<PAGE>
[LOGO]
This filing is being made under Registration Number 333-85443 pursuant to Rule
424(b)(5)
Prospectus supplement dated November 22, 1999 (to prospectus dated October 12,
1999)
$294,856,541
ABN AMRO MORTGAGE CORPORATION
DEPOSITOR
ABN AMRO MORTGAGE GROUP, INC.
SERVICER
MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-8
The Trust will hold one pool of conventional, fixed-rate first lien residential
mortgage loans.
The Trust will issue these classes of certificates that are offered under this
prospectus supplement:
18 classes of senior certificates
3 classes of subordinated certificates
Credit enhancement for all of these certificates will be provided by additional
subordination.
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-11 IN
THIS PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
Lehman Brothers Inc. and ABN AMRO Incorporated will offer 18 classes of senior
certificates and 3 classes of subordinated certificates to the public at varying
prices to be determined at the time of sale. From the sale of the offered
certificates, ABN AMRO Mortgage Corporation will receive of their principal
amount, plus accrued interest, less expenses.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY CONTRARY REPRESENTATION IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
LEHMAN BROTHERS ABN AMRO INCORPORATED
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary......................... S-1
Offered Certificates......... S-1
Components................... S-1
Residual Class............... S-3
Book-Entry Registration...... S-3
The Mortgage Pool............ S-3
Subordination and Allocation
of Losses................. S-4
Credit Enhancement........... S-4
Optional Termination......... S-4
Federal Income Tax
Treatment................. S-4
Legal Investment............. S-5
ERISA Considerations......... S-5
Available Distribution
Amount.................... S-5
Amounts Allocated to
Interest.................. S-5
Interest Only Certificates
and Components............ S-6
Principal Only Certificates
and Component............. S-6
Accrual and Accretion
Directed Certificates and
Component................. S-7
PAC Certificates and
Components................ S-7
TAC Certificates and
Components................ S-7
Adjustable Rate
Certificates.............. S-8
Allocation of Principal Cash
Flows..................... S-8
Risk Factors.................... S-11
Prepayments on the mortgage
loans may affect the yield
on your certificates...... S-11
Fluctuations in the interest
rate of the Class A-6,
Class A-7, Class A-8,
Class A-13 and Class A-14
certificates will affect
the yield on these
certificates.............. S-12
Losses and delinquent
payments on the mortgage
loans may affect the
return on your
certificate............... S-13
The Subordinate certificates
are especially sensitive
to losses on the mortgage
loans..................... S-14
It may not be possible to
find an investor to
purchase your
certificates.............. S-14
The concentration of mortgage
loans with certain
characteristics may change
over time, which may
affect the timing and
amount of payments on your
certificates.............. S-15
Payments from the mortgage
loans are the sole source
of payments on your
certificates.............. S-15
The return on your
certificates may be
particularly sensitive to
changes in the real estate
markets in certain
geographical areas........ S-16
The Class R Certificate has
tax implications that are
different from the other
certificates.............. S-16
Factors that reduce
collections could cause
early repayment, delayed
payment or reduced payment
on the certificates....... S-18
The FDIC has special powers
under banking laws to take
actions during the
insolvency of Standard
Federal Bank, an affiliate
of the Seller............. S-18
The bankruptcy of the
Servicer could further
delay or reduce payments
to you.................... S-19
Attempted recharacterization
of the transfer from the
Depositor to the Trust
could delay or reduce
payments to you........... S-20
The Trust....................... S-21
Description of the Mortgage
Pool......................... S-21
General...................... S-21
Additional Information....... S-23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Description of the
Certificates................. S-24
General...................... S-24
Book-Entry Registration...... S-25
Definitive Certificates...... S-26
Transfer Restrictions........ S-27
Available Distribution
Amount.................... S-27
Advances..................... S-28
Glossary of Definitions
Relating to the Priority
of Distributions.......... S-28
Priority of Distributions.... S-35
Subordination and Allocation
of Losses................. S-44
The Class R Certificate...... S-47
Last Scheduled Distribution
Date...................... S-47
Optional Termination......... S-47
Servicing....................... S-48
Delinquency and Foreclosure
Experience of ABN AMRO
Mortgage Group, Inc.,
Compensation and Payment
of Expenses............... S-48
Special Servicing
Agreements................ S-50
Prepayment and Yield
Considerations............... S-50
General...................... S-50
Principal Prepayments and
Compensating Interest..... S-51
The Subordinate
Certificates.............. S-51
Rate of Payments............. S-52
Special Sensitivities........ S-52
Prepayment Speed Assumption
and Modeling
Assumptions............... S-53
Yield Considerations of the
Interest Only Certificates
and Interest Only
Components and Principal
Only Certificates and
Principal Only
Component................. S-55
Yield Considerations with
Respect to the Class A-6,
Class A-8 and Class A-14
Certificates.............. S-57
Additional Yield
Considerations Applicable
Solely to the Class R
Certificate............... S-59
Additional Information....... S-59
Legal Aspects of the Mortgage
Loans under California Law... S-59
Federal Income Tax
Consequences................. S-59
New Withholding
Regulations............... S-61
Special Tax Considerations
Applicable to the Residual
Certificate............... S-61
Year 2000 Project............... S-64
State of Readiness........... S-64
Risks........................ S-65
Legal Investment Aspects........ S-65
ERISA Considerations............ S-67
Underwriter's PTE............ S-67
Restrictions on the Class
A-12 certificates, Senior
Subordinate Certificates
and Class R Certificate... S-69
Method of Distribution.......... S-70
Legal Matters................... S-70
Certificate Ratings............. S-70
INDEX OF SIGNIFICANT
DEFINITIONS.................. S-72
APPENDIX A -- Planned Principal
Balance Table................ A-1
APPENDIX B -- Targeted Principal
Balance Table................ B-1
APPENDIX C -- Declining Balance
Tables....................... C-1
APPENDIX D -- Loan
Information.................. D-1
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
------------------------------------------------------------
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We describe the offered certificates in two separate documents that
progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to this series of
certificates; and (2) this prospectus supplement, which describes the specific
terms of this series of securities and may be different from the information in
the prospectus.
IF THE DESCRIPTION OF THE TERMS OF THE CERTIFICATES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The preceding Table of Contents and the Table of
Contents included in the accompanying prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption 'Index of Significant
Definitions' in this prospectus supplement and under the caption 'Index to
Prospectus Definitions' in the accompanying prospectus.
-----------------------------------------------------------------
i
<PAGE>
THE SERIES 1999-8 MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
OR NOTIONAL INTEREST
CLASS AMOUNT (1) PRINCIPAL TYPE(2) RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OFFERED CERTIFICATES:
- --------------------------------------------------------------------------------
A-1 $ 64,100,000 Senior/PAC 7.00%
- --------------------------------------------------------------------------------
A-2 33,000,000 Senior/PAC 7.25%
- --------------------------------------------------------------------------------
A-3 18,780,000 Senior/PAC 7.35%
- --------------------------------------------------------------------------------
A-4 25,000,000 Senior/TAC/Accretion 7.35%
Directed
- --------------------------------------------------------------------------------
A-5 38,991,000 Senior/TAC/Accretion 6.90%
Directed
- --------------------------------------------------------------------------------
A-6 20,000,000 Senior/TAC/Notional (5)
- --------------------------------------------------------------------------------
A-7 20,000,000 Senior/TAC/Accretion (5)
Directed
- --------------------------------------------------------------------------------
A-8 2,000,000 Senior/TAC/Accretion (5)
Directed
- --------------------------------------------------------------------------------
A-9 49,108,330 Component/Super (7)
Senior(6)
- --------------------------------------------------------------------------------
A-9-1 8,500,000 Senior/PAC 7.75%
- --------------------------------------------------------------------------------
A-9-2 9,301,548 Senior/PAC/Notional 7.75%
- --------------------------------------------------------------------------------
A-9-3 4,700,000 Senior/TAC/Notional 7.75%
- --------------------------------------------------------------------------------
A-9-4 3,008,330 Senior/PO 0.00%
- --------------------------------------------------------------------------------
A-9-5 37,600,000 Senior/TAC/Accrual/ 7.75%
Accretion Directed
- --------------------------------------------------------------------------------
A-10 3,519,000 Senior/Accrual/ 7.75%
Accretion Directed
- --------------------------------------------------------------------------------
A-11 6,100,000 Senior/Accrual/ 7.75%
Accretion Directed
- --------------------------------------------------------------------------------
A-12 2,300,000 Senior/Senior 7.75%
Support(6)
- --------------------------------------------------------------------------------
A-13 12,184,676 Senior/TAC/Accretion (5)
Directed
- --------------------------------------------------------------------------------
A-14 12,184,676 Senior/TAC/Notional (5)
- --------------------------------------------------------------------------------
A-15 2,324,324 Senior/TAC/Accretion 0.00%
Directed/PO
- --------------------------------------------------------------------------------
A-P 6,308,111 Senior/PO 0.00%
- --------------------------------------------------------------------------------
A-X 2,929,194 Senior/Notional 7.75%
- --------------------------------------------------------------------------------
M 7,427,000 Senior Subordinate 7.75%
- --------------------------------------------------------------------------------
B-1 2,525,000 Senior Subordinate 7.75%
- --------------------------------------------------------------------------------
B-2 1,189,000 Senior Subordinate 7.75%
- --------------------------------------------------------------------------------
R 100 Senior/Residual 7.75%
- --------------------------------------------------------------------------------
Total Offered:(8) 294,856,541
- --------------------------------------------------------------------------------
NON-OFFERED CERTIFICATES:(9)
- --------------------------------------------------------------------------------
B-3 1,039,000 Junior Subordinate 7.75%
- --------------------------------------------------------------------------------
B-4 446,000 Junior Subordinate 7.75%
- --------------------------------------------------------------------------------
B-5 743,244 Junior Subordinate 7.75%
- --------------------------------------------------------------------------------
Total Non-Offered: 2,228,244
- --------------------------------------------------------------------------------
Total:(8) 297,084,785
- --------------------------------------------------------------------------------
<CAPTION>
LAST
STANDARD & DUFF & SCHEDULED
POOR'S PHELPS DISTRIBUTION
CLASS INTEREST TYPE(2) RATING(3) RATING(3) DATE(4)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
OFFERED CERTIFICATES:
- --------------------------------------------------------------------------------
A-1 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-2 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-3 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-4 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-5 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-6 Adjustable/Inverse AAAr AAA 12/25/29
Floater/IO
- --------------------------------------------------------------------------------
A-7 Adjustable/Floater AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-8 Adjustable/Inverse AAAr AAA 12/25/29
Floater
- --------------------------------------------------------------------------------
A-9 Component AAAr AAA 12/25/29
- --------------------------------------------------------------------------------
A-9-1 Fixed -- -- 12/25/29
- --------------------------------------------------------------------------------
A-9-2 Fixed/IO -- -- 12/25/29
- --------------------------------------------------------------------------------
A-9-3 Fixed/IO -- -- 12/25/29
- --------------------------------------------------------------------------------
A-9-4 PO -- -- 12/25/29
- --------------------------------------------------------------------------------
A-9-5 Fixed -- -- 12/25/29
- --------------------------------------------------------------------------------
A-10 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-11 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-12 Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-13 Adjustable/Floater AAA AAA 12/25/29
- --------------------------------------------------------------------------------
A-14 Adjustable/Inverse AAAr AAA 12/25/29
Floater/IO
- --------------------------------------------------------------------------------
A-15 PO AAAr AAA 12/25/29
- --------------------------------------------------------------------------------
A-P PO AAAr AAA 12/25/29
- --------------------------------------------------------------------------------
A-X Fixed/IO AAAr AAA 12/25/29
- --------------------------------------------------------------------------------
M Fixed -- AA 12/25/29
- --------------------------------------------------------------------------------
B-1 Fixed -- A 12/25/29
- --------------------------------------------------------------------------------
B-2 Fixed -- BBB 12/25/29
- --------------------------------------------------------------------------------
R Fixed AAA AAA 12/25/29
- --------------------------------------------------------------------------------
Total Offered:(8)
- --------------------------------------------------------------------------------
NON-OFFERED CERTIF
- --------------------------------------------------------------------------------
B-3 Fixed -- BB 12/25/29
- --------------------------------------------------------------------------------
B-4 Fixed -- B 12/25/29
- --------------------------------------------------------------------------------
B-5 Fixed -- -- 12/25/29
- --------------------------------------------------------------------------------
Total Non-Offered:
- --------------------------------------------------------------------------------
Total:(8)
- --------------------------------------------------------------------------------
</TABLE>
(Footnotes to the table are located on the following page)
ii
<PAGE>
(1) These amounts are approximate. They are subject to an upward or
downward adjustment of no more than 5%, depending on the total
principal amount of the mortgage loans delivered at closing.
Amount is 'notional' if so indicated under principal type.
(2) See pages S-6, S-7 and S-8 in this prospectus supplement for a
more complete description of the principal types and interest
types.
(3) See 'Certificate Ratings' in this prospectus supplement.
(4) The actual final payment to any class of certificates could be
significantly earlier.
<TABLE>
<CAPTION>
ADJUSTABLE RATES: INITIAL FORMULA MAXIMUM MINIMUM
(5) ----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Class A-6 2.10% 7.50% - LIBOR 7.50% 0.00%
Class A-7 6.00% LIBOR + 0.60% 9.00% 0.60%
Class A-8 9.00% 84.00% - (10 x LIBOR) 9.00% 0.00%
Class A-13 5.80% LIBOR + 0.40% 9.00% 0.40%
Class A-14 3.20% 8.60% - LIBOR 8.60% 0.00%
</TABLE>
(6) All losses otherwise allocable to the Class A-9 certificates
(other than losses allocable to Component A-9-4 of the Class A-9
Certificates which will be reimbursed as described herein) will be
allocated to the Class A-12 certificates until the principal
balance of the Class A-12 certificates is reduced to zero.
(7) The Class A-9 certificates will be composed of five components
having the characteristics described in the table above.
(8) Excludes notional balances.
(9) The information presented for the non-offered certificates is
provided solely to assist the reader's understanding of the
offered certificates.
iii
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. To understand the terms of the certificates, carefully read
this entire document and the accompanying prospectus.
<TABLE>
<S> <C>
TITLE OF Multi-Class Mortgage Pass-
SERIES: Through Certificates Series
1999-8
DEPOSITOR: ABN AMRO Mortgage
Corporation
181 West Madison Street
Chicago, Illinois 60602
(312) 904-0800
SELLER: ABN AMRO Mortgage
Group, Inc.
2600 West Big Beaver Road
Troy, Michigan 48084
(800) 783-8900
SERVICER: ABN AMRO Mortgage
Group, Inc.
TRUSTEE: Chase Bank of Texas,
National
Association
DISTRIBUTION The 25th day of each month,
DATES: beginning in December 1999.
If the 25th day is not a
business day, then the
distribution date will be
the next business day.
CUT-OFF DATE: November 1, 1999
CLOSING DATE: On or about November 23,
1999
UNDERWRITERS: Lehman Brothers Inc.
ABN AMRO Incorporated
</TABLE>
OFFERED CERTIFICATES
The Trustee will issue the certificates under a Pooling and Servicing
Agreement dated as of the Cut-Off Date among ABN AMRO Mortgage Corporation, as
depositor, Chase Bank of Texas, National Association, as trustee, and ABN AMRO
Mortgage Group, Inc., as servicer.
The certificates will represent all of the beneficial ownership interest
in the trust. ABN AMRO Mortgage Corporation will deposit the mortgage loans
composing the pool into the trust.
Sometimes we refer to the certificates by their principal or interest
types. Since some classes have the characteristics of more than one category,
they appear more than once in the categories presented in the chart on the
following page.
COMPONENTS
The Class A-9 certificates will be composed of five components having a
specified component principal balance or component notional amount which
functions in a similar manner to that of a class principal balance or class
notional amount. Holders of the Class A-9 certificates may not transfer these
components separately.
Sometimes we refer to the components by their principal or interest types.
Since some components have the characteristics of more than one category, they
appear more than once in the categories presented in the chart on the following
page.
S-1
<PAGE>
CERTIFICATE AND COMPONENT TYPES
<TABLE>
<CAPTION>
- -------------------------------------------
CERTIFICATE TYPES
- -------------------------------------------
<S> <C>
Class A Certificates: A-1, A-2, A-3, A-4,
A-5, A-6, A-7, A-8,
A-9, A-10, A-11,
A-12, A-13, A-14,
A-15, A-P and A-X
- -------------------------------------------
Subordinate M, B-1, B-2, B-3,
Certificates: B-4 and B-5
- -------------------------------------------
Senior Subordinate M, B-1 and B-2
Certificates:
- -------------------------------------------
Junior Subordinate B-3, B-4 and B-5
Certificates:
- -------------------------------------------
Residual Certificate: R
- -------------------------------------------
Senior Certificates: A and R
- -------------------------------------------
Book-Entry A and Senior
Certificates: Subordinate
- -------------------------------------------
PAC Certificates: A-1, A-2 and A-3
- -------------------------------------------
TAC Certificates: A-4, A-5, A-6, A-7,
A-8, A-13, A-14 and
A-15
- -------------------------------------------
Accrual Certificates: A-10 and A-11
- -------------------------------------------
Accretion Directed A-4, A-5, A-7, A-8,
Certificates: A-10, A-11, A-13 and
A-15
- -------------------------------------------
Adjustable Rate A-6, A-7, A-8, A-13
Certificates: and A-14
- -------------------------------------------
Interest Only A-6, A-14 and A-X
Certificates:
- -------------------------------------------
Principal Only A-15 and A-P
Certificates:
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
COMPONENT TYPES
- -------------------------------------------
<S> <C>
Senior Components: A-9-1, A-9-2, A-9-3,
A-9-4 and A-9-5
- -------------------------------------------
PAC Components: A-9-1 and A-9-2
- -------------------------------------------
TAC Components: A-9-3 and A-9-5
- -------------------------------------------
Interest Only A-9-2 and A-9-3
Components:
- -------------------------------------------
Principal Only A-9-4
Component:
- -------------------------------------------
Accrual Component: A-9-5
- -------------------------------------------
Accretion Directed A-9-5
Component:
- -------------------------------------------
</TABLE>
S-2
<PAGE>
RESIDUAL CLASS
The Class R certificate, having a principal amount of $100 and an interest
rate of 7.75%, will consist of:
Component R-1, representing the residual interest in REMIC I.
Component R-2, representing the residual interest in REMIC II.
BOOK-ENTRY REGISTRATION
The offered certificates (other than the Class R certificate) will be
available only in book-entry form through the facilities of the Depository Trust
Company, except under limited circumstances. See 'Description of the
Certificates Book-Entry Registration'.
THE MORTGAGE POOL
The mortgage pool will consist of conventional fixed rate residential
mortgage loans secured by first liens on one- to four-family residential
properties. ABN AMRO Mortgage Corporation expects the mortgage loans to have the
following characteristics:
SELECTED MORTGAGE POOL DATA AS OF NOVEMBER 1, 1999
<TABLE>
<CAPTION>
RANGE OR TOTAL WEIGHTED AVERAGE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Number of Mortgage Loans 848 --
- ---------------------------------------------------------------------------------------------------
Aggregate Unpaid Principal Balance $297,084,786 --
- ---------------------------------------------------------------------------------------------------
Unpaid Principal Balances $240,278 - $999,258 $350,336(1)
- ---------------------------------------------------------------------------------------------------
Interest Rates 6.625% - 8.750% 7.833%
- ---------------------------------------------------------------------------------------------------
Remaining Terms to Stated Maturity 352 - 360 358
- ---------------------------------------------------------------------------------------------------
Loan Age 0 - 8 2
- ---------------------------------------------------------------------------------------------------
Original Loan-to-Value Ratio 25.57% - 95.00% 77.40%
- ---------------------------------------------------------------------------------------------------
FICO Scores 551 - 822 734
- ---------------------------------------------------------------------------------------------------
Geographic Concentration of Mortgaged 41.82% CA --
Properties in Excess of 5% of the Aggregate 9.00% NY
Unpaid Principal Balance 6.43% IL
5.69% TX
- ---------------------------------------------------------------------------------------------------
Maximum Five-Digit Zip Code Concentration 1.09% --
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Average
Before the issuance of the offered certificates, we may remove mortgage
loans from the mortgage pool. We may also substitute new mortgage loans for
certain mortgage loans in the mortgage pool. This may result in changes in the
mortgage pool characteristics shown above and could affect the weighted average
lives and yields of the certificates.
S-3
<PAGE>
SUBORDINATION AND ALLOCATION OF LOSSES
The certificates shown in the second column in the table below will be
subordinated in their right to receive interest and principal payments. They
will bear all realized losses on the mortgage loans before the certificates
shown on the same line in the first column, with limited exceptions for certain
types of losses. The support provided by the certificates shown in the second
column is intended to enhance the likelihood that the certificates shown in the
first column will receive expected monthly payments of interest and principal.
