3 Certificates on such Distribution Date in accordance with priority second
of the Pool Distribution Amount Allocation.
The "Class A Non-PO Principal Amount" with respect to any Distribution Date
will be equal to the amount distributed pursuant to priority third clause (A)
of the Pool Distribution Amount Allocation, in an aggregate amount up to the
Class A Non-PO Optimal Principal Amount.
Distributions in reduction of the Principal Balance of the Class A-PO Certif-
icates will be made on each Distribution Date in an aggregate amount equal to
the Class A-PO Distribution Amount. The "Class A-PO Distribution Amount" with
respect to any Distribution Date will be equal to the sum of (i) the amount
distributed pursuant to priority third clause (B) of the Pool Distribution
Amount Allocation, in an aggregate amount up to the Class A-PO Optimal Princi-
pal Amount and (ii) the amount distributed pursuant to priority fourth of the
Pool Distribution Amount Allocation, in an aggregate amount up to the Class A-
PO Deferred Amount.
Distributions in reduction of the Principal Balances of the Classes of Class
B Certificates will be made on each Distribution Date pursuant to priority
fifth clause (C) of the Pool Distribution Amount Allocation, in an aggregate
amount with respect to each such Class up to the Class B Optimal Principal
Amount for such Class.
The "Class A Non-PO Optimal Principal Amount", the "Class B Optimal Principal
Amount" for each Class of Class B Certificates and the "Class A-PO Optimal
Principal Amount" with respect to each
S-22
<PAGE>
Distribution Date will be an amount equal to the sum for each outstanding Mort-
gage Loan (including each defaulted Mortgage Loan, other than a Liquidated
Loan, with respect to which the related Mortgaged Property has been acquired by
the Trust Estate) of the product of:
(A) (i) in the case of the Class A Non-PO Optimal Principal Amount and
the Class B Optimal Principal Amount, the Non-PO Fraction for such Mortgage
Loan and (ii) in the case of the Class A-PO Optimal Principal Amount, the
PO Fraction for such Mortgage Loan; and
(B) the sum of:
(i) the applicable Class Percentage of (x) the scheduled payment of
principal due on such Mortgage Loan on the first day of the month in
which the Distribution Date occurs, less (y) if the Bankruptcy Loss
Amount is zero, the principal portion of Debt Service Reductions with
respect to such Mortgage Loan;
(ii) the applicable Class Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Unscheduled Principal Receipt Period relating
to such Distribution Date for each applicable type of Unscheduled Prin-
cipal Receipt;
(iii) the applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the month preced-
ing the month of such Distribution Date was repurchased by the Seller,
as described under the heading "Description of the Mortgage Loans --
Mandatory Repurchase or Substitution of Mortgage Loans" herein; and
(iv) the applicable Class Percentage of the excess of the unpaid prin-
cipal balance of any defective Mortgage Loan for which a Mortgage Loan
was substituted during the month preceding the month in which such Dis-
tribution Date occurs over the unpaid principal balance of such substi-
tuted Mortgage Loan, less the amount allocable to the principal portion
of any unreimbursed advances in respect of such defective Mortgage Loan.
See "The Pooling and Servicing Agreement -- Assignment of the Mortgage
Loans to the Trustee" in the Prospectus.
The "Class Percentage" will equal (i) the Class A Percentage, in the case of
the calculation of the Class A Non-PO Optimal Principal Amount; (ii) the appli-
cable Class B Percentage, in the case of the calculation of the Class B Optimal
Principal Amount for a Class of Class B Certificates; and (iii) 100% in the
case of the calculation of the Class A-PO Optimal Principal Amount.
The "Class Prepayment Percentage" will equal (i) the Class A Prepayment Per-
centage, in the case of the calculation of the Class A Non-PO Optimal Principal
Amount; (ii) the applicable Class B Prepayment Percentage, in the case of the
calculation of the Class B Optimal Principal Amount for a Class of Class B Cer-
tificates; and (iii) 100% in the case of the calculation of the Class A-PO Op-
timal Principal Amount.
The "Class A-PO Deferred Amount" for any Distribution Date prior to the
Cross-Over Date will equal the difference between (A) the sum of (i) the amount
by which the Class A-PO Optimal Principal Amount for all prior Distribution
Dates exceeds the amounts distributed to the Class A-PO Certificates on such
prior Distribution Dates pursuant to priority third, clause (B) of the Pool
Distribution Amount Allocation, but only to the extent such shortfall is not
attributable to Realized Losses allocated to the Class A-PO Certificates as de-
scribed in "-- Subordination of Class B Certificates -- Allocation of Losses"
below and (ii) the sum of the product for each Discount Mortgage Loan which be-
came a Liquidated Loan at any time on or prior to the last day of the applica-
ble Unscheduled Principal Receipt Period for the current Distribution Date of
(a) the PO Fraction for such Discount Mortgage Loan and (b) an amount equal to
the principal portion of Realized Losses (other than Bankruptcy Losses due to
Debt Service Reductions) incurred with respect to such Discount Mortgage Loan
other than Excess Losses and (B) amounts distributed on the Class A-PO Certifi-
cates on prior Distribution Dates pursuant to priority fourth of the Pool Dis-
tribution Amount Allocation. On or after the Cross-Over Date, the Class A-PO
Deferred Amount will be zero. No interest will accrue on any Class A-PO De-
ferred Amount.
The principal distribution to the holders of a Class of Class B Certificates
will be reduced on any Distribution Date on which (i) the Principal Balance of
such Class of Class B Certificates on the following Determination Date would be
reduced to zero as a result of principal distributions or allocation of losses
and (ii) the Principal Balance of any Class A Certificates or any Class of
Class B Certificates with a lower numerical designation, would be subject to
reduction on such Determination Date as a result of allocation of Realized
Losses (other than Excess Losses). The amount of any such reduction in the
principal distributed to the holders of such Class
S-23
<PAGE>
of Class B Certificates will instead be distributed pro rata to the holders of
any Class (other than the Class A-PO Certificates) senior in priority to re-
ceive distributions in accordance with the Pool Distribution Amount Allocation.
Generally, in the event that there is any recovery of an amount in respect of
principal which had previously been allocated as a Realized Loss to any Class
of Certificates, such Class will be entitled to its pro rata share of such re-
covery in an amount up to the amount by which the Principal Balance of such
Class was reduced as a result of such Realized Loss.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations), mora-
torium or similar waiver or grace period) as of the Due Date occurring in the
month preceding the month in which such Distribution Date occurs, after giving
effect to any principal prepayments or other unscheduled recoveries of princi-
pal previously received, to any partial principal prepayments and Deficient
Valuations occurring prior to such Due Date, to the payment of principal due on
such Due Date irrespective of any delinquency in payment by the mortgagor and
to any Unscheduled Principal Receipts received or applied during the applicable
Unscheduled Principal Receipt Period for the Distribution Date in the month
preceding the month in which such Distribution Date occurs.
A "Realized Loss" is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A "Liquidated Loan" is a de-
faulted Mortgage Loan as to which the Servicer has determined that all recover-
able liquidation and insurance proceeds have been received. A "Liquidated Loan
Loss" on a Liquidated Loan is equal to the excess, if any, of (i) the unpaid
principal balance of such Liquidated Loan, plus accrued interest thereon at the
Net Mortgage Interest Rate through the last day of the month in which such
Mortgage Loan was liquidated, over (ii) net Liquidation Proceeds. For purposes
of calculating the amount of any Liquidated Loan Loss, all net Liquidation Pro-
ceeds (after reimbursement of any previously unreimbursed Periodic Advance)
will be applied first to accrued interest and then to the unpaid principal bal-
ance of the Liquidated Loan. A "Special Hazard Loss" is (A) a Liquidated Loan
Loss suffered by a Mortgaged Property on account of direct physical loss exclu-
sive of (i) any loss covered by a standard hazard insurance policy or, if the
Mortgaged Property is located in an area identified in the Federal Register by
the Federal Emergency Management Agency as having special flood hazards, a
flood insurance policy, of the types described in the Prospectus under "Servic-
ing of the Mortgage Loans -- Insurance Policies" and (ii) any loss caused by or
resulting from (a) normal wear and tear, (b) dishonest acts of the Trustee, the
Trust Administrator, the Master Servicer or the Servicer or (c) errors in de-
sign, faulty workmanship or faulty materials, unless the collapse of the prop-
erty or a part thereof ensues or (B) a Liquidated Loan Loss arising from or re-
lating to the presence or suspected presence of hazardous wastes or substances
on a Mortgaged Property. A "Fraud Loss" is a Liquidated Loan Loss incurred on a
Liquidated Loan as to which there was fraud in the origination of such Mortgage
Loan. A "Bankruptcy Loss" is a Debt Service Reduction or a Deficient Valuation.
A "Debt Service Reduction" means a reduction in the amount of monthly payments
due to certain bankruptcy proceedings, but does not include any permanent for-
giveness of principal. A "Deficient Valuation" with respect to a Mortgage Loan
means a valuation by a court of the Mortgaged Property in an amount less than
the outstanding indebtedness under the Mortgage Loan or any reduction in the
amount of monthly payments that results in a permanent forgiveness of princi-
pal, which valuation or reduction results from a bankruptcy proceeding.
The "Non-PO Fraction" with respect to any Mortgage Loan will equal the Net
Mortgage Interest Rate for such Mortgage Loan divided by 6.500%, but will not
be greater than 1.0.
The "Pool Balance (Non-PO Portion)" is the sum for each outstanding Mortgage
Loan of the product of (i) the Non-PO Fraction for such Mortgage Loan and (ii)
the Scheduled Principal Balance of such Mortgage Loan as of such Distribution
Date.
The "PO Fraction" with respect to any Mortgage Loan with a Net Mortgage In-
terest Rate less than 6.500% (a "Discount Mortgage Loan") will equal the dif-
ference between 1.0 and the Non-PO Fraction for such Mortgage Loan. The PO
Fraction with respect to each Mortgage Loan that is not a Discount Mortgage
Loan (a "Premium Mortgage Loan") will be zero.
S-24
<PAGE>
The "Pool Balance (PO Portion)" is the sum for each Discount Mortgage Loan of
the product of the Scheduled Principal Balance of such Discount Mortgage Loan
and the PO Fraction for such Discount Mortgage Loan.
The "Class A Percentage" for any Distribution Date occurring on or prior to
the Cross-Over Date is the percentage (subject to rounding), which in no event
will exceed 100%, obtained by dividing the Class A Non-PO Principal Balance as
of such date (before taking into account distributions in reduction of princi-
pal balance on such date) by the Pool Balance (Non-PO Portion). The Class A
Percentage for the first Distribution Date will be approximately 96.78%. The
Class A Percentage for each Distribution Date occurring after the Cross-Over
Date will be 100%.
The "Class A Prepayment Percentage" for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Occurring In Class A Prepayment Percentage
- ------------------------------ ---------------------------------
<S> <C>
October 1999 through September 2004............ 100%;
October 2004 through September 2005............ the Class A Percentage, plus 70%
of the Subordinated Percentage;
October 2005 through September 2006............ the Class A Percentage, plus 60%
of the Subordinated Percentage;
October 2006 through September 2007............ the Class A Percentage, plus 40%
of the Subordinated Percentage;
October 2007 through September 2008............ the Class A Percentage, plus 20%
of the Subordinated Percentage;
and
October 2008 and thereafter.................... the Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage exceeds the initial Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date will once again equal 100%. See "Prepay-
ment and Yield Considerations" herein and in the Prospectus. Notwithstanding
the foregoing, no reduction of the Class A Prepayment Percentage will occur on
any Distribution Date if (i) as of such Distribution Date as to which any such
reduction applies, the average outstanding principal balance on such Distribu-
tion Date and for the preceding five Distribution Dates on the Mortgage Loans
that were delinquent 60 days or more (including for this purpose any Mortgage
Loans in foreclosure and Mortgage Loans with respect to which the related Mort-
gaged Property has been acquired by the Trust Estate) is greater than or equal
to 50% of the then-outstanding Class B Principal Balance, or (ii) for any Dis-
tribution Date, cumulative Realized Losses with respect to the Mortgage Loans
exceed the percentages of the principal balance of the Subordinated Certifi-
cates as of the Cut-Off Date (the "Original Subordinated Principal Balance")
indicated below:
<TABLE>
<CAPTION>
Percentage of
Original Subordinated
Distribution Date Occurring In Principal Balance
- ------------------------------ ---------------------
<S> <C>
October 2004 through September 2005....................... 30%
October 2005 through September 2006....................... 35%
October 2006 through September 2007....................... 40%
October 2007 through September 2008....................... 45%
October 2008 and thereafter............................... 50%
</TABLE>
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Class
A Certificates (other than the Class A-PO Certificates) while, in the absence
of Realized Losses, increasing the interest in the principal balance of the
Mortgage Loans evidenced by the Class B Certificates. Increasing the respective
interest of the Class B Certificates relative to that of the Class A Certifi-
cates (other than the Class A-PO Certificates) is intended to preserve the
availability of the subordination provided by the Class B Certificates. See "--
Subordination of Class B Certificates" below. The "Subordinated Percentage"
for any Distribution Date will be calculated as the difference between 100% and
the Class A Percentage for such date. The "Subordinated Prepayment Percentage"
for any Distribution Date will be calculated as the difference between 100% and
the Class A Prepayment Percentage for such date.
The "Class B Percentage" and "Class B Prepayment Percentage" for a Class of
Class B Certificates will equal the portion of the Subordinated Percentage and
Subordinated Prepayment Percentage, as the case may
S-25
<PAGE>
be, represented by the fraction, the numerator of which is the then-outstanding
Principal Balance for such Class of Class B Certificates and the denominator of
which is the sum of the Principal Balances of the Classes of Class B Certifi-
cates entitled to principal distributions for such Distribution Date as de-
scribed below. In the event that a Class of Class B Certificates is not enti-
tled to principal distributions for such Distribution Date, the Class B Per-
centage and Class B Prepayment Percentage for such Class will both be 0% with
respect to such Distribution Date.
In the event that on any Distribution Date the Current Fractional Interest of
any Class of Class B Certificates is less than the Original Fractional Interest
of such Class, then the Classes of Certificates that are subordinate to such
Class will not be entitled to distributions in respect of principal and the
Principal Balances of such subordinated Classes will not be used to determine
the Class B Percentage and Class B Prepayment Percentage of the Classes of
Class B Certificates that are senior to such subordinated Classes for such Dis-
tribution Date. The Class B-6 Certificates will not have original or current
fractional interests which are required to be maintained as described above.
The "Original Fractional Interest" of a Class of Class B Certificates is the
percentage obtained by dividing the sum of the initial Principal Balances of
the Classes of Certificates that are subordinate to such Class by the initial
Aggregate Non-PO Principal Balance. The "Current Fractional Interest" of a
Class of Class B Certificates for any Distribution Date is the percentage ob-
tained by dividing the sum of the then-outstanding Principal Balances of the
Classes of Certificates that are subordinate to such Class by the then-
outstanding Aggregate Non-PO Principal Balance.
The following table sets forth the expected approximate Original Fractional
Interest for each Class of Class B Certificates on the date of issuance of the
Certificates.
<TABLE>
<CAPTION>
Approximate
Original
Fractional
Class Interest
----- -----------
<S> <C>
B-1.............................................................. 1.31%
B-2.............................................................. 0.81%
B-3.............................................................. 0.50%
B-4.............................................................. 0.25%
B-5.............................................................. 0.15%
B-6.............................................................. N/A
</TABLE>
Allocation of Amount to be Distributed on the Class A Certificates
On each Distribution Date occurring prior to the Cross-Over Date, the Class A
Non-PO Principal Distribution Amount will be allocated among and distributed in
reduction of the Principal Balances of the Class A Certificates (other than the
Class A-PO Certificates) in accordance with the following priorities:
I. On each Distribution Date occurring prior to the Accretion Termination
Date, the Class A-3 Accrual Distribution Amount will be allocated sequen-
tially to the Class A-1, Class A-2 and Class A-3 Certificates, in that or-
der, until the Principal Balance of each such Class has been reduced to ze-
ro; and
II. The Class A Non-PO Principal Amount will be allocated sequentially as
follows:
first, to the Class A-4 Certificates, up to the Priority Amount for
such Distribution Date;
second, sequentially, to the Class A-R, Class A-1, Class A-2 and Class
A-3 Certificates, in that order, until the Principal Balance of each
such Class has been reduced to zero; and
third, to the Class A-4 Certificates, without regard to the Priority
Amount for such Distribution Date, until the Principal Balance thereof
has been reduced to zero.
The "Priority Amount" for any Distribution Date means the lesser of (i) the
Principal Balance of the Class A-4 Certificates and (ii) the sum of (A) the
product of (1) the Priority Percentage and (2) the Scheduled Principal Amount
and (B) the product of (1) the Priority Percentage, (2) the Prepayment Shift
Percentage and (3) the Unscheduled Principal Amount.
S-26
<PAGE>
The "Priority Percentage" means the Principal Balance of the Class A-4 Cer-
tificates divided by the Pool Balance (Non-PO Portion).
The "Scheduled Principal Amount" means the sum for each outstanding Mortgage
Loan (including each defaulted Mortgage Loan, other than a Liquidated Loan,
with respect to which the related Mortgaged Property has been acquired by the
Trust Estate) of the product of (A) the Non-PO Fraction for such Mortgage Loan
and (B) the sum of the amounts described in clauses B(i) and B(iv) of the defi-
nition of "Class A Non-PO Optimal Principal Amount" beginning on page S-22, but
without such amounts being multiplied by the Class A Percentage.
The "Unscheduled Principal Amount" means the sum for each outstanding Mort-
gage Loan (including each defaulted Mortgage Loan, other than a Liquidated
Loan, with respect to which the related Mortgage Property has been acquired by
the Trust Estate) of the product of (A) the Non-PO Fraction for such Mortgage
Loan and (B) the sum of the amounts described in clauses B(ii) and B(iii) of
the definition of "Class A Non-PO Optimal Principal Amount" beginning on page
S-22, but without such amounts being multiplied by the Class A Prepayment Per-
centage.
The "Prepayment Shift Percentage" for any Distribution Date will be the per-
centage indicated below:
<TABLE>
<CAPTION>
Prepayment
Distribution Date Occurring In Shift Percentage
- ------------------------------ ----------------
<S> <C>
October 1999 through September 2004............................ 0%
October 2004 through September 2005............................ 30%
October 2005 through September 2006............................ 40%
October 2006 through September 2007............................ 60%
October 2007 through September 2008............................ 80%
October 2008 and thereafter.................................... 100%
</TABLE>
Notwithstanding the foregoing, on each Distribution Date occurring on or af-
ter the Cross-Over Date, the Class A Non-PO Principal Distribution Amount will
be distributed among the Classes of Class A Certificates (other than the Class
A-PO Certificates) pro rata in accordance with their respective outstanding
Principal Balances without regard to the priorities set forth above.
Any amounts distributed on a Distribution Date to the holders of any Class in
reduction of Principal Balance will be allocated among the holders of such
Class pro rata in accordance with their respective Percentage Interests.
Additional Rights of the Class A-R Certificateholder
The Class A-R Certificate will remain outstanding for as long as the Trust
Estate shall exist, whether or not such Class is receiving current distribu-
tions of principal or interest. The holder of the Class A-R Certificate will be
entitled to receive the proceeds of the remaining assets of the Trust Estate,
if any, on the final Distribution Date for the Certificates, after distribu-
tions in respect of any accrued but unpaid interest on the Certificates and af-
ter distributions in reduction of Principal Balance have reduced the Principal
Balances of the Certificates to zero. It is not anticipated that there will be
any material assets remaining in the Trust Estate on the final Distribution
Date following the distributions of interest and in reduction of Principal Bal-
ance made on the Certificates on such date.
In addition, the Class A-R Certificateholder will be entitled on each Distri-
bution Date to receive any Pool Distribution Amount remaining after all distri-
butions pursuant to the Pool Distribution Amount Allocation have been made and
any Net Foreclosure Profits, as described under "Description of the Certifi-
cates" in the Prospectus. It is not anticipated that there will be any such Net
Foreclosure Profits or material undistributed portion of the Pool Distribution
Amount.
Periodic Advances
If, on any Determination Date, payments of principal and interest due on any
Mortgage Loan in the Trust Estate on the related Due Date have not been re-
ceived, the related Servicer will, in certain circumstances, be required to ad-
vance on or before the related Distribution Date for the benefit of holders of
the Certificates an amount in cash equal to all delinquent payments of princi-
pal and interest due on each Mortgage Loan in the Trust Estate (with interest
adjusted to the applicable Net Mortgage Interest Rate) not previously advanced,
but
S-27
<PAGE>
only to the extent that such Servicer believes that such amounts will be recov-
erable by it from liquidation proceeds or other recoveries in respect of the
related Mortgage Loan (each, a "Periodic Advance"). Upon a Servicer's failure
to make a Periodic Advance required by the Underlying Servicing Agreement, the
Trust Administrator, if such Servicer is Norwest Mortgage, or the Master
Servicer, if such Servicer is not Norwest Mortgage, will be required to make
such Periodic Advance.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may
be reimbursed to the related Servicer, the Master Servicer or the Trust Admin-
istrator, as applicable, at any time from funds available in the Servicer Cus-
todial Account or the Certificate Account, as the case may be, to the extent
that (i) such funds represent receipts on, or liquidation, insurance, purchase
or repurchase proceeds in respect of, the Mortgage Loans to which the advance
relates or (ii) the Servicer, the Master Servicer or the Trust Administrator,
as applicable, has determined in good faith that the advancing party will be
unable to recover such advance from funds of the type referred to in clause (i)
above.
Restrictions on Transfer of the Class A-R Certificate
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and (ii) certain Pass-Through Entities (as defined
in the Prospectus) that have Disqualified Organizations as beneficial owners.
No tax will be imposed on a Pass-Through Entity (other than an "electing large
partnership," as defined in the Prospectus) with respect to the Class A-R Cer-
tificate to the extent it has received an affidavit from the owner thereof that
such owner is not a Disqualified Organization or a nominee for a Disqualified
Organization. The Pooling and Servicing Agreement will provide that no legal or
beneficial interest in the Class A-R Certificate may be transferred to or reg-
istered in the name of any person unless (i) the proposed purchaser provides to
the Trust Administrator an affidavit (or, to the extent acceptable to the Trust
Administrator, a representation letter signed under penalty of perjury) to the
effect that, among other items, such transferee is not a Disqualified Organiza-
tion (as defined in the Prospectus) and is not purchasing the Class A-R Certif-
icate as an agent for a Disqualified Organization (i.e., as a broker, nominee,
or other middleman thereof) and (ii) the transferor states in writing to the
Trust Administrator that it has no actual knowledge that such affidavit or let-
ter is false. Further, such affidavit or letter requires the transferee to af-
firm that it (i) historically has paid its debts as they have come due and in-
tends to do so in the future, (ii) understands that it may incur tax liabili-
ties with respect to the Class A-R Certificate in excess of cash flows gener-
ated thereby, (iii) intends to pay taxes associated with holding the Class A-R
Certificate as such taxes become due and (iv) will not transfer the Class A-R
Certificate to any person or entity that does not provide a similar affidavit
or letter. The transferor must certify in writing to the Trust Administrator
that, as of the date of the transfer, it had no knowledge or reason to know
that the affirmations made by the transferee pursuant to the preceding sentence
were false.
In addition, the Class A-R Certificate may not be purchased by or transferred
to any person that is not a "U.S. Person," unless (i) such person holds such
Class A-R Certificate in connection with the conduct of a trade or business
within the United States and furnishes the transferor and the Trust Administra-
tor with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trust Administrator an opinion of a na-
tionally recognized tax counsel to the effect that such transfer is in accord
with the requirements of the Code and the regulations promulgated and that such
transfer of the Class A-R Certificate will not be disregarded for federal in-
come tax purposes. The term "U.S. Person" means a citizen or resident of the
United States, a corporation or partnership (unless, in the case of a partner-
ship, Treasury regulations are adopted that provide otherwise) created or orga-
nized in or under the laws of the United States, any state thereof or the Dis-
trict of Columbia, including an entity treated as a corporation or partnership
for federal income tax purposes, an estate whose income is subject to United
States federal income tax regardless of its source, or a trust if a court
within the United States is able to exercise primary supervision over the ad-
ministration of such trust, and one or more such U.S. Persons have the author-
ity to control all substantial decisions of such trust (or, to the extent pro-
vided in applicable Treasury regulations, certain trusts in existence on August
20, 1996 which are eligible to elect to be treated as U.S. Persons).
S-28
<PAGE>
The Pooling and Servicing Agreement will provide that any attempted or pur-
ported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the Trust Administrator provides information as to any applicable
tax imposed on such transferor or agent may be required to bear the cost of
computing or providing such information. See "Certain Federal Income Tax Conse-
quences -- Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Residual Certificates -- Tax-Related Restrictions on Transfer of Residual
Certificates" in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to any per-
son which is an employee benefit plan or other retirement plan or arrangement
subject to Title I of ERISA or Code Section 4975 (an "ERISA Plan") or which is
a governmental plan, as defined in Section 3(32) of ERISA, subject to any fed-
eral, state or local law ("Similar Law") which is, to a material extent, simi-
lar to the foregoing provisions of ERISA or the Code (collectively, with an
ERISA Plan, a "Plan"), or any person acting on behalf of or investing the as-
sets of such Plan. See "ERISA Considerations" herein and in the Prospectus.
Subordination of Class B Certificates
The rights of the holders of the Class B Certificates to receive distribu-
tions with respect to the Mortgage Loans in the Trust Estate will be subordi-
nated to such rights of the holders of the Class A Certificates, and the rights
of the holders of the Classes of Class B Certificates with higher numerical
designations to receive distributions with respect to the Mortgage Loans in the
Trust Estate will be subordinated to such rights of the holders of Classes of
Class B Certificates with lower numerical designations, all to the extent de-
scribed below. This subordination is intended to enhance the likelihood of
timely receipt by the holders of the more senior Certificates of the full
amount of their scheduled monthly payments of interest and principal and to af-
ford the holders of the more senior Certificates protection against Realized
Losses, as more fully described below. If Realized Losses exceed the credit
support provided through subordination to a given Class of Certificates, or if
Excess Losses occur, all or a portion of such losses will be borne by such
Class of Certificates.
The protection afforded to the holders of more senior Classes of Certificates
by means of the subordination feature will be accomplished by the preferential
right of such holders to receive, prior to any distribution being made on a
Distribution Date in respect of the more junior Classes of Certificates, the
amounts of principal and interest due such holders on each Distribution Date
out of the Pool Distribution Amount with respect to such date and, if neces-
sary, by the right of such holders to receive future distributions on the Mort-
gage Loans that would otherwise have been payable to the holders of the more
junior Classes of Certificates. Because of the priority in which the Class A
Non-PO Principal Distribution Amount is allocated among the Classes of Class A
Certificates (other than the Class A-PO Certificates), the application of this
subordination to cover Realized Losses experienced in periods prior to the pe-
riods in which a Class of Class A Certificates is entitled to distributions in
reduction of Principal Balance will decrease the protection provided by the
subordination to any such Class.
Amounts distributed to holders of Subordinated Certificates will not be
available to cover delinquencies or Realized Losses in respect of subsequent
Distribution Dates.
Allocation of Losses
Realized Losses (other than Excess Losses) will not be allocated to the hold-
ers of the Class A Certificates until the date on which the amount of principal
payments on the Mortgage Loans to which the holders of the Subordinated Certif-
icates are entitled has been reduced to zero as a result of the allocation of
losses to the Subordinated Certificates, i.e., the Distribution Date preceding
the Distribution Date for which the Subordinated Percentage is equal to zero
(the "Cross-Over Date"). Prior to such time, such Realized Losses will be allo-
cated to the Classes of Class B Certificates sequentially in reverse numerical
order, until the Principal Balance of each such Class has been reduced to zero.
The allocation of the principal portion of a Realized Loss (other than a Debt
Service Reduction or Excess Loss) will be effected through the adjustment of
the Principal Balance of the most subordinate Class then outstanding in such
amount as is necessary to cause the Aggregate Principal Balance to equal the
Adjusted Pool Amount.
Allocations to the Classes of Class B Certificates of (i) the principal por-
tion of Debt Service Reductions, (ii) the interest portion of Realized Losses
(other than Excess Losses), (iii) any interest shortfalls resulting from
S-29
<PAGE>
delinquencies for which the Servicer, the Master Servicer or the Trust Adminis-
trator does not advance, (iv) any interest shortfalls or losses resulting from
the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as more
fully described under "Certain Legal Aspects of the Mortgage Loans -- Soldiers'
and Sailors' Civil Relief Act" in the Prospectus and (v) any interest
shortfalls resulting from the timing of the receipt of Unscheduled Principal
Receipts (other than Prepayments in Full) with respect to Mortgage Loans will
result from the priority of distributions of the Pool Distribution Amount first
to the Class A Certificates and then to the Classes of Class B Certificates in
numerical order as described above under "-- Distributions."
The allocation of the principal portion of Realized Losses (other than Excess
Losses) in respect of the Mortgage Loans allocated on or after the Cross-Over
Date will be effected through the adjustment on any Determination Date of the
Class A Non-PO Principal Balance and the Principal Balance of the Class A-PO
Certificates such that (i) the Class A Non-PO Principal Balance equals the Ad-
justed Pool Amount less the Adjusted Pool Amount (PO Portion) as of the preced-
ing Distribution Date and (ii) the Principal Balance of the Class A-PO Certifi-
cates equals the Adjusted Pool Amount (PO Portion) as of the preceding Distri-
bution Date. The principal portion of such Realized Losses allocated to the
Class A Certificates (other than the Class A-PO Certificates) will be allocated
to such outstanding Classes of Class A Certificates pro rata in accordance with
their Principal Balances or, in the case of the Class A-3 Certificates, their
initial Principal Balance, if lower. The interest portion of any Realized Loss
allocated on or after the Cross-Over Date will be allocated among the outstand-
ing Classes of Class A Certificates pro rata in accordance with their respec-
tive Interest Accrual Amounts, without regard to any reduction pursuant to this
sentence. Any such losses will be allocated among the outstanding Class A Cer-
tificates within each Class pro rata in accordance with their respective Per-
centage Interests.
If due to losses on the Mortgage Loans the Pool Distribution Amount is not
sufficient to cover the Class A Non-PO Optimal Principal Amount on a particular
Distribution Date, then the percentage of principal payments on the Mortgage
Loans to which the holders of the Class A Certificates (other than the Class A-
PO Certificates) will be entitled (i.e., the Class A Percentage) on and after
the next Distribution Date will be proportionately increased, thereby reducing,
as a relative matter, the respective interest of the Class B Certificates in
future payments of principal on the Mortgage Loans in the Trust Estate.
Special Hazard Losses, Fraud Losses and Bankruptcy Losses, other than Excess
Losses, will be allocated solely to the Classes of Class B Certificates in re-
verse numerical order. Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in excess of the Special Hazard Loss Amount, the Fraud Loss Amount and
the Bankruptcy Loss Amount, respectively, are "Excess Special Hazard Losses,"
"Excess Fraud Losses" and "Excess Bankruptcy Losses," respectively, and are re-
ferred to herein collectively as "Excess Losses".
Any Excess Losses will be allocated (i) with respect to the principal portion
of such losses (a) to the outstanding Classes of the Class A Certificates
(other than the Class A-PO Certificates) and Class B Certificates pro rata
based on their outstanding Principal Balances in proportion to the Non-PO Frac-
tion of such losses and (b) in respect of Discount Mortgage Loans, to the Class
A-PO Certificates in proportion to the PO Fraction of such losses and (ii) with
respect to the interest portion of such losses, to the Class A and Class B Cer-
tificates pro rata based on interest accrued by reducing their respective In-
terest Accrual Amounts. The principal portion of any such losses so allocated
to the Class A Certificates (other than the Class A-PO Certificates) will be
allocated to such outstanding Classes of Class A Certificates pro rata in ac-
cordance with their then-outstanding Principal Balances or, in the case of the
Class A-3 Certificates, their initial Principal Balance, if lower. Any losses
allocated to a Class of Certificates will be allocated among the outstanding
Certificates within such Class pro rata in accordance with their respective
Percentage Interests.
Upon initial issuance of the Certificates, the "Special Hazard Loss Amount"
with respect thereto will be equal to approximately 1.12% (approximately
$3,378,650) of the aggregate unpaid principal balance of the Mortgage Loans as
of the Cut-Off Date. As of any Distribution Date, the Special Hazard Loss
Amount will equal the initial Special Hazard Loss Amount less the sum of (A)
any Special Hazard Losses allocated solely to the Class B Certificates and (B)
the Adjustment Amount. The "Adjustment Amount" on each anniversary of the Cut-
Off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for
such anniversary, exceeds the greater of (i) 1.00% (or, if greater than 1.00%,
the highest percentage of Mortgage Loans by principal balance in any California
zip code) times the aggregate principal balance of all the Mortgage Loans on
such anniversary, (ii) twice the principal balance of the
S-30
<PAGE>
single Mortgage Loan having the largest principal balance, and (iii) that which
is necessary to maintain the original ratings assigned to the Class A and Class
B Certificates by the applicable Rating Agencies, as evidenced by letters to
that effect delivered by such Rating Agencies to the Master Servicer and the
Trustee. On and after the Cross-Over Date, the Special Hazard Loss Amount will
be zero.
Upon initial issuance of the Certificates, the "Fraud Loss Amount" with re-
spect thereto will be equal to approximately 2.00% (approximately $6,015,333)
of the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-
Off Date. As of any Distribution Date prior to the first anniversary of the
Cut-Off Date, the Fraud Loss Amount will equal the initial Fraud Loss Amount
minus the aggregate amount of Fraud Losses allocated solely to the Class B Cer-
tificates through the related Determination Date. As of any Distribution Date
from the first through fifth anniversary of the Cut-Off Date, the Fraud Loss
Amount will be an amount equal to (1) the lesser of (a) the Fraud Loss Amount
as of the most recent anniversary of the Cut-Off Date and (b) 1.00% of the ag-
gregate principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-Off Date minus (2) the aggregate amounts allocated
solely to the Class B Certificates with respect to Fraud Losses since the most
recent anniversary of the Cut-Off Date through the related Determination Date.
On and after the Cross-Over Date or after the fifth anniversary of the Cut-Off
Date, the Fraud Loss Amount will be zero.
Upon initial issuance of the Certificates, the "Bankruptcy Loss Amount" with
respect thereto will be equal to approximately 0.04% (approximately $128,772)
of the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-
Off Date. As of any Distribution Date prior to the first anniversary of the
Cut-Off Date, the Bankruptcy Loss Amount will equal the initial Bankruptcy Loss
Amount minus the aggregate amount of Bankruptcy Losses allocated solely to the
Class B Certificates through the related Determination Date. As of any Distri-
bution Date on or after the first anniversary of the Cut-Off Date, the Bank-
ruptcy Loss Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Loss Amount as of the business day next preceding the most recent
anniversary of the Cut-Off Date and (b) an amount, if any, calculated pursuant
to the terms of the Pooling and Servicing Agreement, which amount as calculated
will provide for a reduction in the Bankruptcy Loss Amount, over (2) the aggre-
gate amount of Bankruptcy Losses allocated solely to the Class B Certificates
since such anniversary. The Bankruptcy Loss Amount and the related coverage
levels described above may be reduced or modified upon written confirmation
from each Rating Agency that such reduction or modification will not adversely
affect the then-current ratings assigned to the Certificates by it. Such a re-
duction or modification may adversely affect the coverage provided by subordi-
nation with respect to Bankruptcy Losses. On and after the Cross-Over Date, the
Bankruptcy Loss Amount will be zero.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the applica-
ble Servicer has notified the Trust Administrator and the Master Servicer in
writing that such Servicer is diligently pursuing any remedies that may exist
in connection with the representations and warranties made regarding the re-
lated Mortgage Loan and when (A) the related Mortgage Loan is not in default
with regard to the payments due thereunder or (B) delinquent payments of prin-
cipal and interest under the related Mortgage Loan and any premiums on any ap-
plicable Standard Hazard Insurance Policy and any related escrow payments in
respect of such Mortgage Loan are being advanced on a current basis by such
Servicer, in either case without giving effect to any Debt Service Reduction.
As a result of the mechanism described above, the risk of Special Hazard
Losses, Fraud Losses and Bankruptcy Losses will be borne solely by the Class B
Certificates to a lesser extent (i.e., only up to the Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the
risk of other Realized Losses, which will be allocated first to the Class B
Certificates in reverse numerical order to the full extent of their initial
Principal Balances.
S-31
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(/1/)
General
The Mortgage Loans to be included in the Trust Estate will be fixed interest
rate, conventional, monthly pay, fully amortizing, one- to four-family, resi-
dential first mortgage loans substantially all of which have original terms to
stated maturity of approximately 30 years (the "Mortgage Loans"), which may in-
clude loans secured by shares ("Co-op Shares") issued by private non-profit
housing corporations ("Cooperatives"), and the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specified units in
such Cooperatives' buildings. The Mortgage Loans are expected to be secured by
first liens (the "Mortgages") on one- to four-family residential properties
(the "Mortgaged Properties") and to have the additional characteristics de-
scribed below and in the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See "Certain
Legal Aspects of the Mortgage Loans -- "Due-on-Sale' Clauses" and "Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon De-
faulted Mortgage Loans" in the Prospectus.
All of the Mortgage Loans are Relocation Mortgage Loans. "Relocation Mortgage
Loans" are mortgage loans originated in connection with the relocation of em-
ployees of various corporate employers that participated in Norwest Mortgage's
relocation program ("Sponsored Relocation Loans") and mortgage loans originated
in connection with the relocation of employees whose employers generally did
not participate in Norwest Mortgage's relocation program ("Non-sponsored Relo-
cation Loans"). Non-sponsored Relocation Loans were generated as a result of
the referral of loan applications to Norwest Mortgage by various mortgage bro-
kers and similar entities and the acquisition of mortgage loans by Norwest
Mortgage from various entities, including the Norwest Mortgage Correspondents.
See "The Mortgage Loan Programs -- Mortgage Loan Production Sources" in the
Prospectus. The persons being relocated may be existing or newly hired employ-
ees. The Seller has not verified, and makes no representation as to, whether
any individual mortgagor of any Relocation Mortgage Loan continues to be em-
ployed by the same employer at the time of origination.
It is expected that certain of the Mortgage Loans will be subject to subsidy
agreements which, except under certain limited circumstances, require the em-
ployers of the related mortgagors to make a portion of the payments on the re-
lated Mortgage Loans (each, a "Subsidy Loan") for specified periods. The sub-
sidy agreements relating to the Subsidy Loans generally will provide that
monthly payments made by the related mortgagors will be less than the scheduled
monthly payments on such Mortgage Loans, with the present value of the result-
ing difference in payments being provided by the employer of the mortgagors in
advance, generally on an annual basis. Subsidy Loans are offered by employers
generally through either a graduated or fixed subsidy loan program, or a combi-
nation thereof. The effective subsidized rates under the various programs of-
fered generally range from one to five percentage points below the interest
rate specified in the related mortgage note. These subsidized rates are used to
calculate the applicable debt-to-income ratios that are used to evaluate the
creditworthiness of prospective
- ------------------
(1) The descriptions in this Prospectus Supplement of the Trust Estate and the
properties securing the Mortgage Loans to be included in the Trust Estate
are based upon the expected characteristics of the Mortgage Loans at the
close of business on the Cut-Off Date, as adjusted for the scheduled prin-
cipal payments due on or before such date. Notwithstanding the foregoing,
any of such Mortgage Loans may be excluded from the Trust Estate (i) as a
result of principal prepayment thereof in full or (ii) if, as a result of
delinquencies or otherwise, the Seller otherwise deems such exclusion nec-
essary or desirable. In either event, other Mortgage Loans may be included
in the Trust Estate. The Seller believes that the information set forth
herein with respect to the expected characteristics of the Mortgage Loans
on the Cut-Off Date is representative of the characteristics as of the Cut-
Off Date of the Mortgage Loans to be included in the Trust Estate as it
will be constituted at the time the Certificates are issued, although the
aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off
Date, the range of Mortgage Interest Rates and maturities, and certain
other characteristics of the Mortgage Loans in the Trust Estate may vary.
In the event that any of the characteristics as of the Cut-Off Date of the
Mortgage Loans that constitute the Trust Estate on the date of initial is-
suance of the Certificates vary materially from those described herein, re-
vised information regarding the Mortgage Loans will be made available to
purchasers of the Offered Certificates, on or before such issuance date,
and a Current Report on Form 8-K containing such information will be filed
with the Securities and Exchange Commission within 15 days following such
date.
S-32
<PAGE>
borrowers. This procedure may enable certain mortgagors who otherwise would not
meet the Underwriting Standards to obtain mortgage loans. See "Prepayment and
Yield Considerations" herein.
Subsidy amounts paid by the employer will be deposited by Norwest Mortgage in
an account (the "Subsidy Account") maintained by Norwest Mortgage, which will
not be part of the Trust Estate or the REMIC. Funds in the Subsidy Account with
respect to each Subsidy Loan will be withdrawn by Norwest Mortgage and depos-
ited in the Servicer Custodial Account on the business day following the re-
ceipt by Norwest Mortgage of the mortgagor's monthly payment to which such
funds relate. Funds in the Subsidy Account with respect to a Subsidy Loan will
not be withdrawn by Norwest Mortgage, and are not permitted to be applied under
the related subsidy agreement, during any period in which such Subsidy Loan is
in default. Despite the existence of the subsidy agreement, the mortgagor re-
mains liable for making all scheduled payments on a Subsidy Loan. From time to
time, the amount of a subsidy payment or the term of a subsidy agreement may,
upon the request of a corporate employer, be modified.
Mortgage Loan Underwriting
Approximately 86.56% (by the aggregate unpaid principal balance as of the
Cut-Off Date) of the Mortgage Loans were generally originated in conformity
with the underwriting standards described in the Prospectus under the heading
"The Mortgage Loan Programs -- Mortgage Loan Underwriting -- Norwest Mortgage
Underwriting" (the "Underwriting Standards"). In certain instances, exceptions
to the Underwriting Standards may have been granted by Norwest Mortgage. See
"The Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus.
The remaining approximate 13.44% (by the aggregate unpaid principal balance as
of the Cut-Off Date) of the Mortgage Loans were purchased by Norwest Mortgage
in bulk purchase transactions and were underwritten using underwriting stan-
dards which may vary from the Underwriting Standards (the "Bulk Purchase Under-
written Loans"). However, Norwest Mortgage has in each case reviewed the under-
writing standards applied for such Bulk Purchase Underwritten Loans and deter-
mined that such standards were not materially different than the Underwriting
Standards.
S-33
<PAGE>
The following table sets forth certain characteristics of all the Mortgage
Loans, the Premium Mortgage Loans and the Discount Mortgage Loans.
SELECTED MORTGAGE LOAN DATA
(as of September 1, 1999 (the "Cut-Off Date"))
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Number of Mortgage Loans 823 635 188
Aggregate Unpaid
Principal Balance(/1/) $300,766,629 $228,027,778 $72,738,851
Range of Unpaid
Principal Balances(/1/) $126,325 to $1,298,881 $242,729 to $1,100,000 $126,325 to $1,298,881
Average Unpaid Principal
Balance(/1/) $365,452 $359,099 $386,909
Range of Mortgage
Interest Rates 6.250% to 8.500% 6.875% to 8.500% 6.250% to 7.500%
Weighted Average
Mortgage Interest
Rate(/1/) 7.189% 7.359% 6.657%
Weighted Average Net
Mortgage Interest
Rate(/1/) 6.460% 6.500% 6.336%
Range of Remaining Terms
to Stated Maturity 239 to 360 Months 239 to 360 Months 344 to 360 Months
Weighted Average
Remaining Term to
Stated Maturity(/1/) 358 Months 359 Months 356 Months
Range of Original Loan-
to-Value Ratios(/1/) 21.43% to 95.00% 21.43% to 95.00% 46.76% to 95.00%
Weighted Average
Original Loan-to-Value
Ratio(/1/) 77.86% 78.52% 75.80%
Number of Mortgage Loans
with Original Loan-to-
Value Ratios greater
than 80% not covered by
Primary Mortgage
Insurance 145 132 13
Mortgage Loans with
Original Loan-to-Value
Ratios greater than 80%
not covered by Primary
Mortgage Insurance as a
Percentage of Aggregate
Unpaid Principal
Balance(/1/) 16.11% 19.28% 6.17%
Weighted Average
Original Loan-to-Value
Ratio of Mortgage Loans
with Original Principal
Balance greater than
$600,000(/1/) 72.29% 73.68% 70.04%
Maximum Original Loan-
to-Value Ratio of
Mortgage Loans with
Original Principal
Balance greater than
$600,000(/1/) 90.00% 90.00% 80.00%
</TABLE>
- ------------------
(1) Approximate.
S-34
<PAGE>
SELECTED MORTGAGE LOAN DATA (Cont.)
<TABLE>
<CAPTION>
All Premium Discount
Mortgage Mortgage Mortgage
Loans Loans Loans
----------------- ----------------- -----------------
<S> <C> <C> <C>
Geographic Concentration
of Mortgaged Properties
securing Mortgage Loans
in Excess of 5% of the
Aggregate Unpaid
Principal Balance(/1/)
California 21.37% 23.71% 13.89%
New Jersey 11.97% 10.31% 17.20%
Connecticut 8.75% 7.90% 11.42%
Texas 5.73% 6.13% *
Illinois 5.25% 5.67% *
New York * * 8.01%
Massachusetts * * 6.91%
Maximum Five-Digit Zip
Code Concentration(/1/) 1.12% 1.48% 2.42%
Earliest Origination
Month April 1998 June 1998 April 1998
Latest Origination Month August 1999 August 1999 August 1999
Latest Stated Maturity
Date September 1, 2029 September 1, 2029 September 1, 2029
Number of Buy-Down Loans 1 1 0
Buy-Down Loans as a
Percentage of Aggregate
Unpaid Principal
Balance(/1/) 0.22% 0.28% 0.00%
Number of Sponsored
Relocation Loans 600 516 84
Sponsored Relocations
Loans as a Percentage
of Aggregate Unpaid
Principal Balance(/1/) 72.90% 81.75% 45.16%
Weighted Average FICO
Score(/1/)(/2/) 729 734 714
</TABLE>
- ------------------
(1) Approximate.
(2) Does not include the Mortgage Loans for which FICO Scores are not avail-
able.
* Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-35
<PAGE>
Mortgage Loan Data
Set forth below is a description of certain additional expected characteris-
tics of the Mortgage Loans as of the Cut-Off Date (except as otherwise indicat-
ed).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Mortgage Principal Principal
Interest Rate Loans Balance Balance
- ------------- --------- --------------- -------------
<S> <C> <C> <C>
6.250%.......... 2 $ 839,517.96 0.28%
6.375%.......... 19 7,438,984.55 2.47
6.500%.......... 31 11,622,018.65 3.86
6.625%.......... 49 18,377,796.88 6.11
6.750%.......... 73 27,916,704.96 9.28
6.875%.......... 76 29,528,264.58 9.82
7.000%.......... 78 30,390,242.82 10.10
7.125%.......... 78 28,984,680.76 9.64
7.250%.......... 95 34,618,319.17 11.50
7.375%.......... 60 22,066,112.08 7.34
7.500%.......... 80 27,000,586.33 8.98
7.625%.......... 48 16,377,425.11 5.45
7.750%.......... 57 19,881,228.42 6.61
7.875%.......... 32 10,456,591.60 3.48
8.000%.......... 19 6,047,406.89 2.01
8.125%.......... 19 6,911,712.86 2.30
8.375%.......... 4 1,294,914.93 0.43
8.500%.......... 3 1,014,120.38 0.34
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Documentation Level Loans Balance Balance
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Full Documenta-
tion........... 341 $130,983,035.26 43.55%
Income Verifica-
tion........... 2 919,200.00 0.31
Asset Verifica-
tion........... 3 1,319,112.02 0.44
Preferred
Processing..... 477 167,545,281.65 55.70
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan. As-
set, income and mortgage verifications were obtained for Mortgage Loans proc-
essed with "full documentation." In the case of "preferred processing," neither
asset nor income verifications were obtained. In most instances, a verification
of the borrower's employment was obtained. However, for all of the Mortgage
Loans, a credit report on the borrower and a property appraisal were obtained.
See "The Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospec-
tus.