<TABLE>
<CAPTION>
INITIAL SUPPORT
CLASS(ES) CREDIT SUPPORT PERCENTAGE(1)
<S> <C> <C>
- --------------------------------------------------------
SENIOR(2) Senior Subordinate and 4.50%
Junior Subordinate
- --------------------------------------------------------
M B-1, B-2 and Junior 2.00%
Subordinate
- --------------------------------------------------------
B-1 B-2 and Junior 1.15%
Subordinate
- --------------------------------------------------------
B-2 Junior Subordinate 0.75%
- --------------------------------------------------------
</TABLE>
(1) IN EACH ROW, THE INITIAL BALANCE OF THE CERTIFICATES LISTED UNDER 'CREDIT
SUPPORT' AS A PERCENTAGE OF THE BALANCE OF THE MORTGAGE POOL, AS OF THE
CUT-OFF DATE.
(2) ALL REALIZED LOSSES (OTHER THAN LOSSES ALLOCABLE TO COMPONENT A-9-4 OF THE
CLASS A-9 CERTIFICATES WHICH WILL BE REIMBURSED AS DESCRIBED HEREIN)
OTHERWISE ALLOCABLE TO THE CLASS A-9 CERTIFICATES WILL BE ALLOCATED TO THE
CLASS A-12 CERTIFICATES UNTIL THE PRINCIPAL BALANCE OF THE CLASS A-12
CERTIFICATES IS REDUCED TO ZERO.
CREDIT ENHANCEMENT
The Trustee will allocate mortgage loan prepayments among the classes of
certificates in a manner that will enhance the likelihood that investors in the
Senior certificates will be paid in full the amount of principal to which they
are entitled. During the first five years, the Trustee will generally allocate
all of the principal prepayments to the Senior certificates. Then, over the
following four years, the allocation of principal payments to the Senior
certificates will decrease as the Trustee begins to allocate an increasingly
larger portion of principal prepayments to the Subordinate certificates, until
the December 2008 distribution date when the Trustee will allocate principal
prepayments proportionately between the Senior and Subordinate certificates if
certain tests are met.
OPTIONAL TERMINATION
If the total outstanding principal balance of all the mortgage loans on
any distribution date is less than 10% of their total principal balance as of
the Cut-Off Date, the Depositor may repurchase the mortgage loans, but is not
required to. If the Depositor does repurchase the mortgage loans, the
outstanding principal balance of the certificates will be paid in full together
with accrued interest.
FEDERAL INCOME TAX TREATMENT
The offered certificates, other than the Class R certificate, will
represent ownership of REMIC regular interests. For federal income tax purposes,
these offered certificates will be treated as ownership of debt.
Certificateholders must include in income all interest and any original issue
discount on such offered certificates in accordance with the accrual method of
accounting, even if the certificateholder is otherwise a cash method taxpayer.
Certain classes of offered certificates will be treated as having been
issued with original issue discount; certain other classes of offered
certificates may be so treated. The prepayment assumptions that will be used in
determining the rate of accrual of original issue discount and market discount
or premium (if any) for federal income tax purposes is 225% PSA. No
representation is made that the mortgage loans will prepay at any given
percentage of PSA.
S-4
<PAGE>
The Class R certificate will likely constitute 'non-economic' residual
interests under the REMIC rules. The taxation of the Class R certificate is very
complex and may entail significant adverse tax consequences. Also, transfers of
the Class R certificate are restricted. See 'Federal Income Tax Consequences' in
this prospectus supplement and the prospectus.
LEGAL INVESTMENT
At the time of their issuance, the offered certificates (except the Class
B-1 and Class B-2 certificates) will constitute 'mortgage-related securities'
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. Investors
should consult their own legal counsel in determining the extent to which the
offered certificates constitute legal investments for them. See 'Legal
Investment Aspects'.
ERISA CONSIDERATIONS
In general, the Class A certificates (other than the Class A-12
certificates) will be eligible for purchase by retirement plans subject to
ERISA. Investors should consult with their legal counsel with respect to the
consequences under ERISA and the Internal Revenue Code of the plan's acquisition
and ownership of the certificates.
Sales of the Class A-12, Class M, Class B-1 and Class B-2 certificates and
Class R certificate to retirement plans subject to ERISA are prohibited, except
as may be permitted under an exemption available to insurance companies using
general accounts. See 'ERISA Considerations'. Any investor in the Class A-12,
Class M, Class B-1 or Class B-2 certificates or Class R certificate will be
deemed to represent that it complies with these restrictions.
AVAILABLE DISTRIBUTION AMOUNT
On any distribution date, interest and principal distributions will
generally be made only up to the 'AVAILABLE DISTRIBUTION AMOUNT' calculated for
that distribution date which generally includes the following amounts net of
servicing fees:
amounts received on the mortgage loans for scheduled principal and interest
payments due on the first day of the month (including advances received from
the Servicer)
full and partial prepayments received on the mortgage loans in the preceding
calendar month (including compensating interest received from the Servicer)
any other unscheduled amounts received in respect of the mortgage loans,
including liquidation proceeds, in the preceding calendar month
AMOUNTS ALLOCATED TO INTEREST
On each distribution date, for each class of certificates (or components
of the Class A-9 certificates) entitled to interest, interest will accrue in an
amount determined by the following formula:
<TABLE>
<S> <C> <C> <C> <C>
1/12 of the the related the pro rata share
applicable interest principal or allocated to such
rate for each class X notional - class (or component)
(or component) balance for of any prepayment
each class interest shortfalls
(or not covered by
component) compensating
interest and certain
losses attributable
to interest
</TABLE>
Interest to be distributed on each class of interest bearing certificates
will include accrued but unpaid interest from prior distribution dates (together
with
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<PAGE>
interest thereon at the applicable rate), but only up to the Available
Distribution Amount. The Senior certificates' claim to interest payments will
take priority over the Subordinate certificates' claim to both interest and
principal payments. The claim to interest payments of each class of Subordinate
certificates will take priority over the claim to both interest and principal
payments of any class which is subordinated to it.
INTEREST ONLY CERTIFICATES AND COMPONENTS
The Class A-6, A-14 and A-X certificates are 'INTEREST ONLY' certificates
and Components A-9-2 and A-9-3 of the Class A-9 certificates are 'INTEREST ONLY'
components. This means that the Trustee will not distribute principal to
investors in the Class A-6, A-14 or A-X certificates or Class A-9 certificates
(to the extent of Components A-9-2 and A-9-3). The Trustee will distribute
interest to investors in the Class A-6, A-14 or A-X certificates or Class A-9
certificates (to the extent of Components A-9-2 and A-9-3) based upon their
related notional amount.
On each distribution date, the Component A-9-2 notional amount will be
equal to the sum of:
3/31sts of the certificate principal balance of the Class A-1 certificates
+
2/31sts of the certificate principal balance of the Class A-2 certificates
+
8/155ths of the certificate principal balance of the Class A-3 certificates
On each distribution date, the Component A-9-3 notional amount will be
equal to the sum of:
8/155ths of the certificate principal balance of the Class A-4 certificates
+
7/155ths of the sum of the certificate principal balances of the Class A-5,
Class A-7, Class A-8, Class A-13 and Class A-15 certificates
On each distribution date, the Class A-6 notional amount will be equal to
the certificate principal balance of the Class A-7 certificates.
On each distribution date, the Class A-14 notional amount will be equal to
the certificate principal balance of the Class A-13 certificates.
On each distribution date, the Class A-X notional amount will be equal to
the total principal balance of the mortgage loans having interest rates, after
deducting the servicer's fee of 0.25% ('PASS-THROUGH RATES'), greater than 7.75%
multiplied by the following fraction:
Weighted Average
Pass-Through Rate
for all such loans minus 7.75%
7.75%
PRINCIPAL ONLY CERTIFICATES AND COMPONENT
The Class A-15 and A-P certificates are 'PRINCIPAL ONLY' certificates and
Component A-9-4 of the Class A-9 certificates is a 'PRINCIPAL ONLY' component.
This means that the Trustee will not distribute interest to investors in the
Class A-15 or A-P certificates or
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<PAGE>
Class A-9 certificates (to the extent of Component A-9-4).
The Trustee will distribute specified percentages of a fixed portion of
the principal payments received in respect of mortgage loans having Pass-Through
Rates less than 7.75% to investors in the Class A-P certificates and Class A-9
certificates to the extent of Component A-9-4. This portion is determined based
on the following fraction as to each such mortgage loan:
7.75% minus the
Pass-Through Rate on such mortgage loan
7.75%
ACCRUAL AND ACCRETION DIRECTED CERTIFICATES AND COMPONENT
The Class A-10 and A-11 certificates are 'ACCRUAL' certificates and
Component A-9-5 of the Class A-9 certificates is an 'ACCRUAL' component.
Interest accrued on these classes and this component will be added to their
principal balances rather than distributed to the holders of these certificates
and this component on each distribution date except as described below.
The Class A-4, A-5, A-7, A-8, A-10, A-11, A-13 and A-15 certificates are
'ACCRETION DIRECTED' certificates and Component A-9-5 of the Class A-9
certificates is an 'ACCRETION DIRECTED' component. Each of these certificates
and this component will receive distributions of principal payable from the
amounts of interest not paid to the Accrual certificates and Accrual component.
After the principal amount of the Subordinate certificates is reduced to
zero, interest accrued on the Accrual certificates and Accrual component will be
distributed on each distribution date as interest to these certificates and
component (to the extent available) rather than added to their principal
balances.
PAC CERTIFICATES AND COMPONENTS
The Class A-1, A-2 and A-3 certificates are planned amortization classes
or 'PAC' certificates and Components A-9-1 and A-9-2 of the Class A-9
certificates are planned amortization components or 'PAC' components. If funds
are available, the Trustee will distribute principal to the holders of these
certificates and components (other than Component A-9-2 of the Class A-9
certificates) up to an amount which will reduce each certificate or component
principal balance to a planned amount. The schedule of planned principal
balances for these certificates and Component A-9-1 of the Class A-9
certificates for each distribution date are shown in Appendix A. Component A-9-2
of the Class A-9 certificates is an Interest Only component with a notional
amount based on the certificate principal balances of the PAC certificates.
TAC CERTIFICATES AND COMPONENTS
The Class A-4, A-5, A-6, A-7, A-8, A-13, A-14 and A-15 certificates are
targeted amortization classes or 'TAC' certificates and Components A-9-3 and
A-9-5 of the Class A-9 certificates are targeted amortization components or
'TAC' components. If funds are available, the Trustee will distribute principal
to the holders of these certificates (other than Component A-9-3 of the Class
A-9 certificates) in accordance with their schedules up to an amount which will
reduce each certificate or component principal balance to a targeted amount. The
schedules of
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<PAGE>
targeted principal balances for these certificates and Component A-9-5 of the
Class A-9 certificates for each distribution date are shown in Appendix B.
Component A-9-3 of the Class A-9 certificates is an Interest Only component with
a notional amount based on the certificate principal balances of the TAC
certificates. The Class A-6 and Class A-14 are Interest Only certificates with
notional amounts equal to the certificate principal balances of the Class A-7
and Class A-13 certificates, respectively.
ADJUSTABLE RATE CERTIFICATES
The Class A-6, A-7, A-8, A-13 and A-14 certificates are 'ADJUSTABLE RATE'
certificates. After the initial distribution date, the Trustee will distribute
interest to the investors in the Class A-6, A-7, A-8, A-13 and A-14 certificates
based upon the formulas indicated below. The interest rate on the Class A-7 and
A-13 certificates will vary depending on fluctuations of the one-month London
interbank offered rate, or 'LIBOR'. On each distribution date, the amount of
interest distributable to the Class A-7 certificates will be determined by the
following formula, which is subject to a minimum rate of 0.60% per annum and a
maximum rate of 9.00% per annum:
LIBOR + 0.60%
On each distribution date, the amount of interest distributable to the Class
A-13 certificates will be determined by the following formula, which is subject
to a minimum rate of 0.40% per annum and a maximum rate of 9.00% per annum:
LIBOR + 0.40%
The interest rate on the Class A-6, A-8 and A-14 certificates will vary
inversely with a multiple of LIBOR. On each distribution date, the amount of
interest distributable to the Class A-6 certificates will be determined by the
following formula, which is subject to a minimum rate of 0.00% per annum and a
maximum rate of 7.50% per annum:
7.50% - LIBOR
On each distribution date, the amount of interest distributable to the Class A-8
certificates will be determined by the following formula, which is subject to a
minimum rate of 0.00% per annum and a maximum rate of 9.00% per annum:
84.00% - (10 x LIBOR)
On each distribution date, the amount of interest distributable to the Class
A-14 certificates will be determined by the following formula, which is subject
to a minimum rate of 0.00% per annum and a maximum rate of 8.60% per annum:
8.60% - LIBOR
ALLOCATION OF PRINCIPAL CASH FLOWS
On each distribution date, the Trustee will distribute from the Available
Distribution Amount interest and principal to investors until the principal
balance of each certificate or component has been reduced to zero. Only certain
classes and components are due principal and/or interest on each distribution
date as described in this prospectus supplement. The calculation of the amount
of interest and principal that the Trustee will distribute is very complex. The
following two charts summarize the flow of payments.
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<PAGE>
PRIORITY OF DISTRIBUTIONS PROVIDED THAT THE PRINCIPAL BALANCES OF THE
SUBORDINATE CERTIFICATES HAVE NOT BEEN REDUCED TO ZERO
<TABLE>
<S> <C>
Specified percentages of a fixed fraction of the principal
Class A-P and Component received on each mortgage loan which has a Pass-Through
A-9-4 Rate lower than 7.75%.
Unpaid and accrued interest pro rata based upon the amount
of interest due each class or component, minus interest
Senior Certificates and then payable on the Accrual certificates or Accrual
Components component, which shall be payable as principal to the
Accretion Directed certificates.
A percentage of the total principal received on each
mortgage loan (other than a fixed fraction allocated to
Class A-P and Component A-9-4), related to the ratio of the
total outstanding principal balance of the Senior
certificates or components to the aggregate scheduled
Senior Certificates and principal balance of the mortgage loans immediately
Components (but not preceding the distribution date (other than a fixed
Class A-P or fraction allocated to Class A-P and Component A-9-4), which
Component A-9-4) may include, for a certain period of time, a
disproportionately high percentage of principal prepayments
received in respect of the mortgage loans, allocated among
the Senior certificates or components, as described in this
prospectus supplement.
An amount equal to unreimbursed losses, if any, previously
Class A-P and Component allocated to Class A-P and Component A-9-4 for each
A-9-4 mortgage loan which has a Pass-Through Rate lower than
7.75%.
Interest and then a percentage of the total principal
received on the mortgage loans (other than a fixed fraction
allocated to Class A-P and Component A-9-4) related to the
ratio of the total outstanding principal balance of the
Subordinate certificates to the aggregate scheduled
Subordinate principal balance of the mortgage loans immediately
Certificates preceding the distribution date (other than a fixed
fraction allocated to Class A-P and Component A-9-4), which
may include a disproportionately small allocation of
prepayments on the mortgage loans for a certain period of
time, to be distributed as follows:
Class M accrued and unpaid interest, then principal
Class B-1 accrued and unpaid interest, then principal
Class B-2 accrued and unpaid interest, then principal
Class B-3 accrued and unpaid interest, then principal
Class B-4 accrued and unpaid interest, then principal
Class B-5 accrued and unpaid interest, then principal
To each class or component of Senior certificates and
Senior Certificates and components and Subordinate certificates in the order of
Components and their seniority, the amount of unreimbursed losses
Subordinate Certificates previously allocated to each class or component.
The remainder of the Available Distribution Amount, which
Class R Certificate is expected to be zero.
</TABLE>
S-9
<PAGE>
PRIORITY OF DISTRIBUTIONS IN THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBORDINATE CERTIFICATES HAVE BEEN REDUCED TO ZERO
<TABLE>
<S> <C>
Specified percentages of a fixed fraction of the principal
Class A-P and Component received on each mortgage loan which has a Pass-Through
A-9-4 Rate lower than 7.75%.
Senior Certificates and Unpaid and accrued interest pro rata based upon the amount
Components of interest due each class or component.
The total principal received (other than the fixed fraction
Senior Certificates and allocated to Class A-P and Component A-9-4) pro rata to
Components (but not each class or component (provided that principal payable to
Class A-P and Class A-12 may be used to reimburse losses previously
Component A-9-4) allocated to Component A-9-4).
The amount of unreimbursed losses previously allocated to
Senior Certificates and each class or component, pro rata to each class or
Components component.
The remainder of the Available Distribution Amount, which
Class R Certificate is expected to be zero.
</TABLE>
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<PAGE>
RISK FACTORS
The offered certificates may not be suitable investments for you. In
particular, you should not purchase certificates of any class unless you
understand and are able to bear the prepayment, credit, liquidity, and market
risks associated with that class. Holders of the Class A-9 certificates may not
transfer the components of this class separately.
The certificates are complex securities. You should possess, either alone
or together with an investment advisor, the expertise necessary to evaluate the
information contained in this prospectus supplement and the prospectus in the
context of your financial situation.
The yield of each class will depend upon the price you paid for your
certificates and the rate of principal payments on the mortgage loans (including
prepayments, defaults and liquidations) as well as the actual characteristics of
the mortgage loans. The mortgage loans may be prepaid at any time without
penalty. Mortgage prepayment rates are likely to fluctuate significantly from
time to time. You should consider the associated risks, including the following:
<TABLE>
<S> <C>
PREPAYMENTS ON THE MORTGAGE LOANS MAY AFFECT If the mortgage loans are prepaid at a
THE YIELD ON YOUR CERTIFICATES. fast rate, this may reduce the yields of
any classes of certificates purchased
at a premium over their principal
amounts.
If the mortgage loans which have Pass-
Through Rates higher than 7.75% are
prepaid at a fast rate, this may
reduce the yield of the Class A-X
certificates and investors in these
certificates may not fully recover
their initial investments.
If the mortgage loans are prepaid at a
slow rate, this may reduce the yields of
any classes of certificates entitled
to distributions of principal
purchased at a discount to their
principal amounts.
If the mortgage loans which have Pass-
Through Rates lower than 7.75% are
prepaid at a slow rate, this may
reduce the yields of the Class A-P
certificates and the Class A-9
certificates to the extent of
Component A-9-4.
The Accrual certificates and Accrual
component will be especially
sensitive to the rate of payment of
principal (including prepayments,
defaults and liquidations) on the
mortgage loans.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
The Accretion Directed certificates and
Accretion Directed component may
amortize more quickly because the
Trustee will distribute interest
accrued on the Accrual certificates
and Accrual component as principal to
the Accretion Directed certificates
and Accretion Directed component that
would otherwise be payable as
interest to the Accrual certificates
and Accrual component for a period of
time.
Any time your principal is repaid to you
at a time when you did not expect to
receive it, you may not be able to
reinvest your funds at the same or a
higher rate of return than the
interest rate on your certificates.
If the actual characteristics and
behavior of the mortgage loans differ
from what you assumed, it can have a
significant effect on the weighted
average lives and yields of the
related classes.
The rate of principal payments on pools
of mortgage loans varies among pools and
from time to time is influenced by a
variety of economic, demographic,
geographic, social, tax, legal and
other factors, including prevailing
mortgage market interest rates and
the particular terms of the mortgage
loans. There is no guarantee as to
the actual rate of prepayment on the
mortgage loans, or that the rate of
prepayment will conform to any model
described in this prospectus
supplement or in the prospectus. See
'Prepayment and Yield Considerations'
in this prospectus supplement and
'Prepayment, Yield and Maturity
Considerations' in the prospectus.
FLUCTUATIONS IN THE INTEREST RATE OF THE The Class A-6, Class A-7, Class A-8,
CLASS A-6, CLASS A-7, CLASS A-8, CLASS A-13 Class A-13 and Class A-14
AND CLASS A-14 CERTIFICATES WILL AFFECT THE certificates will accrue interest at
YIELD ON THESE CERTIFICATES. an adjusting rate determined
separately for each distribution date
according to LIBOR in the manner
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
described under 'Description of the
Certificates.' THE INTEREST RATE ON
THE CLASS A-6, CLASS A-8 AND
CLASS A-14 CERTIFICATES WILL VARY
INVERSELY WITH A MULTIPLE OF LIBOR.
The interest rate on the Class A-7
and Class A-13 certificates will vary
in direct correlation with LIBOR.
Therefore, the yield to investors on
the Class A-7 and Class A-13
certificates will be sensitive, and
the yield to investors on the
Class A-6, Class A-8 and Class A-14
certificates will be extremely
sensitive, to fluctuations of LIBOR.