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Remaining Stated Mortgage Principal Principal
Term (Months) Loans Balance Balance
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
239............. 1 $ 399,255.16 0.13%
240............. 1 520,000.00 0.17
344............. 2 627,670.86 0.21
345............. 1 370,826.97 0.12
346............. 6 2,202,755.26 0.73
347............. 5 2,638,870.61 0.88
348............. 4 2,342,882.40 0.78
349............. 10 3,578,619.17 1.19
350............. 3 915,870.92 0.30
351............. 5 2,232,905.89 0.74
352............. 10 3,222,966.62 1.07
353............. 6 2,149,319.87 0.71
354............. 8 2,700,698.01 0.90
355............. 15 4,682,219.90 1.56
356............. 29 10,316,729.13 3.43
357............. 49 17,429,487.32 5.80
358............. 68 25,592,751.28 8.51
359............. 336 124,304,050.56 41.34
360............. 264 94,538,749.00 31.43
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Year of Origination Loans Balance Balance
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
1998............ 46 $ 18,133,368.70 6.03%
1999............ 777 282,633,260.23 93.97
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
S-36
<PAGE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Property Loans Balance Balance
- -------- --------- --------------- -------------
<S> <C> <C> <C>
Single-family
detached........ 793 $289,534,944.17 96.26%
Two- to four-
family units.... 0 0.00 0.00
Condominiums
High-rise
(greater than
four stories).. 3 1,945,094.68 0.65
Low-rise (four
stories or
less).......... 15 4,903,075.68 1.63
Planned unit
developments.... 6 1,790,332.54 0.60
Townhouses....... 0 0.00 0.00
Cooperative
Units........... 6 2,593,181.86 0.86
--- --------------- ------
Total........ 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
SUBSIDY LOAN PROGRAMS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Program and Term Loans Balance Balance
- ---------------- --------- -------------- -------------
<S> <C> <C> <C>
Fixed (five years
or longer)...... 0 $ 0.00 0.00%
(less than five
years)......... 2 539,084.71 0.18
Graduated (five
years or
longer)......... 37 14,392,199.70 4.79
(less than five
years)......... 73 27,995,672.48 9.31
Combination (five
years or
longer)......... 0 0.00 0.00
(less than five
years)......... 0 0.00 0.00
--- -------------- -----
Total........ 112 $42,926,956.89 14.28%
=== ============== =====
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Geographic Area Loans Balance Balance
- --------------- --------- --------------- -------------
<S> <C> <C> <C>
Alabama......... 4 $ 1,082,573.38 0.36%
Arizona......... 6 2,328,437.86 0.77
California...... 166 64,171,848.74 21.37
Colorado........ 15 4,872,681.31 1.62
Connecticut..... 66 26,319,099.65 8.75
Delaware........ 3 968,581.99 0.32
District of Co-
lumbia......... 1 374,657.13 0.12
Florida......... 19 6,562,307.81 2.18
Georgia......... 37 12,375,995.88 4.11
Illinois........ 43 15,792,594.22 5.25
Indiana......... 12 4,317,383.90 1.44
Iowa............ 1 294,775.52 0.10
Kansas.......... 6 1,744,722.19 0.58
Kentucky........ 1 301,950.00 0.10
Louisiana....... 2 504,557.64 0.17
Maine........... 1 427,170.92 0.14
Maryland........ 19 6,237,094.41 2.07
Massachusetts... 40 14,794,475.96 4.92
Michigan........ 20 6,070,360.52 2.02
Minnesota....... 23 8,168,295.35 2.72
Mississippi..... 1 249,784.75 0.08
Missouri........ 5 1,837,392.78 0.61
Nebraska........ 1 279,797.34 0.09
Nevada.......... 5 1,581,658.93 0.53
New Hampshire... 1 270,189.06 0.09
New Jersey...... 94 36,013,371.67 11.97
New York........ 30 12,608,180.35 4.19
North Carolina.. 24 8,309,504.09 2.76
Ohio............ 12 4,341,764.74 1.44
Oklahoma........ 3 832,115.30 0.28
Oregon.......... 2 582,270.26 0.19
Pennsylvania.... 36 12,454,004.59 4.14
Rhode Island.... 3 982,030.75 0.33
South Carolina.. 3 969,616.13 0.32
South Dakota.... 1 245,057.17 0.08
Tennessee....... 5 1,901,958.41 0.63
Texas........... 49 17,227,442.57 5.73
Utah............ 2 617,094.06 0.21
Vermont......... 1 271,450.00 0.09
Virginia........ 27 10,000,019.20 3.32
Washington...... 25 8,705,046.95 2.89
Wisconsin....... 8 2,777,315.45 0.92
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
S-37
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percentage of
Total
Range of Aggregate Aggregate
Original Loan- Number of Unpaid Unpaid
to- Mortgage Principal Principal
Value Ratios Loans Balance Balance
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
50% or less..... 19 $ 6,607,680.84 2.20%
50.01- 55.00%... 19 8,238,237.68 2.74
55.01- 60.00%... 17 7,071,980.29 2.35
60.01- 65.00%... 36 13,727,483.95 4.56
65.01- 70.00%... 73 28,304,205.53 9.41
70.01- 75.00%... 54 22,197,299.71 7.38
75.01- 80.00%... 356 131,957,307.83 43.87
80.01- 85.00%... 46 17,950,521.98 5.97
85.01- 90.00%... 144 48,094,400.68 15.99
90.01- 95.00%... 59 16,617,510.44 5.53
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
The Loan-to-Value Ratio of a Mortgage Loan is calculated using the lesser of (i)
the appraised value of the related Mortgaged Property, as established by an
appraisal obtained by the originator from an appraiser at the time of
origination and (ii) the sale price for such property. For the purpose of
calculating the Loan-to-Value Ratio of any Mortgage Loan that is the result of
the refinancing (including a refinancing for "equity take out" purposes) of an
existing mortgage loan, the appraised value of the related Mortgaged Property is
generally determined by reference to an appraisal obtained in connection with
the origination of the replacement loan. There can be no assurance that such
appraisal, which is based on the independent judgment of an appraiser and not an
arms-length sales transaction, is an accurate representation of the market value
of a Mortgaged Property. See "The Trust Estates -- Mortgage Loans" in the
Prospectus. No assurance can be given that the values of the Mortgaged
Properties securing the Mortgage Loans have remained or will remain at the
levels used in calculating the Loan-to-Value Ratios shown above. The Seller has
taken no action to establish the current value of any Mortgaged Property. See
"Risk Factors -- Real Estate Market Conditions Affect Mortgage Loan Performance"
and "-- Geographic Concentration May Increase Rate of Loss and Delinquency" in
the Prospectus.
FICO SCORES
<TABLE>
<CAPTION>
Percentage of
Total Weighted
Number Aggregate Aggregate Average
Range of of Unpaid Unpaid Loan-To-
FICO Mortgage Principal Principal Value
Scores Loans Balance Balance Ratio
-------- -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
250-300.......... 0 $ 0.00 0.00% 0.00%
301-350.......... 0 0.00 0.00 0.00
351-400.......... 0 0.00 0.00 0.00
401-450.......... 0 0.00 0.00 0.00
451-500.......... 0 0.00 0.00 0.00
501-550.......... 2 583,454.46 0.19 89.99
551-600.......... 18 7,135,893.17 2.37 82.30
601-650.......... 53 18,738,899.78 6.23 82.93
651-700.......... 130 45,543,011.52 15.14 81.75
701-750.......... 261 94,983,231.12 31.58 78.11
751-800.......... 312 117,577,340.01 39.11 75.06
801-850.......... 20 6,868,786.80 2.28 75.64
851-900.......... 0 0.00 0.00 0.00
Not Available.... 27 9,336,012.07 3.10 78.98
--- --------------- ------ -----
Total/ Weighted
Average........ 823 $300,766,628.93 100.00% 77.86%
=== =============== ====== =====
</TABLE>
"FICO Scores" are statistical credit scores obtained by many mortgage lenders in
connection with the loan application to help assess a borrower's credit-
worthiness. FICO Scores are generated by models developed by a third party and
are made available to lenders through three national credit bureaus. The models
were derived by analyzing data on consumers in order to establish patterns which
are believed to be indicative of the borrower's probability of default. The FICO
Score is based on a borrower's historical credit data, including, among other
things, payment history, delinquencies on accounts, levels of outstanding
indebtedness, length of credit history, types of credit, and bankruptcy
experience. FICO Scores range from approximately 250 to approximately 900, with
higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a FICO Score purports
only to be a measurement of the relative degree of risk a borrower represents to
a lender, i.e., that a borrower with a higher score is statistically expected to
be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Scores were developed to indicate a level
of default probability over a two-year period which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the effect
of mortgage loan characteristics on the probability of repayment by the
borrower. The FICO Scores set forth in the table above were obtained at either
the time of origination of the Mortgage Loan or more recently. Neither the
Seller nor Norwest Mortgage makes any representations or warranties as to the
actual performance of any Mortgage Loan or that a particular FICO Score should
be relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms. See "The Mortgage Loan Programs --Mortgage
Loan Underwriting" in the Prospectus."
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percentage of
Total
Range of Aggregate Aggregate
Original Mortgage Number of Unpaid Unpaid
Loan Principal Mortgage Principal Principal
Balances Loans Balance Balance
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Less than or equal
to $200,000....... 1 $ 126,325.55 0.04%
$200,001-$250,000.. 27 6,680,889.77 2.22
$250,001-$300,000.. 269 74,780,500.33 24.86
$300,001-$350,000.. 189 61,429,818.48 20.42
$350,001-$400,000.. 133 50,049,275.57 16.64
$400,001-$450,000.. 62 26,461,387.74 8.80
$450,001-$500,000.. 54 25,534,648.34 8.49
$500,001-$550,000.. 27 14,174,280.33 4.71
$550,001-$600,000.. 19 11,061,355.98 3.68
$600,001-$650,000.. 23 14,577,338.19 4.85
$650,001-$700,000.. 7 4,679,340.17 1.56
$700,001-$750,000.. 1 750,000.00 0.25
$750,001-$800,000.. 1 764,372.93 0.25
$800,001-$850,000.. 3 2,483,351.92 0.83
$900,001-$950,000.. 2 1,877,362.05 0.62
$950,001-
$1,000,000........ 3 2,937,500.86 0.98
Over $1 Million.... 2 2,398,880.72 0.80
--- --------------- ------
Total........... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
S-38
<PAGE>
ORIGINATORS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Originator Loans Balance Balance
- ---------- --------- --------------- -------------
<S> <C> <C> <C>
NMI or Affili-
ate............ 657 $240,141,420.91 79.84%
Other Origina-
tors........... 166 60,625,208.02 20.16
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
It is expected that as of the Cut-Off Date, two of the "Other Originators"
will have accounted for approximately 8.30% and 5.11% respectively, of the ag-
gregate unpaid principal balance of the Mortgage Loans as of the Cut-Off Date.
No other single "Other Originator" is expected to have accounted for more than
5.00% of the aggregate unpaid principal balance of the Mortgage Loans as of the
Cut-Off Date.
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Loan Purpose Loans Balance Balance
- ------------ --------- --------------- -------------
<S> <C> <C> <C>
Purchase........ 823 $300,766,628.93 100.00%
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Total
Aggregate Aggregate
Number of Unpaid Unpaid
Mortgage Principal Principal
Occupancy Type Loans Balance Balance
- -------------- --------- --------------- -------------
<S> <C> <C> <C>
Primary Resi-
dence.......... 823 $300,766,628.93 100.00%
--- --------------- ------
Total....... 823 $300,766,628.93 100.00%
=== =============== ======
</TABLE>
Mandatory Repurchase or Substitution of Mortgage Loans
The Seller is required, with respect to Mortgage Loans that are found by the
Trust Administrator to have defective documentation, or in respect of which the
Seller has breached a representation or warranty, either to repurchase such
Mortgage Loans or, if within two years of the date of initial issuance of the
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal to
or less than the Scheduled Principal Balance of the Mortgage Loan for which it
is being substituted (after giving effect to the scheduled principal payment
due in the month of substitution on the Mortgage Loan for which a new Mortgage
Loan is being substituted), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. See "Prepayment and Yield Considerations" herein and "The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee" in the
Prospectus.
S-39
<PAGE>
Optional Repurchase of Defaulted Mortgage Loans
The Seller may, in its sole discretion, repurchase from the Trust Estate (i)
any defaulted Mortgage Loan, or any Mortgage Loan as to which default is rea-
sonably foreseeable and (ii) any Mortgage Loan as to which the originator or
seller of such Mortgage Loan has breached a representation or warranty to
Norwest Mortgage regarding the characteristics of such Mortgage Loan, at a
price equal to the unpaid principal balance of such Mortgage Loan, together
with accrued interest at a rate equal to the Mortgage Interest Rate through the
last day of the month in which such repurchase occurs. See "The Pooling and
Servicing Agreement -- Optional Purchases" in the Prospectus. A Servicer may,
in its sole discretion, allow the assumption of a defaulted Mortgage Loan serv-
iced by such Servicer, subject to certain conditions specified in the applica-
ble Underlying Servicing Agreement, or encourage the refinancing of a defaulted
Mortgage Loan. See "Prepayment and Yield Considerations" herein and "Servicing
of the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans" in the Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning recent delinquency and foreclosure experience
as reported to the Master Servicer by the applicable servicers, on mortgage
loans included in various mortgage pools underlying all series of the Seller's
mortgage pass-through certificates is set forth in the tables under "Delin-
quency and Foreclosure Experience" in the Prospectus. There can be no assurance
that the delinquency and foreclosure experience set forth in any table with re-
spect to any category of mortgage loans, including categories of mortgage loans
similar to the Mortgage Loans included in the Trust Estate, will be representa-
tive of the results that may be experienced with respect to the Mortgage Loans
included in the Trust Estate.
See "Delinquency and Foreclosure Experience" in the Prospectus for a discus-
sion of various factors affecting delinquencies and foreclosures generally.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the Principal Balance of any Class
of the Offered Certificates, the aggregate amount of distributions on any Class
of the Offered Certificates and the yield to maturity and weighted average life
of any Class of the Offered Certificates purchased at a discount or premium
will be directly related to the rate of payments of principal on the Mortgage
Loans in the Trust Estate and the amount and timing of mortgagor defaults re-
sulting in Realized Losses. Prepayments (which, as used herein, include all
unscheduled payments of principal, including payments as the result of liquida-
tions, purchases and repurchases) of the Mortgage Loans in the Trust Estate
will result in distributions to Certificateholders then entitled to distribu-
tions in respect of principal of amounts which would otherwise be distributed
over the remaining terms of such Mortgage Loans. Since the rate of prepayment
on the Mortgage Loans will depend on future events and a variety of factors (as
described more fully below and in the Prospectus under "Prepayment and Yield
Considerations"), no assurance can be given as to such rate or the rate of
principal payments or yield on, or weighted average life of, any Class of the
Offered Certificates or the aggregate amount of distributions on any Class of
the Offered Certificates.
The rate of principal payments on the Mortgage Loans will be affected by the
amortization schedules of the Mortgage Loans, the rate of principal prepayments
(including partial prepayments and those resulting from refinancing) thereon by
mortgagors, liquidations of defaulted Mortgage Loans, repurchases by the Seller
of Mortgage Loans as a result of defective documentation or breaches of repre-
sentations and warranties and optional purchases by the Seller of all of the
Mortgage Loans in connection with the termination of the Trust Estate. See "De-
scription of the Mortgage Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans" and "Pooling and Servicing Agreement -- Optional Termination"
herein and "The Pooling and Servicing Agreement --Assignment of Mortgage Loans
to the Trustee," "-- Optional Purchases" and "-- Termination; Optional Purchase
of Mortgage Loans" in the Prospectus. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty. If prevailing
rates for similar mortgage loans fall below the Mortgage Interest Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to decrease. The rate of prepayment on the Mortgage Loans
S-40
<PAGE>
may also be influenced by programs offered by mortgage loan originators (in-
cluding Norwest Mortgage), servicers (including Norwest Mortgage) and mortgage
loan brokers to encourage refinancing through such originators, servicers and
brokers, including, but not limited to, general or targeted solicitations
(which may be based on characteristics including, but not limited to, the mort-
gage loan interest rate or payment history and the geographic location of the
Mortgaged Property), reduced origination fees or closing costs, pre-approved
applications, waiver of pre-closing interest accrued with respect to a refi-
nanced loan prior to the pay-off of such loan, or other financial incentives.
In particular, the application of Norwest Mortgage's "retention program," which
enables qualifying mortgagors to refinance at greatly reduced cost, to its ser-
vicing portfolio may substantially affect the rate of prepayment on the Mort-
gage Loans. See "Prepayment and Yield Considerations --Refinancings" in the
Prospectus. In addition, Norwest Mortgage or third parties may enter into
agreements with borrowers providing for the bi-weekly payment of principal and
interest on the related mortgage loan, thereby accelerating payment of the
mortgage loan resulting in partial prepayments.
The effect of subsidy agreements on the rate of prepayment of Subsidy Loans
is uncertain. The rate of prepayment on Subsidy Loans may be affected by such
factors as the relationship between prevailing mortgage rates and the effective
interest rates on such Subsidy Loans, the remaining term of the subsidy agree-
ments, and requests by the related employers for refinance or modification. The
subsidy agreement relating to a Subsidy Loan generally provides that if pre-
vailing market rates of interest on mortgage loans similar to such Subsidy Loan
decline relative to the Mortgage Interest Rate of such Subsidy Loan by the per-
centage set forth in the subsidy agreement, the employer may request that the
mortgagor refinance such Subsidy Loan. In the event the mortgagor refinances
such Subsidy Loan, the Subsidy Loan will be prepaid, and the new loan will not
be included in the Trust Estate. If the mortgagor fails to refinance such Sub-
sidy Loan, the employer may terminate the related subsidy agreement. In addi-
tion, the termination of the subsidy agreement relating to a Subsidy Loan for
any reason (whether due to the mortgagor's failure to refinance or otherwise)
may increase the financial burden of the mortgagor, who may not have otherwise
qualified for a mortgage under Norwest Mortgage's mortgage loan underwriting
guidelines, and may consequently increase the risk of default with respect to
the related Mortgage Loan. See "The Trust Estate -- Mortgage Loans" and "The
Mortgage Loan Programs -- Mortgage Loan Underwriting" in the Prospectus. From
time to time, the amount of the subsidy payment or the term of the subsidy
agreement may, upon the request of the corporate employer, be modified.
Other factors affecting prepayment of mortgage loans include changes in mort-
gagors' housing needs, job transfers, unemployment or substantial fluctuations
in income, significant declines in real estate values and adverse economic con-
ditions either generally or in particular geographic areas, mortgagors' equity
in the Mortgaged Properties, including the use of the properties as second or
vacation homes, and servicing decisions, such as, without limitation, the deci-
sion as to whether to foreclose on a Mortgage Loan or to modify the terms of
the related Mortgage Note and decisions as to the timing of any foreclosure. In
this regard, mortgagors of Relocation Mortgage Loans are thought by some within
the mortgage industry to be more likely to be transferred by their employers
than mortgagors generally. There can be no assurance as to the likelihood of
future transfers of mortgagors of either Sponsored Relocation Loans or Non-
sponsored Relocation Loans or as to such mortgagors' continued employment with
the same employers by which they were employed when their mortgage loans were
originated. No representation is made as to the rate of prepayment on the Relo-
cation Mortgage Loans. In addition, all of the Mortgage Loans contain due-on-
sale clauses which will generally be exercised upon the sale of the related
Mortgaged Properties. Consequently, acceleration of mortgage payments as a re-
sult of any such sale will affect the level of prepayments on the Mortgage
Loans. The extent to which defaulted Mortgage Loans are assumed by transferees
of the related Mortgaged Properties will also affect the rate of principal pay-
ments. The rate of prepayment and, therefore, the yield to maturity of the Of-
fered Certificates will be affected by the extent to which (i) the Seller
elects to repurchase, rather than substitute for, Mortgage Loans which are
found by the Trust Administrator to have defective documentation or with re-
spect to which the Seller has breached a representation or warranty, (ii) a
Servicer elects to encourage the refinancing of any defaulted Mortgage Loan
rather than to permit an assumption thereof by a mortgagor or (iii) a Servicer
agrees to modify the payment terms of a Mortgage Note rather than foreclose on
the related Mortgage Loan. See "Servicing of the Mortgage Loans -- Enforcement
of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans" in the Pro-
spectus.
As described under "Description of the Certificates -- Principal (Including
Prepayments)" herein, all or a disproportionate percentage of principal prepay-
ments on the Mortgage Loans (including liquidations and repur-
S-41
<PAGE>
chases of Mortgage Loans) will be distributed, to the extent of the Non-PO
Fraction, to the holders of the Class A Certificates (other than the Class A-PO
Certificates) then entitled to distributions in respect of principal during the
nine years beginning on the first Distribution Date, and, to the extent that
such principal prepayments are made in respect of a Discount Mortgage Loan, to
the Class A-PO Certificates in proportion to the interest of the Class A-PO
Certificates in such Discount Mortgage Loan represented by the PO Fraction.
As described herein under "Description of the Certificates -- Principal (In-
cluding Prepayments) -- Allocation of Amount to be Distributed on the Class A
Certificates" unless the Principal Balances of the other Class A Certificates
(other than the Class A-PO Certificates) have been reduced to zero, the Class
A-4 Certificates will not be entitled to any distributions of principal prepay-
ments for five years and during the following five years the percentage of
principal prepayments allocated to the Class A-4 Certificates will gradually
increase.
The yield to maturity of the Offered Certificates will be sensitive in vary-
ing degrees to the rate and timing of principal payments (including prepay-
ments, which may be made at any time without penalty) on the Mortgage Loans.
Investors in the Offered Certificates should consider the associated risks, in-
cluding, in the case of Offered Certificates purchased at a discount, the risk
that a slower than anticipated rate of payments in respect of principal (in-
cluding prepayments) on the Mortgage Loans will have a negative effect on the
yield to maturity of such Certificates and, in the case of Offered Certificates
purchased at a premium, that a faster than anticipated rate of payments in re-
spect of principal (including prepayments) on the Mortgage Loans will have a
negative effect on the yield to maturity of such Certificates. Investors pur-
chasing Offered Certificates at a premium, should also consider the risk that a
rapid rate of payments in respect of principal (including prepayments) on the
Mortgage Loans could result in the failure of such investors to fully recover
their initial investments. An investor is urged to make an investment decision
with respect to any Class of Offered Certificates based on the anticipated
yield to maturity of such Class resulting from its purchase price and such in-
vestor's own determination as to anticipated Mortgage Loan prepayment rates un-
der a variety of scenarios.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
who purchases an Offered Certificate at a price other than par, even if the av-
erage rate of principal payments experienced over time is consistent with such
investor's expectation. In general, the earlier a prepayment of principal on
the underlying Mortgage Loans, the greater the effect on such investor's yield
to maturity. As a result, the effect on such investor's yield of principal pay-
ments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Offered
Certificates would not be fully offset by a subsequent like reduction (or in-
crease) in the rate of principal payments.
The actual yield to maturity experienced by an investor may also be affected
by the occurrence of interest shortfalls resulting from Unscheduled Principal
Receipts to the extent, if any, to which such interest shortfalls are not cov-
ered by Compensating Interest or subordination. See "Description of the Certif-
icates -- Interest" and "Servicing of the Mortgage Loans -- Anticipated Changes
in Servicing."
The yield to maturity on the Offered Certificates may be affected by the geo-
graphic concentration of the Mortgaged Properties securing the Mortgage Loans.
In recent periods, California, the New York metropolitan area, the Washington
D.C. metropolitan area and several other regions in the United States have ex-
perienced significant fluctuations in housing prices. In addition, California
and several other regions have experienced natural disasters, including earth-
quakes, fires, floods and hurricanes, which may adversely affect property val-
ues. See "Description of the Mortgage Loans." Any deterioration in housing
prices in the states in which there is a significant concentration of Mortgaged
Properties, as well as the other states in which the Mortgaged Properties are
located, and any deterioration of economic conditions in such states which ad-
versely affects the ability of borrowers to make payments on the Mortgage
Loans, may increase the likelihood of losses on the Mortgage Loans. Such loss-
es, if they occur, may have an adverse effect on the yield to maturity of the
Offered Certificates.
As to Mortgaged Properties in regions that have recently experienced natural
disasters, neither the Seller nor Norwest Mortgage has undertaken the physical
inspection of such Mortgaged Properties. As a result, there can be no assurance
that material damage to any Mortgaged Property in an affected region has not
occurred. In the Pooling and Servicing Agreement, the Seller will represent and
warrant that, as of the date of issuance of the
S-42
<PAGE>
Certificates, each Mortgaged Property is undamaged by flood, water, fire,
earthquake or earth movement, windstorm, tornado or similar casualty (excluding
casualty from the presence of hazardous wastes or hazardous substances, as to
which the Seller makes no representation) so as to adversely affect the value
of such Mortgaged Property as security for such Mortgage Loan or the use for
which such premises were intended. In the event of a breach of such representa-
tion with respect to a Mortgaged Property which materially and adversely af-
fects the interests of Certificateholders in the related Mortgage Loan, the
Seller will be obligated to repurchase or substitute for such Mortgage Loan, as
described under "The Mortgage Loan Programs -- Representations and Warranties"
and "The Pooling and Servicing Agreement -- Assignment of Mortgage Loans to the
Trustee" in the Prospectus. Repurchase of any such Mortgage Loan will affect in
varying degrees the yields and weighted average lives of the Classes of Offered
Certificates and could adversely affect the yield of any Offered Certificates
purchased at a premium.
No representation is made as to the rate of principal payments on the Mort-
gage Loans or as to the yield to maturity of any Class of Offered Certificates.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of princi-
pal balance of the Offered Certificates, may coincide with periods of low pre-
vailing interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts distributed in
reduction of the principal balance of such investor's Offered Certificate may
be lower than the applicable Pass-Through Rate or expected yield. Conversely,
slower rates of prepayments on the Mortgage Loans, and therefore of amounts
distributable in reduction of principal balance of the Offered Certificates,
may coincide with periods of high prevailing interest rates. During such peri-
ods, the amount of principal distributions available to an investor for rein-
vestment at such high prevailing interest rates may be relatively small.
Due to the special tax treatment of residual interests, the after-tax return
of the Class A-R Certificate may be significantly lower than would be the case
if the Class A-R Certificate were taxed as a debt instrument, or may be nega-
tive. See "Federal Income Tax Considerations" herein.
As referred to herein, the "weighted average life" of a Class of Offered Cer-
tificates refers to the average amount of time that will elapse from the date
of issuance of such Class until each dollar in reduction of the Principal Bal-
ance of such Class is distributed to the investor.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new mort-
gage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such mort-
gage loans in the first month of the life of the mortgage loans and an addi-
tional 0.2% per annum in each month thereafter until the thirtieth month. Be-
ginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA, i.e., no prepayments. SPA does not purport to be a historical de-
scription of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The tables set forth below have been prepared assuming, among other things,
the following (the "Structuring Assumptions"): (i) the Trust Estate consists of
one "Assumed Discount Mortgage Loan" and one "Assumed Premium Mortgage Loan"
(collectively, the "Assumed Mortgage Loans") with the characteristics set forth
below, (ii) the scheduled payment in each month for each Assumed Mortgage Loan
has been based on its outstanding balance as of the first day of the month pre-
ceding the month of such payment, its Mortgage Interest Rate and its remaining
term to stated maturity, so that such scheduled payments would amortize the re-
maining balance over its remaining term to maturity, (iii) scheduled monthly
payments of the principal and interest on the Assumed Mortgage Loans will be
timely received on the first day of each month (with no defaults), commencing
in October 1999, (iv) the Seller does not repurchase any Assumed Mortgage Loan
and the Seller does not exercise its option to purchase the Assumed Mortgage
Loans and thereby cause a termination of the Trust Estate, (v) principal pay-
ments on the Assumed Mortgage Loans representing principal prepayments in full
of individual mortgage loans will be received on the last day of each month
commencing in Septem-
S-43
<PAGE>
ber 1999 at the respective constant percentages of SPA set forth in the tables
and there are no partial principal prepayments or Prepayment Interest
Shortfalls, (vi) the Certificates will be issued on September 29, 1999, (vii)
distributions to Certificateholders will be made on the 25th day of each month,
commencing in October 1999, (viii) the sum of the Servicing Fee Rate and the
Master Servicing Fee Rate for each Assumed Mortgage Loan (the "Expense Rate")
is as set forth below and (ix) the initial Principal Balance of each Class of
Certificates will be as set forth on page S-4 of this Prospectus Supplement.
Assumed Mortgage Loan Characteristics
<TABLE>
<CAPTION>
Principal Remaining Original
Balance as of Mortgage Term to Term to
the Interest Maturity Maturity
Cut-Off-Date Rate Expense Rate (in Months) (in Months)
--------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Assumed Discount
Mortgage Loan.......... $72,738,851.09 6.6569506415% 0.3211426147% 356 360
Assumed Premium Mortgage
Loan................... $228,027,777.84 7.3586184670% 0.2670000000% 359 360
</TABLE>
It is highly unlikely that the Mortgage Loans will prepay at any constant
rate, that all of the Mortgage Loans will prepay at the same rate or that the
Mortgage Loans will not experience any losses. In addition, there will be dif-
ferences between the characteristics of the mortgage loans ultimately included
in the Trust Estate and the characteristics which are assumed in preparing the
tables, as described above. Any difference may have an effect upon the actual
percentages of initial Principal Balances of the Classes of Certificates out-
standing, the actual weighted average lives of the Classes of Certificates and
the date on which the Principal Balance of any Class of Certificates is reduced
to zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates, and set forth the
percentages of the initial Principal Balance of each Class of Offered Certifi-
cates that would be outstanding after each of the dates shown at the constant
percentages of SPA presented.
S-44
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-1 Class A-2
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
------------------------- --------------------------
Distribution Date 0% 150% 300% 450% 600% 0% 150% 300% 450% 600%
- ----------------- ----- ---- ---- ---- ---- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............... 100 100 100 100 100 100 100 100 100 100
September 2000........ 99 95 92 89 85 100 100 100 100 100
September 2001........ 97 86 75 65 55 100 100 100 100 100
September 2002........ 95 74 55 38 23 100 100 100 100 100
September 2003........ 93 63 38 17 1 100 100 100 100 100
September 2004........ 92 53 24 3 0 100 100 100 100 0
September 2005........ 89 44 13 0 0 100 100 100 44 0
September 2006........ 87 36 5 0 0 100 100 100 0 0
September 2007........ 85 29 0 0 0 100 100 90 0 0
September 2008........ 82 23 0 0 0 100 100 52 0 0
September 2009........ 80 18 0 0 0 100 100 23 0 0
September 2010........ 77 13 0 0 0 100 100 0 0 0
September 2011........ 73 8 0 0 0 100 100 0 0 0
September 2012........ 70 4 0 0 0 100 100 0 0 0
September 2013........ 66 * 0 0 0 100 100 0 0 0
September 2014........ 62 0 0 0 0 100 72 0 0 0
September 2015........ 58 0 0 0 0 100 43 0 0 0
September 2016........ 54 0 0 0 0 100 16 0 0 0
September 2017........ 49 0 0 0 0 100 0 0 0 0
September 2018........ 44 0 0 0 0 100 0 0 0 0
September 2019........ 38 0 0 0 0 100 0 0 0 0
September 2020........ 32 0 0 0 0 100 0 0 0 0
September 2021........ 26 0 0 0 0 100 0 0 0 0
September 2022........ 19 0 0 0 0 100 0 0 0 0
September 2023........ 12 0 0 0 0 100 0 0 0 0
September 2024........ 4 0 0 0 0 100 0 0 0 0
September 2025........ 0 0 0 0 0 60 0 0 0 0
September 2026........ 0 0 0 0 0 0 0 0 0 0
September 2027........ 0 0 0 0 0 0 0 0 0 0
September 2028........ 0 0 0 0 0 0 0 0 0 0
September 2029........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (years)(/1/).... 16.36 5.99 3.54 2.64 2.18 26.16 15.82 9.19 5.98 4.53
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
Certificates at the Certificates at the
Following Percentages of Following Percentages of
SPA SPA
--------------------------- ---------------------------
Distribution Date 0% 150% 300% 450% 600% 0% 150% 300% 450% 600%
- ----------------- ----- ----- ----- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............... 100 100 100 100 100 100 100 100 100 100
September 2000........ 107 107 107 107 107 99 99 99 99 99
September 2001........ 114 114 114 114 114 98 98 98 98 98
September 2002........ 121 121 121 121 121 97 97 97 97 97
September 2003........ 130 130 130 130 130 96 96 96 96 96
September 2004........ 138 138 138 138 133 94 94 94 94 94
September 2005........ 148 148 148 148 0 93 90 88 85 81
September 2006........ 157 157 157 138 0 91 85 80 73 46
September 2007........ 168 168 168 71 0 90 79 69 60 26
September 2008........ 179 179 179 40 0 88 72 58 46 15
September 2009........ 191 191 191 29 0 86 64 47 33 10
September 2010........ 204 204 201 20 0 84 57 37 23 6
September 2011........ 218 218 161 15 0 82 51 30 16 4
September 2012........ 232 232 128 10 0 79 45 24 12 2
September 2013........ 248 248 102 7 0 77 39 19 8 1
September 2014........ 264 264 80 5 0 74 35 15 6 1
September 2015........ 282 282 63 4 0 71 30 12 4 1
September 2016........ 301 301 50 3 0 68 26 9 3 *
September 2017........ 321 297 39 2 0 65 23 7 2 *
September 2018........ 343 255 30 1 0 61 20 6 1 *
September 2019........ 366 218 23 1 0 57 17 4 1 *
September 2020........ 390 184 18 1 0 53 14 3 1 *
September 2021........ 416 153 13 * 0 49 12 2 * *
September 2022........ 444 126 10 * 0 44 10 2 * *
September 2023........ 474 101 7 * 0 39 8 1 * *
September 2024........ 506 79 5 * 0 33 6 1 * *
September 2025........ 539 59 3 * 0 27 5 1 * *
September 2026........ 533 41 2 * 0 21 3 * * *
September 2027........ 359 25 1 * 0 14 2 * * *
September 2028........ 172 11 * * 0 7 1 * * *
September 2029........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (years)(/1/).... 28.42 22.49 15.13 8.78 5.46 19.92 13.29 10.50 9.09 7.27
</TABLE>
- ---------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of Principal Balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of Principal Balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
S-45
<PAGE>
Percentage of Initial Principal Balance Outstanding For:
<TABLE>
<CAPTION>
Class A-R
Certificate at the
Following Percentages of
SPA
----------------------------------------------------------------
Distribution Date 0% 150% 300% 450% 600%
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............... 100 100 100 100 100
September 2000........ 0 0 0 0 0
September 2001........ 0 0 0 0 0
September 2002........ 0 0 0 0 0
September 2003........ 0 0 0 0 0
September 2004........ 0 0 0 0 0
September 2005........ 0 0 0 0 0
September 2006........ 0 0 0 0 0
September 2007........ 0 0 0 0 0
September 2008........ 0 0 0 0 0
September 2009........ 0 0 0 0 0
September 2010........ 0 0 0 0 0
September 2011........ 0 0 0 0 0
September 2012........ 0 0 0 0 0
September 2013........ 0 0 0 0 0
September 2014........ 0 0 0 0 0
September 2015........ 0 0 0 0 0
September 2016........ 0 0 0 0 0
September 2017........ 0 0 0 0 0
September 2018........ 0 0 0 0 0
September 2019........ 0 0 0 0 0
September 2020........ 0 0 0 0 0
September 2021........ 0 0 0 0 0
September 2022........ 0 0 0 0 0
September 2023........ 0 0 0 0 0
September 2024........ 0 0 0 0 0
September 2025........ 0 0 0 0 0
September 2026........ 0 0 0 0 0
September 2027........ 0 0 0 0 0
September 2028........ 0 0 0 0 0
September 2029........ 0 0 0 0 0
Weighted Average
Life (years)(/1/).... 0.07 0.07 0.07 0.07 0.07
</TABLE>
- ---------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of net reduction of Principal Balance by the number
of years from the date of the issuance of such Certificate to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the aggregate net reduction of Principal Balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
S-46
<PAGE>
Interest accrued on the Offered Certificates will be reduced by the amount of
any interest portions of Realized Losses allocated to such Certificates as de-
scribed under "Description of the Certificates -- Interest" herein. The yield
to maturity on the Offered Certificates will be less than the yield otherwise
produced by their respective Pass-Through Rates and the prices at which such
Certificates are purchased because the interest which accrues on the Mortgage
Loans during each month will not be passed through to Certificateholders until
the 25th day of the month following the end of such month (or if such 25th day
is not a business day, the following business day).
The Seller intends to file certain additional yield tables and other computa-
tional materials with respect to one or more Classes of Offered Certificates
with the Securities and Exchange Commission in a Report on Form 8-K. See "In-
corporation of Certain Information By Reference" in the Prospectus. Such tables
and materials will have been prepared by the Underwriter at the request of cer-
tain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for in-
vestors other than those specifically requesting them.
S-47
<PAGE>
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to a Pooling and Servicing Agreement
to be dated as of the date of initial issuance of the Certificates (the "Pool-
ing and Servicing Agreement") among the Seller, the Master Servicer, the Trust
Administrator and the Trustee. Reference is made to the Prospectus for impor-
tant additional information regarding the terms and conditions of the Pooling
and Servicing Agreement and the Certificates. See "Description of the Certifi-
cates," "Servicing of the Mortgage Loans" and "The Pooling and Servicing Agree-
ment" in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement will
consist of (i) the Mortgage Loans as described under "Description of the Mort-
gage Loans," (ii) such assets as from time to time are identified as deposited
in any account held for the benefit of the Certificateholders, (iii) any Mort-
gaged Properties acquired on behalf of the Certificateholders by foreclosure or
by deed in lieu of foreclosure after the date of original issuance of the Cer-
tificates and (iv) the rights of the Trust Administrator, on behalf of the
Trustee, to receive the proceeds of all insurance policies and performance
bonds, if any, required to be maintained pursuant to the Pooling and Servicing
Agreement.
Distributions
Distributions (other than the final distribution in retirement of the Offered
Certificates of each Class) will be made by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register. However,
with respect to any holder of an Offered Certificate evidencing at least a
$500,000 initial Principal Balance, distributions will be made on each Distri-
bution Date by wire transfer in immediately available funds. The final distri-
bution in respect of each Class of Offered Certificates will be made only upon
presentation and surrender of the related Certificate at the office or agency
appointed by the Trust Administrator specified in the notice of final distribu-
tion with respect to the related Class. See "Description of the Certificates --
General" in the Prospectus.
DTC will receive distributions on the Book-Entry Certificates from the Trust
Administrator and transmit them to DTC Participants for distribution to Benefi-
cial Owners or their nominees.
Voting
With respect to any provisions of the Pooling and Servicing Agreement provid-
ing for the action, consent or approval of the holders of all Certificates evi-
dencing specified Voting Interests in the Trust Estate, the holders of each
Class of Certificates will be entitled to a pro rata portion of the aggregate
Voting Interest represented by all Certificates based on the outstanding Prin-
cipal Balance of such Class. Each Certificateholder of a Class will have a Vot-
ing Interest equal to the product of the Voting Interest to which such Class is
collectively entitled and the Percentage Interest in such Class represented by
such holder's Certificates. With respect to any provisions of the Pooling and
Servicing Agreement providing for action, consent or approval of each Class of
Certificates or specified Classes of Certificates, each Certificateholder of a
Class will have a Voting Interest in such Class equal to such holder's Percent-
age Interest in such Class. Unless Definitive Certificates are issued as de-
scribed above, Beneficial Owners of Book-Entry Certificates may exercise their
voting rights only through DTC Participants.
Trustee
The Trustee for the Certificates will be United States Trust Company of New
York, a New York state charter bank and trust company. The corporate trust of-
fice of the Trustee is located at 114 West 47th Street, New York, New York
10036. See "The Pooling and Servicing Agreement -- The Trustee" in the Prospec-
tus.
Trust Administrator
First Union National Bank, a national banking association, will act as the
Trust Administrator for the Certificates. The corporate trust office of the
Trust Administrator is located at 230 South Tryon Street, Charlotte, North Car-
olina 28288. The Trust Administrator will perform certain administrative func-
tions on behalf of the Trustee and will act as the initial paying agent, cer-
tificate register and custodian. In addition, the Trust Administrator will be
required to make Periodic Advances to the limited extent described herein with
respect to the Mortgage Loans serviced by Norwest Mortgage if Norwest Mortgage,
as Servicer, fails to make a Periodic
S-48
<PAGE>
Advance required by the related Underlying Servicing Agreement. See "Descrip-
tion of the Certificates -- Periodic Advances" herein.
Master Servicer
Norwest Bank will act as "Master Servicer" of the Mortgage Loans and, in that
capacity, will supervise the servicing of the Mortgage Loans, cause the Mort-
gage Loans to be serviced in the event a Servicer is terminated and a successor
servicer is not appointed, provide certain reports to the Trust Administrator
regarding the Mortgage Loans and the Certificates and make Periodic Advances to
the limited extent described herein. See "Description of the Certificates --
Periodic Advances" herein. Under the Pooling and Servicing Agreement, any good
faith interpretation of the Master Servicer of any provisions of the Pooling
and Servicing Agreement relating to the distributions to be made on or the al-
location of any losses to the Certificates which the Master Servicer concludes
are ambiguous or unclear will be binding on Certificateholders. The Master
Servicer will be entitled to a "Master Servicing Fee" payable monthly equal to
the product of (i) 1/12th of 0.017% (the "Master Servicing Fee Rate") and (ii)
the aggregate Scheduled Principal Balances of the Mortgage Loans as of the
first day of each month. The Master Servicer will pay all administrative ex-
penses to the Trust Estate subject to reimbursement as described under "Master
Servicer" in the Prospectus.
Special Servicing Agreements
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of a Class of
Class B Certificates or of a class of securities representing interests in one
or more Classes of Class B Certificates and/or other subordinated mortgage
pass-through certificates. Pursuant to such an agreement, such holder may in-
struct the Master Servicer to instruct the Servicers, to the extent provided in
the applicable Underlying Servicing Agreement to commence or delay foreclosure
proceedings with respect to delinquent Mortgage Loans. Such commencement or de-
lay at such holder's direction will be taken by the Master Servicer only after
such holder deposits a specified amount of cash with the Master Servicer. Such
cash will be available for distribution to Certificateholders if Liquidation
Proceeds are less than they otherwise may have been had the Servicers acted
pursuant to their normal servicing procedures.
Optional Termination
The Seller may purchase from the Trust Estate all of the Mortgage Loans, and
thereby effect early retirement of the Certificates, on any Distribution Date
when the aggregate Scheduled Principal Balance of the Mortgage Loans is less
than 10% of the aggregate unpaid principal balance of the Mortgage Loans as of
the Cut-Off Date. Any such purchase is required to be made only in connection
with a "qualified liquidation" of the REMIC within the meaning of Section
860F(a)(4)(A) of the Code. The purchase price will generally be equal to the
unpaid principal balance of each Mortgage Loan plus the fair market value of
other property (including any Mortgaged Property title to which has been ac-
quired by the Trust Estate ("REO Property")) in the Trust Estate plus accrued
interest. In the event the Trust Estate is liquidated as described above, hold-
ers of the Certificates, to the extent funds are available, will receive the
unpaid principal balance of their Certificates and any accrued and unpaid in-
terest thereon. The amount, if any, remaining in the Certificate Account after
the payment of all principal and interest on the Certificates and expenses of
the REMIC will be distributed to the holder of the Class A-R Certificate. See
"Description of the Certificates -- Additional Rights of the Class A-R
Certificateholder" herein and "The Pooling and Servicing Agreement -- Termina-
tion; Optional Purchase of Mortgage Loans" in the Prospectus. The exercise of
the foregoing option will be in the Seller's sole discretion. Without limita-
tion, the Seller may enter into agreements with third parties to (i) exercise
such option at the direction of such third party or (ii) forbear from the exer-
cise of such option.
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage and the other servicers listed below (the "Other Servicers,"
and collectively with Norwest Mortgage, the "Servicers") will service the Mort-
gage Loans, each pursuant to a separate Underlying Servicing Agreement. The
rights to enforce the related Servicer's obligations under each Underlying Ser-
vicing Agreement with respect to the related Mortgage Loans will be assigned to
the Trust Administrator, on behalf of the Trustee for the benefit of
Certificateholders. Among other things, the Servicers are obligated under cer-
tain circumstances to advance delinquent payments of principal and interest
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans" in
the Prospectus.
S-49
<PAGE>
The Servicers
The Mortgage Loans initially will be serviced by the following entities:
<TABLE>
<CAPTION>
Approximate Percentage of
Aggregate Unpaid Principal Balance
Name of Servicer as of the Cut-Off Date Serviced
---------------- ----------------------------------
<S> <C>
Norwest Mortgage, Inc. ................... 83.14%
First Union Mortgage Corporation.......... 8.30%
Citicorp Mortgage, Inc. .................. 5.11%
Firstar Bank, NA.......................... 2.12%
The Huntington Mortgage Company........... 1.33%
------
Total..................................... 100.00%
======
</TABLE>
Servicer Custodial Accounts
Each Servicer is required to establish and maintain a custodial account for
principal and interest (each such account, a "Servicer Custodial Account"),
into which it will deposit all collections of principal (including principal
prepayments and Liquidation Proceeds in respect of principal, if any) and in-
terest (net of Servicing Fees) on any Mortgage Loan that such Servicer servic-
es, related insurance proceeds, advances made from the Servicer's own funds and
the proceeds of any purchase of a related Mortgage Loan for breach of a repre-
sentation or warranty or the sale of a Mortgaged Property in connection with
liquidation of the related Mortgage Loan. All Servicer Custodial Accounts are
required to be held in a depository institution and invested in the manner
specified in the related Underlying Servicing Agreement. Funds in such accounts
generally must be held separate and apart from the assets of the Servicer and
generally may not be commingled with funds held by a Servicer with respect to
mortgage loans other than the Mortgage Loans. The Underlying Servicing Agree-
ment relating to Norwest Mortgage, however, provides that Norwest Mortgage may
commingle funds in its Servicer Custodial Account with its general assets until
such time as such funds are required to be remitted to the Certificate Account
for so long as (i) a master guarantee of such remittance obligation has been
issued by its parent, Wells Fargo & Company ("Wells Fargo") for the benefit of
the Certificateholders and is currently in force and (ii) the short-term debt
or long-term debt of Wells Fargo is rated by the Rating Agencies in their high-
est short-term or highest long-term category or in such lower rating category
that would not result in a downgrading or withdrawal of the rating then as-
signed to any Class of Certificates by the Rating Agencies or result in any
rated Certificate being placed on credit review status by the Rating Agencies.
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account amounts on deposit in the Servicer Custodial Account as
of the close of business on the business day preceding the Remittance Date as
described in the Prospectus under "Servicing of the Mortgage Loans -- Payments
on Mortgage Loans".
Unscheduled Principal Receipts
The Pooling and Servicing Agreement specifies, as to each type of Unscheduled
Principal Receipt, a period (as to each type of Unscheduled Principal Receipt,
the "Unscheduled Principal Receipt Period") during which all Unscheduled Prin-
cipal Receipts of such type received by the Servicers will be distributed to
Certificateholders on the related Distribution Date. Each Unscheduled Principal
Receipt Period will either be (i) the one month period ending on the last day
of the calendar month preceding the month in which the applicable Remittance
Date occurs (such period a "Prior Month Receipt Period") or (ii) the one month
period ending on the day preceding the Determination Date preceding the appli-
cable Remittance Date (such period a "Mid-Month Receipt Period").
With respect to the Mortgage Loans serviced by Norwest Mortgage, the
Unscheduled Principal Receipt Period with respect to all types of Unscheduled
Principal Receipts is a Mid-Month Receipt Period. With respect to the Mortgage
Loans serviced by certain Other Servicers, the Unscheduled Principal Receipt
Period with respect to all types of Unscheduled Principal Receipts is a Prior
Month Receipt Period. For certain Other Servicers, the Unscheduled Principal
Receipt Period with respect to partial Unscheduled Principal Receipts is a
Prior Month Receipt Period and with respect to Unscheduled Principal Receipts
in full is a Mid-Month Receipt Period.
S-50
<PAGE>
Anticipated Changes in Servicing
Changes in Timing of Remittances of Unscheduled Principal Receipts in Full
and Elimination of Month End Interest. The Pooling and Servicing Agreement will
provide that the Master Servicer may (but is not required), from time to time
and without the consent of any Certificateholder, the Trust Administrator or
the Trustee, require Norwest Mortgage as Servicer under the related Underlying
Servicing Agreement to, or enter into an amendment to any applicable Underlying
Servicing Agreement to require any Other Servicer to, remit Unscheduled Princi-
pal Receipts in full to the Master Servicer for deposit into the Certificate
Account daily on a specified business day following receipt thereof (to the ex-
tent such Other Servicer is not currently remitting such amount on a daily ba-
sis) which will generally result in a deposit earlier than on the following Re-
mittance Date. In conjunction with any such change, the applicable Servicer may
be relieved of its obligations to remit Month End Interest and certain other
conforming changes may be made. Such changes would have an effect on the amount
of Compensating Interest as described herein under the heading "Description of
the Certificates -- Interest." Further, the Pooling and Servicing Agreement
will provide that the Master Servicer may (but is not required to), without the
consent of any Certificateholder, the Trust Administrator or the Trustee, re-
quire Norwest Mortgage or any successor thereto under the applicable Underlying
Servicing Agreement to make remittances to the Certificate Account (other than
any remittances which are required to be made daily) on the 18th day of each
month, or if such 18th day is not a business day, on the preceding business
day. No assurance can be given as to the timing of any such changes or that any
such changes will occur.
Changes in Unscheduled Principal Receipt Period. The Pooling and Servicing
Agreement will provide that the Master Servicer may (but is not required to),
from time to time and without the consent of any Certificateholder, the Trust
Administrator or the Trustee, (a) direct Norwest Mortgage, as Servicer under
the related Underlying Servicing Agreement, to change the Unscheduled Principal
Receipt Period applicable to any type of Unscheduled Principal Receipt within
the parameters described in (i) below or (b) with respect to any Other
Servicer, enter into an amendment to any applicable Underlying Servicing Agree-
ment for the purpose of changing the Unscheduled Principal Receipt Period ap-
plicable to any type of Unscheduled Principal Receipt within the parameters de-
scribed in (ii) below and making any necessary conforming changes incident
thereto. In connection therewith, (i) the Unscheduled Principal Receipt Period
for the Mortgage Loans serviced by Norwest Mortgage may be changed to achieve
an Unscheduled Principal Receipt Period regime (the "Target Regime") under
which the Unscheduled Principal Receipt Period with respect to partial
Unscheduled Principal Receipts would be a Prior Month Receipt Period and the
Unscheduled Principal Receipt Period with respect to Unscheduled Principal Re-
ceipts in full would be a Mid-Month Receipt Period and (ii) the Unscheduled
Principal Receipt Period for the Mortgage Loans serviced by Other Servicers
which do not currently conform to the Target Regime may be changed to the Tar-
get Regime.
Because Unscheduled Principal Receipts will result in interest shortfalls to
the extent that they are not distributed to Certificateholders in the month in
which they are received by the applicable Servicer, changing the applicable
Unscheduled Principal Receipt Period from a Mid-Month Receipt Period to a Prior
Month Receipt Period may have the effect of increasing the amount of interest
shortfalls with respect to the applicable type of Unscheduled Principal Re-
ceipt. Conversely, changing the applicable Unscheduled Principal Receipt Period
from a Prior Month Receipt Period to a Mid-Month Receipt Period may decrease
the amount of interest shortfalls with respect to the applicable type of
Unscheduled Principal Receipt. See "Description of the Certificates -- Inter-
est." No assurance can be given as to the timing of any change to any
Unscheduled Principal Receipt Period or that any such changes will occur.
Fixed Retained Yield; Servicing Compensation and Payment of Expenses
A fixed percentage of the interest on each Mortgage Loan (the "Fixed Retained
Yield") with a per annum Mortgage Interest Rate greater than (i) the sum of (a)
6.500%, (b) the applicable Servicing Fee Rate and (c) the Master Servicing Fee
Rate, which will be determined on a loan by loan basis and will equal the Mort-
gage Interest Rate on each Mortgage Loan minus the rate described in clause
(i), will not be included in the Trust Estate. There will be no Fixed Retained
Yield on any Mortgage Loan with a Mortgage Interest Rate equal to or less than
the rate described in clause (i). See "Servicing of the Mortgage Loans -- Fixed
Retained Yield, Servicing Compensation and Payment of Expenses" in the Prospec-
tus for further information regarding Fixed Retained Yield.
S-51
<PAGE>
The primary compensation payable to each of the Servicers is the aggregate of
the Servicing Fees applicable to the related Mortgage Loans. The Servicing Fee
applicable to each Mortgage Loan is expressed as a fixed percentage (the "Ser-
vicing Fee Rate") of the scheduled principal balance (as defined in the Under-
lying Servicing Agreement) of such Mortgage Loan as of the first day of each
month. The Servicing Fee Rate for each Mortgage Loan is 0.25% per annum or,
with respect to 28 of the Mortgage Loans, representing approximately 3.98% of
the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off
Date, the weighted average of the Servicing Fee Rates is approximately 0.58%.
The Servicers also are entitled to additional servicing compensation as de-
scribed in the Prospectus under "Servicing of the Mortgage Loans -- Fixed Re-
tained Yield, Servicing Compensation and Payment of Expenses."
The Master Servicer will pay all routine expenses, including fees of the
Trustee and the Trust Administrator incurred in connection with their responsi-
bilities under the Pooling and Servicing Agreement, subject to certain rights
of reimbursement as described in the Prospectus. The servicing fees and other
expenses of the REMIC will be allocated to the holder of the Class A-R Certifi-
cate. See "Federal Income Tax Considerations" herein and "Certain Federal In-
come Tax Consequences -- Federal Income Tax Consequences for REMIC Certifi-
cates -- Limitations on Deduction of Certain Expenses" in the Prospectus.
Servicer Defaults
The Trustee will have the right pursuant to the Underlying Servicing Agree-
ments to terminate a Servicer in certain events, including the breach by such
Servicer of any of its material obligations under its Underlying Servicing
Agreement. In the event of such termination, (i) the Trustee may enter into a
substitute Underlying Servicing Agreement with the Master Servicer or, at the
Master Servicer's nomination, another servicing institution acceptable to the
Trustee and each Rating Agency; and (ii) the Master Servicer shall assume cer-
tain of the Servicer's servicing obligations under such Underlying Servicing
Agreement, including the obligation to make Periodic Advances (limited as pro-
vided herein under the heading "Description of the Certificates -- Periodic Ad-
vances"), until such time as a successor servicer is appointed. See "Servicing
of the Mortgage Loans -- Fixed Retained Yield, Servicing Compensation and Pay-
ment of Expenses" in the Prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the pur-
chase, ownership and disposition of the Offered Certificates.
An election will be made to treat the Trust Estate, and the Trust Estate will
qualify, as a REMIC for federal income tax purposes. Each Class of Offered Cer-
tificates (other than the Class A-R Certificate) (collectively, the "Regular
Certificates"), together with each Class of Certificates not offered hereby,
will be designated as the regular interests in the REMIC, and the Class A-R
Certificate will be designated as the residual interest in the REMIC. The Class
A-R Certificate is a "Residual Certificate" for purposes of the Prospectus. The
assets of the REMIC will include the Mortgage Loans (exclusive of Fixed Re-
tained Yield), together with the amounts held by the Master Servicer in a sepa-
rate account in which collections on the Mortgage Loans will be deposited (the
"Certificate Account"), the hazard insurance policies and primary mortgage in-
surance policies, if any, relating to the Mortgage Loans and any property that
secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of
foreclosure.
The Offered Certificates will be treated as "loans . . . secured by an inter-
est in real property which is . . . residential real property" for a domestic
building and loan association, "real estate assets" for a real estate invest-
ment trust and, other than the Class A-R Certificate, "qualified mortgages" for
a REMIC and "permitted assets" for a financial asset securitization investment
trust, to the extent described in the Prospectus.
Regular Certificates
The Regular Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or, in the case
of Definitive Certificates, holders) of the Regular Certificates will be re-
quired to report income on such Certificates in accordance with the accrual
method of accounting.
The Class A-3 Certificates will be issued with original issue discount in an
amount equal to all payments of principal and interest (whether current or ac-
crued) thereon over their issue price (including accrued interest). It is also
anticipated that the Class A-1, Class A-2 and Class A-4 Certificates will be
issued with original issue discount
S-52
<PAGE>
in an amount equal to the excess of their initial principal balances (plus four
days of interest at the Pass-Through Rates thereon) over their respective issue
prices (including accrued interest). It is further anticipated that the Class
A-PO, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Cer-
tificates, which are not offered hereby, will be issued with original issue
discount for federal income tax purposes.
The Prepayment Assumption (as defined in the Prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount and whether the original issue discount is considered de minimis, and
that may be used by Beneficial Owners (or holders) to amortize premium, will be
calculated using 300% of SPA. No representation is made as to the actual rate
at which the Mortgage Loans will prepay.
Residual Certificate
The holder of the Class A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class A-R Cer-
tificate will remain outstanding for federal income tax purposes until there
are no Certificates of any other Class outstanding. Prospective investors are
cautioned that the Class A-R Certificateholder's REMIC taxable income and the
tax liability thereon may exceed, and may substantially exceed, cash distribu-
tions to such holder during certain periods, in which event, the holder thereof
must have sufficient alternative sources of funds to pay such tax liability.
Furthermore, it is anticipated that all or a substantial portion of the taxable
income of the REMIC includible by the holder of the Class A-R Certificate will
be treated as "excess inclusion" income, resulting in (i) the inability of such
holder to use net operating losses to offset such income from the REMIC, (ii)
the treatment of such income as "unrelated business taxable income" to certain
holders who are otherwise tax-exempt, and (iii) the treatment of such income as
subject to 30% withholding tax to certain non-U.S. investors with no exemption
or treaty reduction.
The Class A-R Certificate will be considered a "noneconomic residual inter-
est," with the result that transfers thereof would be disregarded for federal
income tax purposes if any significant purpose of the transferor was to impede
the assessment or collection of tax. Accordingly, the Class A-R Certificate is
subject to certain restrictions on transfer, and any prospective transferee
thereof will be required to furnish to the Trust Administrator an affidavit as
described herein under "Description of the Certificates -- Restrictions on
Transfer of the Class A-R Certificate." See "Certain Federal Income Tax Conse-
quences -- Federal Income Tax Consequences for REMIC Certificates -- Taxation
of Residual Certificates -- Limitations on Offset or Exemption of REMIC Income"
and "-- Tax Related Restrictions on Transfer of Residual Certificates --
Noneconomic Residual Interests" in the Prospectus.
An individual, trust or estate that holds the Class A-R Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses of the REMIC in computing such holder's
regular tax liability, and may not be able to deduct such fees or expenses to
any extent in computing such holder's alternative minimum tax liability. In ad-
dition, some portion of a purchaser's basis, if any, in the Class A-R Certifi-
cate may not be recovered until termination of the REMIC. Furthermore, the fed-
eral income tax consequences of any consideration paid to a transferee on a
transfer of the Class A-R Certificate are unclear. The preamble to the REMIC
Regulations indicates that the Internal Revenue Service anticipates providing
guidance with respect to the federal tax treatment of such consideration. Any
transferee receiving consideration with respect to the Class A-R Certificate
should consult its tax advisors.
Due to the special tax treatment of residual interests, the effective after-
tax return of the Class A-R Certificate may be significantly lower than would
be the case if the Class A-R Certificate were taxed as a debt instrument, or
may be negative.
See "Certain Federal Income Tax Consequences" in the Prospectus.
S-53
<PAGE>
ERISA CONSIDERATIONS
The Class A-R Certificate may not be purchased by or transferred to a Plan or
a person acting on behalf of or investing the assets of a Plan. See "Descrip-
tion of the Certificates -- Restrictions on Transfer of the Class A-R Certifi-
cate."
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class A-R Certificate) offered hereby and does not purport to
discuss the considerations under ERISA, Code Section 4975 or Similar Law with
respect to the purchase, acquisition or resale of the Class A-R Certificate.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plans. Comparable duties and restrictions may
exist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by a
Plan in the Class A Certificates may constitute a prohibited transaction under
ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the "DOL") that may be applicable to an in-
vestment by an ERISA Plan in the Class A Certificates, including the individual
administrative exemption described below. For a further discussion of the indi-
vidual administrative exemption and PTE 83-1, including the necessary condi-
tions to their applicability, and other important factors to be considered by
an ERISA Plan contemplating investing in the Class A Certificates, see "ERISA
Considerations" in the Prospectus.
On September 6, 1990, the DOL issued to Greenwich Capital Markets, Inc. an
individual administrative exemption, Prohibited Transaction Exemption 90-59, 55
Fed. Reg. 36724 (the "Exemption"), from certain of the prohibited transaction
rules of ERISA with respect to the initial purchase, the holding and the subse-
quent resale by an ERISA Plan of certificates in pass-through trusts that meet
the conditions and requirements of the Exemption. The Exemption might apply to
the acquisition, holding and resale of the Class A Certificates by an ERISA
Plan, provided that specified conditions are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Class A Certificates is the
condition that the ERISA Plan investing in the Class A Certificates be an "ac-
credited investor" as defined in Rule 501(a)(1) of Regulation D of the Securi-
ties and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act").
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief pro-
vided in the Exemption or the availability of any other prohibited transaction
exemptions, and whether the conditions of any such exemption will be applicable
to the Class A Certificates, and a fiduciary of a governmental plan should make
its own determination as to the need for and availability of any exemptive re-
lief under Similar Law. Any fiduciary of an ERISA Plan considering whether to
purchase a Class A Certificate should also carefully review with its own legal
advisors the applicability of the fiduciary duty provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code to such investment. See
"ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Class A Certificates constitute "mortgage related securities" for pur-
poses of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") so long as they are rated in one of the two highest rating categories
by at least one nationally recognized statistical rating organization.
Prospective purchasers whose investment activities are subject to legal in-
vestment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the Of-
fered Certificates and should consult their own legal, tax and accounting advi-
sors in determining the suitability of and consequences to them of the pur-
chase, ownership and disposition of the Offered Certificates. See "Legal In-
vestment" in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the issu-
ance thereof. The Underwriter intends to act as a market maker in the Offered
Certificates subject to applicable provisions of federal and state
S-54
<PAGE>
securities laws and other regulatory requirements, but is under no obligation
to do so. There can be no assurance that a secondary market in the Offered Cer-
tificates will develop or, if such a market does develop, that it will provide
holders of Offered Certificates with liquidity of investment at any particular
time or for the life of the Offered Certificates. As a source of information
concerning the Certificates and the Mortgage Loans, prospective investors in
Certificates may obtain copies of the Monthly Reports to Certificateholders de-
scribed under "The Pooling and Servicing Agreement -- Reports to
Certificateholders" in the Prospectus upon written request to the Trust Admin-
istrator at the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated July
17, 1996 and the terms agreement dated September 1, 1999 (together, the "Under-
writing Agreement") among Norwest Mortgage, the Seller and Greenwich Capital
Markets, Inc., as underwriter (the "Underwriter"), the Offered Certificates are
being purchased from the Seller by the Underwriter upon issuance thereof. The
Underwriter is committed to purchase all of the Offered Certificates if any Of-
fered Certificates are purchased. The Underwriter has advised the Seller that
it proposes to offer the Offered Certificates, from time to time, for sale in
negotiated transactions or otherwise at prices determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates are expected
to be approximately 94.13% of the aggregate initial Principal Balance of the
Class A Certificates offered hereby, plus accrued interest thereon at the rate
of 6.500% per annum, from September 1, 1999 to (but not including) September
29, 1999, before deducting expenses payable by the Seller estimated to be
$340,000. The Underwriter is not an affiliate of the Seller. The Underwriter
has advised the Seller that it has not allocated the purchase price paid to the
Seller for the Classes of Class A Certificates being offered among such Clas-
ses. The Underwriter and any dealers that participate with the Underwriter in
the distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Offered Certificates by them may be deemed to be underwriting discounts or
commissions under the Securities Act.
The Underwriting Agreement provides that the Seller or Norwest Mortgage will
indemnify the Underwriter against certain civil liabilities under the Securi-
ties Act or contribute to payments which the Underwriter may be required to
make in respect thereof.
This Prospectus Supplement and the Prospectus may be used by Norwest Invest-
ment Services. Inc., an affiliate of the Seller, the Master Servicer and
Norwest Mortgage, to the extent required, in connection with market making
transactions in the Offered Certificates. Norwest Investment Services, Inc. may
act as principal or agent in such transactions.
RECENT DEVELOPMENTS
The Seller, the Master Servicer and Norwest Mortgage are subsidiaries of
Wells Fargo & Company (the former Norwest Corporation), a diversified financial
services company registered under the Bank Holding Company Act of 1956, whose
headquarters are located in San Francisco, California. On November 2, 1998,
Norwest Corporation changed its name to "Wells Fargo & Company" following the
merger of the former Wells Fargo & Company into one of Norwest Corporation's
wholly-owned subsidiaries. It is anticipated that the names of the Seller, the
Master Servicer and Norwest Mortgage will be changed during 2000 in connection
with the merger.
The Seller believes that the merger will not have a material effect on the
ability of the Seller, the Master Servicer or Norwest Mortgage to perform their
respective obligations under the Pooling and Servicing Agreement or Norwest
Mortgage's Underlying Servicing Agreement.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with respect
thereto will be passed upon for the Seller by Cadwalader, Wickersham & Taft,
New York, New York. Certain legal matters will be passed upon for the Under-
writer by Brown & Wood LLP, New York, New York.
S-55
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Certificates.
RATINGS
It is a condition to the issuance of the Class A Certificates offered hereby
that each such Class will have been rated "AAA" by S&P and DCR. A security rat-
ing is not a recommendation to buy, sell or hold securities and may be subject
to revision or withdrawal at any time by the assigning rating agency. Each se-
curity rating should be evaluated independently of any other security rating.
The ratings assigned by DCR to mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
they are entitled under the transaction structure. DCR's ratings reflect its
analysis of the riskiness of the mortgage loans and its analysis of the struc-
ture of the transactions as set forth in the operative documents. DCR's ratings
do not address the effect on the certificates' yield attributable to prepay-
ments or recoveries on the underlying mortgage loans. In addition, the rating
of the Class A-R Certificate does not address the likelihood of return to an
investor in the Class A-R Certificate, except to the extent of the Principal
Balance thereof and interest thereon.
The ratings of S&P on mortgage pass-through certificates address the likeli-
hood of the receipt by certificateholders of timely payments of interest and
the ultimate return of principal. S&P ratings take into consideration the
credit quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with the certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make payments
required under the certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the mort-
gage loans. S&P's rating does not address the possibility that investors may
suffer a lower than anticipated yield as a result of prepayments of the under-
lying mortgages. In addition, it should be noted that in some structures a de-
fault on a mortgage is treated as a prepayment and may have the same effect on
yield as a prepayment.
The Seller has not requested a rating on the Offered Certificates of any
Class by any rating agency other than S&P and DCR, although data with respect
to the Mortgage Loans may have been provided to other rating agencies solely
for their informational purposes. There can be no assurance that any rating as-
signed by any other agency to the Offered Certificates will be as high as those
assigned by S&P and DCR.
S-56
<PAGE>
INDEX OF
PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Accretion Termination Date........... S-22
Adjusted Pool Amount................. S-20
Adjusted Pool Amount (PO Portion).... S-20
Adjustment Amount.................... S-30
Aggregate Non-PO Principal Balance... S-20
Aggregate Principal Balance.......... S-20
Assumed Discount Mortgage Loans...... S-43
Assumed Mortgage Loans............... S-43
Assumed Premium Mortgage Loans....... S-43
Available Master Servicing
Compensation........................ S-20
Bankruptcy Loss...................... S-24
Bankruptcy Loss Amount............... S-31
Beneficial Owner..................... S-16
Book-Entry Certificates.............. S-16
Bulk Purchase Underwritten Loans..... S-33
Cede................................. S-16
Certificate Account.................. S-52
Certificateholder.................... S-16
Certificates......................... S-5
Class A Certificates................. S-5
Class A Non-PO Optimal Principal
Amount.............................. S-22
Class A Non-PO Principal Amount...... S-22
Class A Non-PO Principal Balance..... S-19
Class A Non-PO Principal Distribution
Amount.............................. S-22
Class A Percentage................... S-25
Class A Prepayment Percentage........ S-25
Class A Principal Balance............ S-19
Class A-3 Accrual Distribution
Amount.............................. S-22
Class A-PO Deferred Amount........... S-23
Class A-PO Distribution Amount....... S-22
Class A-PO Optimal Principal Amount.. S-22
Class B Certificates................. S-5
Class B Optimal Principal Amount..... S-22
Class B Percentage................... S-25
Class B Prepayment Percentage........ S-25
Class B Principal Balance............ S-20
Class Percentage..................... S-23
Class Prepayment Percentage.......... S-23
Closing Date......................... S-5
Code................................. S-11
Compensating Interest................ S-20
Co-op Shares......................... S-32
Cooperatives......................... S-32
Cross-Over Date...................... S-29
Current Fractional Interest.......... S-26
Curtailment Interest Shortfalls...... S-21
Cut-Off Date......................... S-34
DCR.................................. S-5
Debt Service Reduction............... S-24
Deficient Valuation.................. S-24
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Definitive Certificates............ S-16
Determination Date................. S-16
Discount Mortgage Loan............. S-24
Distribution Date.................. S-16
DOL................................ S-54
DTC................................ S-16
ERISA.............................. S-11
ERISA Plan......................... S-29
Excess Bankruptcy Losses........... S-30
Excess Fraud Losses................ S-30
Excess Losses...................... S-30
Excess Special Hazard Losses....... S-30
Exemption.......................... S-54
Expense Rate....................... S-44
FICO Scores........................ S-38
Fixed Retained Yield............... S-51
Fraud Loss......................... S-24
Fraud Loss Amount.................. S-31
holder............................. S-16
Industry........................... S-14
Interest Accrual Amount............ S-19
Interest Shortfall Amount.......... S-22
Liquidated Loan.................... S-24
Liquidated Loan Loss............... S-24
Master Servicer.................... S-49
Master Servicing Fee............... S-49
Master Servicing Fee Rate.......... S-49
Mid-Month Receipt Period........... S-50
Month End Interest................. S-20
Mortgage Loans..................... S-32
Mortgaged Properties............... S-32
Mortgages.......................... S-32
Net Mortgage Interest Rate......... S-20
Net Partial Liquidation Proceeds... S-18
Non-PO Fraction.................... S-24
Non-Sponsored Relocation Loans..... S-32
Non-Supported Interest Shortfalls.. S-21
Norwest Bank....................... S-5
Norwest Mortgage................... S-5
Offered Certificates............... S-5
OID................................ S-10
Original Subordinated Principal
Balance........................... S-25
Original Fractional Interest....... S-26
Other Servicers.................... S-49
Partial Liquidation Proceeds....... S-18
Pass-Through Rate.................. S-19
Percentage Interest................ S-18
Periodic Advance................... S-28
Plan............................... S-29
PO Fraction........................ S-24
</TABLE>
S-57
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Pool Balance (Non-PO Portion)........ S-24
Pool Balance (PO Portion)............ S-25
Pool Distribution Amount............. S-16
Pool Distribution Amount Allocation.. S-18
Pooling and Servicing Agreement...... S-48
Premium Mortgage Loan................ S-24
Prepayments in Full.................. S-20
Prepayment Shift Percentage.......... S-27
Prepayment Interest Shortfalls....... S-20
Principal Balance.................... S-19
Priority Amount...................... S-26
Prior Month Receipt Period........... S-50
Priority Percentage.................. S-27
Prospectus........................... S-5
Rating Agencies...................... S-5
Realized Loss........................ S-24
Record Date.......................... S-16
Regular Certificates................. S-52
Relocation Mortgage Loan............. S-32
REMIC................................ S-10
Remittance Date...................... S-17
REO Property......................... S-49
Residual Certificate................. S-52
S&P.................................. S-5
Scheduled Principal Amount........... S-27
Scheduled Principal Balance.......... S-24
Securities Act....................... S-54
Seller............................... S-5
Servicers............................ S-49
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Servicer Custodial Account...... S-50
Servicing Fee Rate.............. S-52
Similar Law..................... S-29
SMMEA........................... S-54
SPA............................. S-43
Special Hazard Loss............. S-24
Special Hazard Loss Amount...... S-30
Sponsored Relocation Loans...... S-32
Structuring Assumptions......... S-43
Subordinated Certificates....... S-5
Subordinated Percentage......... S-25
Subordinated Prepayment
Percentage..................... S-25
Subsidy Account................. S-33
Subsidy Loan.................... S-32
Systems......................... S-13
Target Regime................... S-51
Trust........................... S-5
Trust Administrator............. S-5
Trustee......................... S-5
U.S. Person..................... S-28
Underlying Servicing Agreement.. S-5
Underwriter..................... S-55
Underwriting Agreement.......... S-55
Underwriting Standards.......... S-33
Unscheduled Principal Amount.... S-27
Unscheduled Principal Receipt
Period......................... S-50
Unscheduled Principal Receipts.. S-17
weighted average life........... S-43
Wells Fargo..................... S-50
</TABLE>
S-58
<PAGE>
PROSPECTUS
Norwest Asset Securities Corporation
(NASCOR(R))
Seller
Mortgage Pass-Through Certificates
(Issuable in Series by separate Trusts)
---------------
You should Each Trust--
carefully
consider the . will issue a series of mortgage pass-through
risk factors certificates, which will consist of one or more
beginning on classes of certificates; and
page 9 of this
prospectus. . will own--
Neither the . a pool or pools of fixed or adjustable interest
certificates of rate, conventional mortgage loans which are
any series nor secured by a first lien on a one- to four-family
the related residential property; and
underlying
mortgage loans . other assets described in this prospectus and
will be insured the accompanying prospectus supplement.
or guaranteed by
any governmental Each Pool of Mortgage Loans--
agency or
instrumentality. . will be sold to the related Trust by NASCOR(R), who
will have in turn purchased them from Norwest
The certificates Mortgage, Inc., one of its affiliates;
of each series
will represent . will be underwritten to Norwest Mortgage, Inc.'s
interests in the standards or such other standards as described in
related trust this prospectus and the accompanying prospectus
only and will supplement; and
not represent
interests in or . will be serviced by Norwest Mortgage, Inc.
obligations of individually or together with other servicers.
NASCOR(R) or any
NASCOR(R) Each Series of Certificates--
affiliate.
. will represent interests in the related Trust;
This prospectus
may be used to . may provide credit support for certain classes by
offer and sell "subordinating" certain classes to other classes of
any series of certificates; any subordinated classes will be
certificates entitled to payment subject to the payment of more
only if senior classes and may bear losses before more
accompanied by senior classes;
the prospectus
supplement for . may be entitled to one or more of the other types of
that series. credit support described in this prospectus; and
. will be paid only from the assets of the related
Trust.
Neither the SEC nor any state securities commission has approved the
certificates or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
---------------
The date of this Prospectus is August 18, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information is provided to you about the Certificates in two separate
documents that progressively provide more detail: (a) this Prospectus, which
provides general information, some of which may not apply to a particular Series
of Certificates, including your Series, and (b) the accompanying Prospectus
Supplement, which will describe the specific terms of your Series of
Certificates, including:
.the principal balances and/or interest rates of each Class and/or Subclass;
.the timing and priority of interest and principal payments;
.statistical and other information about the Mortgage Loans;
.information about credit
enhancement, if any, for each Class or Subclass;
.the ratings for each Class
or Subclass; and
.the method for selling the Certificates.
If the terms of a particular Series of Certificates vary between this
Prospectus and the Prospectus Supplement, you should rely on the information in
the Prospectus Supplement.
You should rely only on the information provided in this Prospectus and the
accompanying Prospectus Supplement including the information incorporated by
reference. No one has been authorized to provide you with different information.
The Certificates are not being offered in any state where the offer is not
permitted. The Seller does not claim the accuracy of the information in this
Prospectus or the accompanying Prospectus Supplement as of any date other than
the dates stated on their respective covers.
Cross-references are included in this Prospectus and in the accompanying
Prospectus Supplement 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 Supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus are defined under the caption "Index of Significant Definitions"
beginning on page 95 in this Prospectus.
The Seller's principal executive office is located at 7485 New Horizon Way,
Frederick, Maryland 21703, and the Seller's telephone number is (301) 846- 8881.
--------------
2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Notice About Information Presented in This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
Summary of Prospectus.................................................... 5
Risk Factors............................................................. 9
Limited Liquidity for Certificates..................................... 9
Limited Assets for Payment of Certificates............................. 9
Credit Enhancement is Limited in Amount and Coverage................... 9
Real Estate Market Conditions Affect Mortgage Loan Performance......... 10
Geographic Concentration May Increase Rates of Loss and Delinquency.... 10
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives
and Yields on Certificates............................................ 10
Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay................................................................. 11
Cash Flow Agreements are Subject to Counterparty Risk ................. 11
Consumer Protection Laws May Limit Remedies............................ 11
The Trust Estates........................................................ 12
General................................................................ 12
Mortgage Loans......................................................... 12
Cash Flow Agreements................................................... 15
The Seller............................................................... 16
Norwest Mortgage......................................................... 16
Norwest Bank............................................................. 17
The Mortgage Loan Programs............................................... 17
Mortgage Loan Production Sources....................................... 17
Acquisition of Mortgage Loans from Correspondents...................... 18
Mortgage Loan Underwriting............................................. 18
Norwest Mortgage Underwriting........................................ 18
Pool Certification Underwriting...................................... 22
Representations and Warranties......................................... 23
Description of the Certificates.......................................... 24
General................................................................ 24
Definitive Form........................................................ 24
Book-Entry Form........................................................ 25
Distributions to Certificateholders.................................... 26
General.............................................................. 26
Distributions of Interest............................................ 28
Distributions of Principal........................................... 28
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Categories of Classes of Certificates................................... 30
Other Credit Enhancement................................................ 32
Limited Guarantee..................................................... 32
Financial Guaranty Insurance Policy or Surety Bond.................... 32
Letter of Credit...................................................... 32
Pool Insurance Policies............................................... 33
Special Hazard Insurance Policies..................................... 33
Mortgagor Bankruptcy Bond............................................. 33
Reserve Fund.......................................................... 33
Cross Support......................................................... 33
Prepayment and Yield Considerations....................................... 33
Pass-Through Rates...................................................... 33
Scheduled Delays in Distributions....................................... 34
Effect of Principal Prepayments......................................... 34
Weighted Average Life of Certificates................................... 34
Refinancings............................................................ 35
Delinquency and Foreclosure Experience.................................... 36
Servicing of the Mortgage Loans........................................... 40
The Master Servicer..................................................... 40
The Servicers........................................................... 40
Payments on Mortgage Loans.............................................. 41
Periodic Advances and Limitations Thereon............................... 44
Collection and Other Servicing Procedures............................... 44
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans.................................................................. 45
Insurance Policies...................................................... 46
Fixed Retained Yield, Servicing Compensation and Payment of Expenses.... 47
Evidence as to Compliance............................................... 48
Certain Matters Regarding the Master Servicer............................. 49
The Pooling and Servicing Agreement....................................... 50
Assignment of Mortgage Loans to the Trustee............................. 50
Optional Purchases...................................................... 51
Reports to Certificateholders........................................... 51
List of Certificateholders.............................................. 52
Events of Default....................................................... 52
Rights Upon Event of Default............................................ 53
Amendment............................................................... 53
Termination; Optional Purchase of Mortgage Loans........................ 54
The Trustee............................................................. 54
Certain Legal Aspects of the Mortgage Loans............................... 55
General................................................................. 55
Foreclosure............................................................. 55
Foreclosure on Shares of Cooperatives................................... 56
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Rights of Redemption.................................................... 57
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations
on Lenders............................................................. 57
Homeowners Protection Act of 1998....................................... 59
Texas Home Equity Loans................................................. 59
Soldiers' and Sailors' Civil Relief Act and Similar Laws................ 60
Environmental Considerations............................................ 60
"Due-on-Sale" Clauses................................................... 62
Applicability of Usury Laws............................................. 63
Enforceability of Certain Provisions.................................... 63
Certain Federal Income Tax Consequences................................... 63
Federal Income Tax Consequences for REMIC Certificates................... 64
General................................................................. 64
Status of REMIC Certificates............................................ 64
Qualification as a REMIC................................................ 65
Taxation of Regular Certificates........................................ 66
General............................................................... 66
Original Issue Discount............................................... 66
Acquisition Premium................................................... 68
Variable Rate Regular Certificates.................................... 68
Market Discount....................................................... 69
Premium............................................................... 70
Election to Treat All Interest Under the Constant Yield Method........ 70
Treatment of Losses................................................... 71
Sale or Exchange of Regular Certificates.............................. 71
Taxation of Residual Certificates....................................... 72
Taxation of REMIC Income.............................................. 72
Basis and Losses...................................................... 73
Treatment of Certain Items of REMIC Income and Expense................ 73
Limitations on Offset or Exemption of REMIC Income.................... 74
Tax-Related Restrictions on Transfer of Residual Certificates......... 75
Sale or Exchange of a Residual Certificate............................ 77
Mark to Market Regulations............................................ 77
Taxes That May Be Imposed on the REMIC Pool............................. 77
Prohibited Transactions............................................... 77
Contributions to the REMIC Pool After the Startup Day................. 78
Net Income from Foreclosure Property.................................. 78
Liquidation of the REMIC Pool........................................... 78
Administrative Matters.................................................. 78
Limitations on Deduction of Certain Expenses............................ 79
Taxation of Certain Foreign Investors................................... 79
Regular Certificates.................................................. 79
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Residual Certificates................................................. 80
Backup Withholding...................................................... 80
Reporting Requirements.................................................. 80
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made........................................................ 81
General................................................................. 81
Tax Status.............................................................. 81
Premium and Discount.................................................... 82
Premium............................................................... 82
Original Issue Discount............................................... 82
Market Discount....................................................... 82
Recharacterization of Servicing Fees.................................... 83
Sale or Exchange of Certificates........................................ 83
Stripped Certificates................................................... 83
General............................................................... 83
Status of Stripped Certificates....................................... 84
Taxation of Stripped Certificates..................................... 85
Reporting Requirements and Backup Withholding........................... 86
Taxation of Certain Foreign Investors................................... 86
ERISA Considerations...................................................... 87
General................................................................. 87
Certain Requirements Under ERISA........................................ 87
General............................................................... 87
Parties in Interest/Disqualified Persons.............................. 87
Delegation of Fiduciary Duty.......................................... 87
Administrative Exemptions............................................... 88
Individual Administrative Exemptions.................................. 88
PTE 83-1.............................................................. 89
Exempt Plans............................................................ 90
Unrelated Business Taxable Income--Residual Certificates................ 90
Legal Investment.......................................................... 90
Plan of Distribution...................................................... 91
Use of Proceeds........................................................... 92
Legal Matters............................................................. 92
Rating.................................................................... 93
Reports to Certificateholders............................................. 93
Where You Can Find More Information....................................... 93
Registration Statement and Other Materials Filed With the SEC........... 93
Detailed Information Relating to the Mortgage Loans of a Series......... 94
Incorporation of Certain Information by Reference......................... 94
Index of Significant Definitions.......................................... 95
</TABLE>
4
<PAGE>
SUMMARY OF PROSPECTUS
. This summary highlights selected information from this document, but does not
contain all of the information that you should consider in making your
investment decision. To understand all of the terms of a Series of
Certificates, please read this entire document and the accompanying Prospectus
Supplement carefully.
. This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding of the terms of the Certificates
and is qualified by the full description of these calculations, cash flows and
other information in this Prospectus and the accompanying Prospectus
Supplement.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
Issuer
Each series (each, a "Series") of certificates (the "Certificates") will be
issued by a separate trust (a "Trust" or, together with all assets owned by such
Trust, a "Trust Estate"). Each Trust Estate will be formed pursuant to a pooling
and servicing agreement (each, a "Pooling and Servicing Agreement") among the
Seller, the Master Servicer and the Trustee specified in the applicable
Prospectus Supplement.
Seller
With respect to each Trust Estate, Norwest Asset Securities Corporation (the
"Seller") will acquire the Mortgage Loans from Norwest Mortgage, Inc. ("Norwest
Mortgage") and will transfer the Mortgage Loans to the Trust. The Seller is a
direct, wholly-owned subsidiary of Norwest Mortgage. Norwest Mortgage is an
indirect, wholly-owned subsidiary of Wells Fargo & Company. See "Recent
Developments" in the applicable Prospectus Supplement.
Master Servicer
Norwest Bank Minnesota, National Association ("Norwest Bank" and, in such
capacity, the "Master Servicer") will supervise the Servicers and perform
certain other administrative and reporting duties with respect to each Series of
Certificates. In addition, the Master Servicer will generally be required to
make Periodic Advances with respect to the Mortgage Loans in each Trust Estate
to the extent that the related Servicer (other than Norwest Mortgage) fails to
make a required Periodic Advance.
Norwest Bank is a direct, wholly-owned subsidiary of Wells Fargo & Company and
an affiliate of the Seller.
Servicers
Norwest Mortgage and, if specified in the applicable Prospectus Supplement, one
or more other entities (each, a "Servicer") will service the Mortgage Loans in
each Trust. Each Servicer will perform certain servicing functions with respect
to the Mortgage Loans serviced by it pursuant to a related Servicing Agreement
(each, an "Underlying Servicing Agreement").
THE MORTGAGE LOANS
Each Trust will own the related Mortgage Loans (other than the Fixed Retained
Yield described in this Prospectus, if any) and certain other related property,
as specified in the applicable Prospectus Supplement.
The Mortgage Loans in each Trust Estate:
. will be conventional, fixed or adjustable interest rate, mortgage loans
secured by first liens on one- to four-family residential properties;
. will have been acquired by the Seller from Norwest Mortgage;
. will have been originated by Norwest Mortgage or an affiliate or will have
been acquired by Norwest Mortgage directly or indirectly from other mortgage
loan originators; and
. will have been underwritten either to Norwest Mortgage's standards or, to the
extent specified in the applicable Prospectus Supplement, to the standards of
a Pool Insurer or to other standards.
See "The Trust Estates" and "The Mortgage Loan Programs--Mortgage Loan Under-
writing."
You should refer to the applicable Prospectus Supplement for the precise
characteristics or expected characteristics of the Mortgage Loans and a
description of the other property, if any, included in a particular Trust
Estate.
DISTRIBUTIONS ON THE CERTIFICATES
Each Series of Certificates will include one or more classes (each, a "Class"),
any of which may be divided into one or
5
<PAGE>
more subclasses (each, a "Subclass"). A Class or Subclass of Certificates will
be entitled, to the extent of funds available, to one of the following:
. principal and interest payments in respect of the related Mortgage Loans;
. principal distributions, with no interest distributions;
. interest distributions, with no principal distributions; or
. such other distributions as are described in the applicable Prospectus
Supplement.
Interest Distributions
With respect to each Series of Certificates, interest on the related Mortgage
Loans at the weighted average of their Mortgage Interest Rates (net of servicing
fees and certain other amounts as described in this Prospectus or in the
applicable Prospectus Supplement), will be passed through to holders of the
related Classes of Certificates in accordance with the particular terms of each
such Class of Certificates. The terms of each Class of Certificates will be
described in the related Prospectus Supplement. See "Description of the
Certificates--Distributions to Certificateholders--Distributions of Interest".
Except as otherwise specified in the applicable Prospectus Supplement, interest
on each Class and Subclass of Certificates of each Series will accrue at the
pass-through rate for each Class and Subclass indicated in the applicable
Prospectus Supplement (each, a "Pass-Through Rate") on their outstanding
principal balance or notional amount.
Principal Distributions
With respect to a Series of Certificates, principal payments (including
prepayments) on the related Mortgage Loans will be passed through to holders of
the related Certificates or otherwise applied in accordance with the related
Pooling and Servicing Agreement on each Distribution Date. Distributions in
reduction of principal balance will be allocated among the Classes and
Subclasses of Certificates of a Series in the manner specified in the applicable
Prospectus Supplement. See "Description of the Certificates--Distributions to
Certificateholders--Distributions of Principal."
Distribution Dates
Distributions on the Certificates will generally be made on the 25th day (or, if
such day is not a business day, the business day following the 25th day) of each
month, commencing with the month following the month in which the applicable
Cut-Off Date occurs (each, a "Distribution Date"). The "Cut-Off Date" for each
Series will be the date specified in the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, distributions on
Certificates may be made on a different day of each month or may be made
quarterly, or semi-annually, on the dates specified in such Prospectus
Supplement.
Record Dates
Distributions will be made on each Distribution Date to Certificateholders of
record at the close of business on (unless a different date is specified in the
applicable Prospectus Supplement) the last business day of the month preceding
the month in which such Distribution Date occurs (each, a "Record Date").
CREDIT ENHANCEMENT
Subordination
A Series of Certificates may include one or more Classes of senior certificates
(the "Senior Certificates") and one or more Classes of subordinated certificates
(the "Subordinated Certificates"). The rights of the holders of Subordinated
Certificates of a Series to receive distributions will be subordinated to such
rights of the holders of the Senior Certificates of the same Series to the
extent and in the manner specified in the applicable Prospectus Supplement.
Subordination is intended to enhance the likelihood of the timely receipt by the
Senior Certificateholders of their proportionate share of scheduled monthly
principal and interest payments on the related Mortgage Loans and to protect
them from losses. This protection will be effected by:
. the preferential right of the Senior Certificateholders to receive, prior to
any distribution being made in respect of the related Subordinated
Certificates on each Distribution Date, current distributions on the related
Mortgage Loans of principal and interest due them on each Distribution Date
out of the funds available for distributions on such date;
. the right of such holders to receive future distributions on the Mortgage
Loans that would otherwise have been payable to the holders of Subordinated
Certificates; and/or
. the prior allocation to the Subordinated Certificates of all or a portion of
losses realized on the underlying Mortgage Loans.
Other Types of Credit Enhancement
If so specified in the applicable Prospectus Supplement, the Certificates of
any Series, or any one or more Classes of a
6
<PAGE>
Series, may be entitled to the benefits of other types of credit enhancement,
including but not limited to:
.limited .mortgage pool
guarantee insurance
.financial policy
guaranty .reserve fund
insurance .cross-support
policy
.surety bond
.letter of
credit
Any credit support will be described in the applicable Prospectus Supplement.
See "Description of the Certificates--Other Credit Enhancement."
PERIODIC ADVANCES ON DELINQUENT PAYMENTS
In the event that a payment on a Mortgage Loan is delinquent, the Servicer of
the Mortgage Loan will be obligated, to the extent specified in the Underlying
Servicing Agreement, to make cash advances ("Periodic Advances") to the Servicer
Custodial Account if the Servicer determines that it will be able to recover
such amounts from future payments and collections on such Mortgage Loan. A
Servicer who makes Periodic Advances will be reimbursed for such Periodic
Advances as described in this Prospectus and in the applicable Prospectus
Supplement. In certain circumstances, the Master Servicer or Trustee will be
required to make Periodic Advances upon a Servicer default.
In addition, the Master Servicer may be required to make Periodic Advances if
the Underlying Servicing Agreement does not require the Servicer to make
Periodic Advances while a Mortgage Loan is in the process of being liquidated.
See "Servicing of the Mortgage Loans--Periodic Advances and Limitations There-
on."
FORMS OF CERTIFICATES
The Certificates will be issued either:
. in book-entry form ("Book-Entry Certificates") through the facilities of The
Depository Trust Company ("DTC"); or
. in fully registered, certificated form ("Definitive Certificates").
If you own Book-Entry Certificates, you will not receive a physical certificate
representing your ownership interest in such Book-Entry Certificates, except
under extraordinary circumstances which are discussed in "Description of the
Certificates--Definitive Form" in this Prospectus. Instead, DTC will effect
payments and transfers by means of its electronic recordkeeping services, acting
through certain participating organizations. This may result in certain delays
in your receipt of distributions and may restrict your ability to pledge your
securities. Your rights with respect to Book-Entry Certificates may generally
only be exercised through DTC and its participating organizations.
See "Description of the Certificates--Book-Entry Form."
OPTIONAL PURCHASE OF CERTAIN MORTGAGE LOANS
The Seller may, to the extent specified in the related Prospectus Supplement and
subject to the terms of the applicable Pooling and Servicing Agreement, purchase
from the related Trust:
. any defaulted Mortgage Loan or any Mortgage Loan as to which default is
reasonably foreseeable; and
. any Mortgage Loan as to which the originator of such Mortgage Loan breached
a representation or warranty to Norwest Mortgage regarding the
characteristics of such Mortgage Loan.
See "Pooling and Servicing Agreement--Optional Purchases."
OPTIONAL PURCHASE OF ALL MORTGAGE LOANS
If so specified in the Prospectus Supplement with respect to a Series, all, but
not less than all, of the Mortgage Loans in the related Trust and any property
acquired with respect to such Mortgage Loans may be purchased by the Seller,
Norwest Mortgage or such other party as is specified in the applicable
Prospectus Supplement. Any such purchase must be made in the manner and at the
price specified in such Prospectus Supplement.
In the event that an election is made to treat the related Trust Estate (or one
or more segregated pools of assets in the Trust Estate) as a "real estate
mortgage investment conduit" (a "REMIC"), any such purchase will be effected
only pursuant to a "qualified liquidation," as defined under Section
860F(a)(4)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
Exercise of the right of purchase will effect the early retirement of the
Certificates of that Series.
See "Prepayment and Yield Considerations."
7
<PAGE>
ERISA LIMITATIONS
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility or prohibited transaction provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), you should carefully review
with your own legal advisors whether the purchase or holding of Certificates
could give rise to a transaction prohibited or otherwise impermissible under
ERISA or the Code.
See "ERISA Considerations."
TAX STATUS
The treatment of the Certificates for federal income tax purposes will depend
on:
. whether a REMIC election is made with respect to a Series of Certificates;
and
. if a REMIC election is made, whether the Certificates are Regular Interests
or Residual Interests.
See "Certain Federal Income Tax Consequences."
LEGAL INVESTMENT
The applicable Prospectus Supplement will specify whether the Class or Classes
of Certificates offered will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
If your investment authority is subject to legal restrictions you should consult
your own legal advisors to determine whether and to what extent such
Certificates constitute legal investments for you.
See "Legal Investment" in this Prospectus and in the applicable Prospectus
Supplement.
RATING
Certificates of any Series will not be offered pursuant to this Prospectus and a
Prospectus Supplement unless each Offered Class or Subclass is rated in one of
the four highest rating categories by at least one nationally recognized
statistical rating organization (a "Rating Agency").
. A security rating is not a recommendation to buy, sell or hold the
Certificates of any Series and is subject to revision or withdrawal at any
time by the assigning rating agency.
. Ratings do not address the effect of prepayments on the yield you may antic-
ipate when you purchase your Certificates.
8
<PAGE>
RISK FACTORS
You should consider, among other things, the following factors in connection
with the purchase of Certificates.
Limited Liquidity for Certificates
The liquidity of your Certificates may be limited. You should consider that:
. a secondary market for the Certificates of any Series may not develop, or
if it does, it may not provide you with liquidity of investment, or it
may not continue for the life of the Certificates of any Series;
. the Prospectus Supplement for any Series of Certificates may indicate
that an underwriter intends to establish a secondary market in such
Certificates, but no underwriter will be obligated to do so; and
. unless specified in the applicable Prospectus Supplement, the
Certificates will not be listed on any securities exchange.
In addition to these considerations, the secondary market for mortgage-backed
securities has experienced periods of illiquidity and may do so in the future.
Illiquidity means that there may not be any purchasers for your Class of
Certificates. Although any Class of Certificates may experience illiquidity, it
is more likely that Classes of Certificates that are more sensitive to
prepayment, credit or interest rate risk will experience illiquidity.
Limited Assets for Payment of Certificates
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement:
. Mortgage Loans included in the related Trust Estate will be the sole
source of payments on the Certificates of a Series;
. the Certificates of any Series will not represent an interest in or
obligation of the Seller, Norwest Mortgage, Norwest Bank, the Trustee or any
of their affiliates, except for the Seller's limited obligations with
respect to certain breaches of its representations and warranties, Norwest
Mortgage's obligations as Servicer and Norwest Bank's obligations as Master
Servicer; and
. neither the Certificates of any Series nor the related Mortgage Loans will
be guaranteed or insured by any governmental agency or instrumentality, the
Seller, Norwest Mortgage, Norwest Bank, the Trustee, any of their affiliates
or any other person.
Consequently, in the event that payments on the Mortgage Loans underlying your
Series of Certificates are insufficient or otherwise unavailable to make all
payments required on your Certificates, there will be no recourse to the Seller,
Norwest Mortgage, Norwest Bank, the Trustee or, except as specified in the
applicable Prospectus Supplement, any other entity.
Credit Enhancement is Limited in Amount and Coverage
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the forms
referred to in this Prospectus, including, but not limited to: subordination of
other Classes of Certificates of the same Series; a limited guarantee; a
financial guaranty insurance policy; a surety bond; a letter of credit; a pool
insurance policy; a special hazard insurance policy; a mortgagor bankruptcy
bond; a reserve fund; cross-support; and any combination of the preceding types
of credit enhancement. See "Description of the Certificates--Other Credit
Enhancement".
Regardless of the form of credit enhancement provided:
. 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;
. may provide only very limited coverage as to certain types of losses, and
may provide no coverage as to certain other types of losses; and
. all or a portion of the credit enhancement for any Series of Certificates
will generally be permitted to be reduced, terminated or substituted for, in
the sole discretion of the Master Servicer, if each applicable Rating Agency
indicates that the then-current ratings will not be adversely affected.
In the event losses exceed the amount of coverage provided by any credit
enhancement or losses of a type not covered by any credit enhancement occur,
such losses will be borne by the holders of the related Certificates (or certain
Classes).