LOSSES AND DELINQUENT PAYMENTS ON THE If, as a result of losses on liquidated
MORTGAGE LOANS MAY AFFECT THE RETURN ON YOUR mortgage loans, the principal amount
CERTIFICATE. of the Junior Subordinate
certificates is reduced to zero, the
yield on each class of the Senior
Subordinate certificates will be
extremely sensitive to losses on the
mortgage loans. If, as a result of
losses, the principal amount of the
Senior Subordinate and Junior
Subordinate certificates is reduced
to zero, the yield on each class of
the Senior certificates (especially
the Class A-12 certificates) that is
still outstanding will be extremely
sensitive to losses. If, as a result
of further losses, the principal
amount of the Class A-12 certificates
is reduced to zero, the yield on the
Class A-9 certificates will be
extremely sensitive to losses.
Delinquencies that are not covered by
amounts advanced by the Servicer
(because the Servicer believes the
amounts, if advanced, would not be
recoverable) will adversely affect
the yield on the Junior Subordinate
certificates, then the yield on the
Senior Subordinate certificates and
then the yield on the Senior
certificates. Because of the priority
of distributions, shortfalls
resulting from delinquencies will be
borne first by the Junior Subordinate
certificates, then by the Senior
Subordinate certificates, in the
reverse order of their
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
seniority, and then by the Senior
certificates.
The yield on the Subordinate
certificates, in decreasing order of
their seniority, will be
progressively more sensitive to the
rate and timing of defaults and the
severity of losses on the mortgage
loans. In general, losses on the
mortgage loans and the resulting
reduction in principal amount will
mean that less interest will accrue
than would otherwise be the case. The
earlier a loss and resulting
reduction in principal amount occurs,
the greater the effect on an
investor's yield. The yield on the
Subordinate certificates will also be
affected by the disproportionate
allocations of principal prepayments
and in some cases, liquidation
proceeds, to the Senior certificates,
net interest shortfalls, and other
cash shortfalls in available funds.
THE SUBORDINATE CERTIFICATES ARE ESPECIALLY Investors who purchase Subordinate
SENSITIVE TO LOSSES ON THE MORTGAGE LOANS. certificates will not receive
distributions of interest and
principal on any given distribution
date until after the Senior
certificates and classes of more
senior Subordinate certificates
receive their distributions of
interest and principal. The
Subordinate certificates will bear
losses and delinquencies in reverse
order of their priority. Depending
upon the timing of defaults and
severity of losses, investors may
realize a lower expected return on
their investment than they originally
anticipated. It may also take longer
for investors holding Subordinate
certificates to realize their
expected return on their investment.
IT MAY NOT BE POSSIBLE TO FIND AN INVESTOR TO The Underwriters intend to make a market
PURCHASE YOUR CERTIFICATES. for the purchase and sale of the
offered certificates after their
initial issuance but have no
obligation to do so. There is no
assurance that such a secondary
market will develop or, if it
develops, that it will continue.
Consequently, investors may not be
able to sell their certificates
readily or
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
at prices that will enable them to
realize their desired yield. The
market values of the certificates are
likely to fluctuate. These
fluctuations may be significant and
could result in significant losses to
investors.
The secondary markets for mortgage-
backed securities have experienced
periods of illiquidity and can be
expected to do so in the future.
Illiquidity means you may not be able
to find another investor to buy your
certificates, which can have a
severely adverse effect on the market
value of your certificates.
Illiquidity is more likely for
classes that are especially sensitive
to prepayment, credit, or interest
rate risk, or that have been
structured to meet the investment
requirements of limited categories of
investors. However, any class of
certificates may experience
illiquidity.
THE CONCENTRATION OF MORTGAGE LOANS WITH The concentration of the mortgage loans
CERTAIN CHARACTERISTICS MAY CHANGE OVER TIME, with specific characteristics
WHICH MAY AFFECT THE TIMING AND AMOUNT OF relating to the types of properties,
PAYMENTS ON YOUR CERTIFICATES. property characteristics, and
geographic location are likely to
change over time. Principal payments
may affect the concentration levels.
Principal payments could include
voluntary prepayments and prepayments
resulting from casualty or
condemnation, defaults and
liquidations and from repurchases and
substitutions due to breaches of
representations and warranties.
Because unscheduled collections of
principal on the mortgage loans are
payable to the respective classes of
Senior certificates in varying orders
of priority, such classes that have a
later priority for principal
distributions and all of the
Subordinate certificates are more
likely to be exposed to any risks
associated with changes in
concentrations of mortgage loan or
property characteristics.
PAYMENTS FROM THE MORTGAGE LOANS ARE THE SOLE The certificates do not represent an
SOURCE OF PAYMENTS ON YOUR CERTIFICATES. interest in or obligation of the
Depositor, the Servicer, the Trustee,
the Underwriters or
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
any of their affiliates. However, the
Depositor does have limited
obligations with respect to certain
breaches of its representations and
warranties. No governmental agency or
instrumentality, the Depositor, the
Servicer, the Trustee, the
Underwriters nor any of their
affiliates will guarantee or insure
either the certificates or the
mortgage loans. Consequently, if
payments on the mortgage loans are
insufficient or otherwise unavailable
to make all payments required on the
certificates, you will have no
recourse to the Depositor, the
Servicer, the Trustee, the
Underwriters or any of their
affiliates.
THE RETURN ON YOUR CERTIFICATES MAY BE As of the Cut-Off Date, mortgaged
PARTICULARLY SENSITIVE TO CHANGES IN THE REAL properties located in the State of
ESTATE MARKETS IN CERTAIN GEOGRAPHICAL AREAS. California secure approximately
41.82% of all mortgage loans. If the
California residential real estate
market should experience an overall
decline in property values, the rates
of delinquency, foreclosure,
bankruptcy and loss on those mortgage
loans may be expected to increase,
and may increase substantially, as
compared to such rates in a stable or
improving real estate market. In
addition, approximately 9.00%, 6.43%
and 5.69% of all the mortgage loans
are located in New York, Illinois and
Texas, respectively.
THE CLASS R CERTIFICATE HAS TAX IMPLICATIONS The Class R certificateholders will be
THAT ARE DIFFERENT FROM THE OTHER required to report on their federal
CERTIFICATES. income tax returns as ordinary income
their pro rata share of taxable
income of the REMIC regardless of the
amount or timing of their receipt of
cash payments. See 'Federal Income
Tax Consequences -- Qualification as
a REMIC -- Taxation of Owners of
Residual Certificates' in the
prospectus and 'Federal Income Tax
Consequences -- Special Tax
Considerations Applicable to the
Residual Certificate' in this
prospectus supplement. Accordingly,
the Class R certificateholders may
have taxable income and tax
liabilities arising
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
from their investment during a
taxable year in excess of the cash
received during that period which
results in a negative after-tax
return. The requirement that the
Class R certificateholders report
their pro rata share of the taxable
income and net loss of the REMIC will
continue until the principal balances
of all classes of certificates have
been reduced to zero, even though the
Class R certificateholders have
received full payment of their stated
interest and principal. It is
expected that all or a substantial
portion of the REMIC taxable income
of the Class R certificateholders
will be treated as 'excess inclusion'
income to the holder which:
will not be subject to offset by losses
from other activities;
for a tax-exempt holder, will be treated
as unrelated business taxable income;
and
for a foreign holder, will not qualify
for tax treaty rate reduction or
statutory exemption for withholding
tax.
Individual Class R certificateholders
may be limited in their ability to
deduct servicing fees and other
non-interest expenses of the REMIC.
Because of the special tax treatment
of REMIC residual interests, the
taxable income arising in a given
year on a REMIC residual interest
will not be equal to the taxable
income associated with investment in
a corporate bond or stripped
instrument having similar cash flow
characteristics and pre-tax yield.
Therefore, the after-tax yield on
the Class R certificate may be
significantly less than that of a
corporate bond or stripped
instrument having similar cash flow
characteristics. See 'Federal Income
Tax Consequences -- Qualification as
a REMIC -- Taxation of Owners of
Residual Certificates' in the
prospectus and 'Federal Income Tax
Consequences -- Special Tax
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
Considerations Applicable to the
Residual Certificate' in this
prospectus supplement.
FACTORS THAT REDUCE COLLECTIONS COULD CAUSE A decline in real estate values or
EARLY REPAYMENT, DELAYED PAYMENT OR REDUCED changes in mortgage market interest
PAYMENT ON THE CERTIFICATES. rates may affect the yield on your
certificates. If the residential real
estate market in the locale of
properties securing the mortgage
loans should experience an overall
decline in property values so that
the outstanding balances of the
mortgage loans, and any secondary
financing on the mortgaged
properties, become equal to or
greater than the value of mortgaged
properties, the actual rates of
delinquencies, foreclosures and
losses could be higher than those now
generally experienced in the mortgage
lending industry. To the extent that
these losses are not covered by any
applicable insurance policies or
other credit enhancement,
certificateholders will bear all risk
of loss resulting from default by
mortgagors. The amount of losses will
depend primarily upon the value of
the mortgaged properties for recovery
of the outstanding principal and
unpaid interest of the defaulted
mortgage loans.
THE FDIC HAS SPECIAL POWERS UNDER BANKING A portion of the mortgage loans were
LAWS TO TAKE ACTIONS DURING THE INSOLVENCY OF transferred to the Seller by Standard
STANDARD FEDERAL BANK, AN AFFILIATE OF THE Federal Bank, a federal savings bank
SELLER. whose deposits are insured by the
Federal Deposit Insurance
Corporation, or FDIC. If the FDIC
were appointed as a conservator or
receiver for Standard Federal Bank,
it would have the power to repudiate
contracts determined by it to be
burdensome; claims for repudiated
obligations may be limited to actual,
direct compensatory damages
determined as of the date of the
appointments of the FDIC as
conservator or receiver. The FDIC
might seek to avoid the transfer of
mortgage loans from Standard Federal
Bank to the Seller and any other
obligations of Standard Federal Bank.
Therefore, in order to provide
additional protection to the
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
certificateholders, Standard Federal
Bank has granted a security interest
in the mortgage loans in favor of the
Trustee. Under certain circumstances,
the FDIC may avoid such security
interest and any other obligations of
Standard Federal Bank. In addition,
claims against the FDIC may not be
enforceable unless certain
requirements are met. Assuming that
such security interest is not avoided
and the conditions to a valid claim
against the FDIC are satisfied,
payments to the Trustee with respect
to the mortgage loans transferred by
Standard Federal Bank (up to the
amount of actual, direct compensatory
damages), should not be subject to
recovery by the FDIC as conservator
or receiver of Standard Federal Bank.
However, if Standard Federal Bank were
to become subject to a conservatorship
or receivership, or a
conservatorship or receivership
proceeding were to be commenced
involving Standard Federal Bank, you
may experience delays in payments or
possibly reductions in payments on
the certificates, you may not have a
claim for interest accrued or
damages or losses after the date of
the appointment of the FDIC as
conservator or receiver, and there
may be uncertainty as to whether any
claim against the FDIC would be
measured by the fair market value of
the obligations repudiated by the
FDIC on the date of repudiation.
In addition, the appointment of a
receiver or conservator could result in
administrative expenses of the
receiver or conservator having
priority over the interest of the
Trustee in the mortgage loans.
THE BANKRUPTCY OF THE SERVICER COULD FURTHER If the Servicer becomes the subject of
DELAY OR REDUCE PAYMENTS TO YOU. bankruptcy proceedings, the Trustee's
claim to collections in the
Servicer's possession at the time of
the bankruptcy filing may not be
perfected. In this event, funds
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
available to pay principal and
interest on your certificates may be
delayed or reduced.
Additionally, if the Servicer defaults
on its obligations under the pooling and
servicing agreement solely because
it becomes insolvent, the bankruptcy
court might have the power to
prevent the appointment of a new
servicer. In this event, the ability
of the Servicer to service the
receivables could be impaired by its
bankruptcy and its actions would be
supervised by the bankruptcy court,
which could cause delays in payments
being made on your certificates.
ATTEMPTED RECHARACTERIZATION OF THE TRANSFER We expect that the transfer of the
FROM THE DEPOSITOR TO THE TRUST COULD DELAY mortgage loans from ABN AMRO Mortgage
OR REDUCE PAYMENTS TO YOU. Group, Inc., as Seller, to ABN AMRO
Mortgage Corporation, and from ABN
AMRO Mortgage Corporation, as
Depositor, to the Trust will each be
characterized as a sale. Each of the
Seller and the Depositor have
documented their respective transfer
as a sale. However, a bankruptcy
trustee or creditor of the Seller may
take the position that the transfer
of the mortgage loans to ABN AMRO
Mortgage Corporation should be
recharacterized as a pledge. If so,
ABN AMRO Mortgage Corporation would
be required to go through court
proceedings to establish its rights
to collections on the mortgage loans.
Similarly, a bankruptcy trustee or
creditor of the Depositor may take
the position that the transfer of the
mortgage loans to the Trust should be
recharacterized as a pledge. If so,
the Trustee would be required to go
through court proceedings to
establish its rights to collections
on the mortgage loans. If either or
both of these events occur, payments
to you could be delayed or reduced.
</TABLE>
S-20
<PAGE>
THE TRUST
The primary assets of REMIC I will consist of a pool ('MORTGAGE POOL') of
mortgage loans ('LOANS'). REMIC I will also contain (1) certain insurance
policies related to the Loans, (2) any property which secured a Loan and which
is acquired by foreclosure or by deed in lieu of foreclosure after the Cut-Off
Date, (3) amounts held in the certificate account established by the Trustee to
facilitate distributions to certificateholders (the 'CERTIFICATE ACCOUNT'), and
(4) certain other assets all as described in this prospectus supplement.
The Depositor will assign the Loans to the Trustee, together with all
principal and interest due on the Loans after the Cut-Off Date. The Trustee
will, concurrently with such assignment, authenticate and deliver the
certificates. Each Loan will be identified in a Loan schedule appearing as an
exhibit to the Pooling and Servicing Agreement which will specify with respect
to each Loan, among other things, the original principal balance and the
outstanding principal balance as of the close of business on the Cut-Off Date,
the term of the mortgage note, and the mortgage interest rate.
DESCRIPTION OF THE MORTGAGE POOL*
GENERAL
The Mortgage Pool will consist of Loans that have an aggregate principal
balance outstanding as of the Cut-Off Date, after deducting payments due on or
before that date, of approximately $297,084,786. Each of the Loans has an
original term to maturity of thirty (30) years. Certain of the risks of loss on
certain Loans will be covered by primary insurance policies up to specified
limits.
- ----------------------------------
* The description herein of the Mortgage Pool and the mortgaged properties is
based upon the Loans at the close of business on the Cut-Off Date, after
deducting the scheduled principal payments due on or before such date, whether
or not actually received. All references herein to principal balance refer to
the principal balance as of the Cut-Off Date, unless otherwise specifically
stated or required by the context. References herein to percentages of Loans
refer in each case to the percentage of the aggregate principal balance of the
Loans, based on the outstanding principal balances of the Loans after giving
effect to scheduled monthly payments due on or before the Cut-Off Date, whether
or not received. References to weighted averages refer, in each case, to
weighted averages by principal balance as of the Cut-Off Date of the related
Loans (determined as described in the preceding sentence). Prior to the issuance
of the certificates, Loans may be removed from the Mortgage Pool as a result of
principal prepayments in full, delinquencies or otherwise. In such event, other
Loans may be included in the Mortgage Pool. The Depositor believes that the
information set forth herein with respect to the Mortgage Pool is representative
of the characteristics of the Mortgage Pool as it will actually be constituted
at the time the certificates are issued, although the range of mortgage interest
rates and certain other characteristics of the Loans in the Mortgage Pool may
vary. See ' -- Additional Information'.
S-21
<PAGE>
First deeds of trust or other similar security instruments creating first
liens on one- to four-family residential properties secure the Loans. The
mortgaged properties may include detached homes, townhouses, individual
condominium units, and individual units in planned unit developments, so long as
the property subject to the lien of the related mortgage consists of no more
than four units, and has the additional characteristics described below and in
the prospectus.
The Depositor acquired all of the Loans for inclusion in the Mortgage Pool
pursuant to a Mortgage Loan Purchase Agreement to be dated as of November 23,
1999, between the Seller and the Depositor. Standard Federal Bank and ABN AMRO
Mortgage Group, Inc., affiliates of the Depositor, originated 100% of the Loans
pursuant to a 'full documentation' program and in accordance with the
underwriting standards described in 'The Trusts -- The Loans -- Loan
Underwriting Policies' in the prospectus.
Approximately 97.66% of the Loans have FICO Scores. The weighted average
FICO Score for the Loans that were scored is 734. 'FICO SCORES' are statistical
credit scores obtained by many mortgage lenders in connection with a loan
application to help assess a borrower's creditworthiness as of the time the
score is obtained. 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 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, meaning 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 Depositor does not make any representations or warranties as to
the actual performance of any Loan or that a particular FICO Score will not
change over time or should be relied upon as a basis for an expectation that the
borrower will repay the Loan according to its terms.
The Depositor will assign the Loans to the Trustee for the ultimate benefit
of the certificateholders. The Servicer will service the Loans directly as
Servicer pursuant to the Pooling and Servicing Agreement, and will receive
compensation for such services. See 'The Pooling and Servicing
Agreement -- Assignment of Loans' in the prospectus.
Pursuant to the terms of the Mortgage Loan Purchase Agreement, the Seller
has made certain representations and warranties with respect to the Loans which
the Depositor will assign to the Trustee for the benefit of the
certificateholders. If the Seller breaches any of
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<PAGE>
the representations and warranties with respect to any Loan, the Seller will be
obligated to cure such breach in all material respects or shall repurchase the
Loan or any property acquired in respect thereof.
In addition, the Depositor will make representations and warranties
regarding the Loans in the Pooling and Servicing Agreement, but its assignment
of the Loans to the Trustee will be without recourse and the Depositor's
obligations relating to the Loans will be limited to the representations and
warranties made by it and to its servicing obligations, if any, under the
Pooling and Servicing Agreement. The Servicer is required to make certain
advances of its own funds in respect of the Loans to the limited extent set
forth under 'Servicing of the Loans -- Advances' in the prospectus and
'Description of the Certificates -- Advances' in this prospectus supplement.
All of the Loans will have principal and interest payable on the first day
of each month, which day is called the due date. The latest original scheduled
maturity date of any Loan will be November 1, 2029. Each of the Loans will have
original terms to maturity of thirty (30) years. At origination, based upon the
lower of the purchase price paid for or the appraisal of the mortgaged property
securing each Loan had approximate loan-to-value ratios as described in the
table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Percentage of Loans
Approximate Loan-to-Value Ratio by Principal Balance
- ------------------------------------------------------------------------
<S> <C>
Less than or equal to 80% 81.76%
Greater than 80%, but less than or equal to 95% 18.24%
Greater than 95% 0.00%
- ------------------------------------------------------------------------
</TABLE>
The scheduled principal balance of a Loan as of any distribution date is
the unpaid principal balance of such Loan as specified in the amortization
schedule at the time relating thereto (before any adjustment to such schedule by
reason of bankruptcy or similar proceeding or any moratorium or similar waiver
or grace period) as of the first day of the month preceding the month of such
distribution date, after giving effect to any previously applied partial
principal prepayments, the payment of principal due on such first day of the
month and any reduction of the principal balance of such Loan by a bankruptcy
court, irrespective of any delinquency in payment by the related mortgagor.
All of the Loans having loan-to-value ratios greater than 80% at
origination are covered by primary mortgage insurance policies. No Loan permits
negative amortization or the deferral of accrued interest, and none of the Loans
are secured by a leasehold interest in the mortgaged property.
ADDITIONAL INFORMATION
Appendix D, attached hereto, sets forth in tabular format certain
information, as of the Cut-Off Date, with respect to the Loans.
Each mortgagor must maintain a standardized hazard insurance policy in an
amount equal to the maximum insurable value of the improvements securing such
Loan or the
S-23
<PAGE>
principal balance of such Loan, whichever is less. See 'Servicing of the
Loans -- Hazard Insurance' in the prospectus. No mortgage pool insurance policy,
special hazard insurance policy or mortgagor bankruptcy insurance will be
maintained with respect to the Mortgage Pool, nor will any Loan be insured by
the FHA or guaranteed by the VA.
The description in this prospectus supplement of the Mortgage Pool and the
mortgaged properties is based upon the Mortgage Pool, as presently constituted.
Prior to the issuance of the certificates, the Depositor may add or remove Loans
from the Mortgage Pool if it deems such addition or removal necessary or
appropriate.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trustee will issue the certificates pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-Off Date among ABN AMRO Mortgage
Corporation, as Depositor, ABN AMRO Mortgage Group, Inc., as Servicer, and Chase
Bank of Texas, National Association, as Trustee, a form of which is filed as an
exhibit to the registration statement of which this prospectus supplement is a
part. Reference is made to the prospectus for important additional information
regarding the terms and conditions of the Pooling and Servicing Agreement and
the certificates. It is a condition to the issuance of the offered certificates
that they receive the ratings from one or more of Standard & Poor's, a division
of the McGraw Hill Companies, Inc. ('S&P') and Duff & Phelps Credit Rating Co.