9
<PAGE>
The rating of any Series of Certificates by any applicable Rating Agency may
be lowered following the initial issuance thereof as a result of the downgrading
of the obligations of any applicable credit support provider, or as a result of
losses on the related Mortgage Loans in excess of the levels contemplated by
such Rating Agency at the time of its initial rating analysis.
Neither the Seller, Norwest Mortgage, Norwest Bank, nor any of their
affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any Class of
Certificates.
See "Description of the Certificates--Other Credit Enhancement."
Real Estate Market Conditions Affect Mortgage Loan Performance
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected by a
decline in real estate values and changes in the mortgagor's financial
condition. There is no assurance that the values of the Mortgaged Properties
securing the Mortgage Loans underlying any Series of Certificates have remained
or will remain at their levels on the dates of origination of the related
Mortgage Loans.
If the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans
contained in a particular Trust Estate and any secondary financing on the
Mortgaged Properties, become equal to or greater than the value of the Mortgaged
Properties, delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry and those experienced
in Norwest Mortgage's or other Servicers' servicing portfolios.
To the extent that losses on Mortgage Loans underlying a Series are not
covered by credit enhancement, Certificateholders of the Series will bear all
risk of loss resulting from default by mortgagors and will have to look
primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
"The Trusts Estates--Mortgage Loans" and "The Mortgage Loan Programs--Mortgage
Loan Underwriting."
Geographic Concentration May Increase Rates of Loss and Delinquency
In addition to risk factors related to the residential real estate market
generally, certain geographic regions of the United States from time to time
will experience weaker regional economic conditions and housing markets or be
directly or indirectly affected by natural disasters or civil disturbances such
as earthquakes, hurricanes, floods, eruptions or riots. Mortgage loans in such
areas will experience higher rates of loss and delinquency than on mortgage
loans generally. Although Mortgaged Properties located in certain identified
flood zones will be required to be covered, to the maximum extent available, by
flood insurance, as described under "Servicing of the Mortgage Loans--Insurance
Policies," no Mortgaged Properties will otherwise be required to be insured
against earthquake damage or any other loss not covered by Standard Hazard
Insurance Policies, as described under "Servicing of the Mortgage Loans--
Insurance Policies."
The ability of mortgagors to make payments on the Mortgage Loans may also be
affected by factors which do not necessarily affect property values, such as
adverse economic conditions generally, in particular geographic areas or
industries, or affecting particular segments of the borrowing community (such as
mortgagors relying on commission income and self-employed mortgagors). Such
occurrences may accordingly affect the actual rates of delinquencies,
foreclosures and losses with respect to any Trust Estate.
The Mortgage Loans underlying certain Series of Certificates may be
concentrated in certain regions. Such concentration may present risk
considerations in addition to those generally present for similar mortgage-
backed securities without such concentration. See "The Mortgage Loan Programs--
Mortgage Loan Underwriting" and "Prepayment and Yield Considerations--Weighted
Average Life of Certificates."
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and
Yields on Certificates
The yield of the Certificates of each Series will depend in part on the rate
of principal payment on the Mortgage Loans (including prepayments, liquidations
due to defaults and mortgage loan repurchases). Such yield may be adversely
affected, depending upon whether a particular Certificate is purchased at a
premium or a discount, by a higher or lower than anticipated rate of prepayments
on the related Mortgage Loans. In particular:
. the yield on Classes of Certificates entitling their holders primarily or
exclusively to payments of interest or primarily or exclusively to
payments of principal will be extremely sensitive to the rate of
prepayments on the related Mortgage Loans; and
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. the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayment of specified Mortgage Loans than
other Classes of Certificates.
The rate of prepayments on Mortgage loans is influenced by a number of
factors, including:
. prevailing mortgage market interest rates;
. local and national economic conditions;
. homeowner mobility; and
. the ability of the borrower to obtain refinancing.
In addition, your yield may be adversely affected by interest shortfalls which
may result from the timing of the receipt of prepayments or liquidations to the
extent that such interest shortfalls are not covered by aggregate Servicing Fees
or other mechanisms specified in the applicable Prospectus Supplement. Your
yield will be also adversely affected to the extent that losses on the Mortgage
Loans in the related Trust Estate are allocated to your Certificates and may be
adversely affected to the extent of unadvanced delinquencies on the Mortgage
Loans in the related Trust. Classes of Certificates identified in the applicable
Prospectus Supplement as Subordinated Certificates are more likely to be
affected by delinquencies and losses than other Classes of Certificates.
See "Prepayment and Yield Considerations."
Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay
Since transactions in the Classes and Subclasses of Book-Entry Certificates of
any Series generally can be effected only through DTC, DTC Participants and
Indirect DTC Participants:
. your ability to pledge Book-Entry Certificates to someone who does not
participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate;
. you may experience delays in your receipt of payments on Book-Entry
Certificates because distributions will be made by the Master Servicer,
or a Paying Agent on behalf of the Master Servicer, to Cede, as nominee
for DTC; and
. the liquidity of Book-Entry Certificates in any secondary trading market
that may develop may be limited because investors may be unwilling to
purchase securities for which they cannot obtain delivery of physical
certificates.
See "Description of the Certificates--Book-Entry Form."
Cash Flow Agreements are Subject to Counterparty Risk
The assets of a Trust Estate may, if specified in the related Prospectus
Supplement, include agreements, such as interest rate swap, cap, floor or
similar agreements (each a "Cash Flow Agreement"), which will require the
provider of such instrument (the "Counterparty") to make payments to the Trust
Estate under the circumstances described in the Prospectus Supplement. To the
extent that payments on the Certificates of the related Series depend in part on
payments to be received under a Cash Flow Agreement, the ability of the Trust
Estate to make payments on the Certificates will be subject to the credit risk
of the Counterparty. The Prospectus Supplement for a Series of Certificates will
describe any mechanism, such as the payment of "breakage fees," which may exist
to facilitate replacement of a Cash Flow Agreement upon the default or credit
impairment of the related Counterparty. However, there can be no assurance that
any such mechanism will result in the ability of the Master Servicer to obtain a
replacement Cash Flow Agreement.
Consumer Protection Laws May Limit Remedies
There are various federal and state laws, public policies and principles of
equity that protect consumers. Among other things, these laws, policies and
principles:
. regulate interest rates and other charges;
. require certain disclosures;
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. require licensing of mortgage loan originators;
. prohibit discriminatory lending practices;
. regulate the use of consumer credit information; and
. regulate debt collection practices.
Violation of certain provisions of these laws, policies and principles:
. may limit a Servicer's ability to collect all or part of the principal of
or interest on the Mortgage Loans;
. may entitle the borrower to a refund of amounts previously paid; and
. could subject a Servicer to damages and administrative sanctions.
In addition, certain of the Mortgage Loans secured by Mortgaged Properties
located in Texas may be subject to the provisions of Texas consumer protection
laws which regulate loans other than purchase money loans. See "Certain Legal
Aspect of the Mortgage Loans -- Texas Home Equity Loans."
See "Certain Legal Aspect of the Mortgage Loans."
THE TRUST ESTATES
General
The Trust Estate for each Series of Certificates will consist primarily of
fixed or adjustable interest rate, conventional first mortgage loans ("Mortgage
Loans") evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages, deeds of trust or other instruments creating first liens (the
"Mortgages") on some or all of the following six types of property (as so
secured, the "Mortgaged Properties"), to the extent set forth in the applicable
Prospectus Supplement: (i) one- to four-family detached residences, (ii)
townhouses, (iii) condominium units, (iv) units within planned unit
developments, (v) long-term leases with respect to any of the foregoing, and
(vi) shares issued by private non-profit housing corporations ("cooperatives")
and the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specified units in such cooperatives' buildings. In addition, a
Trust Estate will also include (i) amounts held from time to time in the related
Certificate Account, (ii) the Seller's interest in any primary mortgage
insurance, hazard insurance, title insurance or other insurance policies
relating to a Mortgage Loan, (iii) any property which initially secured a
Mortgage Loan and which has been acquired by foreclosure or trustee's sale or
deed in lieu of foreclosure or trustee's sale, (iv) if applicable, and to the
extent set forth in the applicable Prospectus Supplement, any reserve fund or
funds, (v) if applicable, and to the extent set forth in the applicable
Prospectus Supplement, contractual obligations of any person to make payments in
respect of any form of credit enhancement or any interest subsidy agreement and
(vi) such other assets as may be specified in the applicable Prospectus
Supplement. The Trust Estate will not include the portion of interest on the
Mortgage Loans which constitutes the Fixed Retained Yield, if any. See
"Servicing of the Mortgage Loans--Fixed Retained Yield, Servicing Compensation
and Payment of Expenses."
Mortgage Loans
The Mortgage Loans will have been acquired by the Seller from its affiliate,
Norwest Mortgage. The Mortgage Loans will have been originated by Norwest
Mortgage or will have been acquired by Norwest Mortgage from other affiliated or
unaffiliated mortgage loan originators. Each Mortgage Loan will have been
underwritten either to Norwest Mortgage's standards, to the extent specified in
the applicable Prospectus Supplement, to the standards of a Pool Insurer or to
such other standards set forth in the applicable Prospectus Supplement. See "The
Mortgage Loan Programs--Mortgage Loan Production Sources" and "--Mortgage Loan
Underwriting." The Prospectus Supplement for each Series will set forth the
respective number and principal amounts of Mortgage Loans (i) originated by
Norwest Mortgage or its affiliate and (ii) purchased by Norwest Mortgage or its
affiliates from unaffiliated mortgage loan originators through Norwest
Mortgage's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged
Property located in any of the 50 states or the District of Columbia. Generally,
the land underlying a Mortgaged Property will consist of five acres or less but
may consist of greater acreage in Norwest Mortgage's discretion. The borrowers
for each of the Mortgage Loans will be natural persons or, under certain
conditions, borrowers may be inter vivos revocable trusts established by natural
persons.
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If specified in the applicable Prospectus Supplement, the Mortgage Loans may
be secured by leases on real property under circumstances that Norwest Mortgage
determines in its discretion are commonly acceptable to institutional mortgage
investors. A Mortgage Loan secured by a lease on real property is secured not by
a fee simple interest in the Mortgaged Property but rather by a lease under
which the mortgagor has the right, for a specified term, to use the related real
estate and the residential dwelling located on the property. Generally, a
Mortgage Loan will be secured by a lease only if (i) the use of leasehold
estates as security for mortgage loans is customary in the area, (ii) the lease
is not subject to any prior lien that could result in termination of the lease
and (iii) the term of the lease ends at least five years beyond the maturity
date of the related Mortgage Loan. The provisions of each lease securing a
Mortgage Loan will expressly permit (i) mortgaging of the leasehold estate, (ii)
assignment of the lease without the lessor's consent and (iii) acquisition by
the holder of the Mortgage, in its own or its nominee's name, of the rights of
the lessee upon foreclosure or assignment in lieu of foreclosure, unless
alternative arrangements provide the holder of the Mortgage with substantially
similar protections. No lease will contain provisions which (i) provide for
termination upon the lessee's default without the holder of the Mortgage being
entitled to receive written notice of, and opportunity to cure, such default,
(ii) provide for termination in the event of damage or destruction as long as
the Mortgage is in existence or (iii) prohibit the holder of the Mortgage from
being insured under the hazard insurance policy or policies related to the
premises.
The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus Supplement
for each Series will also set forth the range of original terms to maturity of
the Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage
Interest Rates borne by such Mortgage Loans, if such Mortgage Loans have varying
Net Mortgage Interest Rates, the weighted average Net Mortgage Interest Rate at
the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value Ratios at
the time of origination of such Mortgage Loans and the range of principal
balances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such cases,
information as to the final characteristics of the Mortgage Loans and Mortgaged
Properties will be available in a Current Report on Form 8-K which the Seller
will file with the Commission within 15 days of the initial issuance of the
related Series.
The Mortgage Loans in a Trust will generally have monthly payments due on the
first of each month (each, a "Due Date") but may, if so specified in the
applicable Prospectus Supplement, have payments due on a different day of each
month. Each Mortgage Loan will be of one of the following types of mortgage
loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may include fixed-rate, fully-amortizing Mortgage Loans providing
for level monthly payments of principal and interest and terms at origination or
modification of not more than 30 years. If specified in the applicable
Prospectus Supplement, fixed rates on certain Mortgage Loans may be converted to
adjustable rates after origination of such Mortgage Loans and upon the
satisfaction of other conditions specified in the applicable Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the Pooling
and Servicing Agreement will require the Seller or another party to repurchase
each such converted Mortgage Loan at the price set forth in the applicable
Prospectus Supplement. A Trust Estate containing fixed rate Mortgage Loans may
contain convertible Mortgage Loans which have converted from an adjustable
interest rate prior to the formation of the Trust Estate and which are subject
to no further conversions.
b. Adjustable Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may include adjustable-rate, fully-amortizing
Mortgage Loans having an original or modified term to maturity of not more than
30 years with a related Mortgage Interest Rate which generally adjusts initially
either six months, one, three, five, seven or ten years subsequent to the
initial Due Date, and thereafter at either six-month, one-year or other
intervals over the term of the Mortgage Loan to equal the sum of a fixed margin
set forth in the related Mortgage Note and an index. The applicable Prospectus
Supplement will set forth the relevant index and the highest, lowest and
weighted average margin with respect to the adjustable rate mortgage loans in
the related Trust. The applicable Prospectus Supplement will also indicate any
periodic or lifetime limitations on changes in any per annum Mortgage Rate at
the time of any adjustment.
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If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of such
Mortgage Loans and upon the satisfaction of the conditions specified in the
applicable Prospectus Supplement. If specified in the applicable Prospectus
Supplement, the Seller or another party will generally be required to repurchase
each such converted Mortgage Loan at the price set forth in the applicable
Prospectus Supplement. A Trust Estate containing adjustable-rate Mortgage Loans
may contain convertible Mortgage Loans which have converted from a fixed
interest rate prior to the formation of the Trust Estate.
The scheduled monthly payment for an adjustable rate Mortgage Loan will be
adjusted as and when described in the applicable Prospectus Supplement to an
amount that would fully amortize the Mortgage Loan over its remaining term on a
level debt service basis; provided that increases in the scheduled monthly
payment may be subject to certain limitations as specified in the applicable
Prospectus Supplement. If the adjustments made to monthly payments for an
adjustable rate Mortgage Loan are made at intervals different from the intervals
at which the Mortgage Interest Rate is adjusted, "negative amortization" of
principal may result with respect to such Mortgage Loan. Negative amortization
will occur if an adjustment to the Mortgage Interest Rate on such a Mortgage
Loan causes the amount of interest accrued thereon in any month to exceed the
current scheduled monthly payment on such mortgage loan. The resulting amount of
interest that has accrued but is not then payable ("Deferred Interest") will be
added to the principal balance of such Mortgage Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate on
such Mortgage Loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the Mortgage Loan over the remainder of its term or other shorter
period. Mortgage Loans incorporating such graduated payment features may include
(i) "Graduated Pay Mortgage Loans", pursuant to which amounts constituting
Deferred Interest are added to the principal balances of such mortgage loans,
(ii) "Tiered Payment Mortgage Loans", pursuant to which, if the amount of
interest accrued in any month exceeds the current scheduled payment for such
month, such excess amounts are paid from a subsidy account (usually funded by a
home builder or family member) established at closing and (iii) "Growing Equity
Mortgage Loans", for which the monthly payments increase at a rate which has the
effect of amortizing the loan over a period shorter than the stated term.
d. Subsidy Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ("Subsidy Loans") pursuant to which the monthly payments made by the
related mortgagors will be less than the scheduled monthly payments on such
Mortgage Loans with the present value of the resulting difference in payment
("Subsidy Payments") being provided by the employer of the mortgagor, generally
on an annual basis. Subsidy Payments will generally be placed in a custodial
account ("Subsidy Account") by the related Servicer. Despite the existence of a
subsidy program, a mortgagor remains primarily liable for making all scheduled
payments on a Subsidy Loan and for all other obligations provided for in the
related Mortgage Note and Mortgage Loan.
The terms of the subsidy agreements relating to Subsidy Loans generally range
from one to ten years. Subsidy Loans are offered by employers generally through
either a "graduated" or "fixed" subsidy loan program, or programs that combine
features of graduated and fixed subsidy loan programs. The subsidy agreements
relating to Subsidy Loans made under a graduated program generally will provide
for subsidy payments that result in effective subsidized interest rates between
three percentage points (3%) and five percentage points (5%) below the Mortgage
Interest Rates specified in the related Mortgage Notes during the term of the
subsidy agreement. Generally, under a graduated program, the subsidized rate for
a Mortgage Loan will increase approximately one percentage point per year until
it equals the full Mortgage Interest Rate. For example, if the initial
subsidized interest rate is five percentage points below the Mortgage Interest
Rate in year one, the subsidized rate will increase to four percentage points
below the Mortgage Interest Rate in year two, and likewise until year six, when
the subsidized rate will equal the Mortgage Interest Rate. Where the subsidy
agreements relating to Subsidy Loans are in effect for longer than five years,
the subsidized interest rates generally increase at smaller percentage
increments for each year. The subsidy agreements relating to Subsidy Loans made
under a fixed program generally will provide for subsidized interest rates at
fixed percentages (generally one percentage point to two percentage points)
below the Mortgage Interest Rates for the term of the subsidy agreement. The
subsidy agreements relating to Subsidy Loans pursuant to combination
fixed/graduated programs generally will provide for an initial fixed subsidy of
up to five percentage points below the related Mortgage Interest Rate for up to
five years, and then a periodic reduction in the subsidy for up to five years,
at an equal fixed percentage per year until the subsidized rate equals the
Mortgage Interest Rate.
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Generally, employers may terminate subsidy programs in the event of (i) the
mortgagor's death, retirement, resignation or termination of employment, (ii)
the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or
transfer by the mortgagor of the related Mortgaged Property as a result of which
the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the
"due-on-sale" clause contained in the Mortgage, or (iv) the commencement of
foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In
addition, some subsidy programs provide that if prevailing market rates of
interest on mortgage loans similar to a Subsidy Loan are less than the Mortgage
Interest Rate of such Subsidy Loan, the employer may request that the mortgagor
refinance such Subsidy Loan and may terminate the related subsidy agreement if
the mortgagor fails to do so. In the event the mortgagor refinances a Subsidy
Loan, the new loan will not be included in the Trust Estate. See "Prepayment and
Yield Considerations." In the event a subsidy agreement is terminated, the
amount remaining in the Subsidy Account will be returned to the employer, and
the mortgagor will be obligated to make the full amount of all remaining
scheduled payments, if any. The mortgagor's reduced monthly housing expense as a
consequence of payments under a subsidy agreement is used by Norwest Mortgage in
determining certain expense-to-income ratios utilized in underwriting a Subsidy
Loan. See "The Mortgage Loan Programs-- Mortgage Loan Underwriting."
e. Buy-Down Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans subject to temporary buy-down plans
("Buy-Down Loans") pursuant to which the monthly payments made by the mortgagor
during the early years of the Mortgage Loan will be less than the scheduled
monthly payments on the Mortgage Loan. The resulting difference in payment will
be compensated for from an amount contributed by the seller of the related
Mortgaged Property or another source, including the originator of the Mortgage
Loan (generally on a present value basis) and, if so specified in the applicable
Prospectus Supplement, placed in a custodial account (the "Buy- Down Fund") by
the related Servicer. If the mortgagor on a Buy-Down Loan prepays such Mortgage
Loan in its entirety, or defaults on such Mortgage Loan and the Mortgaged
Property is sold in liquidation thereof, during the period when the mortgagor is
not obligated, on account of the buy-down plan, to pay the full monthly payment
otherwise due on such loan, the unpaid principal balance of such Buy-Down Loan
will be reduced by the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan, and such amounts will be deposited in the Servicer Custodial
Account or the Certificate Account, net of any amounts paid with respect to such
Buy-Down Loan by any insurer, guarantor or other person pursuant to a credit
enhancement arrangement described in the applicable Prospectus Supplement.
f. Balloon Loans. If so specified in the applicable Prospectus Supplement, a
Trust Estate may contain Mortgage Loans which are amortized over a fixed period
not exceeding 30 years but which have shorter terms to maturity ("Balloon
Loans") that causes the outstanding principal balance of the related Mortgage
Loan to be due and payable at the end of a certain specified period (the
"Balloon Period"). The borrower of such Balloon Loan will be obligated to pay
the entire outstanding principal balance of the Balloon Loan at the end of the
related Balloon Period. In the event the related mortgagor refinances a Balloon
Loan at maturity, the new loan will not be included in the Trust Estate. See
"Prepayment and Yield Considerations."
g. Pledged Asset Mortgage Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate mortgage loans having original
terms to stated maturity of not more than 30 years which are either (i) secured
by a security interest in additional collateral (normally securities) owned by
the borrower or (ii) supported by a third party guarantee (usually a parent of
the borrower) which is in turn secured by a security interest in collateral
(usually securities) owned by such guarantor (any such loans, "Pledged Asset
Mortgage Loans," and any such collateral, "Additional Collateral"). Generally,
the amount of such Additional Collateral will not exceed 30% of the amount of
such loan, and the requirement to maintain Additional Collateral will terminate
when the principal amount of the Mortgage Loan is paid down to a predetermined
amount.
A Trust Estate may also include other types of first lien, residential
Mortgage Loans to the extent set forth in the applicable Prospectus Supplement.
Cash Flow Agreements
If specified in the Prospectus Supplement, the Trust Estate may include
guaranteed investment contracts pursuant to which moneys held in the funds and
accounts established for the related Series of Certificates will be invested at
a specified rate. The Trust Estate may also include certain other agreements,
such as interest rate exchange or swap agreements, interest rate cap or floor
agreements or similar agreements provided to reduce the effects of interest rate
fluctuations on the assets or on one or more Classes of Certificates. The
principal terms of any such guaranteed investment contract or other agreement
(any such agreement, a
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"Cash Flow Agreement"), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions relating to
the termination thereof, will be described in the Prospectus Supplement for the
related Series of Certificates. In addition, the related Prospectus Supplement
will provide certain information with respect to the obligor under any such Cash
Flow Agreement.
THE SELLER
Norwest Asset Securities Corporation (the "Seller") is a direct, wholly owned
subsidiary of Norwest Mortgage, Inc. and an indirect, wholly owned subsidiary of
Wells Fargo & Company. See "Recent Developments" in the applicable Prospectus
Supplement. The Seller was incorporated in the State of Delaware on March 28,
1996.
The limited purposes of the Seller are, in general, to acquire, own and sell
mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through
securities which represent ownership interests in mortgage loans, collections
thereon and related properties; and to engage in any acts which are incidental
to, or necessary, suitable or convenient to accomplish, the foregoing.
The Seller maintains its principal office at 7485 New Horizon Way, Frederick,
Maryland 21703. Its telephone number is (301) 846-8881.
At the time of the formation of any Trust Estate, the Seller will be the sole
owner of all the related Mortgage Loans. The Seller will have acquired the
Mortgage Loans included in any Trust Estate from Norwest Mortgage. Except to the
extent otherwise specified in the applicable Prospectus Supplement, the Seller's
only obligation with respect to the Certificates of any Series will be to
repurchase or substitute for Mortgage Loans in a Trust Estate in the event of
defective documentation or upon the breach of certain representations
and warranties made by the Seller. See "The Pooling and Servicing Agreement--
Assignment of Mortgage Loans to the Trustee."
NORWEST MORTGAGE
Norwest Mortgage, Inc. ("Norwest Mortgage") was originally incorporated as a
Minnesota corporation on July 1, 1983. On August 30, 1995, Norwest Mortgage and
Directors Mortgage Loan Corporation, a California corporation, completed a
statutory merger. As a result of the merger, Norwest became a California
corporation as of September 1, 1995. Norwest Mortgage is engaged principally in
the business of (i) originating, purchasing and selling residential mortgage
loans in its own name and through its affiliates, Norwest Funding, Inc. and
Norwest Funding II, Inc. (collectively, "Norwest Funding") and (ii) servicing
residential mortgage loans for its own account or for the account of others.
Norwest Mortgage is a direct, wholly owned subsidiary of Norwest Nova, Inc. and
an indirect, wholly owned subsidiary of Wells Fargo & Company. See "Recent
Developments" in the applicable Prospectus Supplement. The executive offices of
Norwest Mortgage are located at 405 Southwest 5th Street, Des Moines, Iowa
50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The
Prudential Home Mortgage Company, Inc. ("PHMC"), an indirect, wholly owned
subsidiary of The Prudential Insurance Company of America, and purchased certain
mortgage loans from PHMC and a substantial portion of PHMC's mortgage servicing
portfolio (such transaction, the "PHMC Acquisition").
On January 7, 1997, a complaint was served on PHMC with respect to an
individual and purported class action filed by The Capitol Life Insurance
Company ("Capitol Life") in the Superior Court of New Jersey against PHMC, The
Prudential Home Mortgage Securities Company, Inc. ("PHMSC") and certain of their
affiliates and 100 unnamed "Doe defendants". On March 26, 1997, PHMC and others
filed a motion to dismiss the complaint for failure to state a claim on which
relief can be granted. On June 2, 1997, an amended complaint was filed and
American Investors Life Insurance Company joined Capitol Life as a named
plaintiff in the actions. As amended, the complaint asserts claims against PHMC,
PHMSC, certain of their present and former affiliates and certain former
employees as well as Merrill Lynch & Co., Kidder, Peabody & Co. Incorporated,
Lehman Brothers Inc. and Salomon Brothers Inc. As amended, the complaint
alleges, among other things, that the defendants made false and misleading
statements and/or omissions of material fact and fraudulently concealed material
facts in connection with the purchase by the plaintiffs of certain of PHMSC's
Subordinated Mortgage Securities, Series 1992-A. One of the named defendants,
who is a former employee of PHMC and certain of its affiliates, is an officer
and employee of the Seller and Norwest Mortgage. The Seller has been advised
that PHMC, PHMSC, their affiliated defendants and such common employee will
vigorously defend the action. Based on the foregoing, the Seller does not
believe that this litigation will have an adverse effect on any Series of
Certificates.
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Norwest Mortgage is an approved servicer of FNMA, FHLMC and the Government
National Mortgage Association. As of December 31, 1998, Norwest Mortgage had a
net worth of approximately $419.5 million.
NORWEST BANK
Norwest Bank Minnesota, National Association ("Norwest Bank") will act as
Master Servicer with respect to each Series. Norwest Bank is a direct, wholly
owned subsidiary of Wells Fargo & Company. See "Recent Developments" in the
Prospectus Supplement. Norwest Bank is a national banking association originally
chartered in 1872 and is engaged in a wide range of activities typical of a
national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master
servicing and securities administration services at its offices in Columbia,
Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
THE MORTGAGE LOAN PROGRAMS
Mortgage Loan Production Sources
Norwest Mortgage conducts a significant portion of its mortgage loan
originations through more than 700 loan production offices (the "Loan Stores")
located throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage loan originations through centralized production offices
located in Frederick, Maryland and Minneapolis, Minnesota. At the latter
locations, Norwest Mortgage receives applications for home mortgage loans on
toll-free telephone numbers that can be called from anywhere in the United
States.
The following are Norwest Mortgage's primary sources of mortgage loan
originations: (i) direct contact with prospective borrowers (including borrowers
with mortgage loans currently serviced by Norwest Mortgage or borrowers referred
by borrowers with mortgage loans currently serviced by Norwest Mortgage), (ii)
referrals by realtors, other real estate professionals and prospective borrowers
to the Loan Stores, (iii) referrals from selected corporate clients, (iv)
originations by Norwest Mortgage's Private Mortgage Banking division (including
referrals from the private banking group of Norwest Bank and other affiliated
banks), which division specializes in providing services to individuals meeting
certain earnings, liquidity or net worth parameters, (v) several joint ventures
into which Norwest Mortgage, through its wholly owned subsidiary, Norwest
Mortgage Ventures, Inc., has entered with realtors and banking institutions (the
"Joint Ventures") and (vi) referrals from mortgage brokers and similar entities.
In addition to its own mortgage loan originations, Norwest Mortgage acquires
qualifying mortgage loans from other unaffiliated originators
("Correspondents"). See "-- Acquisition of Mortgage Loans from Correspondents"
below. The relative contribution of each of these sources to Norwest Mortgage's
business, measured by the volume of loans generated, tends to fluctuate over
time.
Norwest Mortgage Ventures, Inc. owns at least a 50% interest in each of the
Joint Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential
borrowers. Mortgage loans that are originated by Joint Ventures in which Norwest
Mortgage's partners are realtors are generally made to finance the acquisition
of properties marketed by such Joint Venture partners. Applications for mortgage
loans originated through Joint Ventures are generally taken by Joint Venture
employees and underwritten by Norwest Mortgage in accordance with its standard
underwriting criteria. Such mortgage loans are then closed by the Joint Ventures
in their own names and subsequently purchased by Norwest Mortgage or Norwest
Funding.
Norwest Mortgage may directly contact prospective borrowers (including
borrowers with mortgage loans currently serviced by Norwest Mortgage) through
general and targeted solicitations. Such solicitations are made through direct
mailings, mortgage loan statement inserts and television, radio and print
advertisements and by telephone. Norwest Mortgage's targeted solicitations may
be based on characteristics such as the borrower's mortgage loan interest rate
or payment history and the geographic location of the mortgaged property. See
"Prepayment and Yield Considerations."
A majority of Norwest Mortgage's corporate clients are companies that sponsor
relocation programs for their employees and in connection with which Norwest
Mortgage provides mortgage financing. Eligibility for a relocation loan is
based, in general, on
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an employer's providing financial assistance to the relocating employee in
connection with a job-required move. Although Subsidy Loans are typically
generated through such corporate-sponsored programs, the assistance extended by
the employer need not necessarily take the form of a loan subsidy. (Not all
relocation loans are generated by Norwest Mortgage through referrals from its
corporate clients; some relocation loans are generated as a result of referrals
from mortgage brokers and similar entities and others are generated through
Norwest Mortgage's acquisition of mortgage loans from other originators.) Also
among Norwest Mortgage's corporate clients are various professional
associations. These associations, as well as the other corporate clients,
promote the availability of a broad range of Norwest Mortgage mortgage products
to their members or employees, including refinance loans, second-home loans and
investment-property loans.
Acquisition of Mortgage Loans from Correspondents
In order to qualify for participation in Norwest Mortgage's mortgage loan
purchase programs, lending institutions must (i) meet and maintain certain net
worth and other financial standards, (ii) demonstrate experience in originating
residential mortgage loans, (iii) meet and maintain certain operational
standards, (iv) evaluate each loan offered to Norwest Mortgage for consistency
with Norwest Mortgage's underwriting guidelines or the standards of a Pool
Insurer and represent that each loan was underwritten in accordance with Norwest
Mortgage standards or the standards of a Pool Insurer and (v) utilize the
services of qualified appraisers.
The contractual arrangements with Correspondents may involve the commitment by
Norwest Mortgage to accept delivery of a certain dollar amount of mortgage loans
over a period of time. This commitment may be satisfied either by delivery of
mortgage loans one at a time or in multiples as aggregated by the Correspondent.
The contractual arrangements with Correspondents may also involve the delegation
of all underwriting functions to such Correspondents ("Delegated Underwriting"),
which will result in Norwest Mortgage not performing any underwriting functions
prior to acquisition of the loan but instead relying on such originators'
representations, and Norwest Mortgage's post-purchase reviews of samplings of
mortgage loans acquired from such originators regarding the originators'
compliance with Norwest Mortgage's underwriting standards. In all instances,
however, acceptance by Norwest Mortgage is contingent upon the loans being found
to satisfy Norwest Mortgage's program standards or the standards of a Pool
Insurer. Norwest Mortgage may also acquire portfolios of loans in negotiated
transactions.
Mortgage Loan Underwriting
Norwest Mortgage Underwriting
The following is a summary of Norwest Mortgage's "general" underwriting
standards and the substantially less restrictive underwriting criteria
applicable to Norwest Mortgage's "retention program".
General Standards. Norwest Mortgage's underwriting standards are applied by or
on behalf of Norwest Mortgage to evaluate the applicant's credit standing and
ability to repay the loan, as well as the value and adequacy of the mortgaged
property as collateral. The underwriting standards that guide the determination
represent a balancing of several factors that may affect the ultimate recovery
of the loan amount, including, among others, the amount of the loan, the ratio
of the loan amount to the property value (i.e., the lower of the appraised value
of the mortgaged property and the purchase price), the borrower's means of
support and the borrower's credit history. Norwest Mortgage's guidelines for
underwriting may vary according to the nature of the borrower or the type of
loan, since differing characteristics may be perceived as presenting different
levels of risk. With respect to certain Mortgage Loans, the originators of such
loans may have contracted with unaffiliated third parties to perform the
underwriting process. Except as described below, the Mortgage Loans will be
underwritten by or on behalf of Norwest Mortgage generally in accordance with
the standards and procedures described herein.
Norwest Mortgage utilizes various systems of credit scoring as a tool to
supplement the mortgage loan underwriting process. Credit scoring assists
Norwest Mortgage in the mortgage loan approval process by providing consistent,
objective measures of borrower credit and loan attributes. Such objective
measures are used to evaluate loan applications and assign each application a
"Credit Score".
The portion of the Credit Score related to borrower credit history is
generally based on computer models developed by a third party. These models
evaluate information available from three major credit reporting bureaus
regarding historical patterns of
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consumer credit behavior in relation to default experience for similar types of
borrower profiles. A particular borrower's credit patterns are then considered
in order to derive a "FICO Score" which indicates a level of default probability
over a two-year period.
The Credit Score is used to determine the type of underwriting process and
which level of underwriter will review the loan file. For transactions which are
determined to be low-risk transactions, based upon the Credit Score and other
parameters (including the mortgage loan production source), the lowest
underwriting authority is generally required. For moderate and higher risk
transactions, higher level underwriters and a full review of the mortgage file
are generally required. Borrowers who have a satisfactory Credit Score (based
upon the mortgage loan production source) are generally subject to streamlined
credit review (which relies on the credit scoring process for various elements
of the underwriting assessments). Such borrowers may also be eligible for a
limited documentation program and are generally permitted a greater latitude in
the application of borrower debt-to-income ratios.
With respect to all mortgage loans underwritten by Norwest Mortgage, Norwest
Mortgage's underwriting of a mortgage loan may be based on data obtained by
parties other than Norwest Mortgage that are involved at various stages in the
mortgage origination or acquisition process. This typically occurs under
circumstances in which loans are subject to more than one approval process, as
when correspondents, certain mortgage brokers or similar entities that have been
approved by Norwest Mortgage to process loans on its behalf, or independent
contractors hired by Norwest Mortgage to perform underwriting services on its
behalf ("contract underwriters") make initial determinations as to the
consistency of loans with Norwest Mortgage underwriting guidelines. The
underwriting of mortgage loans acquired by Norwest Mortgage pursuant to a
Delegated Underwriting arrangement with a Correspondent is not reviewed prior to
acquisition of the mortgage loan by Norwest Mortgage although the mortgage loan
file is reviewed by Norwest Mortgage to confirm that certain documents are
included in the file. Instead, Norwest Mortgage relies on (i) the
Correspondent's representations that such mortgage loan was underwritten in
accordance with Norwest Mortgage's underwriting standards and (ii) a post-
purchase review of a sampling of all mortgage loans acquired from such
originator. In addition, in order to be eligible to sell mortgage loans to
Norwest Mortgage pursuant to a Delegated Underwriting arrangement, the
originator must meet certain requirements including, among other things, certain
quality, operational and financial guidelines.
A prospective borrower applying for a mortgage loan is required to complete a
detailed application. The loan application elicits pertinent information about
the applicant, with particular emphasis on the applicant's financial health
(assets, liabilities, income and expenses), the property being financed and the
type of loan desired. A self-employed applicant may be required to submit his or
her most recent signed federal income tax returns. With respect to every
applicant, credit reports are obtained from commercial reporting services,
summarizing the applicant's credit history with merchants and lenders.
Significant unfavorable credit information reported by the applicant or a credit
reporting agency must be explained by the applicant. The credit review process
generally is streamlined for borrowers with a qualifying Credit Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other mortgage
payments (if any), living expenses and financial obligations. A mortgage
verification involves obtaining information regarding the borrower's payment
history with respect to any existing mortgage the applicant may have. This
verification is accomplished by either having the present lender complete a
verification of mortgage form, evaluating the information on the credit report
concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications of
income, assets or mortgages may be waived under certain programs offered by
Norwest Mortgage, but Norwest Mortgage's underwriting guidelines require, in
most instances, a verbal or written verification of employment to be obtained.
In some cases, employment histories may be obtained through V.I.E., Inc., an
entity jointly owned by Norwest Mortgage and an unaffiliated third party, that
obtains employment data from state unemployment insurance departments or other
state agencies. In addition, the loan applicant may be eligible for a loan
approval process permitting limited documentation. The above referenced reduced
documentation options and waivers limit the amount of documentation required for
an underwriting decision and have the effect of increasing the relative
importance of the credit report and the appraisal. Documentation requirements
vary based upon a number of factors, including the purpose of the loan, the
amount of the loan, the ratio of the loan amount to the property value and the
mortgage loan production source. Norwest Mortgage accepts alternative methods of
verification, in those instances where verifications are part of the
underwriting decision; for example, salaried income may be substantiated either
by means of a form
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independently prepared and signed by the applicant's employer or by means of the
applicant's most recent paystub and/or W-2. In cases where two or more persons
have jointly applied for a mortgage loan, the gross incomes and expenses of all
of the applicants, including nonoccupant co-mortgagors, are combined and
considered as a unit.
In general, borrowers applying for loans must demonstrate that the ratio of
their total monthly housing debt to their monthly gross income (except for
borrowers who apply through Norwest Mortgage's Private Mortgage Banking
division), and the ratio of their total monthly debt to their monthly gross
income do not exceed certain maximum levels. Such maximum levels vary depending
on a number of factors including Loan-to-Value Ratio, a borrower's credit
history, a borrower's liquid net worth, the potential of a borrower for
continued employment advancement or income growth, the ability of the borrower
to accumulate assets or to devote a greater portion of income to basic needs
such as housing expense, a borrower's Credit Score and the type of loan for
which the borrower is applying. These calculations are based on the amortization
schedule and the interest rate of the related loan, with each ratio being
computed on the basis of the proposed monthly mortgage payment. In the case of
adjustable-rate mortgage loans, the interest rate used to determine a
mortgagor's monthly payment for purposes of such ratios may, in certain cases,
be the initial mortgage interest rate or another interest rate, which, in either
case, is lower than the sum of the index rate that would have been applicable at
origination plus the applicable margin. In evaluating applications for Subsidy
Loans and Buy-Down Loans, such ratios are determined by including in the
applicant's total monthly housing expense and total monthly debt the proposed
monthly mortgage payment reduced by the amount expected to be applied on a
monthly basis under the related subsidy agreement or buy-down agreement or, in
certain cases, the mortgage payment that would result from an interest rate
lower than the Mortgage Interest Rate but higher than the effective rate to the
mortgagor as a result of the subsidy agreement or the buy-down agreement. See
"The Trust Estates--Mortgage Loans." In the case of a mortgage loan referred by
Norwest Mortgage's Private Mortgage Banking division, only one qualifying ratio
is calculated (the applicant's ratio of total monthly debt to monthly gross
income). In addition, for certain applicants referred by this division,
qualifying income may be based on an "asset dissipation" approach under which
future income is projected from the assumed liquidation of a portion of the
applicant's specified assets. Secondary financing is permitted on mortgage loans
under certain circumstances. In those cases, the payment obligations under both
primary and secondary financing are included in the computation of the housing
debt-to- income ratios, and the combined amount of primary and secondary loans
will be used to calculate the combined loan-to-value ratio. Any secondary
financing permitted will generally mature prior to the maturity date of the
related mortgage loan. In evaluating an application with respect to a
"non-owner-occupied" property, which Norwest Mortgage defines as a property
leased to a third party by its owner (as distinct from a "second home," which
Norwest Mortgage defines as an owner-occupied, non-rental property that is not
the owner's principal residence), Norwest Mortgage will include projected rental
income net of certain mortgagor obligations and other assumed expenses or loss
from such property to be included in the applicant's monthly gross income or
total monthly debt in calculating the foregoing ratios. A mortgage loan secured
by a two- to four-family Mortgaged Property is considered to be an owner-
occupied property if the borrower occupies one of the units; rental income on
the other units is generally taken into account in evaluating the borrower's
ability to repay the mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in
excess of 95% may be included in the related Trust Estate. The "Loan-to-Value
Ratio" is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For the
purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the
result of the refinancing (including a refinancing for "equity take out"
purposes) of an existing mortgage loan, the appraised value of the related
Mortgaged Property is generally determined by reference to an appraisal obtained
in connection with the origination of the replacement loan. In connection with
certain of its mortgage originations, Norwest Mortgage currently obtains
appraisals through Value Information Technology, Inc., an entity jointly owned
by Norwest Mortgage and an unaffiliated third party.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of appraisal
(or, where applicable, recertification of value) of the related Mortgage Loans.
The appraisal of any Mortgaged Property reflects the individual appraiser's
judgment as to value, based on the market values of comparable homes sold
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within the recent past in comparable nearby locations and on the estimated
replacement cost. The appraisal relates both to the land and to the structure;
in fact, a significant portion of the appraised value of a Mortgaged Property
may be attributable to the value of the land rather than to the residence.
Because of the unique locations and special features of certain Mortgaged
Properties, identifying comparable properties in nearby locations may be
difficult. The appraised values of such Mortgaged Properties will be based to a
greater extent on adjustments made by the appraisers to the appraised values of
reasonably similar properties rather than on objectively verifiable sales data.
If residential real estate values generally or in particular geographic areas
decline such that the outstanding balances of the Mortgage Loans and any
secondary financing on the Mortgaged Properties in a particular Trust Estate
become equal to or greater than the values of the related Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry and those now
experienced in Norwest Mortgage's servicing portfolios. In addition, adverse
economic conditions generally, in particular geographic areas or industries, or
affecting particular segments of the borrowing community (such as mortgagors
relying on commission income and self-employed mortgagors) and other factors
which may or may not affect real property values, including the purposes for
which the Mortgage Loans were made and the uses of the Mortgaged Properties, may
affect the timely payment by mortgagors of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Estate. See
"Prepayment and Yield Considerations-- Weighted Average Life of Certificates."
To the extent that such losses are not covered by the methods of credit support
or the insurance policies described herein, they will be borne by holders of the
Certificates of the Series evidencing interests in such Trust Estate.
Norwest originates mortgage loans with Loan-to-Value Ratios in excess of 80%
either with or without the requirement to obtain primary mortgage insurance. In
cases for which such primary mortgage insurance is obtained, the excess over 75%
(or such lower percentage as Norwest Mortgage may require at origination) will
be covered by primary mortgage insurance (subject to certain standard policy
exclusions for default arising from, among other things, fraud or negligence in
the origination or servicing of a Mortgage Loan, including misrepresentation by
the mortgagor or other persons involved in the origination thereof) from an
approved primary mortgage insurance company until the unpaid principal balance
of the Mortgage Loan is reduced to an amount that will result in a Loan-to-Value
Ratio less than or equal to 80%. In cases for which such primary mortgage
insurance is not obtained, loans having Loan-to-Value Ratios exceeding 80% are
required to be secured by primary residences or second homes (excluding
cooperatives). Each loan originated without primary mortgage insurance will have
been made at an interest rate that was higher than the rate would have been if
the Loan-to-Value Ratios was 80% or less or if primary mortgage insurance was
obtained. The Prospectus Supplement will specify the number and percentage of
Mortgage Loans contained in the Trust Estate for a particular Series of
Certificates with Loan-to-Value Ratios at origination in excess of 80% which are
not covered by primary mortgage insurance.
Except as described below, Mortgage Loans will generally be covered by an
appropriate standard form American Land Title Association ("ALTA") title
insurance policy, or a substantially similar policy or form of insurance
acceptable to Fannie Mae ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). The Seller will represent and warrant to the Trustee of any Trust
Estate that the Mortgaged Property related to each Mortgage Loan is free and
clear of all encumbrances and liens having priority over the first lien of the
related Mortgage, subject to certain limited exceptions as set forth below under
"--Representations and Warranties."
Retention Program Standards. A borrower whose mortgage loan is serviced by
Norwest Mortgage may be eligible for Norwest Mortgage's "retention program."
Provided such a borrower is current in his or her mortgage payment obligations,
Norwest Mortgage may permit a refinancing of the mortgage loan to a current
market interest rate without applying any significant borrower credit or
property underwriting standards. As a result, borrowers who qualify under the
retention program may not need to demonstrate that their current monthly housing
debt or total monthly debt obligations in relation to their monthly income
levels do not exceed certain ratios; Norwest Mortgage may not obtain a current
credit report for the borrower or apply a new Credit Score to the refinanced
loan; and the borrower may not be required to provide any verifications of
current employment, income level or extent of assets. In addition, no current
appraisal or indication of market value may be required with respect to the
properties securing the mortgage loans which are refinanced under the retention
program. Mortgage Loans initially included in the Trust Estate for a particular
Series of Certificates may have been the subject of a refinancing under the
retention program and, to the extent that borrowers become eligible for the
retention program after their Mortgage Loans have been included in a particular
Trust Estate, such Mortgage Loans may be refinanced under such program. See
"Prepayment and Yield Considerations" in this Prospectus and in the Prospectus
Supplement for a description of the potential effects on Certificateholders
resulting from such refinancings.
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Pool Certification Underwriting
If specified in the applicable Prospectus Supplement, certain of the Mortgage
Loans will have been reviewed by General Electric Mortgage Insurance Corporation
("GEMICO"), United Guaranty Residential Insurance Company ("UGRIC") or a similar
entity (collectively, the "Pool Insurers") to determine conformity, in the
aggregate, with such company's respective credit, appraisal and underwriting
guidelines. Norwest Mortgage will not have underwritten such Mortgage Loans.
Neither GEMICO nor UGRIC have underwritten any of the Mortgage Loans for
compliance with any investor guidelines.
Based on information provided by the relevant company, as a condition to
eligibility of a Mortgage Loan for inclusion in a mortgage pool to be insured by
GEMICO or UGRIC, the loan originator generally will be required to comply with
the following procedures, although exceptions may be made if permitted by such
company.
Initially, a prospective borrower must fill out a detailed application
providing pertinent credit information. The loan originator obtains a credit
report, which summarizes the prospective borrower's credit history with
merchants and lenders and any record of bankruptcy, or other pertinent legal
history. In addition, a verification of employment for the last two years is
made from either the applicant's employer or a Form W-2 for the most recent two
years and the applicant's most recent pay stub. If an applicant is self-
employed, such applicant submits copies of signed tax returns with all schedules
for the prior two years together with a current year-to-date profit and loss
statement and any other documentation deemed necessary. Rental income used to
qualify the applicant is verified either by lease agreements or by the
borrower's tax returns. In the case of refinancings, the loan originator must
require, among other things, that there has not been more than one delinquency
in the prior 12 months nor, in the case of mortgage loans reviewed by GEMICO,
any delinquency in the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an
independent appraisal must be made of each property considered for financing.
Each appraiser must be selected in accordance with predetermined guidelines
established for appraisers. The appraiser is required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is received, a
determination must be made by the loan originator (and confirmed on review by
GEMICO or UGRIC) as to whether the prospective borrower has sufficient monthly
income to meet (i) the monthly payment obligations on the proposed mortgage loan
(including principal and interest payments, real estate taxes, insurance on the
subject property, and homeowners' association dues and secondary financing, if
any), and (ii) the aggregate of the foregoing and all other financial
obligations not expected to be fully repaid within the next 10 months. As a
general rule, UGRIC permits a maximum ratio of a prospective borrower's debt, as
described in clauses (i) and (ii) above, to such borrower's income to be 33% and
38%, respectively for fixed rate, fixed payment loans and for adjustable rate
loans with Loan-to-Value Ratios of 75% or less. Maximum ratios of 28% and 33%,
respectively, are permitted for adjustable rate loans with Loan-to-Value Ratios
above 75%. The general rule may be varied, and higher debt-to-income ratios may
be permitted, in appropriate cases characterized by lower Loan-to-Value Ratios
or other favorable factors. GEMICO's underwriting process relies on a
combination of its own proprietory credit score model (which includes factors
related to a borrower's credit history as well as specific loan attributes) and
the consideration of borrower debt-to-income ratios. Depending upon the credit
score, GEMICO will permit maximum ratios, as described in clauses (i) and (ii)
above, of 40% and 50%, respectively.
In some special cases, GEMICO and UGRIC may underwrite loans under a "limited
documentation" program. With respect to such loans, limited investigation into
the borrower's credit history and income profile is undertaken by the originator
and such loans may be underwritten primarily on the basis of an appraisal of the
mortgaged property and Loan-to-Value Ratio on origination. Thus, if the Loan-to-
Value Ratio is less than the percentage required under standard guidelines, the
originator may forego certain aspects of the review relating to monthly income,
and, in the case of mortgage loans reviewed by GEMICO, traditional ratios of
monthly or total expenses to gross income may not be applied. At a minimum, a
limited documentation program must require a loan application, a credit report,
an appraisal acceptable to FNMA/FHLMC performed by an independent appraiser, and
a verification of downpayment or three months of bank statements. The maximum
Loan-to-Value Ratio allowed under any limited documentation program underwritten
by GEMICO and UGRIC is 70%. UGRIC's "limited documentation" program is limited
exclusively to self-employed borrowers.
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For any rate or term refinance of a mortgage loan, or conversion of an
adjustable rate mortgage loan, where GEMICO or UGRIC has already insured the
prior loan, GEMICO or UGRIC may have determined a loan's insurability without
reviewing updated credit or collateral information. In the case of seasoned
loans, GEMICO or UGRIC may have determined a loan's insurability by performing a
more limited credit and collateral review.
The foregoing should not be taken as a full and complete discussion of all of
the procedures undertaken in connection with a particular underwriting. Both
GEMICO and UGRIC consider various other factors including, but not limited to,
reviewing sales contracts, verifying deposits and other assets and examining
additional supporting documentation in certain instances such as divorce decrees
and separation agreements. Investors should consult the particular Pool
Insurer's underwriting guidelines for more specific and complete requirements
regarding underwriting standards. Furthermore, the underwriting process often
results in certain compensating factors being considered to offset the existence
of other negative factors in a loan file.
The use of pool certification underwriting by a Pool Insurer in no way
indicates that the related Certificates or Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy unless the applicable
Prospectus Supplement so specifies.
Representations and Warranties
In connection with the transfer of the Mortgage Loans related to any Series by
the Seller to the Trust Estate, the Seller will generally make certain
representations and warranties regarding the Mortgage Loans. In certain cases
where Norwest Mortgage acquired some or all of the Mortgage Loans related to a
Series from a Correspondent, if so indicated in the applicable Prospectus
Supplement, the Seller may, rather than itself making representations and
warranties, cause the representations and warranties made by the Correspondent
in connection with its sale of Mortgage Loans to Norwest Mortgage or Norwest
Funding to be assigned to the Trust Estate. In such cases, the Correspondent's
representations and warranties may have been made as of a date prior to the date
of execution of the Pooling and Servicing Agreement. Unless otherwise provided
in the applicable Prospectus Supplement, such representations and warranties
(whether made by the Seller or another party) will generally include the
following with respect to the Mortgage Loans, or each Mortgage Loan, as the case
may be: (i) the schedule of Mortgage Loans appearing as an exhibit to such
Pooling and Servicing Agreement is correct in all material respects at the date
or dates respecting which such information is furnished as specified therein;
(ii) immediately prior to the transfer and assignment contemplated by the
Pooling and Servicing Agreement, the Seller is the sole owner and holder of the
Mortgage Loan, free and clear of any and all liens, pledges, charges or security
interests of any nature and has full right and authority to sell and assign the
same; (iii) no Mortgage Note or Mortgage is subject to any right of rescission,
set-off, counterclaim or defense; (iv) the Mortgage Loan is covered by a title
insurance policy (or in the case of any Mortgage Loan secured by a Mortgaged
Property located in a jurisdiction where such policies are generally not
available, an opinion of counsel of the type customarily rendered in such
jurisdiction in lieu of title insurance is instead received); (v) the Mortgage
is a valid, subsisting and enforceable first lien on the related Mortgaged
Property and the Mortgaged Property is free and clear of all encumbrances and
liens having a priority over the first lien of the Mortgage except for those
liens set forth in the Pooling and Servicing Agreement; (vi) the Mortgaged
Property is undamaged by water, fire, earthquake or earth movement, windstorm,
flood, tornado or similar casualty (excluding casualty from the presence of
hazardous wastes or hazardous substances, as to which no representation is
made), so as to affect adversely the value of the Mortgaged Property as security
for the Mortgage Loan or the use for which the premises were intended; (vii) all
payments required to be made up to the Due Date immediately preceding the Cut-
Off Date for such Mortgage Loan under the terms of the related Mortgage Note
have been made and no Mortgage loan had more than one delinquency in the 12
months preceding the Cut-Off Date; and (viii) any and all requirements of any
federal, state or local law with respect to the origination of the Mortgage
Loans including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loans have been complied with.
No representations or warranties are made by the Seller or any other party as
to the environmental condition of any Mortgaged Property including the absence,
presence or effect of hazardous wastes or hazardous substances on such Mortgaged
Property or any effect from the presence or effect of hazardous wastes or
hazardous substances on, near or emanating from such Mortgaged Property. See
"Certain Legal Aspects of the Mortgage Loans--Environmental Considerations"
below.
In addition, no representations or warranties are made by the Seller or any
other party with respect to the absence or effect of fraud in the origination of
any Mortgage Loan, and any loss or liability resulting from the presence or
effect of fraud will be borne solely by Certificateholders.
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See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans to the
Trustee" for a description of the limited remedies available in connection with
breaches of the foregoing representations and warranties.
DESCRIPTION OF THE CERTIFICATES
General
Each Series of Certificates will include one or more Classes, each of which
may be divided into two or more Subclasses. Any references herein to the
characteristics of a Class of Certificates may also describe the characteristics
of a Subclass of Certificates. In addition, any Class or Subclass of
Certificates may consist of two or more non-severable components, each of which
may exhibit any of the principal or interest payment characteristics described
herein with respect to a Class of Certificates. A Series may include one or more
Classes of Certificates entitled, to the extent of funds available, to (i)
principal and interest distributions in respect of the related Mortgage Loans,
(ii) principal distributions, with no interest distributions, (iii) interest
distributions, with no principal distributions or (iv) such other distributions
as are described in the applicable Prospectus Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") among the Seller, Norwest
Bank, as the Master Servicer, and the Trustee named in the applicable Prospectus
Supplement. An illustrative form of Pooling and Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The following summaries describe certain provisions common to the
Certificates and to each Pooling and Servicing Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Pooling and Servicing Agreement
for each Series of Certificates and the applicable Prospectus Supplement.
Wherever particular sections or defined terms of the Pooling and Servicing
Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference from the form of Pooling and Servicing
Agreement filed as an exhibit to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions to Certificateholders of all Series (other than the final
distribution in retirement of the Certificates) will be made by check mailed to
the address of the person entitled thereto (which in the case of Book-Entry
Certificates will be Cede as nominee for DTC) as it appears on the certificate
register, except that, with respect to any holder of a Certificate evidencing
not less than a certain minimum denomination set forth in the applicable
Prospectus Supplement, distributions will be made by wire transfer in
immediately available funds, provided that the Master Servicer or the Paying
Agent acting on behalf of the Master Servicer shall have been furnished with
appropriate wiring instructions not less than seven business days prior to the
related Distribution Date. The final distribution in retirement of Certificates
will be made only upon presentation and surrender of the Certificates at the
office or agency maintained by the Trustee or other entity for such purpose, as
specified in the final distribution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the related
Trust Estate. An election may be made to treat the Trust Estate (or one or more
segregated pools of assets therein) with respect to a Series of Certificates as
a REMIC. If such an election is made, such Series will consist of one or more
Classes of Certificates that will represent "regular interests" within the
meaning of Code Section 860G(a)(1) (such Class or Classes collectively referred
to as the "Regular Certificates") and one Class or Subclass of Certificates with
respect to each REMIC that will be designated as the "residual interest" within
the meaning of Code Section 860G(a)(2) (the "Residual Certificates")
representing the right to receive distributions as specified in the Prospectus
Supplement for such Series. See "Certain Federal Income Tax Consequences."
The Seller may sell certain Classes or Subclasses of the Certificates of a
Series, including one or more Classes of Subordinated Certificates, in privately
negotiated transactions exempt from registration under the Securities Act.
Alternatively, if so specified in a Prospectus Supplement relating to such
Subordinated Certificates, the Seller may offer one or more Classes of the
Subordinated Certificates of a Series by means of this Prospectus and such
Prospectus Supplement.
Definitive Form
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as "Definitive Certificates." Distributions of
principal of, and interest on, the Definitive Certificates will be made directly
to holders of Definitive Certificates in accordance with the procedures set
forth in the Pooling and Servicing Agreement. The Definitive Certificates of a
Series offered
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hereby and by means of the applicable Prospectus Supplements will be
transferable and exchangeable at the office or agency maintained by the Trustee
or such other entity for such purpose set forth in the applicable Prospectus
Supplement. No service charge will be made for any transfer or exchange of
Definitive Certificates, but the Trustee or such other entity may require
payment of a sum sufficient to cover any tax or other governmental charge in
connection with such transfer or exchange.
In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the "residual interest"
thereof will be issued as a Definitive Certificate. No legal or beneficial
interest in all or any portion of any "residual interest" may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed by
the transferee stating, among other things, that the transferee (i) is not a
disqualified organization within the meaning of Code Section 860E(e) or an agent
(including a broker, nominee, or middleman) thereof and (ii) understands that it
may incur tax liabilities in excess of any cash flows generated by the residual
interest. Further, the transferee must state in the affidavit that it (x)
historically has paid its debts as they have come due, (y) intends to pay its
debts as they come due in the future and (z) intends to pay taxes associated
with holding the residual interest as they become due. The transferor must
certify to the Trustee that, as of the time of the transfer, it has no actual
knowledge that any of the statements made in the transferee affidavit are false
and no reason to know that the statements made by the transferee pursuant to
clauses (x), (y) and (z) of the preceding sentence are false. See "Certain
Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Residual Certificates--Tax-Related Restrictions on
Transfer of Residual Certificates."
Book-Entry Form
Each Class or Subclass of the Book-Entry Certificates of a Series initially
will be represented by one or more physical certificates registered in the name
of Cede & Co. ("Cede"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book-Entry Certificate (a "Beneficial Owner")
will be entitled to receive a Definitive Certificate representing such person's
interest in the Book-Entry Certificate, except as set forth below. Unless and
until Definitive Certificates are issued under the limited circumstances
described herein, all references to actions taken by Certificateholders or
holders shall, in the case of the Book-Entry Certificates, refer to actions
taken by DTC upon instructions from its DTC Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall, in the case of the Book-Entry Certificates, refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Book-Entry Certificates, as the case may be, for distribution to
Beneficial Owners in accordance with DTC procedures.
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 Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (which may
include any underwriter identified in the Prospectus Supplement applicable to
any Series), banks, trust companies and clearing corporations. Indirect access
to the DTC system also is available to banks, brokers, dealers, trust companies
and other institutions that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly ("Indirect DTC
Participants").
Under the rules, regulations and procedures creating and affecting DTC and its
operations (the "Rules"), DTC is required to make book-entry transfers of Book-
Entry Certificates among DTC Participants on whose behalf it acts with respect
to the Book-Entry Certificates and to receive and transmit distributions of
principal of and interest on the Book-Entry Certificates. DTC Participants and
Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Master Servicer, or a Paying
Agent on behalf of the Master Servicer, through DTC Participants. DTC will
forward such distributions to its DTC Participants, which thereafter will
forward them to Indirect DTC Participants or Beneficial Owners. Beneficial
Owners will not be
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recognized by the Trustee or the Master Servicer or any paying agent as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
and Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Master Servicer, or a Paying Agent on
behalf of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be taken
by a Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the Book-
Entry Certificates are credited. Additionally, DTC has advised the Seller that
it will take such actions with respect to specified Voting Interests only at the
direction of and on behalf of DTC Participants whose holdings of Book-Entry
Certificates evidence such specified Voting Interests. DTC may take conflicting
actions with respect to Voting Interests to the extent that DTC Participants
whose holdings of Book-Entry Certificates evidence such Voting Interests
authorize divergent action.
Neither the Seller, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an Indirect DTC Participant in whose
name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment and, if the
limits of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment, of amounts distributable with respect to such Book-Entry Certificates
may be impaired.
The Book-Entry Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
dismissal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting
Interests of the outstanding Book-Entry Certificates advise the Trustee through
DTC, in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the physical certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the Book-
Entry Certificates as Definitive Certificates to Beneficial Owners. The
procedures relating to payment on and transfer of Certificates initially issued
as Definitive Certificates will thereafter apply to those Book-Entry
Certificates that have been reissued as Definitive Certificates.
Distributions to Certificateholders
General
On each Distribution Date, each holder of a Certificate of a Class will be
entitled to receive its Certificate's Percentage Interest of the portion of the
Pool Distribution Amount (as defined below) allocated to such Class. The
undivided percentage interest (the "Percentage Interest") represented by any
Certificate of a Subclass or any Class in distributions to such Subclass or
Class will be equal to the percentage obtained by dividing the initial principal
balance (or notional amount) of such Certificate by the aggregate initial
principal balance (or notional amount) of all Certificates of such Subclass or
Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the "Pool Distribution Amount") will be the sum of all previously undistributed
payments or other receipts
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on account of principal (including principal prepayments and Liquidation
Proceeds, if any) and interest on or in respect of the related Mortgage Loans
received by the related Servicer after the Cut-Off Date (except for amounts due
on or prior to the Cut-Off Date), or received by the related Servicer on or
prior to the Cut-Off Date but due after the Cut-Off Date, in either case
received on or prior to the business day preceding the Determination Date in the
month in which such Distribution Date occurs, plus all Periodic Advances with
respect to payments due to be received on the Mortgage Loans on the Due Date
preceding such Distribution Date, but excluding the following:
(a) amounts received as late payments of principal or interest respecting
which one or more unreimbursed Periodic Advances has been made;
(b) that portion of Liquidation Proceeds with respect to a Mortgage Loan
which represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular Mortgage Loan
which represent (i) the Fixed Retained Yield, if any, (ii) the applicable
Servicing Fee, (iii) the applicable Master Servicing Fee, (iv) the Trustee
Fee, if any, and (v) any other amounts described in the applicable Prospectus
Supplement;
(d) all amounts representing scheduled payments of principal and interest
due after the Due Date occurring in the month in which such Distribution Date
occurs;
(e) all proceeds (including Liquidation Proceeds other than, in certain
cases as specified in the applicable Prospectus Supplement, Liquidation
Proceeds which were received prior to the related Servicer's determination
that no further recoveries on a defaulted Mortgage Loan will be forthcoming
("Partial Liquidation Proceeds")) of any Mortgage Loans, or property acquired
in respect thereof, that were liquidated, foreclosed, purchased or repurchased
pursuant to the applicable Pooling and Servicing Agreement, which proceeds
were received on or after the Due Date occurring in the month in which such
Distribution Date occurs and all principal prepayments in full, partial
principal prepayments and Partial Liquidation Proceeds received by the related
Servicer on or after the Determination Date (or, in certain cases as specified
in the applicable Prospectus Supplement, the Due Date) occurring in the month
in which such Distribution Date occurs, and all related payments of interest
on such amounts;
(f) that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the related
Servicer, the Trustee or the Master Servicer, respectively, is entitled and
any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate as
a REMIC, any Net Foreclosure Profits with respect to such Distribution Date;
(h) all amounts representing certain expenses reimbursable to the Master
Servicer or any Servicer and other amounts permitted to be withdrawn by the
Master Servicer from the Certificate Account, in each case pursuant to the
applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees, prepayment fees
and similar fees and payments of interest related to principal prepayments
received on or after the first day of the month in which a Distribution Date
occurs and prior to the Determination Date in the month of such Distribution
Date which the related Servicer is entitled to retain pursuant to the
applicable Underlying Servicing Agreement;
(j) reinvestment earnings on payments received in respect of the Mortgage
Loans; and
(k) any recovery of an amount in respect of principal which had previously
been allocated as a realized loss to such Series of Certificates.
The applicable Prospectus Supplement for a Series will describe any variation
in the calculation of the Pool Distribution Amount for such Series.
"Net Foreclosure Profits" with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which represents
the amount by which aggregate profits on liquidated Mortgage Loans with respect
to which net Liquidation Proceeds exceed the unpaid principal balance thereof
plus accrued interest thereon at the Mortgage Interest Rate over (ii) aggregate
realized losses on liquidated Mortgage Loans with respect to which net
Liquidation Proceeds are less than the unpaid principal balance thereof plus
accrued interest thereon at the Mortgage Interest Rate.
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Distributions of Interest
With respect to each Series of Certificates, interest on the related Mortgage
Loans at the weighted average of the applicable Net Mortgage Interest Rates
thereof, will be passed through monthly to holders of the related Classes of
Certificates in the aggregate, in accordance with the particular terms of each
such Class of Certificates. The "Net Mortgage Interest Rate" for each Mortgage
Loan in a given period will equal the mortgage interest rate for such Mortgage
Loan in such period, as specified in the related mortgage note (the "Mortgage
Interest Rate"), less the portion thereof, if any, not contained in the Trust
Estate (the "Fixed Retained Yield"), and less amounts payable to the Servicers
for servicing the Mortgage Loan (the "Servicing Fee"), the fee payable to the
Master Servicer (the "Master Servicing Fee"), the fee payable to the Trustee
(the "Trustee Fee"), if any, and any related expenses specified in the
applicable Prospectus Supplement.
Interest will accrue on the principal balance (or notional amount, as
described below) of each Class of Certificates entitled to interest at the
Pass-Through Rate for such Class indicated in the applicable Prospectus
Supplement (which may be a fixed rate or an adjustable rate) from the date and
for the periods specified in such Prospectus Supplement. To the extent the Pool
Distribution Amount is available therefor, interest accrued during each such
specified period on each Class of Certificates entitled to interest (other than
a Class that provides for interest that accrues, but is not currently payable,
referred to hereafter as "Accrual Certificates") will be distributable on the
Distribution Dates specified in the applicable Prospectus Supplement until the
principal balance (or notional amount) of such Class has been reduced to zero.
Distributions allocable to interest on each Certificate that is not entitled to
distributions allocable to principal will generally be calculated based on the
notional amount of such Certificate. The notional amount of a Certificate will
not evidence an interest in or entitlement to distributions allocable to
principal but will be solely for convenience in expressing the calculation of
interest and for certain other purposes.
With respect to any Class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the
principal balance of such Class of Certificates on that Distribution Date.
Distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the events or the existence of the circumstance
specified in such Prospectus Supplement and, prior to such time, or in the
absence of such circumstances, the principal balance of such Class will increase
on each Distribution Date by the amount of interest that accrued on such Class
during the preceding interest accrual period but that was not required to be
distributed to such Class on such Distribution Date. Any such Class of Accrual
Certificates will thereafter accrue interest on its outstanding principal
balance as so adjusted.
Distributions of Principal
The principal balance of any Class of Certificates entitled to distributions
of principal will generally be the original principal balance of such Class
specified in such Prospectus Supplement, reduced by all distributions reported
to the holders of such Certificates as allocable to principal and any losses on
the related Mortgage Loans allocated to such Class of Certificates and (i) in
the case of Accrual Certificates, increased by all interest accrued but not then
distributable on such Accrual Certificates and (ii) in the case of a Series of
Certificates representing interests in a Trust Estate containing adjustable-rate
Mortgage Loans, increased by any Deferred Interest allocable to such Class. The
principal balance of a Class or Subclass of Certificates generally represents
the maximum specified dollar amount (exclusive of any interest that may accrue
on such Class or Subclass to which the holder thereof is entitled from the cash
flow on the related Mortgage Loans at such time) and will decline to the extent
of distributions in reduction of the principal balance of, and allocations of
losses to such Class or Subclass. Certificates with no principal balance will
not receive distributions in respect of principal. The applicable Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be calculated and
the manner in which such amount will be allocated among the Classes of
Certificates entitled to distributions of principal.
If so provided in the applicable Prospectus Supplement, one or more Classes of
Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the months of such payments or of
other unscheduled principal receipts or recoveries in the percentages and under
the circumstances or for the periods specified in such Prospectus Supplement.
Any such allocation of principal prepayments or other unscheduled receipts or
recoveries in respect of principal to such Class or Classes of Senior
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by the Subordinated
Certificates in the Trust Estate. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
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If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates of the
same Series to the extent described below, except as otherwise set forth in such
Prospectus Supplement. This subordination is intended to enhance the likelihood
of regular receipt by holders of Senior Certificates of the full amount of
scheduled monthly payments of principal and interest due them and to provide
limited protection to the holders of the Senior Certificates against losses due
to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series of
Certificates for which credit enhancement is provided through subordination by
the subordination feature described above will be effected by (i) the
preferential right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates on each Distribution
Date, current distributions on the related Mortgage Loans of principal and
interest due them on each Distribution Date out of the funds available for
distribution on such date in the related Certificate Account, (ii) by the right
of such holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to the holders of Subordinated Certificates and/or
(iii) by the prior allocation to the Subordinated Certificates of all or a
portion of losses realized on the related Mortgage Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special Hazard
Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described below)
will be allocated to the holders of Subordinated Certificates through a
reduction of the amount of principal payments on the Mortgage Loans to which
such holders are entitled before any corresponding reduction is made in respect
of the Senior Certificate.
A "Special Hazard Loss" is a loss on a liquidated Mortgage Loan occurring as a
result of a hazard not insured against under a standard hazard insurance policy
of the type described herein under "Servicing of the Mortgage Loans-- Insurance
Policies." A "Fraud Loss" is a loss on a liquidated Mortgage Loan as to which
there was fraud in the origination of such Mortgage Loan. A "Bankruptcy Loss" is
a loss on a liquidated Mortgage Loan attributable to certain actions which may
be taken by a bankruptcy court in connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal balance of or the interest rate
on a Mortgage Loan or an extension of its maturity. Special Hazard Losses in
excess of the amount specified in the applicable Prospectus Supplement (the
"Special Hazard Loss Amount") are "Excess Special Hazard Losses." Fraud Losses
in excess of the amount specified in the applicable Prospectus Supplement (the
"Fraud Loss Amount") are "Excess Fraud Losses." Bankruptcy losses in excess of
the amount specified in the applicable Prospectus Supplement (the "Bankruptcy
Loss Amount") are "Excess Bankruptcy Losses." Any Excess Special Hazard Losses,
Excess Fraud Losses or Excess Bankruptcy Losses with respect to a Series will be
allocated on a pro rata basis among the related Classes of Senior and
Subordinated Certificates. An allocation of a loss on a "pro rata basis" among
two or more Classes of Certificates means an allocation on a pro rata basis to
each such Class of Certificates on the basis of their then-outstanding principal
balances in the case of the principal portion of a loss or based on the accrued
interest thereon in the case of an interest portion of a loss.
Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be less
than the amount of principal payments on the Mortgage Loans to which the holders
of the Subordinated Certificates of such Series are initially entitled (such
amount being subject to reduction, as described above, as a result of allocation
of losses on liquidated Mortgage Loans that are not Special Hazard Losses, Fraud
Losses or Bankruptcy Losses), the holders of Subordinated Certificates of such
Series will bear the risk of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to a lesser extent than they will bear other losses on liquidated
Mortgage Loans.
Although the subordination feature described above is intended to enhance the
likelihood of timely payment of principal and interest to the holders of Senior
Certificates, shortfalls could result in certain circumstances. For example, a
shortfall in the payment of principal otherwise due the holders of Senior
Certificates could occur if losses realized on the Mortgage Loans in a Trust
Estate were exceptionally high and were concentrated in a particular month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there are
sufficient funds on a subsequent Distribution Date to make a full distribution
to holders of each Class of Senior Certificates of the same Series.
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Categories of Classes of Certificates
The Certificates of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the applicable Prospectus Supplement.
Categories Of Definition
Classes PRINCIPAL TYPES
Accretion Directed
Class................ A Class that receives principal payments from amounts
that would otherwise be distributed as interest on
specified Accrual Classes. Such principal payments may
be in lieu of or in addition to principal payments from
principal receipts on the Mortgage Loans for the
related Series.
Companion Class
(also sometimes
referred to as a
"Support Class").... A Class that is entitled to receive principal payments on
any Distribution Date only if scheduled payments have
been made on specified Planned Amortization Classes,
Targeted Amortization Classes and/or Scheduled
Amortization Classes.
Component Class...... A Class consisting of two or more specified components
(each, a "Component") as described in the applicable
Prospectus Supplement. The Components of a Class of
Component Certificates may have different principal
and/or interest payment characteristics but together
constitute a single class and do not represent severable
interests. Each Component of a Class of Component
Certificates may be identified as falling into one or
more of the categories in this chart.
Lockout Class........ A Senior Class that is designed not to participate in or
to participate to a limited extent in (i.e., to be
"locked out" of), for a specified period, the receipt of
(1) principal prepayments on the Mortgage Loans that are
allocated disproportionately to the Senior Classes of
such Series as a group pursuant to a "shifting interest"
structure and/or (2) scheduled principal payments on the
Mortgage Loans that are allocated to the Senior Classes
as a group. A Lockout Class will typically not be
entitled to receive, or will be entitled to receive only
a restricted portion of, distributions of principal
prepayments and/or scheduled principal payments, as
applicable, for a period of several years, during which
time all or a portion of such principal payments that it
would otherwise be entitled to receive in the absence of
a "lockout" structure will be distributed in reduction of
the principal balances of other Senior Classes. Lockout
Classes are designed to minimize weighted average life
volatility during the lockout period.
Notional Amount
Class................ A Class having no principal balance and bearing interest
on the related notional amount. The notional amount is
used for purposes of the determination of interest
distributions.
Pass-Through Class... A Class of Senior Certificates that is entitled to
receive a specified percentage of the principal payments
that are distributable to the Senior Certificates or
applicable group of Senior Certificates (other than any
Ratio Strip Class) in the aggregate on a Distribution
Date and that is not designated as a Sequential Pay
Class.
Planned Amortization
Class
(also sometimes
referred to as
a "PAC")............ A Class that is designed to receive principal payments
using a predetermined principal balance schedule derived
by assuming two constant prepayment rates for the
underlying
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Mortgage Loans. These two rates are the endpoints for the
"structuring range" for the Planned Amortization Class.
The Planned Amortization Classes in any Series of
Certificates may be subdivided into different categories
(e.g., Planned Amortization Class I ("PAC I") Planned
Amortization Class II ("PAC II") and so forth) derived
using different structuring ranges. A PAC is designed to
provide protection against volatility of weighted average
life if prepayments occur at a constant rate within the
structuring range.
Ratio Strip Class.... A Class that is entitled to receive a constant
proportion, or "ratio strip," of the principal payments
on the underlying Mortgage Loans.
Scheduled
Amortization Class
(also sometimes
referred to as
a "Scheduled
Class").............. A Class that is designed to receive principal payments
using a predetermined principal balance schedule but is
not designated as a Planned Amortization Class or
Targeted Amortization Class. The schedule is derived by
assuming either two constant prepayment rates or a single
constant prepayment rate for the underlying Mortgage
Loans. In the former case, the two rates are the
endpoints for the "structuring range" for the Scheduled
Amortization Class and such range generally is narrower
than that for a Planned Amortization Class. Typically,
the Support Class(es) for the applicable Series of
Certificates generally will represent a smaller
percentage of the Scheduled Amortization Class than a
Support Class generally would represent in relation to a
Planned Amortization Class or a Targeted Amortization
Class. A Scheduled Amortization Class is generally less
sensitive to weighted average life volatility as a result
of prepayments than a Support Class but more sensitive
than a Planned Amortization Class or a Targeted
Amortization Class.
Senior Class......... A Class that is entitled to receive payments of principal
and interest on each Distribution Date prior to the
Classes of Subordinated Certificates.
Sequential Pay
Class................ A Class that is entitled to receive principal payments in
a prescribed sequence, that does not have a predetermined
principal balance schedule and that, in most cases, is
entitled to receive payments of principal continuously
from the first Distribution Date on which it receives
principal until it is retired. Sequential Pay Classes may
receive principal payments concurrently with one or more
other Sequential Pay Classes. A single Class that is
entitled to receive principal payments before or after
other Classes in the same Series of Certificates may be
identified as a Sequential Pay Class.
Subordinated Class... A Class that is entitled to receive payments of principal
and interest on each Distribution Date only after the
Senior Certificates and certain Classes of Subordinated
Certificates with higher priority of distributions have
received their full principal and interest entitlements.
Super Senior Class... A Senior Class that will not bear its share of certain
losses after the Classes of Subordinated Certificates are
no longer outstanding for so long as one or more other
specified Classes of Senior Certificates are outstanding.
Super Senior Support
Class............... A Senior Class that bears certain losses allocated to one
or more Super Senior Classes after the Classes of
Subordinated Certificates are no longer outstanding.
Targeted
Amortization Class
(also sometimes
referred to as a
"TAC").............. A Class that is designed to receive principal payments
using a predetermined principal balance schedule derived
by assuming a single constant prepayment rate for the
underlying Mortgage Loans. A TAC is designed to provide
some protection against shortening of weighted average
life if prepayments occur at a rate exceeding the assumed
constant prepayment rate used to derive the principal
balances schedule of such Class.
31
<PAGE>
INTEREST TYPES
Accrual Class........ A Class that accretes the amount of accrued interest
otherwise distributable on such Class, which amount will
be added as principal to the principal balance of such
Class on each applicable Distribution Date. Such
accretion may continue until some specified event has
occurred or until such Accrual Class is retired.
Interest Only
Class................ A Class that is entitled to receive some or all of the
interest payments made on the Mortgage Loans and little
or no principal. Interest Only Classes have either a
nominal principal balance or a notional amount. A nominal
principal balance represents actual principal that will
be paid on the Class. It is referred to as nominal since
it is extremely small compared to other Classes. A
notional amount is the amount used as a reference to
calculate the amount of interest due on an Interest Only
Class that is not entitled to any distributions in
respect of principal.
Fixed Rate Class..... A Class with an interest rate that is fixed throughout
the life of the Class.
Floating Rate
Class................ A Class with an interest rate that resets periodically
based upon a designated index and that varies directly
with changes in such index.
Inverse Floating
Rate Class........... A Class with an interest rate that resets periodically
based upon a designated index and that varies inversely
with changes in such index and with changes in the
interest rate payable on the related Floating Rate Class.
Principal Only
Class................ A Class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Step Coupon Class.... A class with a fixed interest rate that is reduced to a
lower fixed rate after a specified period of time. The
difference between the initial interest rate and the
lower interest rate will be supported by a reserve fund
established on the Closing Date.
Variable Rate
Class................ A Class with an interest rate that resets periodically
and is calculated by reference to the rate or rates of
interest applicable to the Mortgage Loans.
Other Credit Enhancement
In addition to, or in substitution for, the subordination discussed above,
credit enhancement may be provided with respect to any Series of Certificates in
any other manner which may be described in the applicable Prospectus Supplement,
including, but not limited to, credit enhancement through an alternative form of
subordination and/or one or more of the methods described below.
Limited Guarantee
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
Financial Guaranty Insurance Policy or Surety Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates credit enhancement may be provided in the form of a financial
guaranty insurance policy or a surety bond issued by an insurer named therein.
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of credit
issued with respect to a Series of Certificates will be set forth in the
Prospectus Supplement relating to such Series.
32
<PAGE>
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Estate. The pool insurance policy will cover any loss
(subject to the limitations described in the applicable Prospectus Supplement)
by reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
Special Hazard Insurance Policies
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such Prospectus Supplement. The special hazard insurance
policy will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and principal terms of any such coverage will be set forth
in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting from
a bankruptcy proceeding relating to a mortgagor affecting the Mortgage Loans in
a Trust Estate with respect to a Series of Certificates will be covered under a
mortgagor bankruptcy bond (or any other instrument that will not result in a
downgrading of the rating of the Certificates of a Series by the Rating Agency
or Rating Agencies that rated such Series). Any mortgagor bankruptcy bond or
such other instrument will provide for coverage in an amount meeting the
criteria of the Rating Agency or Rating Agencies rating the Certificates of the
related Series, which amount will be set forth in the applicable Prospectus
Supplement. The amount and principal terms of any such coverage will be set
forth in the Prospectus Supplement.
Reserve Fund
If so specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment of
one or more reserve funds (each, a "Reserve Fund") for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
applicable Prospectus Supplement, (ii) by the deposit therein from time to time
of certain amounts, as specified in the applicable Prospectus Supplement, to
which the certain Classes of Certificates would otherwise be entitled or (iii)
in such other manner as may be specified in the applicable Prospectus
Supplement.
Cross Support
If specified in the applicable Prospectus Supplement, the beneficial ownership
of separate groups of Mortgage Loans included in a Trust Estate may be evidenced
by separate Classes of Certificates. In such case, credit support may be
provided by a cross support feature which requires that distributions be made
with respect to certain Classes from mortgage loan payments that would otherwise
be distributed to Subordinated Certificates evidencing a beneficial ownership
interest in other loan groups within the same Trust Estate. The applicable
Prospectus Supplement for a Series that includes a cross support feature will
describe the specific operation of any such cross support feature.
PREPAYMENT AND YIELD CONSIDERATIONS
Pass-Through Rates
Any Class of Certificates of a Series may have a fixed Pass-Through Rate, or a
Pass-Through Rate which varies based on changes in an index or based on changes
with respect to the underlying Mortgage Loans (such as, for example, varying on
the basis of changes in the weighted average Net Mortgage Interest Rate of the
underlying Mortgage Loans).
33
<PAGE>
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net Mortgage
Interest Rates for the Mortgage Loans underlying such Series as of the Cut-Off
Date. If the Trust Estate includes adjustable-rate Mortgage Loans or includes
Mortgage Loans with different Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate may vary from time to time as set forth below. See
"The Trust Estates." The Prospectus Supplement for a Series will also specify
the initial weighted average Pass-Through Rate for each Class of Certificates of
such Series and will specify whether each such Pass- Through Rate is fixed or is
variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of
adjustable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate
readjustments of such Mortgage Loans and to different rates of payment of
principal of fixed- or adjustable-rate Mortgage Loans bearing different Mortgage
Interest Rates.
Scheduled Delays in Distributions
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to pay
accrued interest at the applicable Pass-Through Rate for such Class from the
Cut-Off Date for such Series to, but not including, the date of issuance. The
effective yield to Certificateholders will be below the yield otherwise produced
by the applicable Pass-Through Rate because the distribution of principal and
interest which is due on each Due Date will not be made until the 25th day (or,
if such day is not a business day, the first business day following the 25th
day) of the month in which such Due Date occurs (or until such other
Distribution Date specified in the applicable Prospectus Supplement).
Effect of Principal Prepayments
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds (as defined herein) and amounts received in settlement of insurance
claims are also likely to include interest only to the time of payment or
settlement. When a Mortgage Loan is prepaid in full or in part, an interest
shortfall may result depending on the timing of the receipt of the prepayment
and the timing of when those prepayments are passed through to
Certificateholders. To partially mitigate this reduction in yield, the
Underlying Servicing Agreements relating to a Series may provide, to the extent
specified in the applicable Prospectus Supplement, that with respect to certain
principal prepayments received, the Master Servicer will be obligated, on or
before each Distribution Date, to pay an amount equal to the lesser of (i) the
aggregate interest shortfall with respect to such Distribution Date resulting
from principal prepayments in full by mortgagors and (ii) the portion of the
Master Servicer's master servicing compensation for such Distribution Date
specified in the applicable Prospectus Supplement. No comparable interest
shortfall coverage will be provided by the Master Servicer with respect to
liquidations of any Mortgage Loans or partial principal payments. Any interest
shortfall arising from prepayments not so covered or from liquidations will be
covered by means of the subordination of the rights of Subordinated
Certificateholders or any other credit support arrangements.
A lower rate of principal prepayments than anticipated would negatively affect
the total return to investors in any Certificates of a Series that are offered
at a discount to their principal amount and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors in the Certificates of a Series that are offered at a premium to their
principal amount. The yield on Certificates that are entitled solely or
disproportionately to distributions of principal or interest may be particularly
sensitive to prepayment rates, and further information with respect to yield on
such Certificates will be included in the applicable Prospectus Supplement.
Weighted Average Life of Certificates
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related Prospectus Supplement. Fixed rate Mortgage Loans
generally will contain due-on-sale clauses permitting the mortgagee to
accelerate the maturities of the Mortgage Loans upon conveyance of the related
Mortgaged Properties, and adjustable-rate Mortgage Loans generally will permit
creditworthy borrowers to assume the then-outstanding indebtedness on the
Mortgage Loans.
34
<PAGE>
Prepayments on Mortgage Loans are commonly measured relative to a prepayment
standard or model. The Prospectus Supplement for each Series of Certificates may
describe one or more such prepayment standards or models and contain tables
setting forth the weighted average life of each Class and the percentage of the
original aggregate principal balance of each Class that would be outstanding on
specified Distribution Dates for such Series and the projected yields to
maturity on certain Classes thereof, in each case based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the Mortgage Loans are made at rates corresponding to various percentages of the
prepayment standard or model specified in such Prospectus Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable Prospectus Supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment or,
in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgage loans, including
the use of second or "home equity" mortgage loans by mortgagors or the use of
the properties as second or vacation homes, servicing decisions, enforceability
of due-on-sale clauses, mortgage market interest rates, mortgage recording
taxes, competition among mortgage loan originators resulting in reduced
refinancing costs, reduction in documentation requirements and willingness to
accept higher loan-to-value ratios, and the availability of mortgage funds, may
affect prepayment experience. In general, however, if prevailing mortgage
interest rates fall below the Mortgage Interest Rates borne by the Mortgage
Loans underlying a Series of Certificates, the prepayment rates of such Mortgage
Loans are likely to be higher than if prevailing rates remain at or above the
rates borne by such Mortgage Loans. Conversely, if prevailing mortgage interest
rates rise above the Mortgage Interest Rates borne by the Mortgage Loans, the
Mortgage Loans are likely to experience a lower prepayment rate than if
prevailing rates remain at or below such Mortgage Interest Rates. However, there
can be no assurance that prepayments will rise or fall according to such changes
in mortgage interest rates. It should be noted that Certificates of a Series may
evidence an interest in a Trust Estate with different Mortgage Interest Rates.
Accordingly, the prepayment experience of such Certificates will to some extent
be a function of the mix of interest rates of the Mortgage Loans. In addition,
the terms of the Underlying Servicing Agreements will require the related
Servicer to enforce any due-on-sale clause to the extent it has knowledge of the
conveyance or the proposed conveyance of the underlying Mortgaged Property;
provided, however, that any enforcement action that the Servicer determines
would jeopardize any recovery under any related primary mortgage insurance
policy will not be required and provided, further, that the Servicer may permit
the assumption of defaulted Mortgage Loans. See "Servicing of the Mortgage
Loans--Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage
Loans" and "Certain Legal Aspects of the Mortgage Loans-- Due-On-Sale Clauses"
for a description of certain provisions of each Pooling and Servicing Agreement
and certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
Prepayments on the Mortgage Loans are also affected by the obligation or right
of the Seller, Servicer or other party specified in the applicable Prospectus
Supplement to repurchase or purchase certain or all of the Mortgage Loans under
certain circumstances. The Seller will be obligated, under certain
circumstances, to repurchase certain of the Mortgage Loans. In addition, if
specified in the applicable Prospectus Supplement, the Pooling and Servicing
Agreement will permit, but not require, the Seller, and the terms of certain
insurance policies relating to the Mortgage Loans may permit the applicable
insurer, to purchase any Mortgage Loan which is in default or as to which
default is reasonably foreseeable. The proceeds of any such purchase or
repurchase will be deposited in the related Certificate Account and such
purchase or repurchase will have the same effect as a prepayment in full of the
related Mortgage Loan. See "The Pooling and Servicing Agreement-- Assignment of
Mortgage Loans to the Trustee" and "--Optional Purchases." In addition, if so
specified in the applicable Prospectus Supplement, the Seller or another person
identified therein will have the option to purchase all, but not less than all,
of the Mortgage Loans in any Trust Estate under the limited conditions specified
in such Prospectus Supplement. For any Series of Certificates for which an
election has been made to treat the Trust Estate (or one or more segregated
pools of assets therein) as a REMIC, any such purchase or repurchase may be
effected only pursuant to a "qualified liquidation," as defined in Code Section
860F(a)(4)(A). See "The Pooling and Servicing Agreement--Termination; Optional
Purchase of Mortgage Loans."
Refinancings
At the request of the mortgagor, a Servicer, including Norwest Mortgage, may
allow the refinancing of a Mortgage Loan in any Trust Estate serviced by such
Servicer by accepting prepayments thereon and permitting a new loan secured by a
Mortgage on the same property. Upon such refinancing, the new loan will not be
included in the Trust Estate. A mortgagor may be legally
35
<PAGE>
entitled to require the Servicer to allow such a refinancing. Any such
refinancing will have the same effect as a prepayment in full of the related
Mortgage Loan. In this regard a Servicer may, from time to time, implement
programs designed to encourage refinancing through such Servicer, including but
not limited to general or targeted solicitations, or the offering of pre-
approved applications, reduced or nominal origination fees or closing costs, or
other financial incentives. A Servicer may also encourage refinancing of
defaulted Mortgage Loans, including Mortgage Loans that would permit
creditworthy borrowers to assume the outstanding indebtedness.
Norwest Mortgage is in the process of instituting a new "retention program"
applicable to its servicing portfolio. Provided the borrower is current in his
or her mortgage payment obligations, Norwest Mortgage may agree to refinance the
mortgage loan in order to reduce the borrower's mortgage interest rate, without
the application of any significant new borrower credit or property underwriting
standards. See "The Mortgage Loan Programs--Mortgage Loan Underwriting;
Retention Program Standards" in this Prospectus. The streamlined procedures,
minimal borrower cost and the absence of significant underwriting standards
associated with this retention program may result in an increase in the number
of Mortgage Loans eligible for refinancing and a narrowing of the interest rate
differential that may otherwise need to exist before a refinancing is practical
and economic for the borrower. These factors, together with increased borrower
sophistication in general regarding the benefits of refinancing may also result
in a significant increase in the rate of prepayments on the Mortgage Loans. In
addition, the success of Norwest Mortgage over time in attracting borrowers to
its retention program who are current in their mortgage payment obligations may
result in a higher proportion of Mortgage Loans not eligible for such program
remaining in the Trust Estate, thereby increasing the relative percentage of
delinquent Mortgage Loans in such Trust Estate.
DELINQUENCY AND FORECLOSURE EXPERIENCE
The following tables set forth certain information concerning recent
delinquency and foreclosure experience as reported to the Master Servicer by the
applicable Servicers of such mortgage loans on (i) the conventional fixed-rate
mortgage loans included in various mortgage pools underlying all Series of the
Seller's Mortgage Pass-Through Certificates (the "Total Loans"), (ii) the Total
Loans having original terms to maturity of approximately 20 years to
approximately 30 years (the "30-Year Loans"), including, in clauses (i) and (ii)
mortgage loans originated in connection with the purchases of residences of
relocated employees of various corporate employers that participated in the
relocation program of Norwest Mortgage and of various non-participant employers
("Relocation Mortgage Loans"), (iii) the Total Loans which are not Relocation
Mortgage Loans ("Total Non-Relocation Loans"), (iv) the Total Non- Relocation
Loans having original terms to maturity of approximately 20 years to
approximately 30 years (the "30-Year Non-Relocation Loans") and (v) the Total
Loans having original terms to maturity of approximately 10 years to
approximately 15 years (the "15-Year Loans"). There can be no assurance that the
delinquency and foreclosure experience set forth in any of the following tables
which include mortgage loans with various terms to stated maturity, may or may
not include Relocation Mortgage Loans, and include loans having a variety of
payment characteristics such as Subsidy Loans and Buy-Down Loans, will be
representative of the results that may be experienced with respect to the
Mortgage Loans included in the Trust Estate with respect to any Series.
Delinquencies and foreclosures generally are expected to occur more frequently
after the first full year of the life of mortgage loans. Accordingly, because a
large number of mortgage loans included in the mortgage pools underlying the
Seller's Mortgage Pass-Through Certificates have been recently originated, the
current level of delinquencies and foreclosures may not be representative of the
levels which may be experienced over the lives of such mortgage loans. In
addition, if the volume of Norwest Mortgage's new loan originations and
acquisitions does not continue to grow at the rate experienced in recent years,
resulting in a decrease in growth in the number of mortgage loans included in
the mortgage pools underlying the Seller's Mortgage Pass-Through Certificates,
the levels of delinquencies and foreclosures as percentages of the various
portfolios mortgage loans covered by the following tables could rise
significantly above the rates indicated in such tables.
36
<PAGE>
TOTAL LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Loans............. 26,137 $7,497,698 63,401 $19,608,657 80,519 $25,803,999
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 57 $ 17,187 243 $ 67,456 303 $ 85,570
60 to 89 days.......... 4 1,000 35 11,467 35 8,678
90 days or more........ 18 5,461 31 8,375 37 10,188
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 79 $ 23,648 309 $ 87,298 375 $ 104,436
====== ========== ====== =========== ====== ===========
Percent of Total Loans.. 0.30% 0.32% 0.49% 0.45% 0.47% 0.40%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C>
Foreclosures(2)......... $798 $11,620 $13,665
Foreclosure Ratio(3).... 0.01% 0.06% 0.05%
</TABLE>
30-YEAR LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Loans..... 21,960 $6,289,006 53,991 $16,719,824 68,468 $22,001,911
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 51 $ 15,343 219 $ 62,351 262 $ 73,814
60 to 89 days.......... 3 870 33 10,793 31 7,785
90 days or more........ 18 5,461 29 7,668 36 9,939
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 72 $ 21,674 281 $ 80,812 329 $ 91,538
====== ========== ====== =========== ====== ===========
Percent of 30-Year
Loans.................. 0.33% 0.34% 0.52% 0.48% 0.48% 0.42%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C>
Foreclosures(2)......... $ 798 $11,532 $13,407
Foreclosure Ratio(3).... 0.01% 0.07% 0.06%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceedings
had been instituted or with respect to which the related property had been
acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
37
<PAGE>
TOTAL NON-RELOCATION LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Non-Relocation
Loans.................. 21,270 $6,070,912 51,466 $15,896,090 67,149 $21,567,004
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 55 $ 16,601 219 $ 60,350 280 $ 78,510
60 to 89 days.......... 4 1,000 35 11,467 33 7,863
90 days or more........ 17 5,238 31 8,375 37 10,188
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 76 $ 22,839 285 $ 80,192 350 $ 96,561
====== ========== ====== =========== ====== ===========
Percent of Total Non-
Relocation Loans....... 0.36% 0.38% 0.55% 0.50% 0.52% 0.45%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C>
Foreclosures(2)......... $798 $11,620 $13,286
Foreclosure Ratio(3).... 0.01% 0.07% 0.06%
</TABLE>
30-YEAR NON-RELOCATION LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ----------- -------- -----------
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 30-Year Non-
Relocation Loans....... 17,093 $4,862,220 42,577 $13,161,188 55,663 $17,932,741
====== ========== ====== =========== ====== ===========
Period of Delinquency(1)
30 to 59 days.......... 49 $ 14,757 195 $ 55,245 240 $ 67,053
60 to 89 days.......... 3 870 33 10,793 29 6,970
90 days or more........ 17 5,238 29 7,668 36 9,939
------ ---------- ------ ----------- ------ -----------
Total Delinquent Loans.. 69 $ 20,865 257 $ 73,706 305 $ 83,962
====== ========== ====== =========== ====== ===========
Percent of Total 30-Year
Non-Relocation Loans... 0.40% 0.43% 0.60% 0.56% 0.55% 0.47%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- -------------------- --------------------
<S> <C> <C> <C>
Foreclosures(2)......... $798 $11,532 $13,027
Foreclosure Ratio(3).... 0.02% 0.09% 0.07%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceedings
had been instituted or with respect to which the related property had been
acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
38
<PAGE>
15-YEAR LOANS
<TABLE>
<CAPTION>
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
-------- ---------- -------- ---------- -------- ----------
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- ------------------- -------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total 15-Year Loans..... 4,177 $1,208,692 9,410 $2,888,833 12,051 $3,802,089
===== ========== ===== ========== ====== ==========
Period of Delinquency(1)
30 to 59 days.......... 6 $ 1,844 24 $ 5,105 41 $ 11,755
60 to 89 days.......... 1 130 2 674 4 893
90 days or more........ 0 0 2 708 1 249
----- ---------- ----- ---------- ------ ----------
Total Delinquent Loans.. 7 $ 1,974 28 $ 6,487 46 $ 12,897
===== ========== ===== ========== ====== ==========
Percent of Total 15-Year
Loans.................. 0.17% 0.16% 0.30% 0.22% 0.38% 0.34%
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 June 30, 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Foreclosures(2)......... $0 $88 $258
Foreclosure Ratio(3).... 0.00% 0.00% 0.01%
</TABLE>
- -------
(1) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
these purposes until one month has passed since its contractual due date. A
mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(2) Includes loans in the applicable portfolio for which foreclosure proceedings
had been instituted or with respect to which the related property had been
acquired as of the dates indicated.
(3) Foreclosure as a percentage of total loans in the applicable portfolio at
the end of each period.