('DCR') indicated under 'Certificate Ratings'. As of the date of their issuance,
the offered certificates, other than the Class B-1 and Class B-2 certificates,
will qualify as 'mortgage related securities' within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984.
The Servicer will be obligated to make advances with respect to delinquent
payments on the Loans as described under ' -- Advances'.
The certificates, other than the Class R certificate, will evidence all the
beneficial ownership in a trust called REMIC II established by the Depositor to
hold the regular interests of REMIC I into which the mortgage loans will be
deposited.
Only the Senior certificates and Senior Subordinate certificates are
offered hereby. The Junior Subordinate certificates are not offered hereby. The
class principal balance for any class of certificates (other than the Interest
Only certificates) or component principal balance for any component of the
Class A-9 certificates (other than the Interest Only components) will equal the
aggregate amount of principal to which such class or component is entitled,
after giving effect to prior (1) distributions of principal to such class or
component, (2) adjustments for accrued interest added to principal on the
Accrual certificates and Accrual component and (3) allocations of losses
required to be borne by such class or component. Notwithstanding the foregoing,
the class principal balance of the most subordinate class of certificates
outstanding at any time is equal to the aggregate principal balance of all of
the Loans less the class principal balance of all other classes of certificates
senior to such certificates. As used in this prospectus supplement, the
principal
S-24
<PAGE>
balance of a class means the class principal balance thereof and the component
principal balance of a component means the component principal balance thereof.
The certificate principal balance for any certificate will be the portion
of the corresponding class principal balance represented by such certificate.
The aggregate initial certificate principal balance will be approximately equal
to the aggregate principal balance of the Loans as of the Cut-Off Date. The
offered certificates (other than the Interest Only certificates and the Class R
certificate) are offered in minimum denominations equivalent to at least $25,000
initial certificate principal balance each and multiples of $1 in excess
thereof. The Interest Only certificates are offered in minimum denominations
equivalent to not less than $100,000 initial notional principal balance and
integral multiples of $1 in excess thereof. The Class R certificate will be
offered in registered, certificated form in a single denomination of a 100%
percentage interest. Holders of the Class A-9 certificates may not transfer the
components thereof separately.
BOOK-ENTRY REGISTRATION
A global certificate registered in the name of the nominee of The
Depository Trust Company, or DTC, will initially represent each class of
Book-Entry certificates. DTC has advised the Depositor that DTC's nominee will
be Cede & Co. ('CEDE'). Accordingly, Cede is expected to be the holder of record
of the Book-Entry certificates. Unless the events described in ' -- Definitive
Certificates' have occurred, the Trustee will not issue the certificates in
fully registered, certificated form as 'DEFINITIVE CERTIFICATES.'
Unless and until the Trustee issues Definitive Certificates, all references
in this prospectus supplement to actions by Book-Entry certificateholders shall
refer to actions taken by DTC upon instructions from DTC participants. Further,
all references in this prospectus supplement to distributions, notices, reports,
and statements to Book-Entry certificateholders shall refer to distributions,
notices, reports, and statements to Cede, as the registered holder of the
certificates, for distribution to Book-Entry certificateholders in accordance
with DTC procedures.
Unless the Trustee issues Definitive Certificates, certificateholders will
receive all distributions of principal and interest on the Book-Entry
certificates through DTC participants. Under a book-entry format,
certificateholders will receive payments after the related distribution date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each distribution date, DTC will forward such payments to DTC
participants which thereafter will be required to forward them to indirect DTC
participants or certificateholders. It is anticipated that the sole
'Certificateholder' (as such term is used in the Pooling and Servicing
Agreement) for each class of Book-Entry certificates will be Cede, as nominee of
DTC, and that Book-Entry certificateholders will not be recognized by the
Trustee as certificateholders under the Pooling and Servicing Agreement. Book-
Entry certificateholders will be permitted to exercise the rights of
certificateholders under the Pooling and Servicing Agreement only indirectly
through DTC participants, who in turn will exercise their rights through DTC.
S-25
<PAGE>
DEFINITIVE CERTIFICATES
The Trustee will issue the Book-Entry certificates as Definitive
Certificates to certificateholders or their nominees, rather than to DTC or its
nominee, only if (1) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to the Book-Entry certificates and the Trustee or the Depositor is
unable to locate a qualified successor, (2) the Depositor, at its option, elects
to terminate the book-entry system through DTC or (3) after the occurrence of an
event of default, Book-Entry certificateholders evidencing not less than 66% of
the aggregate outstanding certificate principal balance advise the Trustee and
DTC through DTC participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interest of
the certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all DTC participants
of the availability of Definitive Certificates. Upon surrender by DTC of the
global certificates and receipt from DTC of instructions for re-registration,
the Trustee will issue the Book-Entry certificates in the form of Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as certificateholders under the Pooling and Servicing
Agreement.
The Trustee (or its duly appointed paying agent, if any) will distribute
principal and interest on the Definitive Certificates, as well as the other
classes of certificates, directly to holders of such certificates in accordance
with the procedures set forth in this prospectus supplement and in the Pooling
and Servicing Agreement. The Trustee will distribute principal and interest on
each distribution date to holders in whose names such certificates were
registered at the close of business on the last business day of the month
preceding the month of such distribution date. The Trustee will make
distributions by wire transfer in immediately available funds for the account of
each such holder or, if a holder has not provided wire instructions, by check
mailed to the address of such holder as it appears on the register maintained by
the certificate registrar. The Trustee will make the final payment on any
certificate (whether a Definitive Certificate or the global certificates
registered in the name of Cede) only upon presentation and surrender of such
certificate at its offices or its agent's office or such office or agency as is
specified in the notice of final distribution to holders of certificates being
retired. The Trustee will provide such notice to registered certificateholders
not later than the fifteenth day of the month in which all remaining outstanding
certificates will be retired.
Definitive Certificates, as well as the Class R certificate, will be
transferable and exchangeable at the offices of the Trustee or its agent. The
Trustee may impose a reasonable service charge for any registration of transfer
or exchange, and the Trustee or such agent may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
S-26
<PAGE>
TRANSFER RESTRICTIONS
The Class A-12 certificates, Senior Subordinate certificates and the
Class R certificate are subject to transfer restrictions described in this
prospectus supplement under 'ERISA Considerations -- Restrictions on the
Class A-12 certificates, Senior Subordinate Certificates and Class R
Certificate'. The Class R certificate is subject to further transfer
restrictions described in the prospectus under 'Federal Income Tax
Consequences -- Qualification as a REMIC -- Taxation of Owners of Residual
Certificates'.
AVAILABLE DISTRIBUTION AMOUNT
The Available Distribution Amount for any distribution date will generally
include scheduled principal and interest payments due on the related due date
(whether paid by the mortgagor or advanced by the Servicer), partial principal
prepayments received in the previous calendar month (as set forth below),
prepayments in full received in the applicable Prepayment Period to the extent
set forth below and amounts received with respect to liquidations of Loans in
the previous calendar month, and will be distributed on each distribution date
by or on behalf of the Trustee to the certificateholders, as specified in this
prospectus supplement.
The 'DUE DATE' related to each distribution date is the first day of the
month in which such distribution date occurs. The 'DETERMINATION DATE' is a day
not later than the 10th day preceding the related distribution date in the month
in which such distribution date occurs.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any distribution date, as more
fully described in the Pooling and Servicing Agreement, will equal the sum of
the following amounts:
(1) the total amount of all cash received by or on behalf of the
Servicer with respect to such Loans by the Determination Date for
such distribution date and not previously distributed (including
Liquidation Proceeds), except:
all scheduled payments of principal and interest collected but
due on a date after the related Due Date;
all partial principal prepayments received after the previous
calendar month, together with any interest payment received with
the prepayments to the extent that it represents the payment of
interest accrued on the Loans for the period after the previous
calendar month;
all prepayments in full received after the previous calendar
month (together with any interest payment received with such
prepayments in full to the extent that it represents the payment
of interest accrued on the Loans for the period after the
previous calendar month);
Liquidation Proceeds and insurance proceeds received on the Loans
after the previous calendar month;
S-27
<PAGE>
all amounts in the custodial account for principal and interest
which are due and reimbursable to the Servicer pursuant to the
terms of the Pooling and Servicing Agreement;
the servicing fee for each Loan; and
the excess, if any, of aggregate Liquidation Proceeds on such
Loans received during the previous calendar month over the amount
that would have been received if prepayments in full had been
made on these Loans on the date the Liquidation Proceeds were
received ('EXCESS LIQUIDATION PROCEEDS');
(2) all advances made by the Servicer to the Trustee on that
distribution date;
(3) any amounts payable as 'COMPENSATING INTEREST' by the Servicer on
that distribution date which will be equal to the lesser of:
any shortfall for the related month of interest collections
resulting from the timing of prepayments in full on the related
Loans made during the related Prepayment Period; and
the sum of (a) one-twelfth of 0.125% of the aggregate outstanding
principal balance of each Loan on such distribution date,
(b) any reinvestment income realized by the Servicer during the
related Prepayment Period relating to prepayments in full on the
related Loans made during the related Prepayment Period and
(c) interest payments on such prepayments in full received during
the related Prepayment Period; and
(4) the total amount of any cash received by the Trustee or the Servicer
in respect of the obligation of the Depositor or the Seller to
repurchase any Loans.
ADVANCES
With respect to each Loan, the Servicer will make advances to the
Certificate Account on the day before each distribution date to cover any
shortfall between (1) payments of principal and interest scheduled to be
received with respect to such Loan and (2) the amounts actually deposited in the
Certificate Account on account of such payments; provided, that the Servicer
determines on such distribution date, in good faith, that such advances will be
recoverable from insurance proceeds, Liquidation Proceeds or other amounts it
expects to receive with respect to that Loan. Advances are reimbursable to the
Servicer from cash in the Certificate Account before payments to the
certificateholders if the Servicer determines that such advances will not be
recoverable from insurance proceeds, Liquidation Proceeds or other amounts
recoverable and so notifies the Trustee.
GLOSSARY OF DEFINITIONS RELATING TO THE PRIORITY OF DISTRIBUTIONS
Certain definitions are necessary to understand the priority of interest
and principal distributions to the certificates. These terms are defined below
and highlighted within the various definitions:
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<PAGE>
'BANKRUPTCY COVERAGE' is expected to equal approximately $125,374 as of the
Cut-Off Date. BANKRUPTCY COVERAGE will be reduced, from time to time, by the
amount of BANKRUPTCY LOSSES allocated to the certificates.
'BANKRUPTCY LOSSES' means any DEBT SERVICE REDUCTION or DEFICIENT VALUATIONS.
'CLASS A-6 INTEREST RATE' with respect to the initial INTEREST ACCRUAL PERIOD is
2.10% per annum, and as to any INTEREST ACCRUAL PERIOD thereafter, will be a per
annum rate equal to 7.50% minus LIBOR (subject to a maximum rate of 7.50% per
annum and a minimum rate of 0.00% per annum).
'CLASS A-6 NOTIONAL AMOUNT' will initially be approximately $20,000,000 and with
respect to any distribution date will be equal to the certificate principal
balance of the Class A-7 certificates.
'CLASS A-7 INTEREST RATE' with respect to the initial INTEREST ACCRUAL PERIOD is
6.00% per annum, and as to any INTEREST ACCRUAL PERIOD thereafter, will be a per
annum rate equal to LIBOR plus 0.60% (subject to a maximum rate of 9.00% per
annum and a minimum rate of 0.60% per annum).
'CLASS A-8 INTEREST RATE' with respect to the initial INTEREST ACCRUAL PERIOD is
9.00% per annum, and as to any INTEREST ACCRUAL PERIOD thereafter, will be a per
annum rate equal to 84.00% minus the product of LIBOR and 10 (subject to a
maximum rate of 9.00% per annum and a minimum rate of 0.00% per annum).
'CLASS A-13 INTEREST RATE' with respect to the initial INTEREST ACCRUAL PERIOD
is 5.80% per annum, and as to any INTEREST ACCRUAL PERIOD thereafter, will be a
per annum rate equal to LIBOR plus 0.40% (subject to a maximum rate of 9.00% per
annum and a minimum rate of 0.40% per annum).
'CLASS A-14 INTEREST RATE' with respect to the initial INTEREST ACCRUAL PERIOD
is 3.20% per annum, and as to any INTEREST ACCRUAL PERIOD thereafter, will be a
per annum rate equal to 8.60% minus LIBOR (subject to a maximum rate of 8.60%
per annum and a minimum rate of 0.00% per annum).
'CLASS A-14 NOTIONAL AMOUNT' will initially be approximately $12,184,676 and
with respect to any distribution date will be equal to the certificate principal
balance of the Class A-13 certificates.
'CLASS A-X NOTIONAL AMOUNT' will initially be approximately $2,929,194 and with
respect to any distribution date will equal the total principal balance, as of
the first day of the month of such distribution date, of the Premium Loans
multiplied by the following fraction:
the weighted average of the PASS-THROUGH RATES of the
PREMIUM LOANS as of the first day of such month minus 7.75%
7.75%
'COMPONENT A-9-2 NOTIONAL AMOUNT' will initially be approximately $9,301,548 and
with respect to any distribution date, will be equal to the sum of:
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<PAGE>
3/31sts of the certificate principal balance of
the Class A-1 certificates
+
2/31sts of the certificate principal balance of
the Class A-2 certificates
+
8/155ths of the certificate principal balance
of the Class A-3 certificates
'COMPONENT A-9-3 NOTIONAL AMOUNT' will initially be approximately $4,700,000 and
with respect to any distribution date, will be equal to the sum of:
8/155ths of the certificate principal balance
of the Class A-4 certificates
+
7/155ths of the sum of the certificate
principal balances of the Class A-5,
Class A-7, Class A-8, Class A-13
and Class A-15 certificates
'CREDIT SUPPORT DEPLETION DATE' is the first distribution date on which the
class principal balances of all of the Subordinate certificates have been or
will be reduced to zero.
'DEBT SERVICE REDUCTION' means any reduction of the amount of the monthly
payment on the related Loan made by a bankruptcy court in connection with a
personal bankruptcy of a mortgagor.
'DEFICIENT VALUATION' means in connection with a personal bankruptcy of a
mortgagor, the positive difference, if any, resulting from the outstanding
principal balance on a Loan less a bankruptcy court's valuation of the related
mortgaged property.
'DISCOUNT FRACTION' with respect to a DISCOUNT LOAN means the following
fraction:
7.75% minus the PASS-THROUGH RATE on such DISCOUNT LOAN
7.75%.
'DISCOUNT FRACTIONAL PRINCIPAL AMOUNT' means the DISCOUNT FRACTION of the
principal received with respect to a DISCOUNT LOAN.
'DISCOUNT FRACTIONAL PRINCIPAL SHORTFALL' means an amount generally equal to the
sum of:
(1) the DISCOUNT FRACTION of any loss on a DISCOUNT LOAN other than a
Special Hazard Loss in excess of the Special Hazard Coverage, a
Fraud Loss in excess of the Fraud Coverage or a Bankruptcy Loss in
excess of the Bankruptcy Coverage as described in ' -- Subordination
and Allocation of Losses'; and
(2) the sum of amounts, if any, by which the foregoing amount on each
prior distribution date exceeded the amount actually distributed in
respect thereof on such prior distribution dates and not
subsequently distributed; provided, however,
S-30
<PAGE>
that such payments in respect of losses shall not cause a further
reduction of the outstanding Class A-P class principal balance or
Component A-9-4 component principal balance.
'DISCOUNT LOAN' means any Loan with a PASS-THROUGH RATE of less than 7.75% per
annum.
'FRAUD COVERAGE' is expected to equal approximately $5,941,696 as of the Cut-Off
Date. As of any date of determination after the Cut-Off Date, the FRAUD COVERAGE
will generally be equal to:
(1) before the first anniversary of the Cut-Off Date, an amount equal
to:
(a) 2.00% of the aggregate principal balance of all Loans as of
the Cut-Off Date, minus
(b) the aggregate amounts allocated to the certificates with
respect to FRAUD LOSSES on the Loans up to such date of
determination; and
(2) from the first to the fifth anniversary of the Cut-Off Date, an
amount equal to:
(a) 1.00% of the aggregate principal of all of the Loans as of
the most recent anniversary of the Cut-Off Date, minus
(b) the aggregate amounts allocated to the certificates with
respect to FRAUD LOSSES on the Loans since the most recent
anniversary of the Cut-Off Date up to such date of
determination.
(3) On and after the fifth anniversary of the Cut-Off Date, the FRAUD
COVERAGE will be zero.
'FRAUD LOSSES' are losses on Loans arising from fraud, dishonesty or
misrepresentation of the mortgagor in the origination of such Loans.
'INTEREST ACCRUAL PERIOD' for all classes of certificates (other than the
Class A-6, Class A-7, Class A-8, Class A-13 and Class A-14 certificates) is the
calendar month preceding the month in which the distribution date occurs. The
INTEREST ACCRUAL PERIOD for the Class A-6, Class A-7, Class A-8, Class A-13 and
Class A-14 certificates for the initial distribution date is the period from the
Closing Date through the 24th day of December, and for each distribution date
thereafter is the period from the 25th day of the month before the month in
which a distribution date occurs through the 24th day of the month in which that
distribution date occurs.
'LIBOR' means, for any INTEREST ACCRUAL PERIOD, the one month rate which appears
on the Dow Jones Telerate System, page 3750, as of 11:00 a.m., London time on
the LIBOR DETERMINATION DATE. If such rate is not provided, LIBOR shall mean the
rate determined in accordance with the following procedure:
(i) The Trustee on the LIBOR DETERMINATION DATE will request the
principal London offices of each of four major reference banks in
the London interbank market, as selected by the Trustee, to provide
the Trustee with its offered quotation for deposits in United
States dollars for the upcoming one-month period, commencing on the
second LIBOR BUSINESS DAY immediately
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<PAGE>
following such LIBOR DETERMINATION DATE, to prime banks in the
London interbank market at approximately 11:00 a.m. London time on
such LIBOR DETERMINATION DATE and in a principal amount that is
representative for a single transaction in United States dollars in
such market at such time. If at least two such quotations are
provided, LIBOR determined on such LIBOR DETERMINATION DATE will be
the arithmetic mean of such quotations.
(ii) If fewer than two quotations are provided, LIBOR determined on such
LIBOR DETERMINATION DATE will be the arithmetic mean of the rates
quoted at approximately 11:00 a.m. in New York City on such LIBOR
DETERMINATION DATE by three major banks in New York City selected
by the Trustee for one-month United States dollar loans to lending
European banks, in a principal amount that is representative for a
single transaction in United States dollars in such market at such
time; provided, however, that if the banks so selected by the
Trustee are not quoting as mentioned in this sentence, LIBOR
determined on such LIBOR DETERMINATION DATE will continue to be
LIBOR as then currently in effect on such LIBOR DETERMINATION DATE.
'LIBOR BUSINESS DAY' means any day on which dealings in United States dollars
are transacted in the London interbank market.
'LIBOR DETERMINATION DATE' means the second LIBOR BUSINESS DAY before the first
day of the related INTEREST ACCRUAL PERIOD.
'LIQUIDATED LOAN' is a Loan as to which the Servicer has determined that all
amounts which it expects to recover from or on account of such Loan, whether
from insurance proceeds, LIQUIDATION PROCEEDS or otherwise, have been recovered.
'LIQUIDATION PRINCIPAL' is the principal portion of LIQUIDATION PROCEEDS
received with respect to each Loan which became a LIQUIDATED LOAN (but not in
excess of the principal balance thereof) during the calendar month preceding the
month of the distribution date, exclusive of the portion thereof attributable to
the DISCOUNT FRACTIONAL PRINCIPAL AMOUNT, if any.
'LIQUIDATION PROCEEDS' are amounts received by the Servicer in connection with
the liquidation of a defaulted Loan whether through foreclosure or otherwise,
other than proceeds of insurance policies.
'PASS-THROUGH RATE' for each Loan is equal to the mortgage interest rate thereon
less 0.25% (which is the rate at which the related servicing fee is calculated).
'PREMIUM LOAN' means any Loan with a PASS-THROUGH RATE in excess of 7.75% per
annum.
'PREPAYMENT PERIOD' means with respect to each distribution date and each
partial principal prepayment or payoff on any Loan, the calendar month preceding
the month in which the related distribution date occurs.
'PRINCIPAL PAYMENT AMOUNT' is the sum, for any distribution date, of:
(1) scheduled principal payments on the Loans due on the related due
date;
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<PAGE>
(2) the principal portion of repurchase proceeds received with respect
to any Loan which was repurchased as permitted or required by the
Pooling and Servicing Agreement during the calendar month preceding
the month of the distribution date; and
(3) any other unscheduled payments of principal which were received on
the Loans during the preceding calendar month, other than
prepayments in full, partial principal prepayments or LIQUIDATION
PRINCIPAL.