The likelihood that a mortgagor will become delinquent in the payment of his
or her mortgage loan or the rate of any subsequent foreclosures may be affected
by a number of factors related to a borrower's personal circumstances,
including, but not limited to, unemployment or change in employment (or in the
case of self-employed mortgagors or mortgagors relying on commission income,
fluctuations in income), marital separation and the mortgagor's equity in the
related mortgaged property. In addition, delinquency and foreclosure experience
may be sensitive to adverse economic conditions, either nationally or
regionally, may exhibit seasonal variations and may be influenced by the level
of interest rates and servicing decisions on the applicable mortgage loans.
Regional economic conditions (including declining real estate values) may
particularly affect delinquency and foreclosure experience on mortgage loans to
the extent that mortgaged properties are concentrated in certain geographic
areas. Furthermore, the level of foreclosures reported is affected by the length
of time legally required to complete the foreclosure process and take title to
the related property, which varies from jurisdiction to jurisdiction. The
changes in the delinquency and foreclosure and experience on the mortgage loans
underlying the Seller's Mortgage Pass-Through Certificates during the periods
set forth in the preceding tables may be attributable to factors such as those
described above, although there can be no assurance as to whether these changes
are the result of any particular factor or a combination of factors. The
delinquency and foreclosure experience on the mortgage loans underlying the
Seller's Mortgage Pass-Through Certificates may be particularly affected to the
extent that the related Mortgage Properties are concentrated in areas which
experience adverse economic conditions or declining real estate values. See
"Description of the Mortgage Loans" and "Prepayment and Yield Considerations" in
the applicable Prospectus Supplement.
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<PAGE>
SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the
Underlying Servicing Agreement and the Pooling and Servicing Agreement that have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Pooling and Servicing Agreement and Underlying Servicing Agreements for each
Series of Certificates and the applicable Prospectus Supplement.
The Master Servicer
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See "Norwest Bank." The Master Servicer generally will (a) be
responsible under each Pooling and Servicing Agreement for providing general
administrative services for the Trust Estate for any such Series, including,
among other things, (i) for administering and supervising the performance by the
Servicers of their duties and responsibilities under the Underlying Servicing
Agreements, (ii) oversight of payments received on Mortgage Loans, (iii)
monitoring the amounts on deposit in various trust accounts, (iv) calculation of
the amounts payable to Certificateholders on each Distribution Date, (v)
preparation of periodic reports to the Trustee or the Certificateholders with
respect to the foregoing matters, (vi) preparation of federal and applicable
state and local tax and information returns; (vii) preparation of reports, if
any, required under the Securities and Exchange Act of 1934, as amended and
(viii) performing certain of the servicing obligations of a terminated Servicer
as described below under "--The Servicers"; (b) maintain any mortgage pool
insurance policy, mortgagor bankruptcy bond, special hazard insurance policy or
other form of credit support that may be required with respect to any Series and
(c) make advances of delinquent payments of principal and interest on the
Mortgage Loans to the limited extent described herein under the heading
"Servicing of Mortgage Loans--Periodic Advances and Limitations Thereon," if
such amounts are not advanced by a Servicer (other than Norwest Mortgage). The
Master Servicer will also perform additional duties as described in the
applicable Pooling and Servicing Agreement. The Master Servicer will be entitled
to receive a portion of the interest payments on the Mortgage Loans included in
the Trust Estate for such a Series to cover its fees as Master Servicer. The
Master Servicer may subcontract with Norwest Mortgage or any other entity the
obligations of the Master Servicer under any Pooling and Servicing Agreement.
The Master Servicer will remain primarily liable for any such contractor's
performance in accordance with the applicable Pooling and Servicing Agreement.
The Master Servicer may be released from its obligations in certain
circumstances. See "Certain Matters Regarding the Master Servicer."
The Master Servicer will generally be required to pay all expenses incurred in
connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit enhancement for such Series, the fees and
disbursements of the Trustee and any custodian, fees due to the independent
accountants and expenses incurred in connection with distributions and reports
to Certificateholders. Certain of these expenses may be reimbursable to the
Master Servicer pursuant to the terms of the applicable Pooling and Servicing
Agreement.
The Servicers
For each Series, Norwest Mortgage and, if specified in the applicable
Prospectus Supplement, one or more other Servicers will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to
separate Underlying Servicing Agreements with the Seller or an affiliate
thereof. The rights of the Seller or such affiliate under the applicable
Underlying Servicing Agreements in respect of the Mortgage Loans included in the
Trust Estate for any such Series will be assigned (directly or indirectly) to
the Trustee for such Series. The Servicers may be entitled to withhold their
Servicing Fees and certain other fees and charges from remittances of payments
received on Mortgage Loans serviced by them.
Each Servicer generally will be approved by FNMA or FHLMC as a servicer of
mortgage loans and must be approved by the Master Servicer. In determining
whether to approve a Servicer, the Master Servicer will perform a review of the
Servicer that includes minimum net worth requirements, servicing experience,
errors and omissions and fidelity bond coverage and other standards to be set
forth in the applicable Underlying Servicing Agreement. In addition, the Master
Servicer's mortgage servicing personnel will review the Servicer's servicing
record and evaluate the ability of the Servicer to conform with required
servicing procedures. Once a Servicer is approved, the Master Servicer will
continue to monitor the compliance of the Servicer according to the Underlying
Servicing Agreement on an annual basis.
40
<PAGE>
The duties to be performed by each Servicer include collection and remittance
of principal and interest payments on the Mortgage Loans, 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 mortgagor and have not been determined by the
Servicer to be not recoverable under the applicable insurance policies with
respect to such Series, from proceeds of liquidation of such Mortgage Loans or
otherwise. Each Servicer also will provide such accounting and reporting
services as are necessary to enable the Master Servicer to provide required
information to the Trustee with respect to the Mortgage Loans included in the
Trust Estate for such Series. Each Servicer is entitled to a periodic Servicing
Fee equal to a specified percentage of the outstanding principal balance of each
Mortgage Loan serviced by such Servicer. With the consent of the Master
Servicer, any of the servicing obligations of a Servicer may be delegated to
another person approved by the Master Servicer. In addition, certain limited
duties of a Servicer may be delegated without consent.
The Trustee, or if so provided in the applicable Pooling and Servicing
Agreement, the Master Servicer, may terminate a Servicer who has failed to
comply with its covenants or breached one of its representations contained in
the Underlying Servicing Agreement or in certain other circumstances. 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 (which
substitute Servicer may be Norwest Mortgage) to assume the servicing obligations
of the terminated Servicer. The Master Servicer's obligations to act as a
servicer following the termination of an Underlying Servicing Agreement will
not, however, require the Master Servicer to (i) purchase a Mortgage Loan from
the Trust Estate due to a breach by such Servicer of a representation or
warranty in respect of such Mortgage Loan or (ii) with respect to a default by
Norwest Mortgage as Servicer, advance payments of principal and interest on a
delinquent Mortgage Loan.
Payments on Mortgage Loans
The Master Servicer will, as to each Series of Certificates, establish and
maintain a separate trust account in the name of the Trustee (the "Certificate
Account"). Such account may be established at Norwest Bank or an affiliate
thereof. Each such account must be maintained with a depository institution
("Depository") either (i) whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the long-
term debt obligations of such parent holding company) are, at the time of any
deposit therein rated in at least one of the two highest rating categories by
each nationally recognized statistical rating organization that rated the
related Series of Certificates, or (ii) that is otherwise acceptable to the
Rating Agency or Rating Agencies rating the Certificates of such Series and, if
a REMIC election has been made, that would not cause the related Trust Estate
(or one or more segregated pools of assets therein) to fail to qualify as a
REMIC. To the extent that the portion of funds deposited in the Certificate
Account at any time exceeds the limit of insurance coverage established by the
Federal Deposit Insurance Corporation (the "FDIC"), such excess will be subject
to loss in the event of the failure of the Depository. Such insurance coverage
will be based on the number of holders of Certificates, rather than the number
of underlying mortgagors. Holders of the Subordinated Certificates of a Series
will bear any such loss up to the amount of principal payments on the related
Mortgage Loans to which such holders are entitled.
Pursuant to the applicable Underlying Servicing Agreements with respect to a
Series, each Servicer may be required to establish and maintain one or more
accounts (collectively, the "Servicer Custodial Account") into which the
Servicer will be required to deposit on a daily basis amounts received with
respect to Mortgage Loans serviced by such Servicer included in the Trust Estate
for such Series, as more fully described below. Each required Servicer Custodial
Account must generally be a separate custodial account insured to the available
limits by the FDIC or otherwise acceptable to the applicable Rating Agencies
(such eligible account, an "Eligible Custodial Account") and limited to funds
held with respect to a particular Series, unless the Underlying Servicing
Agreement specifies that a Servicer may establish an account which is an
eligible account to serve as a unitary Servicer Custodial Account both for such
Series and for other Series of Certificates for which Norwest Bank is the Master
Servicer and having the same financial institution acting as Trustee and to be
maintained in the name of such financial institution, in its respective
capacities as Trustee for each such Series. Notwithstanding the foregoing,
Norwest Mortgage will be permitted to commingle funds in its Servicer Custodial
Account with its general assets until such time as such funds are required to be
remitted to the Certificate Account for so long as (i) a master guarantee of
Norwest Mortgage's remittance obligation has been issued by its parent, Wells
Fargo & Company ("Wells Fargo") for the benefit of the Certificateholders and is
currently in force and (ii) the short-term debt or long-term debt of Wells Fargo
is rated by the Rating Agencies in their highest short-term or highest long-term
category or in such lower rating category that would not result in a downgrading
or withdrawal of the rating then assigned to any Class of Certificates by the
Rating Agencies or result in any rated Class of Certificates being placed on
credit review status by the Rating Agencies.
41
<PAGE>
Each Servicer will be required to deposit in the Certificate Account for each
Series of Certificates on the date the Certificates are issued any amounts
representing scheduled payments of principal and interest on the Mortgage Loans
serviced by such Servicer due after the applicable Cut-Off Date but received on
or prior thereto, and except as specified in the applicable Pooling and
Servicing Agreement or Underlying Servicing Agreement, will deposit in the
Servicer Custodial Account on receipt and, thereafter, not later than the 24th
calendar day of each month or such earlier day as may be specified in the
Underlying Servicing Agreement (the "Remittance Date"), will remit to the Master
Servicer for deposit in the Certificate Account, the following payments and
collections received or made by such Servicer with respect to the Mortgage Loans
serviced by such Servicer subsequent to the applicable Cut-Off Date (other than
(a) payments due on or before the Cut-Off Date, (b) amounts held for future
distribution, (c) amounts representing certain expenses reimbursable to the
Servicer, (d) amounts representing reimbursements for Periodic Advances made by
the Servicer, (e) amounts representing additional servicing compensation and (f)
any other amounts permitted to be retained by the Servicer pursuant to the
applicable Underlying Servicing Agreement):
(i) all payments on account of principal, including prepayments, and
interest;
(ii) all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof, whether through foreclosure sale or otherwise, including payments in
connection with defaulted Mortgage Loans received from the mortgagor other
than amounts required to be paid to the mortgagor pursuant to the terms of the
applicable Mortgage Loan or otherwise pursuant to law ("Liquidation Proceeds")
less, to the extent permitted under the applicable Underlying Servicing
Agreement, the amount of any expenses incurred in connection with the
liquidation of such Mortgage Loans;
(iii) all proceeds received by the Servicer under any title, hazard or other
insurance policy covering any such Mortgage Loan, other than proceeds to be
applied to the restoration or repair of the property subject to the related
Mortgage or released to the mortgagor in accordance with the Underlying
Servicing Agreement;
(iv) all Periodic Advances made by the Servicer;
(v) all amounts withdrawn from Buy-Down Funds or Subsidy Funds, if any,
with respect to such Mortgage Loans, in accordance with the terms of the
respective agreements applicable thereto;
(vi) all proceeds of any such Mortgage Loans or property acquired in
respect thereof purchased or repurchased pursuant to the Pooling and Servicing
Agreement or the Underlying Servicing Agreement; and
(vii) all other amounts required to be deposited therein pursuant to the
applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000 or
(y) any such Servicer Custodial Account, in certain circumstances, exceed such
amount less than $100,000 as shall have been specified by the Master Servicer,
the Servicer will be required within one business day to withdraw such excess
funds from such account and remit such amounts to the Certificate Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its
election, either (a) to withhold and pay itself the applicable Servicing Fee
from any payment or other recovery on account of interest as received and prior
to deposit in the Servicer Custodial Account or (b) to withdraw from the
Servicer Custodial Account the applicable Servicing Fee after the entire payment
or recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default or as otherwise required by the Pooling and Servicing Agreement
not later than the Distribution Date on which such amounts are required to be
distributed. All other amounts will be deposited in the Certificate Account not
later than the business day next following the day of receipt and posting by the
Master Servicer. On or before each Distribution Date, the Master Servicer will
withdraw from the Certificate Account and remit to the Trustee for distribution
to Certificateholders all amounts allocable to the Pool Distribution Amount for
such Distribution Date.
If a Servicer, the Master Servicer or the Trustee deposits in the Certificate
Account for a Series any amount not required to be deposited therein, the Master
Servicer may at any time withdraw such amount from such account for itself or
for remittance to such Servicer or the Trustee, as applicable. Funds on deposit
in the Certificate Account may be invested in certain investments acceptable to
the Rating Agencies ("Eligible Investments") maturing in general not later than
the business day preceding the
42
<PAGE>
next Distribution Date. In the event that an election has been made to treat the
Trust Estate (or one or more segregated pools of assets therein) with respect to
a Series as a REMIC, no such Eligible Investments will be sold or disposed of at
a gain prior to maturity unless the Master Servicer has received an opinion of
counsel or other evidence satisfactory to it that such sale or disposition will
not cause the Trust Estate (or segregated pool of assets) to be subject to the
tax on "prohibited transactions" imposed by Code Section 860F(a)(1), otherwise
subject the Trust Estate (or segregated pool of assets) to tax, or cause the
Trust Estate (or any segregated pool of assets) to fail to qualify as a REMIC
while any Certificates of the Series are outstanding. Except as otherwise
specified in the applicable Prospectus Supplement, all income and gain realized
from any such investment will be for the account of the Master Servicer as
additional compensation and all losses from any such investment will be
deposited by the Master Servicer out of its own funds to the Certificate Account
immediately as realized.
The Master Servicer is permitted, from time to time, to make withdrawals from
the Certificate Account for the following purposes, to the extent permitted in
the applicable Pooling and Servicing Agreement (and, in the case of Servicer
reimbursements by the Master Servicer, only to the extent funds in the
respective Servicer Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for amounts
expended by itself or any Servicer, as applicable, in connection with the
restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any other
amounts constituting additional master servicing compensation, to pay the
Trustee the applicable Trustee Fee, to pay any other fees described in the
applicable Prospectus Supplement; and to pay to the owner thereof any Fixed
Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses (including
taxes paid on behalf of the Trust Estate) incurred by and recoverable by or
reimbursable to itself or the Servicer, as applicable;
(v) to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income earned
with respect to funds in the Certificate Account (all such interest or income
to be withdrawn not later than the next Distribution Date);
(vii) to pay to itself, the Servicer and the Trustee from net Liquidation
Proceeds allocable to interest, the amount of any unpaid Master Servicing Fee,
Servicing Fees or Trustee Fees and any unpaid assumption fees, late payment
charges or other mortgagor charges on the related Mortgage Loan;
(viii) to withdraw from the Certificate Account any amount deposited in such
account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the "Paying
Agent") to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the Trustee
of such Series, such Paying Agent will be authorized to make withdrawals from
the Certificate Account in order to make distributions to Certificateholders. If
the Paying Agent for a Series is not the Trustee for such Series, the Master
Servicer will, on each Distribution Date, deposit in immediately available funds
in an account designated by any such Paying Agent the amount required to be
distributed to the Certificateholders on such Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders or
otherwise disposed of as provided in the applicable Pooling and Servicing
Agreement;
(2) give the Trustee notice of any default by the Master Servicer in the
making of such deposit; and
(3) at any time during the continuance of any such default, upon written
request to the Trustee, forthwith pay to the Trustee all amounts held in trust
by such Paying Agent.
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<PAGE>
Periodic Advances and Limitations Thereon
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ("Other Advances" and, collectively with Periodic
Advances, "Advances") to cover (x) delinquent payments of taxes, insurance
premiums, and other escrowed items and (y) rehabilitation expenses and
foreclosure costs, including reasonable attorneys' fees, in either case unless
such Servicer has determined that any subsequent payments on that Mortgage Loan
or from the borrower will ultimately not be available to reimburse such Servicer
for such amounts. The failure of the Servicer to make any required Periodic
Advances or Other Advances under an Underlying Servicing Agreement constitutes a
default under such agreement for which the Servicer will be terminated. Upon
default by a Servicer, other than Norwest Mortgage, the Master Servicer may, and
upon default by Norwest Mortgage the Trustee may, in each case if so provided in
the Pooling and Servicing Agreement, be required to make Periodic Advances to
the extent necessary to make required distributions on certain Certificates or
certain Other Advances, provided that the Master Servicer or Trustee, as
applicable, determines that funds will ultimately be available to reimburse it.
In addition, if under the terms of an Underlying Servicing Agreement, the
applicable Servicer is not obligated to make Periodic Advances while a Mortgage
Loan is in liquidation, the Master Servicer, to the extent provided in the
Pooling and Servicing Agreement, may be required to make the Periodic Advances
during the period the Servicer is not required to do so. In the case of
Certificates of any Series for which credit enhancement is provided in the form
of a mortgage pool insurance policy, the Seller may obtain an endorsement to the
mortgage pool insurance policy which obligates the Pool Insurer to advance
delinquent payments of principal and interest. The Pool Insurer would only be
obligated under such endorsement to the extent the mortgagor fails to make such
payment and the Master Servicer or Trustee fails to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates. Any
such Periodic Advances by the Servicers or the Master Servicer or Trustee, as
the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates.
Advances by the Servicers or the Master Servicer or Trustee, as the case may be,
will be reimbursable out of insurance proceeds or Liquidation Proceeds of, or,
except for Other Advances, future payments on, the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee later proves, or is deemed by the Master Servicer or the Trustee, to
be unrecoverable, such Servicer, the Master Servicer or the Trustee, as the case
may be, will be entitled to reimbursement from funds in the Certificate Account
prior to the distribution of payments to the Certificateholders to the extent
provided in the Pooling and Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the Trustee
with respect to Mortgage Loans included in the Trust Estate for any Series are
intended to enable the Trustee to make timely payment of the scheduled
distributions of principal and interest on the Certificates of such Series.
However, neither the Master Servicer, the Trustee, any Servicer nor any other
person will, except as otherwise specified in the applicable Prospectus
Supplement, insure or guarantee the Certificates of any Series or the Mortgage
Loans included in the Trust Estate for any Certificates.
Collection and Other Servicing Procedures
Each Servicer will be required by the related Underlying Servicing Agreement
to make reasonable efforts to collect all payments called for under the Mortgage
Loans and, consistent with the applicable Underlying Servicing Agreement and any
applicable agreement governing any form of credit enhancement, to follow such
collection procedures as it follows with respect to mortgage loans serviced by
it that are comparable to the Mortgage Loans. Consistent with the above, the
Servicer may, in its discretion, (i) waive any prepayment charge, assumption
fee, late payment charge or any other charge in connection with the prepayment
of a Mortgage Loan and (ii) arrange with a mortgagor a schedule for the
liquidation of deficiencies running for not more than 180 days (or such longer
period to which the Master Servicer and any applicable Pool Insurer or primary
mortgage insurer have consented) after the applicable Due Date.
Under each Underlying Servicing Agreement, each Servicer, to the extent
permitted by law, will establish and maintain one or more escrow accounts (each
such account, a "Servicing Account") in which each such Servicer will be
required to deposit any payments made by mortgagors in advance for taxes,
assessments, primary mortgage (if applicable) and hazard insurance premiums and
other similar items. Withdrawals from the Servicing Account may be made to
effect timely payment of taxes,
44
<PAGE>
assessments, mortgage and hazard insurance, to refund to mortgagors amounts
determined to be overages, to pay interest to mortgagors on balances in the
Servicing Account, if required, and to clear and terminate such account. Each
Servicer will be responsible for the administration of its Servicing Account. A
Servicer will be obligated to advance certain amounts which are not timely paid
by the mortgagors, to the extent that it determines, in good faith, that they
will be recoverable out of insurance proceeds, liquidation proceeds, or
otherwise. Alternatively, in lieu of establishing a Servicing Account, a
Servicer may procure a performance bond or other form of insurance coverage, in
an amount acceptable to the Master Servicer and each Rating Agency rating the
related Series of Certificates, covering loss occasioned by the failure to
escrow such amounts.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans
With respect to each Mortgage Loan having a fixed interest rate, the
applicable Underlying Servicing Agreement will generally provide that, when any
Mortgaged Property is about to be conveyed by the mortgagor, the Servicer will,
to the extent it has knowledge of such prospective conveyance, exercise its
rights to accelerate the maturity of such Mortgage Loan under the "due-on-sale"
clause applicable thereto, if any, unless it is not exercisable under applicable
law or if such exercise would result in loss of insurance coverage with respect
to such Mortgage Loan or would, in the Servicer's judgment, be reasonably likely
to result in litigation by the mortgagor and such Servicer has not obtained the
Master Servicer's consent to such exercise. In either case, the Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any pool
insurance policy and any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Servicer will also be authorized, with the prior
approval of the pool insurer and the primary mortgage insurer, if any, to enter
into a substitution of liability agreement with such person, pursuant to which
the original mortgagor is released from liability and such person is substituted
as mortgagor and becomes liable under the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement with
respect to a Series will require the Servicer or the Master Servicer, as the
case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under such
insurance policies with respect to defaulted Mortgage Loans, or losses on the
Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated under the applicable Underlying Servicing Agreement
for each Series to realize upon defaulted Mortgage Loans in accordance with its
normal servicing practices, which will conform generally to those of prudent
mortgage lending institutions which service mortgage loans of the same type in
the same jurisdictions. In addition, the Servicer is authorized under the
applicable Underlying Servicing Agreement to permit the assumption of a
defaulted Mortgage Loan rather than to foreclose or accept a deed-in-lieu of
foreclosure if, in the Servicer's judgment, the default is unlikely to be cured
and the assuming borrower meets Norwest Mortgage's applicable underwriting
guidelines. In connection with any such assumption, the Mortgage Interest Rate
and the payment terms of the related Mortgage Note will not be changed. Each
Servicer may also, with the consent of the Master Servicer, modify the payment
terms of Mortgage Loans that are in default, or as to which default is
reasonably foreseeable, that remain in the Trust Estate rather than foreclose on
such Mortgage Loans; provided that no such modification shall forgive principal
owing under such Mortgage Loan or permanently reduce the interest rate on such
Mortgage Loan. Any such modification will be made only upon the determination by
the Servicer and the Master Servicer that such modification is likely to
increase the proceeds of such Mortgage Loan over the amount expected to be
collected pursuant to foreclosure. See also "The Pooling and Servicing
Agreement--Optional Purchases," above, with respect to the Seller's right to
repurchase Mortgage Loans that are in default, or as to which default is
reasonably foreseeable. Further, a Servicer may encourage the refinancing of
such defaulted Mortgage Loans, including Mortgage Loans that would permit
creditworthy borrowers to assume the outstanding indebtedness. In connection
with the decision of the Servicer regarding the foreclosure or assumption of a
Mortgage Loan, the modification of the related Mortgage Note or any other action
to be taken with respect to a defaulted Mortgage Loan, the Servicer is expressly
permitted by the Underlying Servicing Agreement to take into account the
interests of the borrower.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement
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to the related Servicer for its expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds or any applicable insurance
policy in respect of such Mortgage Loan. In the event that Servicer has expended
its own funds for foreclosure or to restore damaged property, it will be
entitled to be reimbursed from the Certificate Account for such Series an amount
equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose on
any Mortgaged Property which it believes may be contaminated with or affected by
hazardous wastes or hazardous substances. See "Certain Legal Aspects of the
Mortgage Loans--Environmental Considerations." If a Servicer does not foreclose
on a Mortgaged Property, the Certificateholders of the related Series may
experience a loss on the related Mortgage Loan. A Servicer will not be liable to
the Certificateholders if it fails to foreclose on a Mortgaged Property which it
believes may be so contaminated or affected, even if such Mortgaged Property is,
in fact, not so contaminated or affected. Conversely, a Servicer will not be
liable to the Certificateholders if, based on its belief that no such
contamination or effect exists, the Servicer forecloses on a Mortgaged Property
and takes title to such Mortgaged Property, and thereafter such Mortgaged
Property is determined to be so contaminated or affected.
The Servicer may foreclose against property securing a defaulted Mortgage Loan
either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" for a discussion of the availability of deficiency
judgments), may proceed for the deficiency. It is anticipated that in most cases
the Servicer will not seek deficiency judgments, and will not be required under
the applicable Underlying Servicing Agreement to seek deficiency judgments. In
lieu of foreclosure, each Servicer may arrange for the sale by the borrower of
the Mortgaged Property related to a defaulted Mortgage Loan to a third party,
rather than foreclosing upon and selling such Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein) as
to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee or
Master Servicer will be required to dispose of such property prior to the close
of the third calendar year following the year the Trust Estate acquired such
property (or such shorter period as is provided in the applicable Underlying
Servicing Agreement) unless the Trustee (a) receives an opinion of counsel to
the effect that the holding of the Mortgaged Property by the Trust Estate will
not cause the Trust Estate to be subject to the tax on "prohibited transactions"
imposed by Code Section 860F(a)(1) or cause the Trust Estate (or any segregated
pool of assets therein as to which one or more REMIC elections have been made or
will be made) to fail to qualify as a REMIC or (b) applies for and is granted an
extension of the applicable period in the manner contemplated by Code Section
856(e)(3). The Servicer also will be required to administer the Mortgaged
Property in a manner which does not cause the Mortgaged Property to fail to
qualify as "foreclosure property" within the meaning of Code Section 860G(a)(8)
or result in the receipt by the Trust Estate of any "net income from foreclosure
property" within the meaning of Code Section 860G(c)(2), respectively. In
general, this would preclude the holding of the Mortgaged Property by a party
acting as a dealer in such property or the receipt of rental income based on the
profits of the lessee of such property. See "Certain Federal Income Tax
Consequences."
Insurance Policies
Each Underlying Servicing Agreement will require the related Servicer to cause
to be maintained for each Mortgage Loan a standard hazard insurance policy
issued by a generally acceptable insurer insuring the improvements on the
Mortgaged Property underlying such Mortgage Loan against loss by fire, with
extended coverage (a "Standard Hazard Insurance Policy"). The Underlying
Servicing Agreements will require that such Standard Hazard Insurance Policy be
in an amount at least equal to the lesser of 100% of the insurable value of the
improvements on the Mortgaged Property or the principal balance of such Mortgage
Loan; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any damage or loss on a replacement cost
basis. Each Servicer will also maintain on property acquired upon foreclosure,
or deed in lieu of foreclosure, of any Mortgage Loan, a Standard Hazard
Insurance Policy in an amount that is at least equal to the lesser of 100% of
the insurable value of the improvements which are a part of such property or the
principal balance of such Mortgage Loan plus accrued interest and liquidation
expenses; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Any amounts collected under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the borrower in accordance with normal servicing
procedures) will be deposited in the Servicer Custodial Account for remittance
to the Certificate Account by a Servicer.
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The Standard Hazard Insurance Policies covering the Mortgage Loans generally
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 the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to such Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and generally will be
similar. Most such 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, hazardous wastes or hazardous substances, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not all-inclusive.
In general, if the improvements on a Mortgaged Property are located 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)
each Underlying Servicing Agreement will require the related Servicer to cause
to be maintained a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier. Generally, the Underlying Servicing Agreement will
require that such flood insurance be in an amount not less than the least of (i)
the outstanding principal balance of the Mortgage Loan, (ii) the full insurable
value of the improvements, or (iii) the maximum amount of insurance which is
available under the National Flood Insurance Act of 1968, as amended. Norwest
Mortgage does not provide financing for flood zone properties located in
communities not participating in the National Flood Insurance Program or if
available insurance coverage is, in its judgment, unrealistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses on
all of the Mortgaged Properties in lieu of maintaining the required Standard
Hazard Insurance Policies and may maintain a blanket policy insuring against
special hazards in lieu of maintaining any required flood insurance. Each
Servicer will be liable for the amount of any deductible under a blanket policy
if such amount would have been covered by a required Standard Hazard Insurance
Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous
substances) or insufficient hazard insurance proceeds will adversely affect
distributions to the Certificateholders.
Fixed Retained Yield, Servicing Compensation and Payment of Expenses
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
related Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans of
such Series. If so, the Fixed Retained Yield will be established on a loan-by-
loan basis and will be specified in the schedule of Mortgage Loans attached as
an exhibit to the applicable Pooling and Servicing Agreement. Norwest Mortgage
as Servicer may deduct the Fixed Retained Yield from mortgagor payments as
received or deposit such payments in the Servicer Custodial Account or
Certificate Account for such Series and then either withdraw the Fixed Retained
Yield from the Servicer Custodial Account or Certificate Account or request the
Master Servicer to withdraw the Fixed Retained Yield from the Certificate
Account for remittance to Norwest Mortgage. In the case of any Fixed Retained
Yield with respect to Mortgage Loans serviced by a Servicer other than Norwest
Mortgage, the Master Servicer will make withdrawals from the Certificate Account
for the purpose of remittances to Norwest Mortgage as owner of the Fixed
Retained Yield. Notwithstanding the foregoing, with respect to any payment of
interest received by Norwest Mortgage as Servicer relating to a Mortgage Loan
(whether paid by the mortgagor or received as Liquidation Proceeds, insurance
proceeds or otherwise) which is less than the full amount of interest then due
with respect to such Mortgage Loan, the owner of the Fixed Retained Yield with
respect to such Mortgage Loan will bear a ratable share of such interest
shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid the
Servicing Fee on the related Mortgage Loans serviced by such Servicer until
termination of the applicable Underlying Servicing Agreement. A Servicer, at its
election, will pay itself the Servicing Fee for a Series with respect to each
Mortgage Loan by (a) withholding the Servicing Fee from any scheduled payment of
interest prior to deposit of such payment in the Servicer Custodial Account for
such Series or (b) withdrawing the Servicing Fee from the Servicer Custodial
Account after the entire interest payment has been deposited in such account. A
Servicer
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may also pay itself out of the Liquidation Proceeds of a Mortgage Loan or other
recoveries with respect thereto, or withdraw from the Servicer Custodial Account
or request the Master Servicer to withdraw from the Certificate Account for
remittance to the Servicer such amounts after the deposit thereof in such
accounts, or if such Liquidation Proceeds or other recoveries are insufficient,
from Net Foreclosure Profits with respect to the related Distribution Date the
Servicing Fee in respect of such Mortgage Loan to the extent provided in the
applicable Pooling and Servicing Agreement. The Servicing Fee or the range of
Servicing Fees with respect to the Mortgage Loans underlying the Certificates of
a Series will be specified in the applicable Prospectus Supplement. Additional
servicing compensation in the form of prepayment charges, assumption fees, late
payment charges or otherwise will be retained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the servicing
of the Mortgage Loans serviced by such Servicer underlying a Series, including,
without limitation, payment of the hazard insurance policy premiums. The
Servicer will be entitled, in certain circumstances, to reimbursement from the
Certificate Account of Periodic Advances, of Other Advances made by it to pay
taxes, insurance premiums and similar items with respect to any Mortgaged
Property or for expenditures incurred by it in connection with the restoration,
foreclosure or liquidation of any Mortgaged Property (to the extent of
Liquidation Proceeds or insurance policy proceeds in respect of such Mortgaged
Property) and of certain losses against which it is indemnified by the Trust
Estate.
As set forth in the preceding paragraph, a Servicer may be entitled to
reimbursement for certain expenses incurred by it, and payment of additional
fees for certain extraordinary services rendered by it (provided that such fees
do not exceed those which would be charged by third parties for similar
services) in connection with the liquidation of defaulted Mortgage Loans and
related Mortgaged Properties. In the event that claims are either not made or
are not fully paid from any applicable form of credit enhancement, the related
Trust Estate will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicing Fee and the expenses of the Servicer, are less
than the principal balance of the related Mortgage Loan.
Evidence as to Compliance
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Underlying
Servicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of
performance under the applicable Underlying Servicing Agreement has been made
under the supervision of such officer, and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its obligations
under the applicable Underlying Servicing Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof. Such
Officer's Certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to a random sample of the
mortgage loans being serviced by such Servicer pursuant to such Underlying
Servicing Agreement and/or other similar agreements, conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers, the
servicing of such mortgage loans was conducted in compliance with the provisions
of the applicable Underlying Servicing Agreement and other similar agreements,
except for (i) such exceptions as such firm believes to be immaterial and (ii)
such other exceptions as are set forth in such statement.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in the
preceding paragraph, and, that on the basis of such officer's review of such
information, each Servicer has fulfilled all its obligations under the
applicable Underlying Servicing Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or a
successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer resigns
for any of the foregoing reasons and the Trustee is unable or unwilling to
assume responsibility for its duties under the Pooling and Servicing Agreement,
it may appoint another institution to so act as described under "The Pooling and
Servicing Agreement--Rights Upon Event of Default."
The Pooling and Servicing Agreement will also provide that neither the Master
Servicer nor any subcontractor, nor any partner, director, officer, employee or
agent of any of them, will be under any liability to the Trust Estate or the
Certificateholders, for the taking of any action or for refraining from the
taking of any action in good faith pursuant to the Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer, any subcontractor, nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of his or its duties or by reason
of reckless disregard of his or its obligations and duties thereunder. The
Pooling and Servicing Agreement will further provide that the Master Servicer,
any subcontractor, and any partner, director, officer, employee or agent of
either of them shall be entitled to indemnification by the Trust Estate and will
be held harmless against any loss, liability or expense incurred in connection
with any legal action relating to the Pooling and Servicing Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of his or
its duties thereunder or by reason of reckless disregard of his or its
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement will provide that the Master Servicer will not be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to its
duties under the Pooling and Servicing Agreement and that in its opinion may
involve it in any expense or liability. The Master Servicer may, however, in its
discretion, undertake any such action deemed by it necessary or desirable with
respect to the Pooling and Servicing Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Estate and the
Master Servicer will be entitled to be reimbursed therefor out of the
Certificate Account, and any loss to the Trust Estate arising from such right of
reimbursement will be allocated first to the Subordinated Certificate of a
Series before being allocated to the related Senior Certificates, or if such
Series does not contain Subordinated Certificates, pro rata among the various
Classes of Certificates unless otherwise specified in the applicable Pooling and
Servicing Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through the
transfer of substantially all of its assets or all assets relating to such
business, or otherwise, of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement for each Series
provided that such successor or resulting entity has a net worth of not less
than $15,000,000 and is qualified to service mortgage loans for FNMA or FHLMC.
The Master Servicer also has the right to assign its rights and delegate its
duties and obligations under the Pooling and Servicing Agreement for each
Series; provided that, if the Master Servicer desires to be released from its
obligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for FNMA or FHLMC, (ii) the purchaser is satisfactory to the
Trustee for such Series, in the reasonable exercise of its judgment, and
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement; and (iii) each applicable Rating Agency's rating of any Certificates
for such Series in effect immediately prior to such assignment, sale or transfer
would not be qualified, downgraded or withdrawn as a result of such assignment,
sale or transfer and the Certificates would not be placed on credit review
status by any such Rating Agency. The Master Servicer will be released from its
obligations under the Pooling and Servicing Agreement upon any such assignment
and delegation, except that the Master Servicer will remain liable for all
liabilities and obligations incurred by it prior to the time that the conditions
contained in clauses (i), (ii) and (iii) above are met.
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THE POOLING AND SERVICING AGREEMENT
Assignment of Mortgage Loans to the Trustee
The Seller will have acquired the Mortgage Loans included in each Trust Estate
from Norwest Mortgage pursuant to an agreement (the "Norwest Mortgage Sale
Agreement"). In connection with the conveyance of the Mortgage Loans to the
Seller, Norwest Mortgage will (i) agree to deliver to the Seller all of the
documents which the Seller is required to deliver to the Trustee; (ii) make
certain representations and warranties to the Seller which will be the basis of
certain of the Seller's representations and warranties to the Trustee or assign
the representations and warranties made by a Correspondent to Norwest Mortgage;
and (iii) agree to repurchase or substitute (or assign rights to a comparable
agreement of a Correspondent) for any Mortgage Loan for which any document is
not delivered or is found to be defective in any material respect, or which
Mortgage Loan is discovered at any time not to be in conformance with any
representation and warranty Norwest Mortgage has made to the Seller and the
breach of such representation and warranty materially and adversely affects the
interests of the Certificateholders in the related Mortgage Loan, if Norwest
Mortgage cannot deliver such document or cure such defect or breach within 60
days after notice thereof. Such agreement will inure to the benefit of the
Trustee and is intended to help ensure the Seller's performance of its limited
obligation to repurchase or substitute for Mortgage Loans. See "The Mortgage
Loan Programs--Representations and Warranties."
At the time of issuance of each Series of Certificates, the Mortgage Loans in
the related Trust Estate will, pursuant to the applicable Pooling and Servicing
Agreement, be assigned to the Trustee, together with all principal and interest
received on or with respect to such Mortgage Loans after the applicable Cut-Off
Date other than principal and interest due and payable on or before such Cut-Off
Date and interest attributable to the Fixed Retained Yield on such Mortgage
Loans, if any. See "Servicing of the Mortgage Loans-- Fixed Retained Yield,
Servicing Compensation and Payment of Expenses." The Trustee or its agent will,
concurrently with such assignment, authenticate and deliver the Certificates
evidencing such Series to the Seller in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
applicable Pooling and Servicing Agreement. Each such schedule will include,
among other things, the unpaid principal balance as of the close of business on
the applicable Cut-Off Date, the maturity date and the Mortgage Interest Rate
for each Mortgage Loan in the related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the
mortgage or other promissory note or a lost note affidavit executed by the
applicable Servicer, any assumption, modification or conversion to fixed
interest rate agreement, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee or, if indicated in the applicable
Prospectus Supplement, to a custodian; provided that, in instances where
recorded documents cannot be delivered due to delays in connection with
recording, copies thereof, certified by the Seller to be true and complete
copies of such documents sent for recording, may be delivered and the original
recorded documents will be delivered promptly upon receipt. The assignment of
each Mortgage will be recorded promptly after the initial issuance of
Certificates for the related Trust Estate, except in states where, in the
opinion of counsel acceptable to the Trustee, such recording is not required to
protect the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Seller, Norwest
Mortgage or the originator of such Mortgage Loan.
Notwithstanding the preceding paragraph, with respect to any Mortgage which
has been recorded in the name of Mortgage Electronic Registration Systems, Inc.
("MERS") or its designee, no mortgage assignment in favor of the Trustee will be
required to be prepared or delivered. Instead, the Master Servicer and the
applicable Servicer will be required to take all actions as are necessary to
cause the applicable Trust Estate to be shown as the owner of the related
Mortgage Loan on the records of MERS for purposes of the system of recording
transfers of beneficial ownership of mortgages maintained by MERS.
The Trustee or custodian will hold all Mortgage Loan documents delivered to it
in trust for the benefit of Certificateholders of the related Series and will
review such documents within 45 days of the date of the applicable Pooling and
Servicing Agreement. If any document is not delivered or is found to be
defective in any material respect, or if the Seller is in breach of any of its
representations and warranties, and such breach materially and adversely affects
the interests of the Certificateholders in a Mortgage Loan, and the Seller
cannot deliver such document or cure such defect or breach within 60 days after
written notice thereof, the Seller will, within 60 days of such notice, either
repurchase the related Mortgage Loan from the Trustee at a price equal to the
then unpaid principal balance thereof, plus accrued and unpaid interest at the
applicable Mortgage Interest Rate (minus
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any Fixed Retained Yield) through the last day of the month in which such
repurchase takes place, or (in the case of a Series for which one or more REMIC
elections have been or will be made, unless the maximum period as may be
provided by the Code or applicable regulations of the Department of the Treasury
("Treasury Regulations") shall have elapsed since the execution of the
applicable Pooling and Servicing Agreement) substitute for such Mortgage Loan a
new mortgage loan having characteristics such that the representations and
warranties of the Seller made pursuant to the applicable Pooling and Servicing
Agreement (except for representations and warranties as to the correctness of
the applicable schedule of mortgage loans) would not have been incorrect had
such substitute Mortgage Loan originally been a Mortgage Loan. In the case of a
repurchased Mortgage Loan, the purchase price will be deposited by the Seller in
the related Certificate Account. In the case of a substitute Mortgage Loan, the
mortgage file relating thereto will be delivered to the Trustee or the custodian
and the Seller will deposit in the Certificate Account, an amount equal to the
excess of (i) the unpaid principal balance of the Mortgage Loan which is
substituted for, over (ii) the unpaid principal balance of the substitute
Mortgage Loan, together with interest on such excess at the Mortgage Interest
Rate (minus any Fixed Retained Yield) to the next scheduled Due Date of the
Mortgage Loan which is being substituted for. In no event will any substitute
Mortgage Loan have an unpaid principal balance greater than the scheduled
principal balance calculated in accordance with the amortization schedule (the
"Scheduled Principal Balance") of the Mortgage Loan for which it is substituted
(after giving effect to the scheduled principal payment due in the month of
substitution on the Mortgage Loan substituted for), or a term greater than, a
Mortgage Interest Rate less than, a Mortgage Interest Rate more than one percent
per annum greater than or a Loan-to-Value Ratio greater than, the Mortgage Loan
for which it is substituted. If substitution is to be made for an adjustable
rate Mortgage Loan, the substitute Mortgage Loan will have an unpaid principal
balance no greater than the Scheduled Principal Balance of the Mortgage Loan for
which it is substituted (after giving effect to the scheduled principal payment
due in the month of substitution on the Mortgage Loan substituted for), a Loan-
to-Value Ratio less than or equal to, and a Mortgage Interest Rate at least
equal to, that of the Mortgage Loan for which it is substituted, and will bear
interest based on the same index, margin and frequency of adjustment as the
substituted Mortgage Loan. The repurchase obligation and the mortgage
substitution referred to above will constitute the sole remedies available to
the Certificateholders or the Trustee with respect to missing or defective
documents or breach of the Seller's representations and warranties.
If no custodian is named in the Pooling and Servicing Agreement, the Trustee
will be authorized to appoint a custodian to maintain possession of the
documents relating to the Mortgage Loans and to conduct the review of such
documents described above. Any custodian so appointed will keep and review such
documents as the Trustee's agent under a custodial agreement.
Optional Purchases
To the extent specified in the related Prospectus Supplement and subject to
the provisions of the applicable Pooling and Servicing Agreement, the Seller or
the Master Servicer may, at such party's option, repurchase (i) any Mortgage
Loan which is in default or as to which default is reasonably foreseeable if, in
the Seller's or the Master Servicer's judgment, the related default is not
likely to be cured by the borrower or default is not likely to be averted, up to
the limit specified in such Pooling and Servicing Agreement and (ii) any
Mortgage Loan as to which the originator of such Mortgage Loan breached a
representation or warranty to Norwest Mortgage regarding the characteristics of
such Mortgage Loan, at a price equal to the unpaid principal balance thereof
plus accrued interest thereon and under the conditions set forth in the
applicable Prospectus Supplement.
Reports to Certificateholders
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Master Servicer will prepare and the Trustee will
include with each distribution to Certificateholders of record of such Series a
Monthly Report setting forth the following information, if applicable:
(i) the amount of such distribution allocable to principal of the related
Mortgage Loans, separately identifying the aggregate amount of any principal
prepayments included therein, the amount of such distribution allocable to
interest on the related Mortgage Loans and the aggregate unpaid principal
balance of the Mortgage Loans evidenced by each Class after giving effect to
the principal distributions on such Distribution Date;
(ii) the amount of servicing compensation with respect to the related Trust
Estate and such other customary information as is required to enable
Certificateholders to prepare their tax returns;
(iii) the amount by which the Servicing Fee for the related Distribution
Date has been reduced by interest shortfalls due to prepayments;
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(iv) the aggregate amount of any Periodic Advances by the Servicer, the
Master Servicer or the Trustee included in the amounts actually distributed to
the Certificateholders;
(v) to each holder of a Certificate entitled to the benefits of payments
under any form of credit enhancement or from any Reserve Fund:
(a) the amounts so distributed under any such form of credit enhancement
or from any such Reserve Fund on the applicable Distribution Date; and
(b) the amount of coverage remaining under any such form of credit
enhancement and the balance in any such Reserve Fund, after giving effect to
any payments thereunder and other amounts charged thereto on the
Distribution Date;
(vi) in the case of a Series of Certificates with a variable Pass-Through
Rate, such Pass-Through Rate;
(vii) the amount of the remaining Special Hazard Loss Amount, Fraud Loss
Amount and Bankruptcy Loss Amount as of the close of business on such
Distribution Date;
(viii) the book value of any collateral acquired by the Trust Estate through
foreclosure or otherwise;
(ix) the unpaid principal balance of any Mortgage Loan as to which the
Servicer has notified the Master Servicer that such Servicer has determined
not to foreclose because it believes the related Mortgaged Property may be
contaminated with or affected by hazardous wastes or hazardous substances; and
(x) the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent.
In addition, within a reasonable period of time after the end of each calendar
year, the Master Servicer will furnish either directly, or through the Trustee,
a report to each Certificateholder of record at any time during such calendar
year such information as required by the Code and applicable regulations
thereunder to enable Certificateholders to prepare their tax returns. In the
event that an election has been made to treat the Trust Estate (or one or more
segregated pools of assets therein) as a REMIC, the Trustee will be required to
sign the federal and applicable state and local income tax returns of the REMIC
(which will be prepared by the Master Servicer). See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Administrative Matters."
List of Certificateholders
The Pooling and Servicing Agreement for each Series will require the Trustee
to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to
communicate with other Certificateholders with respect to their rights under the
Pooling and Servicing Agreement or under the Certificates.
Events of Default
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit which
continues unremedied for three business days after the giving of written notice
of such failure to the Master Servicer by the Trustee for such Series, or to the
Master Servicer and the Trustee by the holders of Certificates of such Series
having voting rights allocated to such Certificates ("Voting Interests")
aggregating not less than 25% of the Voting Interests allocated to all
Certificates for such Series; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which continues unremedied for
60 days (or 30 days in the case of a failure to maintain any pool insurance
policy required to be maintained pursuant to the Pooling and Servicing
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
holders of Certificates aggregating not less than 25% of the Voting Interests;
(iii) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain action by the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations
and (iv) it and any subservicer appointed by it becoming ineligible to service
for both FNMA and FHLMC (unless remedied within 90 days).
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Rights Upon Event of Default
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing Agreement
and in and to the Mortgage Loans (other than the Master Servicer's right to
recovery of the aggregate Master Servicing Fees due prior to the date of
termination, and other expenses and amounts advanced pursuant to the terms of
the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to monthly compensation not
to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so to
act, it may select, pursuant to the public bid procedure described in the
applicable Pooling and Servicing Agreement, or petition a court of competent
jurisdiction to appoint, a housing and home finance institution, bank or
mortgage servicing institution with a net worth of at least $10,000,000 to act
as successor to the Master Servicer under the provisions of the Pooling and
Servicing Agreement; provided however, that until such a successor Master
Servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Master Servicer under the Pooling and Servicing Agreement,
the Trustee shall continue as the successor to the Master Servicer as described
above. In the event such public bid procedure is utilized, the successor would
be entitled to compensation in an amount equal to the aggregate Master Servicing
Fees, together with the other compensation to which the Master Servicer is
entitled under the Pooling and Servicing Agreement, and the Master Servicer
would be entitled to receive the net profits, if any, realized from the sale of
its rights and obligations under the Pooling and Servicing Agreement.
During the continuance of any Event of Default under the Pooling and Servicing
Agreement for a Series, the Trustee for such Series will have the right to take
action to enforce its rights and remedies and to protect and enforce the rights
and remedies of the Certificateholders of such Series, and holders of
Certificates evidencing not less than 25% of the Voting Interests for such
Series may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
upon the Trustee. However, the Trustee will not be under any obligation to
pursue any such remedy or to exercise any of such trusts or powers unless such
Certificateholders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
thereby. Also, the Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status as
a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to the
Trustee for such Series written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Interests for such
Series 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 and the Trustee for 60 days has neglected or refused to institute any
such proceeding.