'PRINCIPAL PREPAYMENT AMOUNT' for any distribution date is the sum of all
partial principal prepayments and all prepayments in full which were received
during the applicable PREPAYMENT PERIOD.
'PRO RATA ALLOCATION' means allocating the principal portion of certain losses
relating to a Loan to the Senior certificates (other than the Class A-P
certificates and Principal Only component and Interest Only certificates and
Interest Only components) and/or to the Subordinate certificates, as applicable,
pro rata according to their outstanding certificate principal balances or
component principal balances in the case of the Class A-9 certificates or, in
the case of the Accrual certificates or Accrual component, the certificate
principal balance of that certificate or component principal balance of that
Accrual component on the Closing Date, if lower (except (1) if the loss is
recognized with respect to a DISCOUNT LOAN, in which event 67.7094535761% of the
DISCOUNT FRACTION of such loss will first be allocated to the Class A-P
certificates and 32.2905464239% of the DISCOUNT FRACTION of such loss will first
be allocated to Component A-9-4 of the Class A-9 certificates, and the remainder
of such loss will be allocated as described above in this definition without
regard to this parenthetical and (2) all losses allocable to the Class A-9
certificates (other than losses allocable to Component A-9-4 of the Class A-9
certificates which will be reimbursed as described herein) will be allocated to
the Class A-12 certificates until the Class A-12 principal balance has been
reduced to zero) in reduction thereof, and the allocation of the interest
portion of such losses to such certificates or components, as applicable, pro
rata according to the amount of interest accrued but unpaid on each such class
or component in reduction thereof and then pro rata according to their
outstanding certificate or component principal balances or, in the case of the
Accrual certificates or component, the certificate principal balance of that
Accrual certificate or component principal balance of that Accrual component on
the Closing Date, if lower (except all losses attributable to interest allocable
to the Class A-9 certificates will be allocated to the Class A-12 certificates
until the principal balance thereof has been reduced to zero), in reduction
thereof.
'SENIOR LIQUIDATION AMOUNT' is the aggregate, for each Loan which became a
LIQUIDATED LOAN during the calendar month preceding the month of the
distribution date, of the lesser of:
(1) the SENIOR PERCENTAGE of the principal balance of such Loan
(exclusive of the DISCOUNT FRACTION thereof, if applicable); and
(2) the SENIOR PREPAYMENT PERCENTAGE of the LIQUIDATION PRINCIPAL with
respect to such Loan.
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<PAGE>
'SENIOR PERCENTAGE' as of the Closing Date will be approximately 95.35% and for
any distribution date will equal the sum of the class principal balances of the
Senior certificates immediately preceding such distribution date (other than the
Principal Only certificates and Principal Only component) divided by the
aggregate scheduled principal balance of all Loans immediately preceding such
distribution date (exclusive of the DISCOUNT FRACTION of the DISCOUNT LOANS).
'SENIOR PREPAYMENT PERCENTAGE' is subject to certain conditions specified in the
Pooling and Servicing Agreement. It will generally be equal to the percentage
amount set forth in the table below, except that on any distribution date where
the SENIOR PERCENTAGE exceeds the initial SENIOR PERCENTAGE, then the SENIOR
PREPAYMENT PERCENTAGE for such distribution date will equal 100%.
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN SENIOR PREPAYMENT PERCENTAGE
<S> <C>
December 1999 through November 2004....... 100%
December 2004 through November 2005....... SENIOR PERCENTAGE + 70% of the SUBORDINATE PERCENTAGE
December 2005 through November 2006....... SENIOR PERCENTAGE + 60% of the SUBORDINATE PERCENTAGE
December 2006 through November 2007....... SENIOR PERCENTAGE + 40% of the SUBORDINATE PERCENTAGE
December 2007 through November 2008....... SENIOR PERCENTAGE + 20% of the SUBORDINATE PERCENTAGE
December 2008 and thereafter.............. SENIOR PERCENTAGE
</TABLE>
'SENIOR PRINCIPAL AMOUNT' for any distribution date will equal the sum of:
(1) the SENIOR PERCENTAGE of the PRINCIPAL PAYMENT AMOUNT (exclusive of
the portion thereof attributable to the DISCOUNT FRACTIONAL
PRINCIPAL AMOUNT);
(2) the SENIOR PREPAYMENT PERCENTAGE of the PRINCIPAL PREPAYMENT AMOUNT
(exclusive of the portion thereof attributable to the DISCOUNT
FRACTIONAL PRINCIPAL AMOUNT); and
(3) the SENIOR LIQUIDATION AMOUNT.
'SPECIAL HAZARD COVERAGE' is expected to equal approximately $2,970,848 as of
the Cut-Off Date. On each anniversary of the Cut-Off Date, the SPECIAL HAZARD
COVERAGE will be reduced, but not increased, to an amount equal to the lesser
of:
(1) the greatest of:
(a) the aggregate principal balance of the Loans located in the
single California zip code area containing the largest
aggregate principal balance of such Loans;
(b) 1.0% of the aggregate unpaid principal balance of the Loans;
and
(c) twice the unpaid principal balance of the largest single
Loan, in each case calculated as of the due date in the
immediately preceding month; and
(2) the SPECIAL HAZARD COVERAGE as of the Cut-Off Date as reduced by the
SPECIAL HAZARD LOSSES allocated to the certificates since the
Cut-Off Date.
'SPECIAL HAZARD LOSSES' are losses relating to Loans that become liquidated and
have been the subject of certain hazards (including earthquakes, tidal waves and
related water damage) not insured against under any applicable insurance policy.
Special Hazard Losses do not include losses occasioned by war, civil
insurrection, certain government actions,
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<PAGE>
errors in design, faulty workmanship or materials (except under certain
circumstances, nuclear reaction, chemical contamination or waste by the
mortgagor).
'SUBORDINATE LIQUIDATION AMOUNT' will equal the excess, if any, of the aggregate
LIQUIDATION PRINCIPAL for all Loans which became LIQUIDATED LOANS during the
calendar month preceding the month of the distribution date, minus the SENIOR
LIQUIDATION AMOUNT for such distribution date.
'SUBORDINATE PERCENTAGE' is equal to 100% minus the SENIOR PERCENTAGE.
Initially, the SUBORDINATE PERCENTAGE will be approximately 4.65%.
'SUBORDINATE PREPAYMENT PERCENTAGE' on any distribution date will equal the
excess of 100% over the SENIOR PREPAYMENT PERCENTAGE. Initially the SUBORDINATE
PREPAYMENT PERCENTAGE will be 0%.
'SUBORDINATE PRINCIPAL AMOUNT' for any distribution date will be equal to the
sum of:
(1) the SUBORDINATE PERCENTAGE of the PRINCIPAL PAYMENT AMOUNT
(exclusive of the portion thereof attributable to the DISCOUNT
FRACTIONAL PRINCIPAL AMOUNT);
(2) the SUBORDINATE PRINCIPAL PREPAYMENT AMOUNT; and
(3) the SUBORDINATE LIQUIDATION AMOUNT;
provided, however, that the SUBORDINATE PRINCIPAL AMOUNT shall be reduced by the
amounts required to be distributed to the Principal Only certificates and
Principal Only component with respect to the DISCOUNT FRACTIONAL PRINCIPAL
SHORTFALL on such distribution date. Any reduction in the SUBORDINATE PRINCIPAL
AMOUNT pursuant to the provision above shall offset the amount calculated
pursuant to first clause (1), second clause (3) and then clause (2), in each
case of the definition thereof.
'SUBORDINATE PRINCIPAL PREPAYMENT AMOUNT' as of any distribution date is the
SUBORDINATE PREPAYMENT PERCENTAGE of the PRINCIPAL PREPAYMENT AMOUNT (exclusive
of the portion thereof attributable to the DISCOUNT FRACTIONAL PRINCIPAL
AMOUNT).
'SUBORDINATION LEVEL' on any specified date with respect to any class of
Subordinate certificates is the percentage obtained by dividing:
(1) the sum of the class principal balances of all classes of
certificates which are subordinate in right of payment to such class
as of such date before giving effect to distributions or allocations
of Realized Losses on the Loans on such date; by
(2) the sum of the class principal balances of all classes of
certificates as of such date before giving effect to distributions
or allocations of Realized Losses on the Loans on such date.
PRIORITY OF DISTRIBUTIONS
Commencing in December 1999, the Trustee will make distributions to
certificateholders on each distribution date which will be the 25th day of each
month, or if such 25th day is not a business day on the immediately succeeding
business day. Before
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<PAGE>
the Credit Support Depletion Date, the Trustee will make such distributions to
certificateholders in the following order and priority:
(1) first, the Discount Fractional Principal Amount, to the Class A-P
certificates and Component A-9-4 of the Class A-9 certificates,
concurrently, as follows:
(a) 32.2905464239% to Component A-9-4 of the Class A-9
certificates;
(b) 67.7094535761% to the Class A-P certificates;
(2) second, interest to the Senior certificates entitled to receive
accrued and unpaid interest; provided, however, that the aggregate
amount of interest accrued on the Accrual certificates and Accrual
component shall be payable as principal to the following classes and
components of certificates in the following order of priority:
(a) first, to the Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 certificates, concurrently, as
follows:
(i) 24.8756218905% to the Class A-4 certificates, to the
extent necessary to reduce the aggregate principal
balances of the Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 Class A-15 certificates to
their aggregate Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 first aggregate
targeted principal balance as set forth on Appendix
B hereto;
(ii) 75.1243781095% to the Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 certificates,
as follows:
(A) first, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, to the extent
necessary to reduce the aggregate principal
balances of the Class A-5 and Class A-13
certificates to their aggregate Class A-5 and
Class A-13 targeted principal balance as set
forth on Appendix B hereto;
(B) second, to the Class A-7, Class A-8 and
Class A-15 certificates, pro rata, according
to their outstanding principal balances, to
the extent necessary to reduce the aggregate
principal balances of the Class A-4,
Class A-5, Class A-7, Class A-8, Class A-13
and Class A-15 certificates to their
aggregate Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 first
targeted principal balance as set forth on
Appendix B hereto;
(C) third, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, to the extent
necessary to reduce the aggregate principal
balances of the Class A-4, Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates to their aggregate
Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and
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<PAGE>
Class A-15 first aggregate targeted principal
balance as set forth on Appendix B hereto;
(b) second, to Component A-9-5 of the Class A-9 certificates, to
the extent necessary to reduce its principal balance to its
Component A-9-5 first targeted principal balance as set forth
on Appendix B hereto;
(c) third, to the Class A-10 and Class A-11 certificates,
sequentially, until their principal balances have been
reduced to zero;
(d) fourth, to the Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 certificates, concurrently, as
follows:
(i) 24.8756218905% to the Class A-4 certificates, to the
extent necessary to reduce the aggregate principal
balances of the Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 certificates to
their aggregate Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 second
aggregate targeted principal balance as set forth on
Appendix B hereto;
(ii) 75.1243781095% to the Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 certificates,
as follows:
(A) first, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, to the extent
necessary to reduce the aggregate principal
balances of the Class A-5 and Class A-13
certificates to their aggregate Class A-5 and
Class A-13 targeted principal balance as set
forth on Appendix B hereto;
(B) second, to the Class A-7, Class A-8 and
Class A-15 certificates, pro rata, according
to their outstanding principal balances, to
the extent necessary to reduce the aggregate
principal balances of the Class A-4,
Class A-5, Class A-7, Class A-8, Class A-13
and Class A-15 certificates to their
aggregate Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 second
aggregate targeted principal balance as set
forth on Appendix B hereto;
(C) third, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, to the extent
necessary to reduce the aggregate principal
balances of the Class A-4, Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates to their aggregate
Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 second aggregate
targeted principal balance as set forth on
Appendix B hereto;
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<PAGE>
(e) fifth, to Component A-9-5 of the Class A-9 certificates, to
the extent necessary to reduce its principal balance to its
Component A-9-5 second targeted principal balance as set
forth on Appendix B hereto;
(f) sixth, to the Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 certificates, concurrently, as
follows:
(i) 24.8756218905% to the Class A-4 certificates,
without regard to the first or second aggregate
targeted principal balances of the Class A-4,
Class A-5, Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, until its principal balance
has been reduced to zero;
(ii) 75.1243781095% to the Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15 certificates,
as follows:
(A) first, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, to the extent
necessary to reduce the aggregate principal
balances of the Class A-5 and Class A-13
certificates to their aggregate Class A-5 and
Class A-13 targeted principal balance as set
forth on Appendix B hereto;
(B) second, to the Class A-7, Class A-8 and
Class A-15 certificates, pro rata, according
to their outstanding principal balances,
without regard to the first or second
aggregate targeted principal balances of the
Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 certificates, until
their principal balances have been reduced to
zero;
(C) third, to the Class A-5 and Class A-13
certificates, pro rata, according to their
outstanding principal balances, without
regard to the aggregate targeted principal
balance of the Class A-5 and Class A-13
certificates, until their principal balances
have been reduced to zero;
(g) seventh, to Component A-9-5 of the Class A-9 certificates,
without regard to its first or second targeted principal
balances, until its principal balance has been reduced to
zero;
(3) third, to the Senior certificates and Senior components then
entitled to principal (other than the Class A-P certificates and
Component A-9-4 of the Class A-9 certificates), an amount, up to the
Senior Principal Amount for such distribution date, as follows:
(a) first, to the Class R certificate, until its certificate
principal balance has been reduced to zero;
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<PAGE>
(b) second, to the Class A certificates (other than the
Class A-P certificates and Component A-9-4 of the Class A-9
certificates) concurrently as follows:
(i) 0.8381954745% to the Class A-12 certificates, until
its principal balance has been reduced to zero;
(ii) 99.1618045255% sequentially as follows:
(A) first, to the Class A-1 certificates,
Class A-2 certificates, Class A-3
certificates and Component A-9-1 of the
Class A-9 certificates, sequentially, to the
extent necessary to reduce their principal
balances to their aggregate Class A-1,
Class A-2, Class A-3 and Component A-9-1
planned principal balance as set forth on
Appendix A hereto;
(B) second, to the Class A-4, Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, concurrently, as
follows:
1. 24.8756218905% to the Class A-4
certificates, to the extent necessary
to reduce the aggregate principal
balances of the Class A-4,
Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their aggregate
Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15
first aggregate targeted principal
balance as set forth on Appendix B
hereto;
2. 75.1243781095% to the Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, as follows:
a. first, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, to the extent
necessary to reduce the
aggregate principal balances
of the Class A-5 and
Class A-13 certificates to
their aggregate Class A-5 and
Class A-13 targeted principal
balance as set forth on
Appendix B hereto;
b. second, to the Class A-7,
Class A-8 and Class A-15
certificates, pro rata,
according to their outstanding
principal balances, to the
extent necessary to reduce the
aggregate principal balances
of the Class A-4, Class A-5,
Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their
aggregate Class A-4,
Class A-5, Class A-7,
Class A-8, Class A-13 and
Class A-15
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<PAGE>
first aggregate targeted
principal balance as set forth
on Appendix B hereto;
c. third, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, to the extent
necessary to reduce the
aggregate principal balances
of the Class A-4, Class A-5,
Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their
aggregate Class A-4,
Class A-5, Class A-7,
Class A-8, Class A-13 and
Class A-15 first aggregate
targeted principal balance as
set forth on Appendix B
hereto;
(C) third, to Component A-9-5 of the Class A-9
certificates, to the extent necessary to
reduce its principal balance to its
Component A-9-5 first aggregate targeted
principal balance as set forth on Appendix B
hereto;
(D) fourth, to the Class A-10 and Class A-11
certificates, sequentially, until their
principal balances have been reduced to zero;
(E) fifth, to the Class A-4, Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, concurrently, as
follows:
1. 24.8756218905% to the Class A-4
certificates, to the extent necessary
to reduce the aggregate principal
balances of the Class A-4,
Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their aggregate
Class A-4, Class A-5, Class A-7,
Class A-8, Class A-13 and Class A-15
second aggregate targeted principal
balance as set forth on Appendix B
hereto;
2. 75.1243781095% to the Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, as follows:
a. first, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, to the extent
necessary to reduce the
aggregate principal balances
of the Class A-5 and
Class A-13 certificates to
their aggregate Class A-5 and
Class A-13 targeted principal
balance as set forth on
Appendix B hereto;
b. second, to the Class A-7,
Class A-8 and Class A-15
certificates, pro rata,
according to their outstanding
principal balances, to the
extent
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<PAGE>
necessary to reduce the
aggregate principal balances
of the Class A-4, Class A-5,
Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their
aggregate Class A-4,
Class A-5, Class A-7,
Class A-8, Class A-13 and
Class A-15 second aggregate
targeted principal balance as
set forth on Appendix B
hereto;
c. third, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, to the extent
necessary to reduce the
aggregate principal balances
of the Class A-4, Class A-5,
Class A-7, Class A-8,
Class A-13 and Class A-15
certificates to their
aggregate Class A-4,
Class A-5, Class A-7,
Class A-8, Class A-13 and
Class A-15 second aggregate
targeted principal balances as
set forth on Appendix B
hereto;
(F) sixth, to Component A-9-5 of the Class A-9
certificates, to the extent necessary to
reduce its principal balance to its
Component A-9-5 second targeted principal
balance as set forth on Appendix B hereto;
(G) seventh, to the Class A-4, Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, concurrently, as
follows:
1. 24.8756218905% to the Class A-4
certificates, without regard to the
first or second aggregate targeted
principal balances of the Class A-4,
Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15
certificates, until its principal
balance has been reduced to zero;
2. 75.1243781095% to the Class A-5,
Class A-7, Class A-8, Class A-13 and
Class A-15 certificates, as follows:
a. first, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, to the extent
necessary to reduce the
aggregate principal balances
of the Class A-5 and
Class A-13 Certificates to
their aggregate Class A-5 and
Class A-13 targeted principal
balance as set forth on
Appendix B hereto;
b. second, to the Class A-7,
Class A-8 and Class A-15
certificates, pro rata,
according to their outstanding
principal balances, without
regard to
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<PAGE>
their first or second
aggregate targeted principal
balances of the Class A-4,
Class A-5, Class A-7,
Class A-8, Class A-13 and
Class A-15 certificates, until
their principal balances have
been reduced to zero;
c. third, to the Class A-5 and
Class A-13 certificates, pro
rata, according to their
outstanding principal
balances, without regard to
the aggregate targeted
principal balance of the
Class A-5 and Class A-13
certificates, until their
principal balances have been
reduced to zero;
(H) eighth, to Component A-9-5 of the Class A-9
certificates, without regard to its first or
second targeted principal balances, until its
principal balance has been reduced to zero;
(I) ninth, to the Class A-1, Class A-2 and
Class A-3 certificates and Component A-9-1 of
the Class A-9 certificates, sequentially,
without regard to their aggregate planned
principal balance, until their principal
balances have been reduced to zero.
(4) fourth, the Discount Fractional Principal Shortfall to the
Class A-P certificates and Component A-9-4 of the Class A-9
certificates, but not more than an amount equal to the Subordinate
Principal Amount (without regard to the proviso of such definition),
concurrently, as follows:
(a) 32.2905464239% to Component A-9-4 of the Class A-9
certificates;
(b) 67.7094535761% to the Class A-P certificates;
(5) fifth, to the Class M, Class B-1, Class B-2, Class B-3, Class B-4
and Class B-5 certificates, in that order of seniority, their
respective amount of accrued and unpaid interest and their pro rata
share, according to their outstanding class principal balances, of
the Subordinate Principal Amount; provided, however, that on any
distribution date on which the Subordination Level for any class of
Subordinate certificates is less than the Subordination Level as of
the Closing Date, the portion of the Subordinate Principal
Prepayment Amount otherwise allocable to the class or classes of the
Subordinate certificates junior to such class will be allocated to
the most senior class of Subordinate certificates for which the
Subordination Level is less than such percentage as of the Closing
Date and to the class or classes of Subordinate certificates senior
thereto, pro rata according to the class principal balances of such
classes;
(6) sixth, to the Senior and Subordinate certificates, in the order of
their seniority, the amount of any unreimbursed losses previously
allocated to such certificates; and
S-42
<PAGE>
(7) seventh, to the Class R certificate, the remainder, if any, which is
expected to be zero, of the Available Distribution Amount.