Amendment
Each Pooling and Servicing Agreement may be amended by the Seller, the Master
Servicer and the Trustee without the consent of the Certificateholders, (i) to
cure any ambiguity or mistake, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, (iii) to
modify, eliminate or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust Estate (or one or more
segregated pools of assets therein) as a REMIC at all times that any
Certificates are outstanding or to avoid or minimize the risk of the imposition
of any tax on the Trust Estate pursuant to the Code that would be a claim
against the Trust Estate, provided that the Trustee has received an opinion of
counsel to the effect that such action is necessary or desirable to maintain
such qualification or to avoid or minimize the risk of the imposition of any
such tax and such action will not, as evidenced by such opinion of counsel,
adversely affect in any material respect the interests of any Certificateholder,
(iv) to change the timing and/or nature of deposits into the Certificate
Account, provided that such change will not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of any
Certificateholder and that such change will not adversely affect the then
current rating assigned to any Certificates, as evidenced by a letter from each
Rating Agency to such effect, (v) to add to, modify or eliminate any provisions
therein restricting transfers of Residual Certificates to certain disqualified
organizations described below under "Certain Federal Income Tax Consequences--
Federal Income Tax
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Consequences for REMIC Certificates--Taxation of Residual Certificates--Tax-
Related Restrictions on Transfer of Residual Certificates," (vi) to make certain
provisions with respect to the denominations of, and the manner of payments on,
certain Classes or Subclasses of Certificates initially retained by the Seller
or an affiliate, or (vii) to make any other provisions with respect to matters
or questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not, as
evidenced by an opinion of counsel, adversely affect in any material respect the
interests of the Certificateholders of the related Series. The Pooling and
Servicing Agreement may also be amended by the Seller, the Master Servicer and
the Trustee with the consent of the holders of Certificates evidencing interests
aggregating not less than 66 2/3% of the Voting Interests evidenced by the
Certificates of each Class or Subclass affected thereby, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or of modifying in any manner
the rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, any payments
received on or with respect to Mortgage Loans that are required to be
distributed on any Certificates, without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of a Class or Subclass of Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Certificates aggregating not less than 66 2/3% of the Voting Interests evidenced
by such Class or Subclass, or (iii) reduce the aforesaid percentage of
Certificates of any Class or Subclass, the holders of which are required to
consent to such amendment, without the consent of the holders of all
Certificates of such Class or Subclass affected then outstanding.
Notwithstanding the foregoing, the Trustee will not consent to any such
amendment if such amendment would subject the Trust Estate (or any segregated
pool of assets therein) to tax or cause the Trust Estate (or any segregated pool
of assets therein) to fail to qualify as a REMIC.
Termination; Optional Purchase of Mortgage Loans
The obligations created by the Pooling and Servicing Agreement for a Series of
Certificates will terminate on the Distribution Date following the final payment
or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage Loan.
In no event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of certain persons named in such Pooling and Servicing Agreement. For
each Series of Certificates, the Trustee will give written notice of termination
of the Pooling and Servicing Agreement to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Seller and specified in the
notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, Norwest Mortgage or such other party as is specified in the
applicable Prospectus Supplement, to purchase from the Trust Estate for such
Series all remaining Mortgage Loans at the time subject to the Pooling and
Servicing Agreement at a price specified in such Prospectus Supplement. In the
event that such party has caused the related Trust Estate (or any segregated
pool of assets therein) to be treated as a REMIC, any such purchase will be
effected only pursuant to a "qualified liquidation" as defined in Code Section
860F(a)(4)(A) and, if the Trust Estate is liquidated other than in the manner
specified in the Pooling and Servicing Agreement, the receipt by the Trustee of
an opinion of counsel or other evidence that such other liquidation method will
not (i) result in the imposition of a tax on "prohibited transactions" under
Code Section 860F(a)(1), (ii) otherwise subject the Trust Estate to tax, or
(iii) cause the Trust Estate (or any segregated pool of assets) to fail to
qualify as a REMIC. The exercise of such right will effect early retirement of
the Certificates of that Series, but the right so to purchase may be exercised
only after the aggregate principal balance of the Mortgage Loans for such Series
at the time of purchase is less than a specified percentage of the aggregate
principal balance at the Cut-Off Date for the Series, or after the date set
forth in the applicable Prospectus Supplement.
The Trustee
The Trustee under each Pooling and Servicing Agreement (the "Trustee") will be
named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the Seller
or any of its affiliates. With respect to certain Series of Certificates, a
trust administrator will perform certain duties and functions normally performed
by the Trustee. Any trust administrator will be a party to the Pooling and
Servicing Agreement and will be named in the applicable Prospectus Supplement.
Any trust administrator will have obligations and rights similar to the Trustee
as described herein.
The Trustee may resign at any time, in which event the Master Servicer will be
obligated to appoint a successor trustee. The Master Servicer may also remove
the Trustee if the Trustee ceases to be eligible to act as Trustee under the
Pooling and Servicing
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Agreement, if the Trustee becomes insolvent or in order to change the situs of
the Trust Estate for state tax reasons. Upon becoming aware of such
circumstances, the Master Servicer will become obligated to appoint a successor
trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the Voting Interests in the Trust
Estate, except that, any Certificate registered in the name of the Seller, the
Master Servicer or any affiliate thereof will not be taken into account in
determining whether the requisite Voting Interest in the Trust Estate necessary
to effect any such removal has been obtained. Any resignation and removal of the
Trustee, and the appointment of a successor trustee, will not become effective
until acceptance of such appointment by the successor trustee. The Trustee, and
any successor trustee, will have a combined capital and surplus of at least
$50,000,000, or will be a member of a bank holding system, the aggregate
combined capital and surplus of which is at least $50,000,000, provided that the
Trustee's and any such successor trustee's separate capital and surplus shall at
all times be at least the amount specified in Section 310(a)(2) of the Trust
Indenture Act of 1939, and will be subject to supervision or examination by
federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete or to reflect the laws of any particular
state, nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
General
The Mortgage Loans will, in general, be secured by either first mortgages or
first 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 described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, 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 has three parties: a borrower 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 borrower grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the 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 all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of 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 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 property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most
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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.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
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
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the 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 property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds, if any, or by judicial action against the borrower for the
deficiency, if such action is permitted by law. See "--Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a 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 such lease or
agreement until the lender has been provided 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 such 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
thereon.
Recognition agreements also provide that in the event of a foreclosure on 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 by the agreement in any rights it may have to dispossess the
tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in accordance
with the provisions of Article 9 of the Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to the
usual practice of banks selling similar collateral will be considered reasonably
conducted.
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Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative 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. See "--Anti- Deficiency Legislation
and Other Limitations on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust and/or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
most states where the right of redemption is available, statutory redemption may
occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to delay the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to 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.
Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations on
Lenders
Certain states have imposed statutory prohibitions which 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 borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares and
the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. 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 Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even if
permitted by law.
In addition to anti-deficiency and related legislation, numerous other federal
and state statutory provisions, including the United States Bankruptcy Code, 11
U.S.C. Sections 101 et seq. (the "Bankruptcy Code"), and state laws affording
relief to debtors may interfere with or affect the ability of a secured mortgage
lender to obtain payment of a mortgage loan, to realize upon collateral and/or
enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually
all actions (including foreclosure actions and deficiency judgment proceedings)
are automatically stayed upon the filing of a bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. Foreclosure of an interest in real property of a debtor in a case under
the Bankruptcy Code can typically occur only if the bankruptcy court vacates the
stay, an action, the court may be reluctant to take, particularly if the debtor
has the prospect of restructuring his or her debts and the mortgage collateral
is not deteriorating in value. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor (a
subordinate lender secured by a mortgage on the property) may stay a senior
lender from taking action to foreclose.
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A homeowner may file for relief under the Bankruptcy Code under any of three
different chapters of the Bankruptcy Code. Under Chapter 7, the assets of the
debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid up
to the amount of the debt) at the sale of the asset. See "--Foreclosure." A
homeowner may also file for relief under Chapter 11 of the Bankruptcy Code and
reorganize his or her debts through his or her reorganization plan.
Alternatively, a homeowner may file for relief under Chapter 13 of the
Bankruptcy Code and address his or her debts in a rehabilitation plan. (Chapter
13 is often referred to as the "wage earner chapter" or "consumer chapter"
because most individuals seeking to restructure their debts file for relief
under Chapter 13 rather than Chapter 11).
The Bankruptcy Code permits a mortgage loan that is secured by property that
does not consist solely of the debtor's principal residence to be modified
without the consent of the lender provided certain substantive and procedural
safeguards are met. Under the Bankruptcy Code, the lender's security interest
may be reduced to the then-current value of the property as determined by the
court if the value is less than the amount due on the loan, thereby leaving the
lender as a general unsecured creditor for the difference between the value of
the collateral and the outstanding balance of the mortgage loan. A borrower's
unsecured indebtedness will typically be discharged in full upon payment of a
substantially reduced amount. Other modifications to a mortgage loan may include
a reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest, an alteration of the repayment
schedule, an extension of the final maturity date, and/or a reduction in the
outstanding balance of the secured portion of the loan. In certain
circumstances, subject to the court's approval, a debtor in a case under Chapter
11 of the Bankruptcy Code may have the power to grant liens senior to the lien
of a mortgage.
A reorganization plan under Chapter 11 and a rehabilitation plan under Chapter
13 of the Bankruptcy Code may each allow a debtor to cure a default with respect
to a mortgage loan on such debtor's residence by paying arrearages over a period
of time and to deaccelerate and reinstate the original mortgage loan payment
schedule, even though the lender accelerated the loan and a final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition under the
Bankruptcy Code. Under a Chapter 13 plan, curing of defaults must be
accomplished within the five year maximum term permitted for repayment plans,
such term commencing when repayment plan becomes effective, while defaults may
be cured over a longer period of time under a Chapter 11 plan of reorganization.
Generally, a repayment plan in a case under Chapter 13 and a plan of
reorganization under Chapter 11 may not modify the claim of a mortgage lender if
the borrower elects to retain the property, the property is the borrower's
principal residence and the property is the lender's only collateral. Certain
courts have allowed modifications when the mortgage loan is secured both by the
debtor's principal residence and by collateral that is not "inextricably bound"
to the real property, such as appliances, machinery, or furniture.
The general protection for mortgages secured only by the debtor's principal
residence is not applicable in a case under Chapter 13 if the last payment on
the original payment schedule is due before the final date for payment under the
debtor's Chapter 13 plan (which date could be up to five years after the debtor
emerges from bankruptcy). Under several recently decided cases, the terms of
such a loan can be modified in the manner described above. While these decisions
are contrary to the holding in a prior case by a senior appellate court, it is
possible that the later decisions will become the accepted interpretation in
view of the language of the applicable statutory provision. If this
interpretation is adopted by a court considering the treatment in a Chapter 13
repayment plan of a Mortgage Loan, it is possible that the Mortgage Loan could
be modified.
State statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a restructuring
of a mortgage loan on terms a lender would not otherwise accept.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor under the related mortgage loan prior to the
bankruptcy or similar proceeding. Payments on long-term debt may be protected
from recovery as preferences if they are payments in the ordinary course of
business made on debts incurred in the ordinary course of business or if the
value of the collateral exceeds the debt at the time of payment. Whether any
particular payment would be protected depends upon the facts specific to a
particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling the mortgaged property ahead of a payment
to the lender. Moreover, the laws of certain states also give priority to
certain tax and mechanics
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liens over the lien of a mortgage. Under the Bankruptcy Code, if the court finds
that actions of the mortgagee have been unreasonable and inequitable, the lien
of the related mortgage may be subordinated to the claims of unsecured
creditors.
Bankruptcy reform legislation that was passed by the Senate on September 23,
1998 would have amended the Bankruptcy Code (such amendment, the "TILA
Amendment") to authorize bankruptcy court judges to disallow claims based on
secured debt if the creditor failed to comply with certain provisions of the
federal Truth in Lending Act. As proposed, such provision would apply
retroactively to secured debt incurred by a debtor prior to the date of
effectiveness of such legislation, including the Mortgage Loans. The House bill
and the conference report did not have a similar provision, and Congress
adjourned from its last session without acting on the proposed legislation.
However, such legislation may be reintroduced in the current session. If the
TILA Amendment were to become law, a violation of the Truth in Lending Act with
respect to a Mortgage Loan could result in a total loss with respect to such
loan in a bankruptcy proceeding. Any such violation would be a breach of
representation and warranty of the depositor, and the depositor would be
obligated to repurchase such Mortgage Loan as described herein.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans in a trust have been considered by
Congress, and more such proposed legislation may be considered in the future. No
assurance can be given that any particular proposal will or will not be enacted
into law, or that any provision so enacted will not differ materially from the
proposals described above.
The Code provides priority to certain tax liens over the lien of the mortgage.
In addition, substantive requirements are imposed upon mortgage lenders in
connection with the origination and the servicing of mortgage loans by numerous
federal and some state consumer protection laws. These laws include the federal
Trust-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and related
statutes. These federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the provisions of the
applicable laws. In some cases, this liability may affect assignees of the
Mortgage Loans.
Homeowners Protection Act of 1998
The Homeowners Protection Act of 1998 ("HOPA") provides for certain disclosure
and termination requirements for primary mortgage insurance ("PMI"). The
termination provisions of HOPA apply only to mortgage loans relating to
single-family primary residences originated on or after July 29, 1999. Such
termination provisions govern when a mortgagor may cancel the requirement to
maintain PMI and when the requirement to maintain PMI is automatically
terminated. In general, voluntary termination is permitted and automatic
termination occurs when the principal balance of the mortgage loan is reduced to
80% or 78%, respectively, of the original property value. The disclosure
requirements of HOPA vary depending on whether the mortgage loan was originated
before or after July 29, 1999. Such disclosure requirements include notification
of the circumstances whereby a mortgagor may cancel PMI, the date when PMI
automatically terminates and servicer contact information. In addition, HOPA
provides that no later than 30 days after cancellation or termination of PMI,
the servicer shall provide written notification that such PMI is terminated and
no further payments are due or payable. Any servicer, mortgagee or mortgage
insurer that violates provisions of HOPA is subject to possible liability which
includes, but is not limited to, actual damages, statutory damages and
reasonable attorney's fees.
Texas Home Equity Loans
Generally, any "cash-out" refinance or other non-purchase money transaction
(except for rate/term refinance loans and certain other narrow exceptions)
secured by a Texas resident's principal residence is subject to the provisions
set forth in Section 50(a)(6) of Article XVI of the Constitution of Texas (the
"Texas Home Equity Laws"). The Texas Home Equity Laws provide for certain
disclosure requirements, caps on allowable fees, required loan closing
procedures and other restrictions. Failure, inadvertent or otherwise, to comply
with any requirement may render the Mortgage Loan unenforceable and/or the lien
on the Mortgaged Property invalid. Because mortgage loans which are subject to
the Texas Home Equity Laws can be foreclosed only pursuant to court order,
rather than non-judicial foreclosure as is available for other types of mortgage
loans in Texas, delays and increased losses may result in connection with
foreclosures of such loans. If a court were to find that any requirement of the
Texas Home Equity Laws was not complied with, the court could refuse to allow
foreclosure to proceed, declare the lien on the Mortgaged Property to be
invalid, and/or require the originating lender or the holder of the note to
forfeit some or all principal and
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interest of the related Mortgage Loan. Title insurance generally available on
such Mortgage Loans may exclude coverage for some of the risks described in this
paragraph.
Soldiers' and Sailors' Civil Relief Act and Similar Laws
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans in a Trust Estate. Any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to the holders of the Certificates of the related
Series. Further, the Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mortgage
Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion. Certain
states have enacted comparable legislation which may interfere with or affect
the ability of the Servicer to timely collect payments of principal and interest
on, or to foreclose on, Mortgage Loans of borrowers in such states who are
active or reserve members of the armed services.
Environmental Considerations
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate, among
other things: emissions of air pollutants; discharges of wastewater or storm
water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ("PCBs").
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines. Under the laws of certain states,
environmental contamination on a property may give rise to a lien on the
property to ensure the availability and/or reimbursement of cleanup costs.
Generally all subsequent liens on such property are subordinated to such a lien
and, in some states, even prior recorded liens are subordinated to such liens
("Superliens"). In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the mortgaged
property may become liable in certain circumstances for the costs of remedial
action ("Cleanup Costs") if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be substantial
and could exceed the value of the property and the aggregate assets of the owner
or operator. CERCLA imposes strict, as well as joint and several liability for
environmental remediation and/or damage costs on several classes of "potentially
responsible parties," including current "owners and/or operators" of property,
irrespective of whether those owners or operators caused or contributed to
contamination on the property. In addition, owners and operators of properties
that generate hazardous substances that are disposed of at other "off-site"
locations may held strictly, jointly and severally liable for environmental
remediation and/or damages at those off-site locations. Many states also have
laws that are similar to CERCLA. Liability under CERCLA or under similar state
law could exceed the value of the property itself as well as the aggregate
assets of the property owner.
The law is unclear as to whether and under what precise circumstances cleanup
costs, or the obligation to take remedial actions, could be imposed on a secured
lender such as the Trust Estate. Under the laws of some states and under CERCLA,
a lender may be liable as an "owner or operator" for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have "participated in the management"
of the operations of the borrower, even though the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of "owner or operator," is a person
"who without participating in the management of . . . [the] facility, holds
indicia of ownership primarily to protect his security interest" (the
"secured-creditor
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exemption"). This exemption for holders of a security interest such as a secured
lender applies only to the extent that a lender seeks to protect its security
interest in the contaminated facility or property. Thus, if a lender's
activities begin to encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
facility or property, the lender may incur potential CERCLA liability in various
circumstances including, among others, when it holds the facility or property as
an investment (including leasing the facility or property to a third party),
fails to market the property in a timely fashion or fails to properly address
environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in a petroleum underground storage tank ("UST") or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose its
secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the management
of the UST. In addition, if the lender takes title to or possession of the UST
or the real estate containing the UST, under certain circumstances the
secured-creditor exemption may be deemed to be unavailable.
A decision in May 1990 of the United States Court of Appeals for the Eleventh
Circuit in United States v. Fleet Factors Corp. very narrowly construed CERCLA's
secured-creditor exemption. The court's opinion suggested that a lender need not
have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under CERCLA,
rather, liability could attach to a lender if its involvement with the
management of the facility were broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's financial
management. A subsequent decision by the United States Court of Appeals for the
Ninth Circuit in In re Bergsoe Metal Corp., apparently disagreeing with, but not
expressly contradicting, the Fleet Factors court, held that a secured lender had
no liability absent "some actual management of the facility" on the part of the
lender.
Court decisions have taken varying views of the scope of the secured- creditor
exemption, leading to administrative and legislative efforts to provide guidance
to lenders on the scope of activities that would trigger CERCLA and/or RCRA
liability. Until recently, these efforts have failed to provide substantial
guidance.
On September 30, 1996, however, the President signed into law the Asset
Conservation Lender Liability and Deposit Insurance Protection Act of 1996 (the
"Asset Conservation Act"). The Asset Conservation Act was intended to clarify
the scope of the secured-creditor exemption under both CERCLA and RCRA. The
Asset Conservation Act more explicitly defined the kinds of "participation in
management" that would trigger liability under CERCLA and specified certain
activities that would not constitute "participation in management" or otherwise
result in a forfeiture of the secured-creditor exemption prior to foreclosure or
during a workout period. The Asset Conservation Act also clarified the extent of
protection against liability under CERCLA in the event of foreclosure and
authorized certain regulatory clarifications of the scope of the
secured-creditor exemption for purposes of RCRA, similar to the statutory
protections under CERCLA. However, since the courts have not yet had the
opportunity to interpret the new statutory provisions, the scope of the
additional protections offered by the Asset Conservation Act is not fully
defined. It also is important to note that the Asset Conservation Act does not
offer complete protection to lenders and that the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an action
for contribution against the owner or operator who created the environmental
contamination or against some other liable party, but that person or entity may
be bankrupt or otherwise judgment-proof. It is therefore possible that cleanup
or other environmental liability costs could become a liability of the Trust
Estate and occasion a loss to the Trust Estate and to Certificateholders in
certain circumstances. The new secured creditor amendments to CERCLA, also,
would not necessarily affect the potential for liability in actions by either a
state or a private party under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the secured-creditor
exemption.
Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present with respect to any
mortgaged property prior to the origination of the mortgage loan or prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly, neither the
Seller, Norwest Mortgage nor Norwest Funding has made such evaluations prior to
the origination of the Mortgage Loans, nor does Norwest Mortgage or Norwest
Funding require that such evaluations be
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made by originators who have sold the Mortgage Loans to Norwest Mortgage.
Neither the Seller nor Norwest Mortgage is required to undertake any such
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure.
Neither the Seller nor the Master Servicer makes any representations or
warranties or assumes any liability with respect to: the environmental condition
of such Mortgaged Property; the absence, presence or effect of hazardous wastes
or hazardous substances on any Mortgaged Property; any casualty resulting from
the presence or effect of hazardous wastes or hazardous substances on, near or
emanating from such Mortgaged Property; the impact on Certificateholders of any
environmental condition or presence of any substance on or near such Mortgaged
Property; or the compliance of any Mortgaged Property with any environmental
laws, nor is any agent, person or entity otherwise affiliated with the Seller
authorized or able to make any such representation, warranty or assumption of
liability relative to any such Mortgaged Property. See "Mortgage Loan Programs--
Representations and Warranties" and "Servicing of the Mortgage Loans--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans"
above.
"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 borrower transfers its interest in the 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 "Garn Act") which purports to preempt
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
may include the Mortgage Loans) made after the effective date of the Garn Act
are enforceable, within certain limitations as set forth in the Garn Act and the
regulations promulgated thereunder. "Due-on-sale" clauses contained in mortgage
loans originated by federal savings and loan associations or federal savings
banks are fully enforceable pursuant to regulations of the Office of Thrift
Supervision ("OTS"), as successor to the Federal Home Loan Bank Board ("FHLBB"),
which preempt state law restrictions on the enforcement of such clauses.
Similarly, "due-on-sale" clauses in mortgage loans made by national banks and
federal credit unions are now fully enforceable pursuant to preemptive
regulations of the Comptroller of the Currency and the National Credit Union
Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for "due-on-sale" clauses in certain mortgage loans ("Window
Period Loans") which were originated by non-federal lenders and made or assumed
in certain states ("Window Period States") during the period, prior to October
15, 1982, in which that state prohibited the enforcement of "due-on-sale"
clauses by constitutional provision, statute or statewide court decision (the
"Window Period"). Though neither the Garn Act nor the OTS regulations actually
names the Window Period States, FHLMC has taken the position, in prescribing
mortgage loan servicing standards with respect to mortgage loans which it has
purchased, that the Window Period States were: Arizona, Arkansas, California,
Colorado, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and Washington.
Under the Garn Act, unless a Window Period State took action by October 15,
1985, the end of the Window Period, to further regulate enforcement of
"due-on-sale" clauses in Window Period Loans, "due-on-sale" clauses would become
enforceable even in Window Period Loans. Five of the Window Period States
(Arizona, Minnesota, Michigan, New Mexico and Utah) have taken actions which
restrict the enforceability of "due-on-sale" clauses in Window Period Loans
beyond October 15, 1985. The actions taken vary among such states.
By virtue of the Garn Act, a Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a "due-on-sale" clause
upon transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to
certain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
purchase, (ii) a transfer to a relative resulting from the death of a borrower,
or a transfer where the spouse or children become an owner of the property in
each case where the transferee(s) will occupy the property, (iii) 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 property, (iv) 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 property (provided that such lien or
encumbrance is not created pursuant to a contract for deed), (v) a transfer by
devise, descent or operation of law on the death of a joint tenant or tenant by
the entirety, (vi) a transfer into an inter vivos trust in which the borrower is
the beneficiary and which does not relate to a transfer of rights of occupancy;
and (vii) other transfers as set forth in the Garn Act and the regulations
thereunder. Regulations promulgated under the Garn Act also prohibit the
imposition of a prepayment penalty upon the
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acceleration of a loan pursuant to a due-on-sale clause. The extent of the
effect of the Garn Act on the average lives and delinquency rates of the
Mortgage Loans cannot be predicted. See "Prepayment and Yield Considerations."
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS as successor to the
FHLBB is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized any
state to reimpose interest rate limits by adopting before April 1, 1983, a law
or constitutional provision which expressly rejects application of the federal
law. Fifteen states have adopted laws reimposing or reserving the right to
reimpose interest rate limits. In addition, even where Title V is not so
rejected, any state is authorized to adopt a provision limiting certain other
loan charges.
The Seller will represent and warrant in the Pooling and Servicing
Agreement to the Trustee for the benefit of Certificateholders that all Mortgage
Loans are originated in full compliance with applicable state laws, including
usury laws. See "The Pooling and Servicing Agreement--Assignment of Mortgage
Loans to the Trustee."
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Servicer) will be
retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower 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 borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers 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 borrower.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft as to the anticipated material federal income tax consequences
of the purchase, ownership and disposition of Certificates. The discussion below
does not purport to address all federal income tax consequences that may be
applicable to particular categories of investors, some of which may be subject
to special rules. The authorities on which this discussion is based are subject
to change or differing interpretations, and any such change or interpretation
could apply retroactively. This discussion reflects the applicable provisions of
the Code, as well as regulations (the "REMIC Regulations") promulgated by the
U.S. Department of the Treasury. Investors should consult their own tax advisors
in determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of Certificates.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a
Series of Certificates, references to the Mortgage Loans will be deemed to refer
to that portion of the
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Mortgage Loans held by the Trust Estate that does not include the Fixed Retained
Yield. References to a "Holder" or "Certificateholder" in this discussion
generally mean the beneficial owner of a Certificate.
Federal Income Tax Consequences for REMIC Certificates
General
With respect to a particular Series of Certificates, an election may be
made to treat the Trust Estate or one or more segregated pools of assets therein
as one or more REMICs within the meaning of Code Section 860D. A Trust Estate or
a portion or portions thereof as to which one or more REMIC elections will be
made will be referred to as a "REMIC Pool." For purposes of this discussion,
Certificates of a Series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes of
"Regular Certificates" and one Class of "Residual Certificates" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Seller, has advised the Seller
that in the firm's opinion, assuming (i) the making of an appropriate election,
(ii) compliance with the Pooling and Servicing Agreement, and (iii) compliance
with any changes in the law, including any amendments to the Code or applicable
Treasury regulations thereunder, each REMIC Pool will qualify as a REMIC. In
such case, the Regular Certificates will be considered to be "regular interests"
in the REMIC Pool and generally will be treated for federal income tax purposes
as if they were newly originated debt instruments, and the Residual Certificates
will be considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each Series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust Estate will be made, in which
event references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to
each such REMIC Pool.
Status of REMIC Certificates
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans . . . secured by an interest in real
property which is . . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C). REMIC Certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code Section 856(c)(4)(A),
and interest on the Regular Certificates and income with respect to Residual
Certificates will be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that, for both purposes, the assets
of the REMIC Pool would be so treated. If at all times 95% or more of the assets
of the REMIC Pool qualify for each of the foregoing treatments, the REMIC
Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
Mortgage Loans that are reinvested pending distribution to holders of REMIC
Certificates qualify for such treatment. Where two REMIC Pools are a part of a
tiered structure they will be treated as one REMIC for purposes of the tests
described above respecting asset ownership of more or less than 95%. In
addition, if the assets of the REMIC include Buy- Down Loans, it is possible
that the percentage of such assets constituting "loans . . . secured by an
interest in real property which is . . . residential real property" for purposes
of Code Section 7701(a)(19)(C)(v) may be required to be reduced by the amount of
the related Buy-Down Funds. Regular Certificates will represent "qualified
mortgages," within the meaning of Code Section 860G(a)(3), for other REMICs and
"permitted assets," within the meaning of Code Section 860L(c), for financial
asset securitization investment trusts. REMIC Certificates held by a regulated
investment company will not constitute "Government securities" within the
meaning of Code Section 851(b)(3)(A)(i). REMIC Certificates held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(1). The Small Business Job Protection Act of 1996
(the "SBJPA of 1996") repealed the reserve method for bad debts of domestic
building and loan associations and mutual savings banks, and thus has eliminated
the asset category of "qualifying real property loans" in former Code Section
593(d) for taxable years beginning after December 31, 1995. The requirement in
the SBJPA of 1996 that such institutions must "recapture" a portion of their
existing bad debt reserves is suspended if a certain portion of their assets are
maintained in "residential loans" under Code Section 7701(a)(19)(C)(v), but only
if such loans were made to acquire, construct or improve the related real
property and not for the purpose of refinancing. However, no effort will be made
to identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
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Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Certificates) and at all
times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a safe harbor pursuant to
which the de minimis requirement will be met if at all times the aggregate
adjusted basis of the nonqualified assets is less than 1% of the aggregate
adjusted basis of all the REMIC Pool's assets. An entity that fails to meet the
safe harbor may nevertheless demonstrate that it holds no more than a de minimis
amount of nonqualified assets. A REMIC Pool also must provide "reasonable
arrangements" to prevent its residual interests from being held by "disqualified
organizations" or agents thereof and must furnish applicable tax information to
transferors or agents that violate this requirement. See "--Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower- tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a
cooperative housing corporation can be qualified mortgages. A qualified mortgage
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 Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The 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 or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally not held beyond the close of the third calendar year following the
year in which such property is acquired with an extension that may be granted by
the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable rate, inverse variable rate or difference
between two fixed or qualified variable rates on some or all of the qualified
mortgages. The specified principal amount of a regular interest that provides
for interest payments
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consisting of a specified, nonvarying portion of interest payments on qualified
mortgages may be zero. A residual interest is an interest in a REMIC Pool other
than a regular interest that is issued on the Startup Day and that is designated
as a residual interest. An interest in a REMIC Pool may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the residual interest in
the REMIC Pool, and are dependent on the absence of defaults or delinquencies on
qualified mortgages or permitted investments, lower than reasonably expected
returns on permitted investments, unanticipated expenses incurred by the REMIC
Pool or prepayment interest shortfalls. Accordingly, in the opinion of
Cadwalader, Wickersham & Taft, the Regular Certificates of a Series will
constitute one or more classes of regular interests, and the Residual
Certificates with respect to that Series will constitute a single class of
residual interests on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury Department
to issue regulations that address situations where failure to meet one or more
of the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
Tax Reform Act of 1986 (the "1986 Act") indicates that the relief may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC Pool's income for the period of time in which the
requirements for REMIC status are not satisfied.
Taxation of Regular Certificates
General
In general, interest, original issue discount, and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder"), and principal payments on
a Regular Certificate will be treated as a return of capital to the extent of
the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with "original issue discount" within the meaning of
Code Section 1273(a). Holders of any Class or Subclass of Regular Certificates
having original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
following discussion is based in part on temporary and final Treasury
regulations issued on February 2, 1994, as amended on June 14, 1996, (the "OID
Regulations") under Code Sections 1271 through 1273 and 1275 and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Regular Certificates. To the extent such
issues are not addressed in such regulations, the Seller intends to apply the
methodology described in the Conference Committee Report to the 1986 Act. No
assurance can be provided that the Internal Revenue Service will not take a
different position as to those matters not currently addressed by the OID
Regulations. Moreover, the OID Regulations include an anti-abuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect on
the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion herein and the appropriate
method for reporting interest and original issue discount with respect to the
Regular Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single
installment or by lots of specified principal amounts upon the request of a
Certificateholder or by random lot (a "Non-Pro Rata Certificate")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is
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the excess of the "stated redemption price at maturity" of the Regular
Certificate over its "issue price." The issue price of a Class of Regular
Certificates offered pursuant to this Prospectus generally is the first price at
which a substantial amount of such Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID Regulations,
the Seller intends to treat the issue price of a Class as to which there is no
substantial sale as of the issue date or that is retained by the Seller as the
fair market value of that Class as of the issue date. The issue price of a
Regular Certificate also includes any amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest." Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or a qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Regular
Certificate. Because there is no penalty or default remedy in the case of
nonpayment of interest with respect to a Regular Certificate, it is possible
that no interest on any Class of Regular Certificates will be treated as
qualified stated interest. However, except as provided in the following three
sentences or in the applicable Prospectus Supplement, because the underlying
Mortgage Loans provide for remedies in the event of default, the Seller intends
to treat interest with respect to the Regular Certificates as qualified stated
interest. Distributions of interest on a Compound Interest Certificate, or on
other Regular Certificates with respect to which deferred interest will accrue,
will not constitute qualified stated interest, in which case the stated
redemption price at maturity of such Regular Certificates includes all
distributions of interest as well as principal thereon. Likewise, the Seller
intends to treat an interest-only Class or a Class on which interest is
substantially disproportionate to its principal amount (a so-called
"super-premium" Class) as having no qualified stated interest. Where the
interval between the issue date and the first Distribution Date on a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. For this purpose,
the weighted average maturity of the Regular Certificate is computed as the sum
of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the Regular Certificate and the
denominator of which is the stated redemption price at maturity of the Regular
Certificate. The Conference Committee Report to the 1986 Act provides that the
schedule of such distributions should be determined in accordance with the
assumed rate of prepayment of the Mortgage Loans (the "Prepayment Assumption")
and the anticipated reinvestment rate, if any, relating to the Regular
Certificates. The Prepayment Assumption with respect to a Series of Regular
Certificates will be set forth in the applicable Prospectus Supplement. Holders
generally must report de minimis original issue discount pro rata as principal
payments are received, and such income will be capital gain if the Regular
Certificate is held as a capital asset. Under the OID Regulations, however,
Regular Certificateholders may elect to accrue all de minimis original issue
discount as well as market discount and market premium, under the constant yield
method. See "--Election to Treat All Interest Under the Constant Yield Method."
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. The Seller will treat the
monthly period ending on the day before each Distribution Date as the accrual
period. With respect to each Regular Certificate, a calculation will be made of
the original issue discount that accrues during each successive full accrual
period (or shorter period from the date of original issue) that ends on the day
before the related Distribution Date on the Regular Certificate. The Conference
Committee Report to the 1986 Act states that the rate of accrual of original
issue discount is intended to be based on the Prepayment Assumption. Other than
as discussed below with respect to a Non-Pro Rata Certificate, the original
issue discount accruing in a full accrual period would be the excess, if any, of
(i) the sum of (a) the present value of all of the remaining distributions to be
made on the Regular Certificate as of the end of that accrual period, and (b)
the distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity,
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the remaining distributions referred
to in the preceding sentence is calculated based on (i) the yield to maturity of
the Regular Certificate at the issue date, (ii)
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events (including actual prepayments) that have occurred prior to the end of the
accrual period, and (iii) the Prepayment Assumption. For these purposes, the
adjusted issue price of a Regular Certificate at the beginning of any accrual
period equals the issue price of the Regular Certificate, increased by the
aggregate amount of original issue discount with respect to the Regular
Certificate that accrued in all prior accrual periods and reduced by the amount
of distributions included in the Regular Certificate's stated redemption price
at maturity that were made on the Regular Certificate in such prior periods. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Non-Pro Rata Certificate (or portion of
such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially redeemed Non-Pro Rata Certificate after a
distribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Seller believes that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the Class as a whole.
Investors are advised to consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under the
constant yield method, as described below under the heading "-- Election to
Treat All Interest Under the Constant Yield Method."
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate if,
generally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (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." A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where such rate
is subject to a fixed multiple that is greater than 0.65 but not more than 1.35.
Such rate may also be increased or decreased by a fixed spread or subject to a
fixed cap or floor, or a cap or floor that is not reasonably expected as of the
issue date to affect the yield of the instrument significantly. An objective
rate is any rate (other than a qualified floating rate) that is determined using
a single fixed formula and that is based on objective financial or economic
information, provided that such information is not (i) within the
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control of the issuer or a related party or (ii) unique to the circumstances of
the issuer or a related party. A qualified inverse floating rate is a rate equal
to a fixed rate minus a qualified floating rate that inversely reflects
contemporaneous variations in the cost of newly borrowed funds; an inverse
floating rate that is not a qualified inverse floating rate may nevertheless be
an objective rate. A Class of Regular Certificates may be issued under this
Prospectus that does not have a variable rate under the foregoing rules, for
example, a Class that bears different rates at different times during the period
it is outstanding such that it is considered significantly "front- loaded" or
"back-loaded" within the meaning of the OID Regulations. It is possible that
such a Class may be considered to bear "contingent interest" within the meaning
of the OID Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to Regular Certificates.
However, if final regulations dealing with contingent interest with respect to
Regular Certificates apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion than would be the
case under the OID Regulations for non-contingent debt instruments. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Regular Certificates as ordinary income. Investors
should consult their tax advisors regarding the appropriate treatment of any
Regular Certificate that does not pay interest at a fixed rate or variable rate
as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such a
rate that is subject to one or more caps or floors, or (ii) bearing one or more
such variable rates for one or more periods, or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable Prospectus Supplement, the Seller intends to treat
Regular Certificates that qualify as regular interests under this rule in the
same manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount," with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming that
interest will be payable for the life of the Regular Certificate based on the
initial rate (or, if different, the value of the applicable variable rate as of
the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, the Seller intends to treat such variable interest
as qualified stated interest, other than variable interest on an interest-only
or super-premium Class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates on
Mortgage Loans as having qualified stated interest, except to the extent that
initial "teaser" rates cause sufficiently "back-loaded" interest to create more
than de minimis original issue discount. The yield on such Regular Certificates
for purposes of accruing original issue discount will be a hypothetical fixed
rate based on the fixed rates, in the case of fixed-rate Mortgage Loans, and
initial "teaser rates" followed by fully indexed rates, in the case of
adjustable-rate Mortgage Loans. In the case of adjustable-rate Mortgage Loans,
the applicable index used to compute interest on the Mortgage Loans in effect on
the pricing date (or possibly the issue date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. Adjustments will be made in each accrual
period either increasing or decreasing the amount of ordinary income reportable
to reflect the actual Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and the
principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate, or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated redemption
price at maturity thereof are received, in an amount not exceeding any such
distribution. Such market discount
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would accrue in a manner to be provided in Treasury regulations and should take
into account the Prepayment Assumption. The Conference Committee Report to the
1986 Act provides that until such regulations are issued, such market discount
would accrue either (i) on the basis of a constant interest rate, or (ii) in the
ratio of stated interest allocable to the relevant period to the sum of the
interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular 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 distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense in
any taxable year generally will not exceed the accrued market discount on the
Regular Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which case
the interest deferral rule will not apply. See "--Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in which
such election may be deemed to be made.
By analogy to the OID Regulations, market discount with respect to a
Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at maturity of such
Regular Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above in the third paragraph under "--
Original Issue Discount") remaining after the date of purchase. It appears that
de minimis market discount would be reported in a manner similar to de minimis
original issue discount. See "--Original Issue Discount" above. Treasury
regulations implementing the market discount rules have not yet been issued, and
therefore investors should consult their own tax advisors regarding the
application of these rules. Investors should also consult Revenue Procedure 92-
67 concerning the elections to include market discount in income currently and
to accrue market discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Such election will apply to all debt
obligations acquired by the Regular Certificateholder at a premium held in that
taxable year or thereafter, unless revoked with the permission of the Internal
Revenue Service. Final Treasury Regulations issued under Code Section 171 do not
by their terms apply to prepayable debt instruments such as the Regular
Certificates. However, the Conference Committee Report to the 1986 Act indicates
a Congressional intent that the same rules that apply to the accrual of market
discount on installment obligations will also apply to amortizing bond premium
under Code Section 171 on installment obligations such as the Regular
Certificates, although it is unclear whether the alternatives to the constant
interest method described above under "--Market Discount" are available.
Amortizable bond premium will be treated as an offset to interest income on a
Regular Certificate, rather than as a separate deduction item. See "--Election
to Treat All Interest Under the Constant Yield Method" below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment
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Assumption would continue to apply or if a new prepayment assumption as of the
date of the holder's acquisition would apply. A holder generally may make such
an election on an instrument by instrument basis or for a class or group of debt
instruments. However, if the holder makes such an election with respect to a
debt instrument with amortizable bond premium or with market discount, the
holder is deemed to have made elections to amortize bond premium or to report
market discount income currently as it accrues under the constant yield method,
respectively, for all premium bonds held or market discount bonds acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Internal Revenue
Service. Investors should consult their own tax advisors regarding the
advisability of making such an election.
Treatment of Losses
Regular Certificateholders will be required to report income with respect
to Regular Certificates on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate, particularly a Subordinated Certificate, may have income, or may
incur a diminution in cash flow as a result of a default or delinquency, but may
not be able to take a deduction (subject to the discussion below) for the
corresponding loss until a subsequent taxable year. In this regard, investors
are cautioned that while they may generally cease to accrue interest income if
it reasonably appears that the interest will be uncollectible, the Internal
Revenue Service may take the position that original issue discount must continue
to be accrued in spite of its uncollectibility until the debt instrument is
disposed of in a taxable transaction or becomes worthless in accordance with the
rules of Code Section 166. To the extent the rules of Code Section 166 regarding
bad debts are applicable, it appears that Regular Certificateholders that are
corporations or that otherwise hold the Regular Certificates in connection with
a trade or business should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on account
of any such Regular Certificates becoming wholly or partially worthless, and
that, in general, Regular Certificateholders that are not corporations and do
not hold the Regular Certificates in connection with a trade or business should
be allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of a portion of any such Regular Certificates becoming
wholly worthless. Although the matter is not free from doubt, such non-corporate
Regular Certificateholders should be allowed a bad debt deduction at such time
as the principal balance of such Regular Certificates is reduced to reflect
losses resulting from any liquidated Mortgage Loans. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all the Mortgage
Loans remaining in the Trust Estate have been liquidated or the applicable Class
of Regular Certificates has been otherwise retired. The Internal Revenue Service
could also assert that losses on the Regular Certificates are deductible based
on some other method that may defer such deductions for all holders, such as
reducing future cash flow for purposes of computing original issue discount.
This may have the effect of creating "negative" original issue discount which
would be deductible only against future positive original issue discount or
otherwise upon termination of the Class. Regular Certificateholders are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Regular Certificates. While
losses attributable to interest previously reported as income should be
deductible as ordinary losses by both corporate and non-corporate holders, the
Internal Revenue Service may take the position that losses attributable to
accrued original issue discount may only be deducted as capital losses in the
case of non-corporate holders who do not hold the Regular Certificates in
connection with a trade or business. Special loss rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts. Such
taxpayers are advised to consult their tax advisors regarding the treatment of
losses on Regular Certificates.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally will
equal the cost of the Regular Certificate to the seller, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Regular Certificate and reduced by amounts
included in the stated redemption price at maturity of the Regular Certificate
that were previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the related
capital
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gain holding period. Such gain will be treated as ordinary income (i) if a
Regular Certificate is held as part of a "conversion transaction" as defined in
Code Section 1258(c), up to the amount of interest that would have accrued on
the Regular Certificateholder's net investment in the conversion transaction at
120% of the appropriate applicable federal rate under Code Section 1274(d) in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates, or (iii) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if its yield on such Regular Certificate were 110% of the
applicable federal rate as of the date of purchase, over (b) the amount of
income actually includible in the gross income of such holder with respect to
such Regular Certificate. In addition, gain or loss recognized from the sale of
a Regular Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Generally, short-term
capital gains of certain non-corporate taxpayers are subject to the same tax
rate as the ordinary income of such taxpayers (39.6%) for property held for not
more than one year, and long-term capital gains of such taxpayers are subject to
a maximum tax rate of 20% for property held for more than one year. The maximum
tax rate for corporations is the same with respect to both ordinary income and
capital gains.
Taxation of Residual Certificates
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ("Residual Holders"), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable income or net
loss of a Residual Holder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarter ratably to each day in such quarter
and by allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC Pool on such
day. REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting, except
that (i) the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. The REMIC
Pool's gross income includes interest, original issue discount income and market
discount income, if any, on the Mortgage Loans, reduced by amortization of any
premium on the Mortgage Loans, plus income from amortization of issue premium,
if any, on the Regular Certificates, plus income on reinvestment of cash flows
and reserve assets, plus any cancellation of indebtedness income upon allocation
of realized losses to the Regular Certificates. The REMIC Pool's deductions
include interest and original issue discount expense on the Regular
Certificates, servicing fees on the Mortgage Loans, other administrative
expenses of the REMIC Pool and realized losses on the Mortgage Loans. The
requirement that Residual Holders report their pro rata share of taxable income
or net loss of the REMIC Pool will continue until there are no Certificates of
any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) or
income from amortization of issue premium on the Regular Certificates, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Holder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used in
whole or in part to make distributions in reduction of principal on the Regular
Certificates and (ii) the discount on the Mortgage Loans which is includible in
income may exceed the deduction allowed upon such distributions on those Regular
Certificates on account of any unaccrued original issue discount relating to
those Regular Certificates. When there is more than one Class of Regular
Certificates that distribute principal sequentially, this mismatching of income
and deductions is particularly likely to occur in the early years following
issuance of the Regular Certificates when distributions in reduction of
principal are being made in respect of earlier Classes of Regular Certificates
to the extent that such Classes are not issued with substantial discount or are
issued at a premium. If taxable income attributable to such a mismatching is
realized, in general, losses would be allowed in later years as distributions on
the later maturing Classes of Regular Certificates are made. Taxable income may
also be greater in earlier years than in later years as a result of the fact
that interest expense deductions, expressed as a
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percentage of the outstanding principal amount of such a Series of Regular
Certificates, may increase over time as distributions in reduction of principal
are made on the lower yielding Classes of Regular Certificates, whereas, to the
extent the REMIC Pool consists of fixed-rate Mortgage Loans, interest income
with respect to any given Mortgage Loan will remain constant over time as a
percentage of the outstanding principal amount of that loan. Consequently,
Residual Holders must have sufficient other sources of cash to pay any federal,
state, or local income taxes due as a result of such mismatching or unrelated
deductions against which to offset such income, subject to the discussion of
"excess inclusions" below under "--Limitations on Offset or Exemption of REMIC
Income." The timing of such mismatching of income and deductions described in
this paragraph, if present with respect to a Series of Certificates, may have a
significant adverse effect upon a Residual Holder's after-tax rate of return. In
addition, a Residual Holder's taxable income during certain periods may exceed
the income reflected by such Residual Holder for such periods in accordance with
generally accepted accounting principles. Investors should consult their own
accountants concerning the accounting treatment of their investment in Residual
Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC Pool and, second, by the amount of
loss of the REMIC Pool reportable by the Residual Holder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Holder as to whom such loss was disallowed and may be
used by such Residual Holder only to offset any income generated by the same
REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of
its Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificates over their life.
However, in view of the possible acceleration of the income of Residual Holders
described above under "Taxation of REMIC Income," the period of time over which
such issue price is effectively amortized may be longer than the economic life
of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "--Treatment of Certain
Items of REMIC Income and Expense--Market Discount" below regarding the basis of
Mortgage Loans to the REMIC Pool and "--Sale or Exchange of a Residual
Certificate" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the specific
method that it will use for reporting income with respect to the Mortgage Loans
and expenses with respect to the Regular Certificates and different methods
could result in different timing of reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
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Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "--Taxation of Regular Certificates--
Original Issue Discount" and "--Variable Rate Regular Certificates," without
regard to the de minimis rule described therein, and "--Premium."