On each distribution date on or after the Credit Support Depletion Date, to
the extent of the Available Distribution Amount on such distribution date,
distributions will be made to the Senior certificates or components in the
following order of priority:
(1) first, the Discount Fractional Principal Amount to the Class A-P
certificates and Component A-9-4 of the Class A-9 certificates,
concurrently, as follows:
(a) 32.2905464239% to Component A-9-4 of the Class A-9
certificates;
(b) 67.7094535761% to the Class A-P certificates;
(2) second, to the Senior certificates (including the Accrual
certificates and Accrual component) accrued and unpaid interest pro
rata according to such amount payable to the extent of amounts
available;
(3) third, to the Senior certificates and components (other than the
Class A-P certificates and Component A-9-4 of the Class A-9
certificates), principal, pro rata, according to their outstanding
class principal balances or component principal balances provided,
however, that the aggregate amount of principal payable to the
Class A-12 certificates will be paid to Component A-9-4 of the
Class A-9 certificates (without causing a further reduction of the
Component A-9-4 component principal balance), up to an amount equal
to the excess of (i) 32.2905464239% of the aggregate Discount
Fractional Principal Shortfall since the Closing Date over (ii)
32.2905464239% of the aggregate Discount Fractional Principal
Shortfall paid since the Closing Date, before being paid to the
Class A-12 certificates (the class principal balance of which shall
be reduced by any amounts paid to Component A-9-4 of the Class A-9
certificates pursuant to this proviso);
(4) fourth, to each class of Senior certificates and components, pro
rata, according to their outstanding class principal balances or
component principal balances, the amount of unreimbursed losses
previously allocated to each class or component; and
(5) fifth, to the Class R certificate, the remainder, if any, which is
expected to be zero, of the Available Distribution Amount.
With respect to each class of certificates or components of the Class A-9
certificates (except for the Principal Only certificates and Principal Only
component), interest will be passed through monthly on each distribution date,
commencing in December 1999 (except for the Accrual certificates and Accrual
component). With respect to each distribution date, interest will accrue or
accrete, as applicable, in an amount determined by the following formula:
<TABLE>
<S> <C> <C>
1/12th of the
applicable the related principal
interest rate for x balance or notional
each class (or amount for each
component) class (or component)
</TABLE>
S-43
<PAGE>
For purposes of this formula, the notional amount on any distribution date
for the Class A-6 certificates, Class A-14 certificates, Class A-X certificates,
Component A-9-2 of the Class A-9 certificates and Component A-9-3 of the
Class A-9 certificates will be equal to the Class A-6 Notional Amount,
Class A-14 Notional Amount, Class A-X Notional Amount, the Component A-9-2
Notional Amount and the Component A-9-3 Notional Amount, respectively.
The interest rates for the Senior and Subordinate classes of certificates
or components of the Class A-9 certificates are fixed as set forth on page ii.
The interest rate on the Class A-6 certificates will be equal to the
Class A-6 Interest Rate, the interest rate on the Class A-7 certificates will be
equal to the Class A-7 Interest Rate, the interest rate on the Class A-8
certificates will be equal to the Class A-8 Interest Rate, the interest rate on
the Class A-13 certificates will be equal to the Class A-13 Interest Rate and
the interest rate on the Class A-14 certificates will be equal to the
Class A-14 Interest Rate.
The establishment of LIBOR on each LIBOR Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the
Adjustable Rate certificates for the related Interest Accrual Period shall (in
the absence of manifest error) be final and binding.
Interest accrued on any class of certificates or component of the
Class A-9 certificates will be reduced by the following amounts:
(1) the pro rata share allocated to such class or component of all
interest shortfalls resulting from (i) prepayments in full on the
Loans during the related Prepayment Period, to the extent not
covered by Compensating Interest, (ii) partial prepayments on the
Loans during the related Prepayment Period, to the extent not
covered by Compensating Interest and (iii) reductions in interest
payable on the Loans by operation of law (such shortfalls are
allocated among all classes pro rata according to the amount of
interest to which such class or component would otherwise be
entitled); and
(2) the portion of Realized Losses attributable to interest allocated to
such class or component.
In addition, the amount of interest payable to each class of certificates
or component of the Class A-9 certificates will include accrued but unpaid
interest from prior distribution dates (together with interest thereon at the
applicable rate), but will only be paid to the extent of the Available
Distribution Amount.
SUBORDINATION AND ALLOCATION OF LOSSES
The Subordinate certificates will be subordinate in right of payment to and
provide credit support to the Senior certificates. The Junior Subordinate
certificates will be subordinate in right of payment to and provide credit
support to the Senior Subordinate certificates. Each class of Senior Subordinate
certificates will be subordinate in right of payment to and provide credit
support to each class of Senior Subordinate certificates senior thereto. The
support provided by the Subordinate certificates is intended to enhance
S-44
<PAGE>
the likelihood of regular receipt by the Senior certificates of the full amount
of the monthly distributions of interest and principal to which the Senior
certificates are entitled and to afford the Senior certificates protection
against certain losses. The protection afforded to the Senior certificates by
the Subordinate certificates will be accomplished by the preferential right on
each distribution date of the Senior certificates to receive distributions of
interest and principal before distributions of interest or principal to the
Subordinate certificates. The protection afforded a class of Senior Subordinate
certificates by the classes of Senior Subordinate certificates subordinate
thereto will be similarly accomplished by the preferential right of such classes
to receive distributions of principal and interest before distributions of
principal and interest to those classes of Senior Subordinate certificates
subordinate thereto. The support provided by the Junior Subordinate certificates
to the Senior Subordinate certificates is intended to enhance the likelihood of
regular receipt by the Senior Subordinate certificates of the full amount of
monthly distributions of interest and principal to which they are entitled and
to afford such certificateholders protection against certain losses. The
protection afforded to the Senior Subordinate certificates by the Junior
Subordinate certificates will be accomplished by the preferential right on each
distribution date of the Senior Subordinate certificates to receive
distributions of interest and principal, to distributions of interest and
principal to the Junior Subordinate certificates.
Except for Special Hazard Losses, Fraud Losses and Bankruptcy Losses in
excess of the designated amounts of the applicable Special Hazard Coverage,
Fraud Coverage and Bankruptcy Coverage, any loss realized with respect to a Loan
will be allocated among the certificates, as follows:
(1) for losses allocable to principal:
first, to the Junior Subordinate certificates, until the
aggregate of the class principal balances thereof has been
reduced to zero,
second, to the Class B-2 certificates, until the class principal
balance thereof has been reduced to zero,
third, to the Class B-1 certificates, until the class principal
balance thereof has been reduced to zero,
fourth, to the Class M certificates, until the class principal
balance thereof has been reduced to zero, and
fifth, to the Senior certificates and Senior components (other
than the Interest Only certificates and Interest Only
components), by Pro Rata Allocation, until the aggregate of the
class principal balances and component principal balances thereof
have been reduced to zero;
(2) for losses allocable to interest:
first, to the Junior Subordinate certificates, in reduction of
accrued but unpaid interest thereon until the amount of interest
accrued on the Junior Subordinate certificates on such
distribution date has been reduced to zero
S-45
<PAGE>
and then in reduction of the class principal balances of such
certificates until the class principal balances thereof have been
reduced to zero,
second, to the Class B-2 certificates, in reduction of accrued
but unpaid interest thereon until the amount of interest accrued
on the Class B-2 certificates on such distribution date has been
reduced to zero and then in reduction of the class principal
balance of such certificates until the class principal balance
thereof has been reduced to zero,
third, to the Class B-1 certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on
the Class B-1 certificates on such distribution date has been
reduced to zero and then in reduction of the class principal
balance of such certificates until the class principal balance
thereof has been reduced to zero,
fourth, to the Class M certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on
the Class M certificates on such distribution date has been
reduced to zero and then in reduction of the class principal
balance of such certificates until the class principal balance
thereof has been reduced to zero, and
fifth, to the Senior certificates and Senior components (other
than the Principal Only certificates and Principal Only
component), by Pro Rata Allocation, until the aggregate of the
class principal balances and component principal balances thereof
have been reduced to zero.
On each distribution date, if the aggregate class principal balance of all
outstanding classes of certificates exceeds the aggregate principal balance of
the Loans (after giving effect to distributions of principal and the allocation
and reimbursement of all losses on the classes of certificates and components of
the Class A-9 certificates on such distribution date), such excess will be
deemed a principal loss and will be allocated to the most subordinate class of
Subordinate certificates then outstanding.
In the event of a personal bankruptcy of a mortgagor, the bankruptcy court
may establish a Deficient Valuation. The amount of the secured debt could be
reduced to such Deficient Valuation amount, and the holder of such Loan thus
would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value so assigned to the mortgaged property by
the bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding, including the reduction of the
amount of the Monthly Payment on the related Loan.
Special Hazard Losses incurred on a Loan in excess of the Special Hazard
Coverage, Fraud Losses incurred on a Loan in excess of the Fraud Coverage and
Bankruptcy Losses incurred on a Loan in excess of the Bankruptcy Coverage will
be allocated to the outstanding class or classes of Senior certificates and
Senior components and to the Subordinate certificates by Pro Rata Allocation.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage may also be
reduced upon written confirmation from the Rating Agencies that such reduction
will not adversely affect the then current ratings assigned to the offered
certificates by the Rating
S-46
<PAGE>
Agencies. Such a reduction, in the event of Special Hazard Losses, Fraud Losses
or Bankruptcy Losses on the Loans, could adversely affect the level of
protection afforded the Senior certificates by subordination of the Subordinate
certificates or the level of protection afforded the Senior Subordinate
certificates by subordination of the Junior Subordinate certificates.
THE CLASS R CERTIFICATE
The Class R certificate will be comprised of two Components: Component R-1
and Component R-2. Component R-1 represents the residual interest in REMIC I and
Component R-2 represents the residual interest in REMIC II.
On each distribution date, in addition to payments of interest and
principal to the Class R certificate described in this prospectus supplement,
the Trustee will distribute any amounts remaining (which are expected to be
zero) in the Certificate Account from the Available Distribution Amount after
distributions of interest and principal on the certificates and payment of
expenses, if any, of REMIC II to the Class R certificateholders, together with
Excess Liquidation Proceeds, if any. Distributions of such remaining amounts
(but not the Excess Liquidation Proceeds) to the Class R certificateholders will
be subordinate to all payments required to be made with respect to the other
offered certificates on any distribution date.
Any amounts remaining in the Certificate Account upon reduction of the
aggregate certificate principal balance to zero, payment of any outstanding
expenses and termination of REMIC II will be distributable to the Class R
certificateholder. Such remaining assets are expected to be minimal. See
' -- Optional Termination'.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution date for the Senior and Subordinate
certificates is the distribution date in December 2029, which is the
distribution date occurring in the month after the original scheduled maturity
date for the latest maturing Loan.
The actual last distribution date on any class of certificates will depend
on the rate of payments of principal on the Loans which, in turn, may be
influenced by a variety of economic, geographic and social factors, as well as
the level of prevailing interest rates. No assurance can be given as to the
actual payment experience with respect to the Loans.
OPTIONAL TERMINATION
On any distribution date after the first date on which the aggregate
outstanding principal balance of the Loans is less than 10% of the aggregate
principal balance of the Loans as of the Cut-Off Date, the Depositor may
repurchase the Loans and all property acquired in respect of any Loan remaining
in REMIC I, and thereby, effect the termination of REMIC I and REMIC II and the
retirement of the certificates. The repurchase price will equal, after
deductions of related advances by the Servicer, the sum of (1) 100% of the
aggregate outstanding principal balance of such Loans (other than Liquidated
Loans), plus accrued interest thereon at the applicable Pass-Through Rates
through the last day of
S-47
<PAGE>
the month of such repurchase, less any Bankruptcy Losses realized with respect
to the Loans not already allocated to the certificates, and (2) the fair market
value of all other property. The Trustee will treat the proceeds of such
repurchase as a prepayment of the Loans for purposes of distributions to
certificateholders. Accordingly, an optional termination of REMIC II will cause
the outstanding principal balance of the certificates to be paid in full through
the distribution of such proceeds and the allocation of the associated Realized
Losses, if any, on each mortgaged property in REMIC I having a fair market value
less than the aggregate principal balance of the related Loan as of the time
that REMIC I acquired such mortgaged property. Upon payment in full of the
certificates, the Trustee will terminate REMIC I and REMIC II. In no event will
either REMIC I or REMIC II continue beyond the expiration of 21 years from the
death of the survivor of certain persons identified in the Pooling and Servicing
Agreement. See 'Description of Certificates -- Optional Termination of a Trust
or Underlying Trust' in the prospectus.
SERVICING
DELINQUENCY AND FORECLOSURE EXPERIENCE OF ABN AMRO MORTGAGE GROUP, INC.,
COMPENSATION AND PAYMENT OF EXPENSES
The Depositor acquired the Loans from its affiliate, ABN AMRO Mortgage
Group, Inc. ('AAMG'). Pursuant to the Pooling and Servicing Agreement, AAMG will
service the Loans (in this capacity, also referred to as the Servicer).
On June 30, 1999, Standard Federal Bank, an affiliate of the Depositor,
contributed all of its first lien residential one- to four-family mortgage loan
origination and servicing assets to AAMG, which was formed to consolidate all of
the mortgage banking operations of Standard Federal Bank and its affiliates into
one entity. Before this contribution, AAMG did not hold or service any first
lien residential one- to four-family mortgage loans in a loan or servicing
portfolio. After this contribution, AAMG began to originate, directly or
indirectly, and service first lien residential one- to four-family mortgage
loans in its loan and servicing portfolio. The table below reports delinquency
information with respect to AAMG's mortgage loans and servicing assets.
At September 30, 1999, AAMG provided servicing for approximately $11.70
billion aggregate principal amount of one- to four-unit mortgage loans,
substantially all of which were being serviced for third parties.
The table below summarizes the following delinquency and foreclosure
experience:
as of December 31, 1995, 1996, 1997 and 1998, on approximately $8.41
billion, $10.54 billion, $10.41 billion and $11.95 billion,
respectively, in outstanding principal balances on one- to four-family,
first lien residential loans originated, directly or indirectly, and
serviced by Standard Federal Bank; and
as of September 30, 1999, on approximately $11.70 billion in
outstanding principal balances on one- to four-family, first lien
residential loans, serviced by AAMG, and originated in the following
manner:
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<PAGE>
if originated before June 30, 1999, then originated directly or
indirectly by Standard Federal Bank; or
if originated after June 30, 1999, then originated directly or
indirectly by AAMG.
STANDARD FEDERAL BANK/ABN AMRO MORTGAGE GROUP, INC.
ONE- TO FOUR-UNIT RESIDENTIAL LOANS
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------
1995 1996 1997 1998(2) 1999
---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
Delinquent Loans at Period End(1):
30 to 59 days........................ 0.31% 0.39% 0.29% 0.44% 0.38%
60 to 89 days........................ 0.11% 0.13% 0.12% 0.12% 0.19%
90 days and over(3).................. 0.27% 0.51% 0.49% 0.51% 0.88%
----- ----- ----- ----- -----
Total Delinquencies and
Foreclosures................ 0.69% 1.03% 0.90% 1.08% 1.45%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ----------------------
(1) As a percentage of the total dollar amount of loans held and serviced by
Standard Federal Bank or AAMG, as applicable, in its owned loan portfolio
and loans held for sale portfolio at period end.
(2) As a percentage of the total dollar amount of loans held and serviced by
Standard Federal Bank in its owned loan portfolio only. The percentages for
the period ending December 31, 1998 including loans in Standard Federal
Bank's owned loan portfolio and loans held for sale portfolio are 0.35%,
0.10%, 0.39% and 0.84%, respectively.
(3) Includes Foreclosures.
Except as described in footnote 2 to the table above, the above delinquency
and foreclosure statistics represent the total portfolio experience of Standard
Federal Bank or AAMG, as applicable, for the indicated periods. There can be no
assurance that the delinquency and foreclosure experience with respect to the
Loans comprising the Mortgage Pool will correspond to the delinquency and
foreclosure experience of Standard Federal Bank's or AAMG's mortgage portfolio
set forth in the foregoing table. Indeed, the statistics shown above represent
the delinquency and foreclosure experience for the total one- to four-unit
residential mortgage portfolios for each of the years presented, whereas the
aggregate delinquency and foreclosure experience on the Loans will depend on the
results obtained over the life of the Mortgage Pool. In addition, the foregoing
statistics include mortgage loans with a variety of payment and other
characteristics that may not correspond to those of the Loans.
The Loans were not chosen from AAMG's portfolio on the basis of any
methodology which could or would make them representative of the total pool of
mortgage loans in the portfolio.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to mortgagors' personal circumstances, including,
but not limited to,
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<PAGE>
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 a mortgagor's equity in the related mortgaged property. In
addition, the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures, bankruptcies and losses with respect to the Mortgage Pool may be
sensitive to adverse economic conditions (which may or may not affect real
property values), 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. Moreover, if the one- to four-unit
real estate market should experience an overall decline in property values such
that the principal balances of the Loans comprising the Mortgage Pool become
equal to or greater than the value of the related mortgaged properties, the
actual rates of delinquencies and foreclosures could be significantly higher
than those previously experienced by Standard Federal Bank or AAMG. To the
extent that such losses are not covered by subordination provisions or shifting
interest credit enhancement described in this prospectus supplement, such losses
will be borne, at least in part, by the holders of the Class A certificates and
Class R certificate. See 'Description of the Certificates' in this prospectus
supplement and in the prospectus.
The Servicer will receive a servicing fee of 0.2500% per annum for its
services under the Pooling and Servicing Agreement. The servicing fee will be
calculated monthly as a per annum percentage of the outstanding principal
balance of each Loan. Out of this servicing fee, the Servicer will pay fees to
the Trustee equal to 0.0125% per annum.
In addition, the Servicer is obligated to remit Compensating Interest to
the Certificate Account on the day before each distribution date.
The Servicer will pay all expenses incurred in connection with its
activities as Servicer. The Servicer is entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted Loans.
In addition, the Servicer is entitled to reimbursement of expenditures incurred
by it in connection with the restoration of a damaged mortgaged property.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement permits the Servicer to enter into a
special servicing agreement with an unaffiliated holder of the Subordinate
certificates. Pursuant to this special servicing agreement, the holder may,
among other things, instruct the Servicer to commence or delay foreclosure
proceedings on delinquent Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity of each class of certificates will depend upon, among
other things, the price at which such certificates are purchased, the applicable
interest rate, the
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<PAGE>
actual characteristics of the Loans, the rate of principal payments (including
principal prepayments) on the Loans and the rate of liquidations on the Loans.
The yield to maturity to holders of the certificates (other than the Class A-6,
Class A-7, Class A-8, Class A-13 and Class A-14 certificates) will be lower than
the yield to maturity otherwise produced by the applicable interest rate and
purchase price of such certificates, because principal and interest
distributions will not be payable to such certificateholders until the 25th day
of the month following the month of accrual (without any additional distribution
of interest or earnings thereon with respect to such delay).
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST
When a mortgagor prepays a Loan in full between Due Dates for such Loan,
the mortgagor pays interest on the amount prepaid only to the date of
prepayment, instead of for the entire month. Also, when a partial principal
prepayment is made on a Loan together with the scheduled monthly payment for a
month on or after the related Due Date, the principal balance of the Loan is
reduced by the amount of the partial principal prepayment as of such Due Date.
However, the additional principal is not distributed to related
certificateholders until the distribution date in the next month. Therefore, one
month of interest shortfall accrues on the amount of such partial principal
prepayment.
The Servicer will pass through Compensating Interest to the related
certificateholders to reduce the adverse effect on certificateholders from the
deficiency in interest payable as a result of a prepayment in full on a Loan
between its Due Dates. Full principal prepayments of any Loans received during
the period from the first day through the last day of any month will be passed
through on the distribution date in the following month. The Servicer will pass
through Compensating Interest to related certificateholders with respect to such
period to provide for a full month's interest payment with respect to the prior
month. No Compensating Interest or other payment will be made by the Servicer
with respect to interest shortfalls due to partial principal prepayments.
To the extent that the amount allocated to pay Compensating Interest is
insufficient to cover the deficiency in interest payable as a result of a full
or partial principal prepayment on a Loan, such remaining deficiency will be
allocated to the certificates pro rata according to the amount of interest to
which each related class of certificates would otherwise be entitled in
reduction thereof.
THE SUBORDINATE CERTIFICATES
The weighted average life of, and the yield to maturity on, the Subordinate
certificates, in decreasing order of their priority of distributions, will be
progressively more sensitive to the rate and timing of mortgagor defaults and
the severity of ensuing losses on the Loans. If the actual rate and severity of
losses on the Loans is higher than those assumed by a holder of a Subordinate
certificate, the actual yield to maturity of such certificate may be lower than
the yield expected by such holder based on such assumption. The timing of losses
on the Loans will also affect an investor's actual yield to maturity, even if
the rate of defaults and severity of losses over the life of the Loans are
consistent with such investor's expectations. In general, the earlier a loss
occurs, the greater the effect
S-51
<PAGE>
on an investor's yield to maturity. Losses on the Loans will reduce the class
certificate balance of the Subordinate certificates to the extent of any losses
allocated thereto without the receipt of cash attributable to such reduction.
See 'Description of the Certificates -- Subordination and Allocation of Losses'.