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis in
such Mortgage Loans is generally the fair market value of the Mortgage Loans
immediately after the transfer thereof to the REMIC Pool. The REMIC Regulations
provide that such basis is equal in the aggregate to the issue prices of all
regular and residual interests in the REMIC Pool. The accrued portion of such
market discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "--Taxation of Regular
Certificates--Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "--Taxation of Regular Certificates-- Premium," a person that holds
a Mortgage Loan as a capital asset under Code Section 1221 may elect under Code
Section 171 to amortize premium on Mortgage Loans originated after September 27,
1985 under the constant yield method. Amortizable bond premium will be treated
as an offset to interest income on the Mortgage Loans, rather than as a separate
deduction item. Because substantially all of the mortgagors on the Mortgage
Loans are expected to be individuals, Code Section 171 will not be available for
premium on Mortgage Loans originated on or prior to September 27, 1985. Premium
with respect to such Mortgage Loans may be deductible in accordance with a
reasonable method regularly employed by the holder thereof. The allocation of
such premium pro rata among principal payments should be considered a reasonable
method; however, the Internal Revenue Service may argue that such premium should
be allocated in a different manner, such as allocating such premium entirely to
the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining
the federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the "excess inclusion," is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of the
long-term applicable federal rate that would have applied to the Residual
Certificate (if it were a debt instrument) on the Startup Day under Code Section
1274(d), multiplied by (ii) the adjusted issue price of such Residual
Certificate 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, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of the
REMIC Pool's taxable income that will be treated as excess inclusions will be a
larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. However, net
operating loss carryovers are determined without regard to excess inclusion
income. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons (as defined below under "--Tax- Related Restrictions on
Transfer of Residual Certificates--Foreign Investors"), and the portion thereof
attributable to excess inclusions is not eligible for any reduction in the rate
of withholding tax (by treaty or otherwise). See "--Taxation of Certain Foreign
Investors --Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by the
real estate investment trust or regulated investment company could not be offset
by net operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The SBJPA
of 1996 has eliminated the special rule permitting Section 593 institutions
("thrift
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institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from Residual Certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to Residual
Certificates continuously held by a thrift institution since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the date
of the transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating 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 tax also may be waived by the Internal Revenue
Service if the Disqualified Organization promptly disposes of the Residual
Certificate and the transferor pays income tax at the highest corporate rate on
the excess inclusion for the period the Residual Certificate is actually held by
the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the Pass-
Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Certificate, 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. An
exception to this tax, otherwise available to a Pass-Through Entity that is
furnished certain affidavits by record holders of interests in the entity and
that does not know such affidavits are false, is not available to an electing
large partnership.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (ii) "Pass-Through
Entity" means any regulated investment company,
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real estate investment trust, common trust fund, partnership, trust or estate
and certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a Pass-
Through Entity as a nominee for another will, with respect to such interest, be
treated as a Pass-Through Entity, and (iii) an "electing large partnership"
means any partnership having more than 100 members during the preceding tax year
(other than certain service partnerships and commodity pools), which elect to
apply simplified reporting provisions under the Code.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification number
and stating that such transferee is the beneficial owner of the Residual
Certificate and is not a Disqualified Organization and is not purchasing such
Residual Certificate on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof) and (ii) the transferor provides a
statement in writing to the Seller and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling and Servicing
Agreement will provide that any attempted or purported transfer in violation of
these transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Certificate with respect to a Series will
bear a legend referring to such restrictions on transfer, and each Residual
Holder will be deemed to have agreed, as a condition of ownership thereof, to
any amendments to the related Pooling and Servicing Agreement required under the
Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must be
furnished to the Internal Revenue Service and to the requesting party within 60
days of the request, and the Seller or the Trustee may charge a fee for
computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person, as defined below under "--Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value at issuance) is
a "noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "--Disqualified Organizations." The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had 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 came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic residual
interest, the transferee may incur tax liabilities in excess of any cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
and Servicing Agreement with respect to each Series of Certificates will require
the transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"--Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
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The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia, including an
entity treated as a corporation or partnership for federal income tax purposes,
an estate that is subject to United States federal income tax regardless of its
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 such
U.S. Persons have the authority to control all substantial decisions of such
trust (or, to the extent provided in applicable Treasury regulations, certain
trusts in existence on August 20, 1996 which are eligible to be treated as U.S.
Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount realized
over the adjusted basis (as described above under "--Basis and Losses") of such
Residual Holder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Holder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or exchange
of the Residual Certificate. It is possible that the termination of the REMIC
Pool may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in its
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if it holds such Residual Certificate as a capital asset under Code Section
1221, then it will recognize a capital loss at that time in the amount of such
remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. In addition, gain or loss recognized from the sale of a
Residual Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the "Mark to
Market Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark to market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark to market requirement, a Residual Certificate is not treated as a security
and thus may not be marked to market. The Mark to Market Regulations apply to
all Residual Certificates acquired on or after January 4, 1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC
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Pool at a 100% rate. Prohibited transactions generally include (i) the
disposition of a qualified mortgage other than for (a) substitution within two
years of the Startup Day for a defective (including a defaulted) obligation (or
repurchase in lieu of substitution of a defective (including a defaulted)
obligation at any time) or for any qualified mortgage within three months of the
Startup Day, (b) foreclosure, default, or imminent default of a qualified
mortgage, (c) bankruptcy or insolvency of the REMIC Pool, or (d) a qualified
(complete) liquidation, (ii) the receipt of income from assets that are not the
type of mortgages or investments that the REMIC Pool is permitted to hold, (iii)
the receipt of compensation for services, or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction to
sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will not
be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or due-on-encumbrance clause, or the conversion of an interest rate
by a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund by
a Residual Holder, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call, and (v) as otherwise permitted in
Treasury regulations yet to be issued. It is not anticipated that there will be
any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period not exceeding the close of the third
calendar year after the year in which the REMIC Pool acquired such property,
with a possible extension. Net income from foreclosure property generally means
gain from the sale of a foreclosure property that is inventory property and
gross income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust. It is not anticipated that
the REMIC Pool will have any taxable net income from foreclosure property.
Liquidation of the REMIC Pool
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC Pool will not be subject to the prohibited
transaction rules on the sale of its assets, provided that the REMIC Pool
credits or distributes in liquidation all of the sale proceeds plus its cash
(other than amounts retained to meet claims) to holders of Regular Certificates
and Residual Holders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Holder for an entire
taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Internal Revenue Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit in a unified
administrative proceeding. The Master Servicer will be obligated to act as "tax
matters person," as defined in applicable Treasury regulations, with respect to
the REMIC Pool, in its capacity as either Residual Holder or agent of the
Residual Holders. If the Code or applicable Treasury regulations do not permit
the Master Servicer to act as tax matters person in its capacity as agent of the
Residual Holders, the Residual Holder chosen by the Residual Holders or such
other person specified pursuant to Treasury regulations will be required to act
as tax matters person.
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Limitations on Deduction of Certain Expenses
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $126,600 for 1999 ($63,300 in the case of a
married individual filing a separate return) (subject to adjustment for
inflation for each year thereafter), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. In the case of a REMIC Pool, such
deductions may include deductions under Code Section 212 for the Servicing Fee
and all administrative and other expenses relating to the REMIC Pool, or any
similar expenses allocated to the REMIC Pool with respect to a regular interest
it holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their pro
rata share of such expenses allocated to them as additional gross income, but
may be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax liability.
Temporary Treasury regulations provide that the additional gross income and
corresponding amount of expenses generally are to be allocated entirely to the
holders of Residual Certificates in the case of a REMIC Pool that would not
qualify as a fixed investment trust in the absence of a REMIC election. However,
such additional gross income and limitation on deductions will apply to the
allocable portion of such expenses to holders of Regular Certificates, as well
as holders of Residual Certificates, where such Regular Certificates are issued
in a manner that is similar to pass-through certificates in a fixed investment
trust. Unless indicated otherwise in the applicable Prospectus Supplement, all
such expenses will be allocable to the Residual Certificates. In general, such
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC
Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the related
period on Residual Certificates.
Taxation of Certain Foreign Investors
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from such
distributions under Code Section 1441 or 1442, with an appropriate statement,
signed under penalties of perjury, identifying the beneficial owner and stating,
among other things, that the beneficial owner of the Regular Certificate is a
Non-U.S. Person. If such statement, or any other required statement, is not
provided, 30% withholding will apply unless reduced or eliminated pursuant to an
applicable tax treaty or unless the interest on the Regular Certificate is
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Person. In the latter case, such Non-U.S. Person will be
subject to United States federal income tax at regular rates. Investors who are
Non-U.S. Persons should consult their own tax advisors regarding the specific
tax consequences to them of owning a Regular Certificate. The term "Non-U.S.
Person" means any person who is not a U.S.
Person.
The IRS recently issued final regulations (the "New Regulations") which would
provide alternative methods of satisfying the beneficial ownership certification
requirement described above. The New Regulations will be effective January 1,
2001. Current withholding certificates will remain valid until the earlier of
December 31, 2000 or the date of expiration of the certificate under the rules
as currently in effect. The New Regulations would require, in the case of
Regular Certificates held by a foreign partnership, that (x) the certification
described above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look- through rule would apply
in the case of tiered partnerships. Non-U.S. Persons should consult their own
tax advisors concerning the application of the certification requirements in the
New Regulations.
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Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid to
Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as "portfolio interest," subject to the conditions
described in "Regular Certificates" above, but only to the extent that (i) the
Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Estate or
segregated pool of assets therein (as to which a separate REMIC election will be
made), to which the Residual Certificate relates, consists of obligations issued
in "registered form" within the meaning of Code Section 163(f)(1). Generally,
Mortgage Loans will not be, but regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual Holder
will not be entitled to any exemption from the 30% withholding tax (or lower
treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an "excess inclusion." See "--Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income." If the
amounts paid to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account for
purposes of withholding only when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to withholding upon
disposition of debt instruments that have original issue discount. See
"--Taxation of Residual Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates--Foreign Investors" above concerning the disregard of
certain transfers having "tax avoidance potential." Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning Residual Certificates.
Backup Withholding
Distributions made on the Regular Certificates, and proceeds from the sale of
the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Certificateholder
complies with certain reporting and/or certification procedures, including the
provision of its taxpayer identification number to the Trustee, its agent or the
broker who effected the sale of the Regular Certificate, or such
Certificateholder is otherwise an exempt recipient under applicable provisions
of the Code. Any amounts to be withheld from distribution on the Regular
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Regular Certificateholder's federal income tax liability. The
New Regulations will change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
Reporting Requirements
Reports of accrued interest, original issue discount and information necessary
to compute the accrual of market discount will be made annually to the Internal
Revenue Service and to individuals, estates, non-exempt and non- charitable
trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a broker
or middleman as nominee. All brokers, nominees and all other non-exempt holders
of record of Regular Certificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or in
writing by contacting the person designated in Internal Revenue Service
Publication 938 with respect to a particular Series of Regular Certificates.
Holders through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing requirements,
information must be furnished quarterly to Residual Holders, furnished annually,
if applicable, to holders of Regular Certificates, and filed annually with the
Internal Revenue Service concerning Code Section 67 expenses (see "Limitations
on Deduction of Certain Expenses" above) allocable to such
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holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates."
Federal Income Tax Consequences for Certificates as to Which No REMIC Election
Is Made
General
In the event that no election is made to treat a Trust Estate (or a segregated
pool of assets therein) with respect to a Series of Certificates as a REMIC, in
the opinion of Cadwalader, Wickersham & Taft, the Trust Estate will be
classified as a grantor trust under subpart E, Part 1 of subchapter J of the
Code and not as an association taxable as a corporation or a "taxable mortgage
pool" within the meaning of Code Section 7701(i). Where there is no Fixed
Retained Yield with respect to the Mortgage Loans underlying the Certificates of
a Series, and where such Certificates are not designated as "Stripped
Certificates," the holder of each such Certificate in such Series will be
treated as the owner of a pro rata undivided interest in the ordinary income and
corpus portions of the Trust Estate represented by its Certificate and will be
considered the beneficial owner of a pro rata undivided interest in each of the
Mortgage Loans, subject to the discussion below under "-- Recharacterization of
Servicing Fees." Accordingly, the holder of a Certificate of a particular Series
will be required to report on its federal income tax return its pro rata share
of the entire income from the Mortgage Loans represented by its Certificate,
including interest at the coupon rate on such Mortgage Loans, original issue
discount (if any), prepayment fees, assumption fees, and late payment charges
received by the Servicer, in accordance with such Certificateholder's method of
accounting. A Certificateholder generally will be able to deduct its share of
the Servicing Fee and all administrative and other expenses of the Trust Estate
in accordance with its method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust Estate. However,
investors who are individuals, estates or trusts who own Certificates, either
directly or indirectly through certain pass-through entities, will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, including deductions under Code Section 212 for the Servicing Fee and all
such administrative and other expenses of the Trust Estate, to the extent that
such deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $126,600 for 1999 ($63,300 in the case of a married individual
filing a separate return) (in each case, as adjusted for inflation for each year
thereafter), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Certificates,
directly or indirectly through a pass-through entity, may have aggregate taxable
income in excess of the aggregate amount of cash received on such Certificates
with respect to interest at the pass-through rate or as discount income on such
Certificates. In addition, such expenses are not deductible at all for purposes
of computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Moreover, where there is Fixed
Retained Yield with respect to the Mortgage Loans underlying a Series of
Certificates or where the servicing fees are in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "--Stripped Certificates" and "-- Recharacterization of Servicing Fees,"
respectively.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft, except as described below
with respect to Stripped Certificates:
1. A Certificate owned by a "domestic building and loan association" within
the meaning of Code Section 7701(a)(19) will be considered to represent
"loans. . .secured by an interest in real property which is. . .residential
real property" within the meaning of Code Section 7701(a)(19)(C)(v), provided
that the real property securing the Mortgage Loans represented by that
Certificate is of the type described in such section of the Code.
2. A Certificate owned by a real estate investment trust will be considered
to represent "real estate assets" within the meaning of Code Section
856(c)(4)(A) to the extent that the assets of the related Trust Estate consist
of qualified assets, and interest income on such assets will be considered
"interest on obligations secured by mortgages on real property" to such extent
within the meaning of Code Section 856(c)(3)(B).
3. A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in real
property" within the meaning of
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Code Section 860G(a)(3)(A) to the extent that the assets of the related Trust
Estate consist of "qualified mortgages" within the meaning of Code Section
860G(a)(3).
4. A Certificate owned by a "financial asset securitization investment
trust" within the meaning of Code Section 860L(c) will be considered to
represent "permitted assets" within the meaning of Code Section 860L(c) to the
extent that the assets of the Trust Estate consist of "debt instruments" or
other permitted assets within the meaning of Code Section 860L(c).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal amount
of the loan at the time of issuance or acquisition, as the case may be. There is
no assurance that the treatment described above is proper. Accordingly,
Certificateholders are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such Certificateholder's
investment for federal income tax purposes.
Premium and Discount
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will be
determined generally as described above under "--Federal Income Tax Consequences
for REMIC Certificates--Taxation of Residual Certificates-- Treatment of Certain
Items of REMIC Income and Expense--Premium."
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will be
applicable to a Certificateholder's interest in those Mortgage Loans as to which
the conditions for the application of those sections are met. Rules regarding
periodic inclusion of original issue discount income are applicable to mortgages
of corporations originated after May 27, 1969, mortgages of noncorporate
mortgagors (other than individuals) originated after July 1, 1982, and mortgages
of individuals originated after March 2, 1984. Under the OID Regulations, such
original issue discount could arise by the charging of points by the originator
of the mortgages in an amount greater than the statutory de minimis exception,
including a payment of points that is currently deductible by the borrower under
applicable Code provisions or, under certain circumstances, by the presence of
"teaser" rates on the Mortgage Loans. See "--Stripped Certificates" below
regarding original issue discount on Stripped Certificates.
Original issue discount generally must be reported as ordinary gross income as
it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount
Certificateholders also will be subject to the market discount rules to the
extent that the conditions for application of those sections are met. Market
discount on the Mortgage Loans will be determined and will be reported as
ordinary income generally in the manner described above under "Federal Income
Tax Consequences for REMIC Certificates--Taxation of Regular Certificates--
Market Discount," except that the ratable accrual methods described therein will
not apply. Rather, the holder will accrue market discount pro rata over the life
of the Mortgage Loans, unless the constant yield method is elected. Unless
indicated otherwise in the applicable Prospectus Supplement, no prepayment
assumption will be assumed for purposes of such accrual.
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Recharacterization of Servicing Fees
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither income
nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Recently
issued Internal Revenue Service guidance indicates that a servicing fee in
excess of reasonable compensation ("excess servicing") will cause the Mortgage
Loans to be treated under the "stripped bond" rules. Such guidance provides safe
harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a Servicer
who receives a servicing fee in excess of such amounts would be viewed as
retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the de minimis rule discussed below
under "--Stripped Certificates," each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Certificates, and the original issue discount rules of the
Code would apply to the holder thereof. While Certificateholders would still be
treated as owners of beneficial interests in a grantor trust for federal income
tax purposes, the corpus of such trust could be viewed as excluding the portion
of the Mortgage Loans the ownership of which is attributed to the Servicer, or
as including such portion as a second class of equitable interest. Applicable
Treasury regulations treat such an arrangement as a fixed investment trust,
since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its aggregate adjusted basis in the Mortgage Loans and other assets represented
by the Certificate. In general, the aggregate adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased by the
amount of any losses previously reported with respect to the Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss generally would be capital gain or loss if the Certificate was
held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. Capital gains of certain noncorporate taxpayers generally
are subject to a lower maximum tax rate (20%) than ordinary income of such
taxpayers (39.6%) for property held for more than one year. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
Stripped Certificates
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds"
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with respect to principal payments and "stripped coupons" with respect to
interest payments. For purposes of this discussion, Certificates that are
subject to those rules will be referred to as "Stripped Certificates." The
Certificates will be subject to those rules if (i) the Seller or any of its
affiliates retains (for its own account or for purposes of resale), in the form
of Fixed Retained Yield or otherwise, an ownership interest in a portion of the
payments on the Mortgage Loans, (ii) the Seller or any of its affiliates is
treated as having an ownership interest in the Mortgage Loans to the extent it
is paid (or retains) servicing compensation in an amount greater than reasonable
consideration for servicing the Mortgage Loans (see "-- Recharacterization of
Servicing Fees" above), and (iii) a Class of Certificates are issued in two or
more Classes or Subclasses representing the right to non-pro-rata percentages of
the interest and principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"--Recharacterization of Servicing Fees." Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will be
allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class (or Subclass) of Stripped
Certificates for the related period or periods. The holder of a Stripped
Certificate generally will be entitled to a deduction each year in respect of
the servicing fees, as described above under "--General," subject to the
limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as an
obligation issued at an original issue discount on the date that such stripped
interest is purchased. Although the treatment of Stripped Certificates for
federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate Mortgage Loans, in the opinion of
Cadwalader, Wickersham & Taft, (i) the Trust Estate will be treated as a grantor
trust under subpart E, Part I of subchapter J of the Code and not as an
association taxable as a corporation or a "taxable mortgage pool" within the
meaning of Code Section 7701(i), and (ii) each Stripped Certificate should be
treated as a single installment obligation for purposes of calculating original
issue discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. Although it is possible that computations with respect to
Stripped Certificates could be made in one of the ways described below under
"--Taxation of Stripped Certificates--Possible Alternative Characterizations,"
the OID Regulations state, in general, that two or more debt instruments issued
by a single issuer to a single investor in a single transaction should be
treated as a single debt instrument. Accordingly, for OID purposes, all payments
on any Stripped Certificates should be aggregated and treated as though they
were made on a single debt instrument. The Pooling and Servicing Agreement will
require that the Trustee make and report all computations described below using
this aggregate approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
indicates that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations, assuming it is
not an interest-only or super-premium Stripped Certificate. Further, these final
regulations provide that the purchaser of such a Stripped Certificate will be
required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Stripped
Certificate was treated as zero under the de minimis rule, or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Loans. Any such market discount would be reportable as described above
under "Federal Income Tax Consequences for REMIC Certificates--Taxation of
Regular Certificates--Market Discount," without regard to the de minimis rule
therein, assuming that a prepayment assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the Stripped
Certificates, for federal income tax purposes, will be the same as that of the
Mortgage Loans. Although the issue is not free from doubt, in the opinion of
Cadwalader, Wickersham & Taft, Stripped Certificates owned by applicable holders
should be considered to represent "real estate assets" within the meaning of
Code Section 856(c)(4)(A), "obligation[s] . . . principally secured by an
interest in real property" within the meaning
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of Code Section 860G(a)(3)(A), "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) and "permitted
assets" within the meaning of Code Section 860L(c), and interest (including
original issue discount) income attributable to Stripped Certificates should
be considered to represent "interest on obligations secured by mortgages on
real property" within the meaning of Code Section 856(c)(3)(B), provided that
in each case the Mortgage Loans and interest on such Mortgage Loans qualify
for such treatment. The application of such Code provisions to Buy-Down Loans
is uncertain. See "--Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "--General," each
Stripped Certificate will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Certificate must be included in ordinary income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the income
of a holder of a Stripped Certificate (referred to in this discussion as a
"Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates." However, with the apparent exception of
a Stripped Certificate qualifying as a market discount obligation as described
above under "--General," the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof, and the stated redemption price at
maturity will include the aggregate amount of the payments to be made on the
Stripped Certificate to such Stripped Certificateholder, presumably under the
Prepayment Assumption, other than qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that under
the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Certificate to recognize a loss (which may be a capital loss) equal to
such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all of
the interest payments with respect to the Stripped Certificates will not be made
if the Mortgage Loans are prepaid could lead to the interpretation that such
interest payments are "contingent" within the meaning of the OID Regulations.
The OID Regulations, as they relate to the treatment of contingent interest, are
by their terms not applicable to prepayable securities such as the Stripped
Certificates. However, if final regulations dealing with contingent interest
with respect to the Stripped Certificates apply the same principles as the OID
Regulations, such regulations may lead to different timing of income inclusion
than would be the case under the OID Regulations for non-contingent debt
instruments. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "--Federal Income Tax Consequences for REMIC Certificates-- Taxation
of Regular Certificates--Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Certificates, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on the
circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
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Possible Alternative Characterizations. The characterizations of the Stripped
Certificates discussed above are not the only possible interpretations of the
applicable Code provisions. For example, the Stripped Certificateholder may be
treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing the
Stripped Certificate's pro rata share of payments of principal and/or interest
to be made with respect thereto. Alternatively, the holder of one or more
Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for aggregating
stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
Reporting Requirements and Backup Withholding
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their
federal income tax returns. Such information will include the amount of original
issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount required
to be reported by the Master Servicer may not be equal to the proper amount of
original issue discount required to be reported as taxable income by a
Certificateholder, other than an original Certificateholder that purchased at
the issue price. In particular, in the case of Stripped Certificates, unless
provided otherwise in the applicable Prospectus Supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Certificates. The Master Servicer will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or if the Secretary of the
Treasury determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "--Federal Income Tax Consequences for REMIC
Certificates--Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
Non-U.S. Persons generally will be subject to 30% United States withholding tax,
or such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Certificateholder on the sale
or exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid by
the Trustee or other withholding agent to a Non-U.S. Person evidencing ownership
interest in Mortgage Loans issued after July 18, 1984 will be "portfolio
interest" and will be treated in the manner, and such persons will be subject to
the same certification requirements, described above under "-- Federal Income
Tax Consequences for REMIC Certificates--Taxation of Certain Foreign
Investors--Regular Certificates."
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those employee benefit plans to which it applies
("Plans") and on those persons who are fiduciaries with respect to such Plans.
The following is a general discussion of such requirements, and certain
applicable exceptions to and administrative exemptions from such requirements.
For purposes of this discussion, a person investing on behalf of an individual
retirement account established under Code Section 408 (an "IRA") is regarded as
a fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with its
counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA, whether any prohibited transaction exemption
such as PTE 83-1 or any individual administrative exemption (as described below)
applies, including whether the appropriate conditions set forth therein would be
met, or whether any statutory prohibited transaction exemption is applicable,
and further should consult the applicable Prospectus Supplement relating to such
Series of Certificates.
Certain Requirements Under ERISA
General
In accordance with ERISA's general fiduciary standards, before investing in a
Certificate a Plan fiduciary should determine whether to do so is permitted
under the governing Plan instruments and is appropriate for the Plan in view of
its overall investment policy and the composition and diversification of its
portfolio. A Plan fiduciary should especially consider the ERISA requirement of
investment prudence and the sensitivity of the return on the Certificates to the
rate of principal repayments (including prepayments) on the Mortgage Loans, as
discussed in "Prepayment and Yield Considerations" herein.
Parties in Interest/Disqualified Persons
Other provisions of ERISA (and corresponding provisions of the Code) prohibit
certain transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan (so-called "parties in interest" within the
meaning of ERISA or "disqualified persons" within the meaning of the Code). The
Seller, the Master Servicer, any Servicer or the Trustee or certain affiliates
thereof might be considered or might become "parties in interest" or
"disqualified persons" with respect to a Plan. If so, the acquisition or holding
of Certificates by or on behalf of such Plan could be considered to give rise to
a "prohibited transaction" within the meaning of ERISA and the Code unless an
administrative exemption described below or some other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Certificate if, with respect to such assets, the Seller,
the Master Servicer, any Servicer or the Trustee or an affiliate thereof either:
(a) has investment discretion with respect to the investment of such assets of
such Plan; or (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code defines the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Estate) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a Certificate) in such an entity.
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Certain exceptions are provided in the Regulations whereby an investing Plan's
assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an interest in the assets of a Trust Estate.
However, it cannot be predicted in advance nor can there be any continuing
assurance whether such exceptions may be met, because of the factual nature of
certain of the rules set forth in the Regulations. For example, one of the
exceptions in the Regulations states that the underlying assets of an entity
will not be considered "plan assets" if less than 25% of the value of any class
of equity interests is held by "benefit plan investors," which are defined as
Plans, IRAs, and employee benefit plans not subject to ERISA (for example,
governmental plans), and any entity whose assets include "plan assets" by reason
of benefit plan investment in such entity; this exception is tested immediately
after each acquisition of an equity interest in the entity, whether upon initial
issuance or in the secondary market.
Administrative Exemptions
Individual Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions (each, an "Underwriter's
Exemption") which are in some respects broader than Prohibited Transaction Class
Exemption 83-1 (described below). Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an Underwriter's
Exemption might be applicable to a Series of Certificates, the applicable
Prospectus Supplement will refer to such possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption to
apply are the following:
(1) The acquisition of 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;
(2) The rights and interests evidenced by Certificates acquired by the Plan
are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Estate;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
IBCA, Inc. ("Fitch");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made to and retained by the Seller pursuant to the assignment of the
Mortgage Loans to the Trust Estate represents not more than the fair market
value of such Mortgage Loans. The sum of all payments made to and retained by
the Servicer (and any other servicer) represents not more than reasonable
compensation for such person's services under the Pooling and Servicing
Agreement and reimbursement of such person's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act of 1933, as amended (the "Securities Act").
The Trust Estate must also meet the following requirements:
(i) the assets of the Trust Estate must consist solely of assets of the
type that have been included in other investment pools in the marketplace;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of the Certificates; and
(iii) 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 the Certificates.
If the conditions to an Underwriter's Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a mortgage pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction provisions
of ERISA and the Code.
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Moreover, an Underwriter's Exemption can provide relief from certain self-
dealing/conflict of interest prohibited transactions that may occur if a Plan
fiduciary causes a Plan to acquire Certificates in a Trust Estate containing
Mortgage Loans on which the fiduciary (or its affiliate) is an obligor provided
that, among other requirements: (i) in the case of an acquisition in connection
with the initial issuance of Certificates, at least fifty percent of each class
of Certificates in which Plans have invested is acquired by persons independent
of the Restricted Group and at least fifty percent of the aggregate interest in
the Trust Estate is acquired by persons independent of the Restricted Group (as
defined below); (ii) such fiduciary (or its affiliate) is an obligor with
respect to five percent or less of the fair market value of the Mortgage Loans
contained in the Trust Estate; (iii) the Plan's investment in Certificates of
any Class does not exceed twenty-five percent of all of the Certificates of that
Class outstanding at the time of the acquisition and (iv) immediately after the
acquisition no more than twenty-five percent of the assets of any Plan with
respect to which such person is a fiduciary are invested in Certificates
representing an interest in one or more trusts containing assets sold or served
by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any insurer, any obligor with respect to
Mortgage Loans included in the Trust Estate constituting more than five percent
of the aggregate unamortized principal balance of the assets in the Trust
Estate, or any affiliate of such parties (the "Restricted Group").
PTE 83-1
Prohibited Transaction Class Exemption 83-1 for Certain Transactions Involving
Mortgage Pool Investment Trusts ("PTE 83-1") permits certain transactions
involving the creation, maintenance and termination of certain residential
mortgage pools and the acquisition and holding of certain residential mortgage
pool pass-through certificates by Plans, whether or not the Plan's assets would
be deemed to include an ownership interest in the mortgages in such mortgage
pools, and whether or not such transactions would otherwise be prohibited under
ERISA.
The term "mortgage pool pass-through certificate" is defined in PTE 83-1 as "a
certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool sponsor." It appears that, for purposes of PTE 83-1, the
term "mortgage pool pass-through certificate" would include Certificates issued
in a single Class or in multiple Classes that evidence the beneficial ownership
of both a specified percentage of future interest payments (after permitted
deductions) and a specified percentage of future principal payments on a Trust
Estate.
However, it appears that PTE 83-1 does or might not apply to the purchase and
holding of (a) Certificates that evidence the beneficial ownership only of a
specified percentage of future interest payments (after permitted deductions) on
a Trust Estate or only of a specified percentage of future principal payments on
a Trust Estate, (b) Residual Certificates, (c) Certificates evidencing ownership
interests in a Trust Estate which includes Mortgage Loans secured by multifamily
residential properties or shares issued by cooperative housing corporations, or
(d) Certificates which are subordinated to other Classes of Certificates of such
Series. Accordingly, unless exemptive relief other than PTE 83-1 applies, Plans
should not purchase any such Certificates.
PTE 83-1 sets forth "general conditions" and "specific conditions" to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans or the property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(ii) the existence of a pool trustee who is not an affiliate of the pool
sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor exemption),
the Department did not have under its consideration interests in pools of the
exact nature of some of the Certificates described herein.
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Exempt Plans
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements and assets of such plans may be invested
in Certificates without regard to the ERISA considerations described above, but
such plans may be subject to the provisions of other applicable federal and
state law.
Unrelated Business Taxable Income--Residual Certificates
The purchase of a Residual Certificate by any employee benefit plan qualified
under Code Section 401(a) and exempt from taxation under Code Section 501(a),
including most varieties of ERISA Plans, may give rise to "unrelated business
taxable income" as described in Code Sections 511-515 and 860E. Further, prior
to the purchase of Residual Certificates, a prospective transferee may be
required to provide an affidavit to a transferor that it is not, nor is it
purchasing a Residual Certificate on behalf of, a "Disqualified Organization,"
which term as defined above includes certain tax-exempt entities not subject to
Code Section 511, such as certain governmental plans, as discussed above under
the caption "Certain Federal Income Tax Consequences-- Federal Income Tax
Consequences for REMIC Certificates-- Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that potential
investors who are Plan fiduciaries consult with their counsel regarding the
consequences under ERISA of their acquisition and ownership of Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Seller or the applicable underwriter that this investment meets all relevant
legal 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.
LEGAL INVESTMENT
As will be specified in the applicable Prospectus Supplement, certain Classes
of Certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA"), so
long as (i) they are rated in one of the two highest rating categories by at
least one Rating Agency, and (ii) are part of a Series representing interests in
a Trust Estate consisting of Mortgage Loans originated by certain types of
originators specified in SMMEA and secured by first liens on real estate. As
"mortgage related securities," such Classes will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including but not limited to depository institutions,
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state (including the District of Columbia
and Puerto Rico) 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 agency or
instrumentality thereof constitute legal investments for such entities. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for such enactments, limiting to varying extents the ability of
certain entities (in particular, insurance companies) 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 Certificates
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 mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in mortgage related securities, and
national banks may purchase mortgage related securities for their own account
without regard to the limitations generally applicable to investment securities
set forth in 12 U.S.C. (S) 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, the Office of the Comptroller of the Currency (the "OCC") has
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards in 12
C.F.R. (S) 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. (S) 1.2(1) to
include certain "residential mortgage-related securities." As so defined,
"residential mortgage-related security" means, in relevant part,
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"mortgage related security" within the meaning of SMMEA. The National Credit
Union Administration (the "NCUA") has adopted rules, codified at 12 C.F.R. Part
703, which permit federal credit unions to invest in "mortgage related
securities" under certain limited circumstances, other than stripped mortgage
related securities, residual interests in mortgage related securities, and
commercial mortgage related securities, unless the credit union has obtained
written approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. (S) 703.140. The OTS has issued Thrift Bulletin 13a
(December 1, 1998), "Management of Interest Rate Risk, Investment Securities,
and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the
Certificates.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council ("FFIEC"), which has been adopted by
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the Office of Thrift Supervision, effective
May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998 Policy
Statement sets forth general guidelines which depository institutions must
follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes.
Institutions whose investment activities are subject to regulation by federal
or state authorities should review rules, policies and guidelines adopted from
time to time by such authorities before purchasing any of the Certificates, as
certain Series or Classes (in particular, Certificates which are entitled solely
or disproportionately to distributions of principal or interest) may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of statutes,
rules, regulations, orders, guidelines or agreements generally governing
investments made by a particular investor, including, but not limited to,
"prudent investor" provisions, percentage-of-assets limits, provisions which may
restrict or prohibit investment in securities which are not "interest-bearing"
or "income-paying," and, with regard to any Certificates issued in book-entry
form, provisions which may restrict or prohibit investments in securities which
are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Certificates of any Class constitute legal
investments or are subject to investment, capital or other restrictions and, if
applicable, whether SMMEA has been overridden in any jurisdiction relevant to
such investor.
PLAN OF DISTRIBUTION
The Certificates are being offered hereby in Series through one or more of the
methods described below. The applicable Prospectus Supplement for each Series
will describe the method of offering being utilized for that Series and will
state the public offering or purchase price of each Class of Certificates of
such Series, or the method by which such price is to be determined, and the net
proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the applicable Prospectus Supplement;
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2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates will
be acquired by the 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 to be determined at the time
of sale or at the time of commitment therefor. Firm commitment underwriting and
public reoffering by underwriters may be done through underwriting syndicates or
through one or more firms acting alone. The specific managing underwriter or
underwriters, if any, with respect to the offer and sale of a particular Series
of Certificates will be set forth on the cover of the Prospectus Supplement
applicable to such Series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement. The Prospectus Supplement will
describe any discounts and commissions to be allowed or paid by the Seller to
the underwriters, any other items constituting underwriting compensation and any
discounts and commissions to be allowed or paid to the dealers. The obligations
of the underwriters will be subject to certain conditions precedent. The
underwriters with respect to a sale of any Class of Certificates will be
obligated to purchase all such Certificates if any are purchased. The Seller,
and, if specified in the applicable Prospectus Supplement, Norwest Mortgage,
will indemnify the applicable underwriters against certain civil liabilities,
including liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature of
such offering and any agreements to be entered into between the Seller and
dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Certificates so purchased directly, through one
or more underwriters to be designated at the time of the offering of such
Certificates or through dealers acting as agent and/or principal. Such offering
may be restricted in the matter specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. The underwriters and dealers participating
in such purchaser's offering of such Certificates may receive compensation in
the form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such Certificates
for whom they may act as agent (which discounts or commissions will not exceed
those customary in those types of transactions involved). Any dealer that
participates in the distribution of such Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any commissions and
discounts received by such dealer and any profit on the resale of such
Certificates by such dealer might be deemed to be underwriting discounts and
commissions under the Securities Act.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used by
the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from Norwest Mortgage. It is expected that Norwest
Mortgage will use the proceeds from the sale of the Mortgage Loans to the Seller
for its general business purposes, including, without limitation, the
origination or acquisition of new mortgage loans and the repayment of borrowings
incurred to finance the origination or acquisition of mortgage loans, including
the Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York.
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<PAGE>
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each securities rating should be evaluated independently of any other
rating.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer will prepare, and the Trustee or other Paying Agent
appointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series, statements containing information with
respect to principal and interest payments and the related Trust Estate, as
described herein and in the applicable Prospectus Supplement for such Series
(the "Monthly Reports"). No information contained in the Monthly Reports will
have been examined or reported upon by an independent public accountant. See
"The Pooling and Servicing Agreement--Reports to Certificateholders."
The Seller intends to make the information contained in the Monthly Reports
available via the internet (at "http://www.securitieslink.net"), facsimile,
computer modem and CD-ROM through SecuritiesLink(R) Investor Information
Services ("SecuritiesLink(R)"). On occasion, information may be available to any
interested investor through SecuritiesLink(R) up to two business days prior to
the related Distribution Date, and in that event prior to the delivery of the
Monthly Reports by the Trustee or other Paying Agent to Certificateholders. The
Seller also intends to make available to any interested investor through
SecuritiesLink(R) certain additional information not contained in the Monthly
Reports, including loss severity data and updated stratification reports with
respect to the Mortgage Loans underlying the Certificates. For further
information regarding SecuritiesLink(R), please contact Norwest Asset Securities
Corporation, 7485 New Horizon Way, Frederick, Maryland 21703, telephone number
(301) 846-8881.
In addition, each Servicer for each Series will furnish to the Master Servicer
(who will be required to furnish promptly to the Trustee for such Series), a
statement from a firm of independent public accountants with respect to the
examination of certain documents and records relating to a random sample of
mortgage loans serviced by such Servicer pursuant to the related Underlying
Servicing Agreement and/or other similar agreements. See "Servicing of the
Mortgage Loans--Evidence as to Compliance." Copies of the statements provided by
the Master Servicer to the Trustee will be furnished to Certificateholders of
each Series upon request addressed to the Trustee for the applicable Series or
the Master Servicer c/o Norwest Bank Minnesota, National Association, 11000
Broken Land Parkway, Columbia, Maryland 21044- 3562, Attention: Securities
Administration Services Manager.
WHERE YOU CAN FIND MORE INFORMATION
Registration Statement and Other Materials Filed With the Securities and
Exchange Commission
The Seller filed a registration statement relating to the Certificates with
the ("SEC" or the "Commission"). This Prospectus is part of the registration
statement, but the Registration Statement includes additional information.
Copies of the Registration Statement may be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 upon payment of the prescribed
charges, or may be examined free of charge at the Commission's offices, 450
Fifth Street N.W., Washington, D.C. 20549 or at the regional offices of the
Commission located at Suite 1300, 7 World Trade Center, New York, New York 10048
and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission also maintains a site on the World Wide Web at
"http://www.sec.gov" at which you can view and download copies of reports, proxy
and information statements and other information filed electronically through
the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system. The
Seller has filed the Registration Statement, including all exhibits, through the
EDGAR system and therefore such materials should be available by logging onto
the Commission's Web site. In this regard, you should be aware that it is
anticipated that the name of the Seller will be changed in 1999 in connection
with the merger described
93
<PAGE>
in the applicable Prospectus Supplement under "Recent Developments." The
Commission maintains computer terminals providing access to the EDGAR system at
each of the offices referred to above. Copies of any documents incorporated to
this Prospectus by reference will be provided to each person to whom a
Prospectus is delivered upon written or oral request directed to Norwest Asset
Securities Corporation, 7485 New Horizon Way, Frederick, Maryland 21703,
telephone number (301) 846-8881.
Detailed Information Relating to the Mortgage Loans of a Series
The Seller intends to offer by subscription through SecuritiesLink(R) detailed
mortgage loan information in machine readable format updated on a monthly basis
(the "Detailed Information") with respect to each outstanding Series of
Certificates. The Detailed Information will reflect payments made on the
individual mortgage loans, including prepayments in full and in part made on
such mortgage loans, as well as the liquidation of any such mortgage loans, and
will identify various characteristics of the mortgage loans. Subscribers of the
Detailed Information are expected to include a number of major investment
brokerage firms as well as financial information service firms. Some of such
firms, including certain investment brokerage firms as well as Bloomberg L.P.
through the "The Bloomberg(R)" service, may, in accordance with their individual
business practices and fee schedules, if any, make portions of, or summaries of
portions of, the Detailed Information available to their customers and
subscribers. The Seller, the Master Servicer and their respective affiliates
have no control over and take no responsibility for the actions of such firms in
processing, analyzing or disseminating such information. For further information
regarding the Detailed Information and subscriptions thereto, please contact the
Seller at 7485 New Horizon Way, Frederick, Maryland 21703, telephone number
(301) 846-8881.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Seller to "incorporate by reference" information it files
with the SEC, which means that the Seller can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this Prospectus. Information that the
Seller files later with the SEC will automatically update the information in
this Prospectus. In all cases, you should rely on the later information rather
than on any different information included in this Prospectus or the
accompanying Prospectus Supplement. The Seller incorporates by reference any
future annual, monthly and special SEC reports filed by or on behalf of the
Trust until the termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document the
Seller incorporates by reference, except exhibits to the documents (unless the
exhibits are specifically incorporated by reference), at no cost, by writing or
calling the Master Servicer at 7485 New Horizon Way, Frederick, Maryland 21703,
telephone number (301) 846-8881.
94
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
15-Year Loans........................................................................... 36
30-Year Loans........................................................................... 36
30-Year Non-Relocation Loans............................................................ 36
1986 Act................................................................................ 65
1998 Policy Statement................................................................... 90
Accrual Certificates.................................................................... 28
Additional Collateral................................................................... 15
Advances................................................................................ 44
ALTA.................................................................................... 21
Asset Conservation Act.................................................................. 61
Balloon Loans........................................................................... 15
Balloon Period.......................................................................... 15
Bankruptcy Code......................................................................... 57
Bankruptcy Loss......................................................................... 29
Bankruptcy Loss Amount.................................................................. 29
Beneficial Owner........................................................................ 25
Book-Entry Certificates................................................................. 7
Buy-Down Fund........................................................................... 15
Buy-Down Loans.......................................................................... 15
Capitol Life............................................................................ 16
Cash Flow Agreement..................................................................... 11
Cede.................................................................................... 25
CERCLA.................................................................................. 60
Certificate Account..................................................................... 41
Certificateholder....................................................................... 25
Certificates............................................................................ 5
Class................................................................................... 5
Cleanup Costs........................................................................... 60
Code.................................................................................... 7
Commission.............................................................................. 93
Component............................................................................... 30
Contract Underwriters................................................................... 19
Cooperatives............................................................................ 12
Counterparty............................................................................ 11
Correspondents.......................................................................... 17
Credit Score............................................................................ 18
Cut-off Date............................................................................ 6
DCR..................................................................................... 88
Deferred Interest....................................................................... 14
Definitive Certificates................................................................. 24
Delegated Underwriting.................................................................. 18
Department.............................................................................. 87
Depository.............................................................................. 41
Detailed Information.................................................................... 94
Disqualified Organization............................................................... 75
Distribution Date....................................................................... 6
DTC..................................................................................... 7
DTC Participants........................................................................ 25
Due Date................................................................................ 13
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
EDGAR................................................................................... 93
Electing Large Partnership.............................................................. 76
Eligible Custodial Account.............................................................. 41
Eligible Investments.................................................................... 42
ERISA................................................................................... 87
Excess Bankruptcy Losses................................................................ 29
Excess Fraud Losses..................................................................... 29
Excess Special Hazard Losses............................................................ 29
FDIC.................................................................................... 41
FFIEC................................................................................... 91
FHLBB................................................................................... 62
FHLMC................................................................................... 21
FICO Score.............................................................................. 19
Fitch................................................................................... 88
Fixed Retained Yield.................................................................... 28
FNMA.................................................................................... 21
Fraud Loss.............................................................................. 29
Fraud Loss Amount....................................................................... 29
Garn Act................................................................................ 62
GEMICO.................................................................................. 22
Government Securities................................................................... 64
Graduated Pay Mortgage Loans............................................................ 14
Growing Equity Mortgage Loans........................................................... 14
Holder.................................................................................. 63
HOPA.................................................................................... 59
Indirect DTC Participants............................................................... 25
IRA..................................................................................... 87
Joint Ventures.......................................................................... 17
Liquidation Proceeds.................................................................... 42
Loan Stores............................................................................. 17
Loan-to-Value Ratio..................................................................... 20
Mark to Market Regulations.............................................................. 77
Master Servicer......................................................................... 5
Master Servicing Fee.................................................................... 27
MERS.................................................................................... 50
Monthly Reports......................................................................... 93
Moody's................................................................................. 88
Mortgage Interest Rate.................................................................. 28
Mortgage Loans.......................................................................... 12
Mortgage Notes.......................................................................... 12
Mortgaged Properties.................................................................... 12
Mortgages............................................................................... 12
NCUA.................................................................................... 90
Net Foreclosure Profits................................................................. 27
Net Mortgage Interest Rate.............................................................. 28
New Regulations......................................................................... 79
Non-Pro Rata Certificate................................................................ 66
Non-U.S. Person......................................................................... 79
Norwest Bank............................................................................ 17
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Norwest Funding......................................................................... 16
Norwest Mortgage........................................................................ 16
Norwest Mortgage Sale Agreement......................................................... 50
OCC..................................................................................... 90
OID Regulations......................................................................... 66
Other Advances.......................................................................... 44
OTS..................................................................................... 62
PAC..................................................................................... 30
PAC I................................................................................... 31
PAC II.................................................................................. 31
Partial Liquidation Proceeds............................................................ 27
Pass-Through Rate....................................................................... 6
Pass-Through Entity..................................................................... 75
Paying Agent............................................................................ 43
PCBs.................................................................................... 60
Percentage Interest..................................................................... 26
Periodic Advances....................................................................... 7
PHMC.................................................................................... 16
PHMC Acquisition........................................................................ 16
PHMSC................................................................................... 16
Plans................................................................................... 87
Pledged Asset Mortgage Loans............................................................ 15
PMI..................................................................................... 59
Pool Distribution Amount................................................................ 26
Pool Insurers........................................................................... 22
Pooling and Servicing Agreement......................................................... 24
Prepayment Assumption................................................................... 67
PTE 83-1................................................................................ 89
Rating Agency........................................................................... 8
RCRA.................................................................................... 61
Record Date............................................................................. 6
Regular Certificateholder............................................................... 66
Regular Certificates.................................................................... 24
Regulations............................................................................. 87
Relief Act.............................................................................. 60
Relocation Mortgage Loans............................................................... 36
REMIC................................................................................... 64
REMIC Certificates...................................................................... 64
REMIC Pool.............................................................................. 64
REMIC Regulations....................................................................... 63
Remittance Date......................................................................... 42
Reserve Fund............................................................................ 33
Residual Certificates................................................................... 24
Residual Holders........................................................................ 72
Restricted Group........................................................................ 89
Rules................................................................................... 25
S&P..................................................................................... 88
SBJPA of 1996........................................................................... 64
Scheduled Class......................................................................... 30
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Scheduled Principal Balance............................................................. 51
SEC..................................................................................... 93
Securities Act.......................................................................... 88
Securities Link(R)...................................................................... 93
Seller.................................................................................. 16
Senior Certificates..................................................................... 6
Series.................................................................................. 5
Servicer................................................................................ 5
Servicer Custodial Account.............................................................. 41
Servicing Account....................................................................... 44
Servicing Fee........................................................................... 28
SMMEA................................................................................... 90
Special Hazard Loss..................................................................... 29
Special Hazard Loss Amount.............................................................. 29
Standard Hazard Insurance Policy........................................................ 46
Startup Day............................................................................. 65
Stripped Certificateholder.............................................................. 85
Stripped Certificates................................................................... 84
Subclass................................................................................ 6
Subordinated Certificates............................................................... 6
Subsidy Account......................................................................... 14
Subsidy Loans........................................................................... 14
Subsidy Payments........................................................................ 14
Superliens.............................................................................. 60
Support Class........................................................................... 30
TAC..................................................................................... 31
Texas Home Equity Laws.................................................................. 59
Tiered Payment Mortgage Loans........................................................... 14
TILA Amendment.......................................................................... 59
Title V................................................................................. 63
Total Loans............................................................................. 36
Total Non-Relocation Loans.............................................................. 36
Treasury Regulations.................................................................... 51
Trust................................................................................... 5
Trust Estate............................................................................ 5
Trustee................................................................................. 54
Trustee Fee............................................................................. 28
U.S. Person............................................................................. 77
UCC..................................................................................... 56
UGRIC................................................................................... 21
Underlying Servicing Agreement.......................................................... 5
Underwriter's Exemption................................................................. 88
UST..................................................................................... 61
Voting Interests........................................................................ 52
Wells Fargo............................................................................. 41
Window Period........................................................................... 62
Window Period Loans..................................................................... 62
Window Period States.................................................................... 62
</TABLE>
96
<PAGE>
[LOGO OF NORWEST]
Norwest Asset Securities Corporation 1999-25 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR (R))
Seller
$289,304,600
(Approximate)
Mortgage Pass-Through Certificates, Series 1999-25
-----------------
PROSPECTUS SUPPLEMENT
-----------------
[LOGO OF GREENWICH CAPITAL APPEARS HERE]
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. No
one has been authorized to provide you with different information.
The Offered Certificates are not being offered in any state where the offer
is not permitted.
The Seller does not claim the accuracy of the information in this
Prospectus Supplement and the accompanying Prospectus as of any date other
than the dates stated on their respective covers.
Dealers will deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the Offered Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the Offered
Certificates will deliver a Prospectus Supplement and Prospectus until
ninety days following the date of this Prospectus Supplement.
September 22, 1999
<PAGE>
NORWEST
LOGO
Norwest Asset Securities Corporation 1999-25 Trust
Issuer
Norwest Asset Securities Corporation
(NASCOR(R))
Seller
$8,106,902
(Approximate)
Mortgage Pass-Through
Certificates, Series 1999-25
Class B-1, Class B-2 and Class B-3
__________________
SUPPLEMENT
__________________
PaineWebber Incorporated
You should rely only on the information contained or incorporated by
reference in this Supplement, the accompanying Prospectus Supplement and
the accompanying Prospectus. No one has been authorized to provide you with
different information.
The Offered Certificates are not being offered in any state where the offer
is not permitted.
The Seller does not claim the accuracy of the information in this
Supplement, the accompanying Prospectus Supplement and the accompanying
Prospectus as of any date other than the dates stated on their respective
covers.
Dealers will deliver a Supplement, Prospectus Supplement and Prospectus
when acting as underwriters of the Offered Certificates and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling
the Offered Certificates will deliver a Supplement, Prospectus Supplement
and Prospectus until ninety days following the date of this Supplement.
November 23, 1999