As a result of such reductions, less interest will accrue on such classes of
Subordinate certificates than otherwise would be the case. The yield to maturity
of the Subordinate certificates will also be affected by disproportionate
allocations of principal prepayments to the Senior certificates, net interest
shortfalls and other cash shortfalls in Available Funds. See 'Description of the
Certificates -- Subordination and Allocation of Losses'.
RATE OF PAYMENTS
The rate of principal payments on the certificates entitled to receive
principal generally is directly related to the rate of principal payments on the
Loans, which may be in the form of scheduled payments or principal prepayments.
See 'Risk Factors' in this prospectus supplement and 'Prepayment, Yield and
Maturity Considerations' in the prospectus. Mortgagors may prepay the Loans at
any time without penalty. A higher-than-anticipated rate of principal
prepayments would reduce the aggregate principal balance of the Loans more
quickly than expected. As a consequence, aggregate interest payments with
respect to the Loans would be substantially less than expected; therefore, a
higher rate of principal prepayments could result in a lower-than-expected yield
to maturity on each related class of certificates purchased at a premium, and in
certain circumstances such investors may not fully recoup their initial
investments. Conversely, a lower-than-anticipated rate of principal prepayments
would reduce the return to investors on any related classes of certificates
purchased at a discount, in that principal payments with respect to the Loans
would occur later than anticipated. There can be no assurance that
certificateholders will be able to reinvest amounts received with respect to the
certificates at a rate which is comparable to the applicable interest rate.
Investors should fully consider all of the associated risks.
SPECIAL SENSITIVITIES
The yield to maturity on the Class A-X certificates will be extremely
sensitive to the level of principal prepayments on the Premium Loans. The
interest payable to the Class A-X certificates is based on the weighted average
of the excess of the Pass-Through Rate for each Premium Loan over 7.75%.
Therefore, the yield to maturity on the Class A-X certificates will be adversely
affected as a result of faster-than-expected principal prepayments on the
Premium Loans. Prospective investors should fully consider the risks associated
with an investment in the Class A-X certificates, including the possibility that
if the rate of principal prepayments on the Premium Loans is rapid, such
investors may not fully recoup their initial investments.
The yield to maturity on the Class A-P certificates and Component A-9-4 of
the Class A-9 certificates will be extremely sensitive to the level of principal
prepayments on the Discount Loans. The principal payable to the Class A-P
certificates and Component A-9-4 of the Class A-9 certificates is derived from
Discount Loans. Therefore, the yield to maturity on the Class A-P certificates
and the Class A-9 certificates to the extent of
S-52
<PAGE>
Component A-9-4 will be adversely affected by slower-than-expected prepayments
of the Discount Loans.
Because the interest payable on the Class A-X certificates is based upon
only the Premium Loans, and the principal distributable to the Class A-P
certificates and Component A-9-4 of the Class A-9 certificates is derived only
from the Discount Loans, it is possible that faster-than-expected principal
prepayments on the Premium Loans may occur at the same time as
slower-than-expected principal prepayments on the Discount Loans, which would
result in a lower yield to maturity for the Class A-X, the Class A-P
certificates and the Class A-9 certificates to the extent of Component A-9-4.
PREPAYMENT SPEED ASSUMPTION AND MODELING ASSUMPTIONS
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this prospectus
supplement (the 'PREPAYMENT SPEED ASSUMPTION' or 'PSA') assumes that mortgages
will prepay at an annual rate of 0.2% in the first month after origination, that
the prepayment rate increases at an annual rate of 0.2% per month up to the 30th
month after origination and that the prepayment rate is constant at 6% per annum
in the 30th and later months (this assumption is called '100% PSA'). For
example, at 100% PSA, mortgages with a loan age of three months (i.e. mortgages
in their fourth month after origination) are assumed to prepay at an annual rate
of 0.8%. '0% PSA' assumes no prepayments; '50% PSA' assumes prepayment rates
equal to one-half times 100% PSA; '200% PSA' assumes prepayment rates equal to
two times 100% PSA; and so forth. PSA is not a description of historical
prepayment experiences or a prediction of the mortgages' rate of prepayment.
PSA does not purport to be either an historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Pool, and there is no assurance that the Loans will prepay at any given
percentage of PSA. The actual rate of principal prepayments on the Loans may be
influenced by a variety of economic, geographic, social and other factors. In
general, if prevailing interest rates fall significantly below the interest
rates on the Loans, the Loans are likely to be subject to higher prepayment
rates than if prevailing rates remain at or above the interest rates on the
Loans. Conversely, if interest rates rise above the interest rates on the Loans,
the rate of prepayment would be expected to decrease. A comparatively low
interest rate environment may result in a higher-than-expected rate of
prepayments on the Loans and an earlier-than-expected retirement of the
certificates.
The Depositor makes no representation as to the specific factors that will
affect the prepayment of the Loans or the relative importance of such factors.
Factors not identified by the Depositor or discussed in this prospectus
supplement may significantly affect the prepayment rate of the Loans. In
particular, the Depositor makes no representation as to the percentage of the
principal amount of the Loans that will be paid as of any date or as to the
overall rate of prepayment.
S-53
<PAGE>
The tables set forth in Appendix C have been prepared on the basis of the
characteristics of the Loans that are expected to be included in the Mortgage
Pool, as described under 'Description of the Mortgage Pool.' The tables set
forth in Appendix C have been prepared assuming, among other things, the
following modeling assumptions (collectively, the 'MODELING ASSUMPTIONS'):
scheduled payments on all Loans are received on the first day of each
month beginning December 1, 1999,
any prepayments in full on the Loans are received on the last day of
each month, beginning on November 30, 1999 and include a full month's
interest thereon,
there are no defaults or delinquencies on the Loans,
optional termination of the REMICs does not occur,
there are no partial prepayments on the Loans and prepayments are
computed after giving effect to scheduled payments received on the
following day,
the Loans prepay at the indicated constant percentages of PSA,
the date of issuance for the certificates is November 23, 1999,
cash distributions are received by the certificateholders on the 25th
day of each month when due,
the scheduled monthly payments for each Loan are computed based upon its
unpaid principal balance, mortgage interest rate and amortized remaining
term, such that the Loan will fully amortize on its maturity date,
LIBOR will be equal to a constant rate of 5.40%, and
the calculated days in the initial interest accrual period for the
Class A-6, Class A-7, Class A-8, Class A-13 and Class A-14 is equal to
30 days.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding class principal balances and the
weighted average lives shown in the tables in Appendix C. Such variations may
occur even if the average prepayment experience of all the Loans equals the
indicated percentage of the Prepayment Speed Assumption. There is no assurance,
however, that prepayment of the Loans will conform to any given percentage of
the Prepayment Speed Assumption. The Depositor makes no representation that the
actual rates of prepayments on the Loans will in any way correspond to any of
the assumptions made in this prospectus supplement.
Based on the foregoing assumptions, the tables in Appendix A indicate the
weighted average lives of the offered certificates and set forth the percentages
of the initial class principal balances of each such class of offered
certificates that would be outstanding after each of the distribution dates
shown at various constant percentages of the Prepayment Speed Assumption.
There are no historical prepayment data available for the Mortgage Pool,
and comparable data is not available because the Loans do not constitute a
representative sample of mortgage loans generally. In addition, historical data
available with respect to mortgage loans underlying mortgage pass-through
certificates issued by the Government
S-54
<PAGE>
National Mortgage Association ('GNMA'), Federal National Mortgage Association
('FNMA') and Federal Home Loan Mortgage Corporation ('FHLMC') may not be
comparable to prepayments expected to be experienced by the Mortgage Pool
because the Loans may have characteristics which differ from the mortgage loans
underlying certificates issued by GNMA, FNMA and FHLMC.
The Depositor makes no representation that the Loans will prepay in the
manner or at any of the rates assumed above. Each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the certificates. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the Loans
will significantly affect the yields to maturity on the offered certificates,
prospective investors are urged to consult their investment advisors as to both
the anticipated rate of future principal payments (including prepayments) on the
Loans and the suitability of the certificates to their investment objectives.
YIELD CONSIDERATIONS OF THE INTEREST ONLY CERTIFICATES AND INTEREST ONLY
COMPONENTS AND PRINCIPAL ONLY CERTIFICATES AND PRINCIPAL ONLY COMPONENT
The yield to maturity on the Class A-X and Class A-P certificates and the
Class A-9 certificates to the extent of Component A-9-4 will be extremely
sensitive to the level of principal prepayments on certain of the Loans as
described in 'Prepayment and Yield Considerations -- Special Sensitivities'.
To illustrate the significance of different rates of prepayment on the
distributions to the Class A-15, Class A-X, Class A-P and Class A-9
certificates, the following tables indicate the approximate pre-tax yields to
maturity (on a corporate bond equivalent basis) under the different constant
percentages of PSA indicated. Because the rate of distribution of interest on
the Interest Only certificates and Interest Only components, and the rate of
distribution of principal on the Principal Only certificates and Principal Only
component will be directly related to the actual amortization (including
prepayments) of the Loans, which will include Loans that have remaining terms to
maturity shorter or longer than those assumed and interest rates higher or lower
than those assumed, the pre-tax yields to maturity on these certificates are
likely to differ from those shown in the following tables even if all the Loans
prepay at the indicated constant percentages of PSA. Any differences between
such assumptions and the actual characteristics and performance of the Loans and
of the certificates may result in yields to maturity being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performances underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields to maturity
in varying prepayment scenarios. In addition, it is highly unlikely that the
Loans will prepay at a constant level of PSA until maturity or that all of such
Loans will prepay at the same rate. The timing of changes to the rate of
principal prepayments may significantly affect the actual yield to maturity to
an investor, even if the average rate of principal prepayments is consistent
with an investor's expectation. In general, the earlier a payment of principal
of the Loans, the greater the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield to maturity of principal prepayments
occurring at a rate higher (or lower) than the rate
S-55
<PAGE>
anticipated by the investor during the period immediately following the issuance
of the certificates will not be equally offset by a subsequent like reduction
(or increase) in the rate of principal prepayments.
In addition, the yield to maturity on the Class A-X certificates and the
Class-A-9 certificates to the extent of the Interest Only components may be
adversely affected if an optional termination of REMIC II occurs.
The sensitivity tables for the Class A-15, Class A-X, Class A-P and Class
A-9 certificates set forth below are based on the Modeling Assumptions and
assume further that the certificates are purchased at prices equal to that set
forth in the tables plus accrued interest, if any. There can be no assurance
that the Loans will have the assumed characteristics, will prepay at any of the
rates shown in this prospectus supplement, or that the purchase prices of the
certificates will be as assumed or that the pre-tax yields to maturity will
correspond to any of the pre-tax yields shown in this prospectus supplement. In
addition to any other factors an investor may deem material, each investor must
make its own decision as to the appropriate prepayment assumptions to be used in
deciding whether or not to purchase a class of certificates.
The pre-tax yields for the Class A-15, Class A-X, Class A-P and Class A-9
certificates could differ significantly from those shown in the tables below if
the Loans were to prepay at a different rate than shown.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-9 CERTIFICATES TO
PRINCIPAL
PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 100.000%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield............................ 8.47 8.29 8.36 8.49 8.78
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-15 CERTIFICATES TO
PRINCIPAL
PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 69.000%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield............................ 2.86 3.59 7.84 14.34 22.62
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-X CERTIFICATES TO
PRINCIPAL
PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 27.125%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield............................ 28.45 23.39 16.93 10.33 4.95
</TABLE>
S-56
<PAGE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-P CERTIFICATES TO
PRINCIPAL
PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 60.000%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield............................ 2.69 5.14 8.84 12.51 15.31
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates (whether positive or
negative) which, when applied to the assumed streams of cash flows to be paid on
the Class A-15, Class A-X, Class A-P and Class A-9 certificates, would cause the
discounted present values of such assumed streams of cash flows to equal the
assumed purchase price, including accrued interest. These monthly discount rates
were converted to corporate bond equivalent rates, which are higher than the
monthly discount rates because they are based on semiannual compounding. These
yields to maturity 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 certificates and thus do not reflect the return on any investment in the
Class A-15, Class A-X, Class A-P and Class A-9 certificates when any
reinvestment rates other than the discount rates are considered.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS A-6, CLASS A-8 AND CLASS A-14
CERTIFICATES
The significance of the effects of prepayments and changes in LIBOR on the
Class A-6, Class A-8 and Class A-14 certificates is illustrated in the following
table, which show the pre-tax yield (on a corporate bond equivalent basis) to
the holders of these certificates under different constant percentages of PSA
and constant levels of LIBOR. The yields of these certificates set forth in the
following tables were calculated using the modeling assumptions and further
assuming the following:
on each LIBOR Determination Date, LIBOR will be at the level shown; and
the purchase price of the Class A-6, Class A-8 and Class A-14
certificates are approximately 3.15625% (plus accrued interest),
approximately 92.00000% (plus accrued interest) and approximately
4.00000% (plus accrued interest), respectively.
The yield to investors in the Adjustable Rate certificates will be highly
sensitive to the level of LIBOR and to the rate and timing of principal payments
(including prepayments) of the Loans, which generally can be prepaid at any time
without penalty.
Changes to LIBOR may not correlate with the changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur at the same
time as an increased level of LIBOR.
S-57
<PAGE>
SENSITIVITY OF THE CLASS A-6 CERTIFICATES TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELD TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.40%.................................... 253.62 253.62 253.41 244.97 224.12
3.40%.................................... 159.49 159.49 158.56 145.37 119.41
5.40%.................................... 76.13 76.04 71.28 49.86 16.44
6.40%.................................... 38.00 37.27 25.85 (1.80) (40.42)
7.50% or Higher.......................... * * * * *
</TABLE>
* Represents a yield less than (100.00%).
SENSITIVITY OF THE CLASS A-8 CERTIFICATES TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELD TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
7.50% or Lower........................... 10.32 10.47 11.40 12.83 14.62
7.70%.................................... 8.14 8.30 9.26 10.71 12.52
7.90%.................................... 5.99 6.15 7.14 8.60 10.45
8.10%.................................... 3.86 4.03 5.03 6.51 8.38
8.40% or Higher.......................... 0.70 0.88 1.90 3.40 5.32
</TABLE>
SENSITIVITY OF THE CLASS A-14 CERTIFICATES TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELD TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 225% 350% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.40%.................................... 219.52 210.36 184.90 184.90 183.68
3.40%.................................... 147.83 140.58 112.73 112.73 110.59
5.40%.................................... 82.52 77.30 43.63 43.63 39.81
6.40%.................................... 51.83 47.50 8.39 8.39 3.23
8.60% or Higher.......................... * * * * *
</TABLE>
* Represents a yield less than (100.00%).
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-6, Class A-8 and Class A-14 certificates would
cause the discounted present value of the assumed stream of cash flows to equal
the assumed purchase price of the Class A-6, Class A-8 and Class A-14
certificates indicated above and converting these monthly rates to corporate
bond equivalent rates. This calculation does not take into account variations
that may occur in the interest rates at which investors may be able to reinvest
funds received by them as payments of principal of and interest on the Class
A-6, Class A-8 and Class A-14 certificates and consequently does not purport to
reflect the return on any investment in the Class A-6, Class A-8 and Class A-14
certificates when such reinvestment rates are considered.
S-58
<PAGE>
Because the Interest Accrual Period for the Adjustable Rate certificates
will run from the 25th day of the month preceding the month in which a
distribution date occurs to the 24th day of the month of that distribution date,
the effective yield on these certificates will not be reduced as a result of any
delay between the end of the Interest Accrual Period and the distribution of
interest (assuming the distribution date occurs on the 25th day of the month).
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE CLASS R CERTIFICATE
Holders of interests in the Class R certificate may have tax liabilities
with respect to their certificates during the early years of the REMICs' term
that substantially exceed any distributions payable thereon during any such
period. In addition, holders of interests in the Class R certificate may have
tax liabilities with respect to their certificates, the present value of which
substantially exceeds the present value of distributions payable thereon and of
any tax benefits that may arise with respect thereto. Accordingly, the after-tax
rate of return on the Class R certificate may be negative or may otherwise be
significantly adversely affected. The timing and amount of taxable income
attributable to the Class R certificate will depend on, among other things, the
timing and amounts of prepayments and losses experienced with respect to the
Mortgage Pool.
The Class R certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the acquisition of interests in the Class R certificate on
after-tax rates of return on the Class R certificate. See 'Federal Income Tax
Consequences' in this prospectus supplement and in the prospectus.
ADDITIONAL INFORMATION
The Depositor intends to file with the Securities and Exchange Commission
certain additional yield tables and other computational materials with respect
to one or more classes of the offered certificates on a Current Report on Form
8-K. Lehman Brothers Inc. prepared such tables and materials at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such prospective investors. Such tables and
materials are preliminary in nature, and the information contained therein is
subject to, and superseded by, the information in this prospectus supplement.
LEGAL ASPECTS OF THE MORTGAGE LOANS UNDER CALIFORNIA LAW
As of the Cut-Off Date, approximately 41.82% of the initial principal
balance of the Loans are secured by liens on mortgaged properties located in
California. See also 'Legal Aspects of the Loans' in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
The Depositor will cause an election to be made to treat each of REMIC I
and REMIC II as a REMIC for federal income tax purposes. The certificates issued
by REMIC
S-59
<PAGE>
II, other than the Class R certificate, will be designated as REMIC regular
interests. As REMIC regular interests, such certificates will generally be
treated as debt of REMIC II for federal income tax purposes. Certificateholders
will be required to include in income all interest and original issue discount
('OID') on such certificates in accordance with the accrual method of accounting
regardless of the certificateholders' usual methods of accounting. For federal
income tax purposes, the Class R certificate will represent beneficial ownership
of two residual interests, each of which will constitute the sole class of
residual interests in each of REMIC I and REMIC II.
Upon the issuance of the certificates, Mayer, Brown & Platt will deliver
its opinion generally to the effect that, assuming a REMIC election is made
timely in the required form, and the Servicer complies with all provisions of
the Pooling and Servicing Agreement and certain representations in the Pooling
and Servicing Agreement are true, (1) REMIC I and REMIC II each will be treated
as a REMIC within the meaning of the REMIC provisions of the Internal Revenue
Code, (2) the certificates (other than the Class R certificate) will represent
regular interests in REMIC II and (3) Component R-1 of the Class R certificate
will be the sole class of residual interests in REMIC I and Component R-2 of the
Class R certificate will be the sole class of residual interests in REMIC II.
The Class A-X, Class A-P, Class A-6, Class A-9, Class A-10, Class A-11,
Class A-14 and Class A-15 certificates will (and certain other offered
certificate classes may) be issued with OID. The prepayment assumption that will
be used in determining the rate of accrual of OID, and market discount or
premium, if any, for federal income tax purposes is 225% of PSA as described in
this prospectus supplement under 'Prepayment and Yield Considerations'. No
representation is made that the Loans will prepay at any given percentage of
PSA.
It is not entirely clear how income should be accrued with respect to
regular interest certificates such as the Interest Only certificates and
Interest Only components, the payments on which consist solely (or partially) of
interest on notional principal amounts. In the absence of definitive guidance,
the most reasonable interpretation would be to treat all of the income
attributable to such payments as constituting OID, and this is the position
which will be taken by REMIC II. Among other possibilities, the IRS could assert
that the Interest Only certificates and Interest Only components should instead
be taxable under certain rules applicable to debt obligations providing for
contingent payments.
The Internal Revenue Service (the 'IRS') has issued regulations (the 'OID
REGULATIONS') under sections 1271 to 1275 of the Internal Revenue Code of 1986
(the 'CODE') generally addressing the treatment of debt instruments issued with
original issue discount. The OID Regulations suggest that original issue
discount with respect to securities such as the Class A-9 certificates that
represent multiple uncertificated REMIC regular interests, in which ownership
interests will be issued simultaneously to the same buyer, should be computed on
an aggregate method. In the absence of further guidance from the IRS, original
issue discount with respect to the uncertificated regular interests represented
by the Class A-9 certificates will be reported to the IRS and the
certificateholders on an aggregate method based on a single overall constant
yield and the
S-60
<PAGE>
prepayment assumption stated above, treating all such uncertificated regular
interests as a single debt instrument as set forth in the OID Regulations.
If actual prepayments differ sufficiently from the prepayment assumption,
the calculation of OID for certain offered certificates might produce a negative
number for certain accrual periods. In such event, certificateholders will not
be entitled to a deduction for such amount, but will be required to carry such
amount forward as an offset to OID, if any, accruing in future accrual periods.
Certain classes of certificates may be treated for federal income tax
purposes as having been issued at a premium. Holders should consult their own
tax advisors regarding the possibility of making an election to amortize any
such premium. See 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Taxation of Owners of Regular Certificates' in the prospectus.
The offered certificates will generally be treated as 'qualifying real
property loans' for mutual savings banks and domestic building and loan
associations, 'loans secured by an interest in real property' for domestic
building and loan associations, and 'real estate assets' for real estate
investment trusts ('REITS') in the same proportion that the assets in the REMICs
would be so treated. In addition, interest on the offered certificates will
generally be treated as 'interest on obligations secured by mortgages on real
property' for REITs to the extent that such offered certificates are treated as
'real estate assets'. See 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Characterization of Investments in Certificates' in the prospectus.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the 'NEW REGULATIONS')
which make certain modifications to the withholding, backup withholding, and
information reporting rules described in the prospectus. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will be effective for payments made after December 31, 2000,
subject to certain transition rules. Prospective investors are urged to consult
their own tax advisors regarding the New Regulations.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATE
The Class R certificateholders will be required to report on their federal
income tax returns as ordinary income their pro rata share of taxable income of
the REMIC regardless of the amount or timing of their receipt of cash payments.
See 'Federal Income Tax Consequences -- Qualification as a REMIC -- Taxation of
Owners of Residual Certificates' in the prospectus. The requirement that the
Class R certificateholders report their pro rata share of the taxable income and
net loss of the REMIC will continue until the principal balances of all classes
of certificates have been reduced to zero, even though the Class R
certificateholders have received full payment of their stated interest and
principal.
The Class R certificateholders may be required to report an amount of
taxable income with respect to the early accrual periods that significantly
exceeds the amount of cash
S-61
<PAGE>
distributions received by such Class R certificateholders with respect to such
periods. Consequently, the Class R certificateholders should have other sources
of funds sufficient to pay any federal income taxes due in the early years as a
result of their ownership of interests in such Class R certificate. In addition,
the required inclusion of this amount of taxable income during the early accrual
periods and the deferral of corresponding tax losses or deductions until later
accrual periods or until the ultimate sale or disposition of interests in the
Class R certificate (or possibly later under the 'wash sale' rules of Section
1091 of the Code) may cause the Class R certificateholder's after-tax rate of
return to be zero or negative even if the Class R certificateholder's pre-tax
rate of return is positive. That is, on a present value basis, the Class R
certificateholder's resulting tax liabilities could substantially exceed the sum
of any tax benefits and the amount of any cash distributions on such Class R
certificate over its life.
It is expected that all or a substantial portion of the REMIC taxable
income of the Class R certificateholders will be treated as 'excess inclusion'
income to the holders in which case it could not be offset by losses from other
sources. For Class R certificateholders that are subject to tax on unrelated
business taxable income (as defined by Code Section 511), an excess inclusion is
treated as unrelated business taxable income. With respect to Class R
certificateholders that are nonresident alien individuals or foreign
corporations generally subject to United States 30% withholding tax, an excess
inclusion will be subject to such tax and will be ineligible for any statutory
exemption or tax treaty reduction otherwise available to such Class R
certificateholders.
The Small Business Job Protection Act of 1996 eliminated the special rule
permitting Section 593 institutions ('thrift institutions') to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC residual certificates that have 'significant value' within the
meaning of the REMIC Regulations (as defined in 'Federal Income Tax
Consequences' in the prospectus), 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 Small Business Job Protection Act of 1996 provides three
rules for determining the effect of excess inclusions attributable to a REMIC
residual interest on the alternative minimum taxable income of the holder of the
interest. First, alternative minimum taxable income for such residual holder is
determined without regard to the special rule that taxable income cannot be less
than excess inclusions. Second, a residual holder's alternative minimum taxable
income for a tax year cannot be less than excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions.
The REMIC Regulations impose restrictions on the transfer or acquisition of
certain residual interests, including the Class R certificate. In addition, the
REMIC Regulations contain restrictions that apply to the transfer of
'noneconomic' residual interests to United States persons. Pursuant to the
Pooling and Servicing Agreement, the Class R certificate may not be transferred
to non-United States persons.
The REMIC Regulations provide that a transfer to a United States person of
'noneconomic' residual interests will be disregarded for federal income tax
purposes, and
S-62
<PAGE>
that the purported transferor of 'noneconomic' residual interests will continue
to remain liable for any taxes due with respect to the income on such residual
interests, unless 'no significant purpose of the transfer was to impede the
assessment or collection of tax'. The Class R certificate will likely constitute
noneconomic residual interests during all of its term for purposes of the REMIC
Regulations and, accordingly, unless no significant purpose of a transfer is to
impede the assessment or collection of tax, transfers of interests in the Class
R certificate will likely be disregarded and purported transferors will likely
remain liable for any taxes due with respect to the income of the Class R
certificate. All transfers of interests in the Class R certificate will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded. See 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Taxation of Owners of Residual Certificates' in the prospectus.
As discussed above and in the prospectus, the rules for accrual of OID with
respect to certain classes of certificates are subject to significant complexity
and uncertainty. Because OID on certain certificates will be deducted in
determining REMIC taxable income, any changes required by the Internal Revenue
Service in the application of those rules to such certificates may significantly
affect the timing of the REMIC's OID deductions and therefore the amount of
taxable income allocable to holders of interests in the Class R certificate.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) an interest in the Class R certificate
may have significant additional gross income with respect to, but may be subject
to limitations on the deductibility of, servicing and trustee's fees and other
administrative expenses properly allocable to the related REMIC in computing
such certificateholder's regular tax liability and will not be able to deduct
such fees or expenses to any extent in computing such certificateholder's
alternative minimum tax liability. Such expenses will be allocated for federal
income tax information reporting purposes entirely to the Class R certificate.
See 'Federal Income Tax Consequences -- Qualification as a REMIC -- Taxation of
Owners of Residual Certificates and Pass-Through of Miscellaneous Itemized
Deductions' in the prospectus.
Because of the special tax treatment of REMIC residual interests, the
taxable income in a given year on a REMIC residual interest will not be equal to
the taxable income associated with an investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Class R certificate may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics. See 'Federal Income Tax Consequences' in the prospectus.
Purchasers of interests in the Class R certificate are strongly advised to
consult their own tax advisors as to the economic and tax consequences of an
investment in such certificate. For further information regarding the federal
income tax consequences of investing in the Class R certificate, see 'Prepayment
Yield Considerations -- Additional Yield Considerations Applicable Solely to the
Class R Certificate' in this prospectus
S-63
<PAGE>
supplement and 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Taxation of Owners of Residual Certificates' in the prospectus.
YEAR 2000 PROJECT
STATE OF READINESS
The Depositor and the Servicer are part of ABN AMRO Bank N.V.'s U.S.
operations, which are managed by ABN AMRO North America, Inc. ('AANA'). AANA
began addressing the year 2000 problem in 1996 by assembling a corporate project
team to develop a year 2000 readiness program for ABN AMRO entities within North
America. The project team is comprised of AANA business leaders and
representatives from the Information Technology division and is assisted by
outside consulting firms and contract personnel who are experts in the area of
year 2000 readiness.
The project team's efforts are generally divided into four phases:
awareness, assessment, renovation and validation. The project team has completed
the initial awareness phase. At present, all AANA staff are aware of the year
2000 problem and its potential impact to their business units and the
organization as a whole. The effort to improve management and staff
understanding of the problem will continue throughout the life of the project.
In addition, the project team has initiated efforts to continue to improve
awareness of the year 2000 problem among all of AANA's customers and business
partners by coordinating mass mailings and responding to customer requests for
information.
The assessment phase of the year 2000 project is complete. The project team
has surveyed and documented its year 2000 readiness requirements, and has
prepared a project plan that addresses remediation, renovation, replacement,
upgrade or obsolescence of current systems. At present, the project team has
estimated and scheduled all efforts of renovation, testing, certification and
implementation.
The renovation phase of the year 2000 project is substantially complete.
All internal 'mission critical' systems and applications are in place and fully
tested.
The project team has launched the validation phase of the year 2000
project. It developed a comprehensive plan to validate the readiness of all of
the systems utilized by ABN AMRO entities in North America for the year 2000.
In addition, to address potential disruptions in business due to year 2000
issues, AANA has developed a general year 2000 business continuity planning
process for all ABN AMRO entities in North America. The project team will
complete specific business unit year 2000 contingency plans for all ABN AMRO
entities in North America by December 31, 1999.
The Trustee, which is not an ABN AMRO affiliate and therefore not subject
to ABN AMRO's year 2000 project, has advised the Depositor that it is committed
to either (i) implementing modifications to its existing systems to the extent
required to cause them to be year 2000 ready or (ii) acquiring computer systems
that are year 2000 ready, in each case prior to January 1, 2000. However,
neither the Depositor nor the Servicer has made any independent investigation of
the computer systems of the Trustee.
S-64
<PAGE>
RISKS
Although the project team for the ABN AMRO entities in North America
expects its year 2000 remediation efforts to be fully completed, validated and
implemented well before the year 2000, there can be no assurance that these
efforts will be completed on time, or that they will fully remediate all
problems associated with the year 2000. In addition, there can be no assurance
that the Trustee, or unaffiliated businesses and entities who provide services
to the Depositor, the Servicer or the Trustee, will adequately address year
2000 issues.
If the Servicer, the Trustee or any of their respective vendors or third
party service providers are not year 2000 ready, the ability of the Servicer to
service the Loans, and the ability of the Trustee to make timely distributions
and required reports to Certificateholders, may be materially and adversely
affected.
Some of the statements made in this section regarding the likelihood of the
Servicer, the Depositor and the Trustee successfully addressing problems
associated with the year 2000 constitute forward-looking statements as defined
in Section 27A(i)(1) of the Securities Act. Generally, all statements in this
section that are not statements of historical fact are forward-looking
statements. Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by forward-looking statements. These factors
include the ability of the Servicer, the Depositor and the Trustee to
successfully identify systems and components that may pose year 2000 issues, the
nature and the amount of programming required to correct these systems and
components, the ability of third party consultants and service providers to
timely complete portions of the Depositor's, the Servicer's and the Trustee's
year 2000 remediation plans, and the ability of the business partners of the
Trustee, the Depositor and the Servicer to successfully address their year 2000
issues.
LEGAL INVESTMENT ASPECTS
As of the date of their issuance, the offered certificates, other than the
Class B-1 and Class B-2 certificates, will constitute 'mortgage-related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ('SMMEA'), and as such will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or of any
state whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under SMMEA, if a state
enacted legislation before October 4, 1991 specifically limiting the legal
investment authority of any of such entities with respect to 'mortgage-related
securities', the offered certificates, other than the Class B-1 and Class B-2
certificates, will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Certain states have enacted
such legislation. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates constitute legal
investments for such investors.
S-65
<PAGE>
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 with the offered
certificates, other than the Class B-1 and Class B-2 certificates, without
limitation as to the percentage of their assets represented thereby; federal
credit unions may invest in the offered certificates, other than the Class B-1
and Class B-2 certificates and national banks may purchase the offered
certificates, other than the Class B-1 and Class B-2 certificates, for their own
accounts without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh); in each case subject to such
regulations as the applicable federal regulatory authority may prescribe.
Institutions whose investment activities are subject to review by certain
regulatory authorities hereafter may be or may become subject to restrictions on
investment in the offered certificates, and such restrictions may be
retroactively imposed. The Federal Financial Institutions Examination Council,
the Federal Deposit Insurance Corporation, the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Office of
Thrift Supervision ('OTS') and the National Credit Union Administration ('NCUA')
have adopted guidelines, and have proposed policies, regarding the suitability
of investments in various types of derivative mortgage-backed securities,
including securities such as the offered certificates.
For example, on April 23, 1998, the Federal Financial Institutions
Examination Council issued a revised supervisory policy statement (the '1998
POLICY STATEMENT') applicable to all depository institutions, setting forth
guidelines for investments in 'high-risk mortgage securities.' The 1998 Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, the NCUA
and the OTS with an effective date of May 26, 1998. The 1998 Policy Statement
rescinds a 1992 policy statement that had required, prior to purchase, a
depository institution to determine whether a mortgage derivative product that
it is considering acquiring is high-risk, and, if so, that the proposed
acquisition would reduce the institution's overall interest rate risk. The 1998
Policy Statement eliminates former constraints on investing in certain
'high-risk' mortgage derivative products and substitutes broader guidelines for
evaluating and monitoring investment risk.
On January 1, 1999, OTS Thrift Bulletin 13a, entitled 'Management of
Interest Rate Risk, Investment Securities, and Derivatives Activities' ('TB
13A'), which is applicable to thrift institutions regulated by the OTS, became
effective. One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (i) conduct a
pre-purchase portfolio sensitivity analysis for any 'significant transaction'
involving securities or financial derivatives, and (ii) conduct a pre-purchase
price sensitivity analysis of any 'complex security' or financial derivative.
For the purposes of TB 13a, a 'complex security' includes among other things any
collateralized mortgage obligation or real estate mortgage investment conduit
security, other than any 'plain vanilla' mortgage pass-through security (that
is, securities that are part of a single class of securities in the related pool
that are non-callable and do not have any special features). Accordingly, all
classes of the offered certificates would likely be viewed as 'complex
securities'. The OTS
S-66
<PAGE>
recommends that while a thrift institution should conduct its own in-house
pre-acquisition analysis, it may rely on an analysis conducted by an independent
third party so long as management understands the analysis and its key
assumptions. Further, TB 13a recommends that the use of 'complex securities with
high price sensitivity' be limited to transactions and strategies that lower a
thrift institution's portfolio interest rate risk. TB 13a warns that investment
in complex securities by thrift institutions that do not have adequate risk
measurement, monitoring and control systems may be viewed by OTS examiners as an
unsafe and unsound practice.
In addition, the NCUA has issued regulations governing federal credit union
investments which prohibit investment in certain specified types of securities,
which may include certain classes of certificates.
In addition, several states have adopted or are considering regulations
that would prohibit regulated institutions subject to their jurisdiction from
holding mortgage-backed securities such as the offered certificates, including
such securities previously purchased. Investors should consult their own legal
advisors in determining whether and to what extent the offered certificates
constitute legal investments for such investors.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase the offered certificates
or to purchase the offered certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the offered certificates
constitute legal investments for such investors.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit plan or other benefit plan or
arrangement which is subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or Section 4975 of the Code (each, a 'PLAN'), or
other person that proposes to use 'plan assets' of any Plan to acquire any
offered certificates should consult with its counsel with respect to the
potential consequences under ERISA and Section 4975 of the Code of the
acquisition and ownership of such certificates by, on behalf of, or with 'plan
assets' of any Plan. See 'ERISA Considerations' in the prospectus.
UNDERWRITER'S PTE
Lehman Brothers Inc. is the recipient of a final prohibited transaction
exemption, Prohibited Transaction Exemption 91-14, 56 Fed. Reg. 7,414 (1991) as
amended by Prohibited Transaction Exemption 97-34, 52 Fed. Reg. 39,021 (1997),
(the 'UNDERWRITER'S PTE') which may afford protection from violations under
Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire offered certificates (other than the Class A-12 certificates, Senior
Subordinate certificates and the Class R certificate). Exemptive relief is not
available under the Underwriter's PTE for Plans that acquire interests in the
Class A-12 certificates, Senior Subordinate certificates and the Class R
certificate, and therefore those certificates are not eligible for purchase by
employee benefit plans or with the assets of employee benefit plans, except as
provided in this 'ERISA
S-67
<PAGE>
CONSIDERATIONS' section under the subheading 'Restrictions on the Class A-12
certificates, Senior Subordinate Certificates and Class R Certificate' relating
to those certificates that are purchased in reliance upon PTCE 95-60. Plans (or
persons using 'plan assets' of any Plan) that acquire offered certificates
(other than the Class A-12 certificates, Senior Subordinate certificates and the
Class R certificate) may be eligible for exemptive relief under the
Underwriter's PTE if the requirements of the Underwriter's PTE are satisfied,
including the following:
(a) the class of such certificates acquired by the Plan is not
subordinated to other classes of certificates with respect to the
right to receive payment in the event of defaults or delinquencies
on the underlying Loans;
(b) the Plan is an 'accredited investor' (as defined in Rule 501(a)(I)
of Regulation D under the Securities Act of 1933, as amended (the
'ACT'));
(c) the acquisition of such certificates by the Plan is on terms
(including the price paid 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;
(d) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of such certificates represents not
more than reasonable compensation for underwriting such
certificates; the sum of all payments made to and retained by the
Depositor pursuant to the sale of the Loans to REMIC I represents
not more than the fair market value of the Loans, and the sum of all
payments made to and retained by the Depositor or any other servicer
represents not more than reasonable compensation for their services
under the Pooling and Servicing Agreement and reimbursement of their
reasonable expenses in connection therewith;
(e) the certificates acquired by the Plan have received a rating at the
time of their acquisition by the Plan from S&P or DCR that is in the
three highest generic rating categories; and
(f) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below).
The Underwriter's PTE will not provide exemptive relief for certain
transactions prohibited by Section 406(b)(1) and 406(b)(2) of ERISA or Section
4975(c)(1)(E) of the Code that may result from an investment of any 'plan
assets' of any Plan in such certificates if:
(a) the Plan's investment in any class of such certificates exceeds 25%
of the outstanding certificates of that class at the time of
acquisition;
(b) 25% or more of the Plan assets with respect to which the investing
fiduciary has discretionary authority or renders investment advice
are invested in certificates evidencing interests in trusts
sponsored or containing assets sold or serviced by the Depositor;
(c) the Plan is sponsored by the Depositor, the Underwriters, the
Trustee, any servicer, the obligor under any credit support
mechanism, or any mortgagor with
S-68
<PAGE>
respect to Loans constituting more than 5% of the aggregate
unamortized principal balance of the Loans on the Closing Date (a
'MAJOR OBLIGOR') or their affiliates (collectively, the 'RESTRICTED
GROUP');
(d) the Plan fiduciary responsible for the decision to invest or any of
its affiliates is a Major Obligor; or
(e) in connection with an acquisition of certificates in the initial
issuance, less than 50% of each class of certificates in which Plans
have invested and less than 50% of the aggregate interests in REMIC
I are acquired by persons independent of members of the Restricted
Group.
Whether the conditions of the Underwriter's PTE will be satisfied with
respect to offered certificates of a particular class will depend upon the facts
and circumstances existing at the time the Plan acquires (or 'plan assets' of
the Plan are used to acquire) certificates of that class. Any Plan fiduciary or
other person that proposes to use 'plan assets' of any Plan to acquire such
offered certificates in reliance upon the Underwriter's PTE should determine
whether such acquisition will satisfy all applicable conditions and should
consult with its counsel regarding other factors that may affect the
applicability of the Underwriter's PTE. Each purchaser that purchases a Class A
certificate with the assets of a Plan shall be deemed to represent that each
such Plan qualifies as an 'accredited investor' as defined in Rule 501(a)(1) of
Regulation D under the Securities Act. Purchasers using insurance company
general account assets to effect the purchase of the Class A-12 certificates and
Senior Subordinate certificates should consider the availability of exemptive
relief under Sections I and III of PTCE 95-60. See 'ERISA Considerations' in the
prospectus.
RESTRICTIONS ON THE CLASS A-12 CERTIFICATES, SENIOR SUBORDINATE CERTIFICATES AND
CLASS R CERTIFICATE
Transfers of the Class A-12 certificates, Senior Subordinate certificates
and the Class R certificate are restricted to certain transferees. Because such
certificates will not qualify for exemptive relief under the Underwriter's PTE,
purchases of such certificates by, on behalf of, or with 'plan assets' of any
Plan are restricted to only those Plans who represent that they are insurance
companies using assets of their general account to effect such purchases and
satisfy all the requirements for exemptive relief under Sections I and III of
PTCE 95-60. In addition, so long as the Class A-12 certificates and Senior
Subordinate certificates are book-entry certificates, all purchasers who acquire
such certificates shall be deemed to represent that either: (i) they are not a
'Plan' and are not using 'plan assets' to purchase such certificates or (ii)
they are an insurance company using assets of their general account to effect
such purchase and satisfy all the requirements for exemptive relief under
Sections I and III of PTCE 95-60.
The sale of any certificate to a Plan is in no respect a representation by
the Underwriters that such an investment meets all relevant legal requirements
with respect to investments by Plans generally or any particular Plan or that
such an investment is appropriate for Plans generally or any particular Plan.
S-69
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Depositor has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, all of the offered certificates. The
aggregate proceeds (excluding accrued interest) to the Depositor from the sale
of the offered certificates, before deducting expenses payable by the Depositor
(which are estimated to be $400,000), will be approximately 98.46% of the
initial aggregate certificate principal balance of the offered certificates.
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are committed to take and pay for all of such offered certificates, if any are
taken. Distribution of such offered certificates will be made by the
Underwriters from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. The difference between the
purchase price for the offered certificates paid to the Depositor and the
proceeds from the sale of such certificates realized by the Underwriters will
constitute underwriting discounts and commissions. The Underwriters may effect
such transactions by selling the offered certificates to or through dealers, and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act.
The Depositor has agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Act, or to contribute to
payments the Underwriters may be obligated to make in respect thereof.
ABN AMRO Incorporated is an affiliate of the Depositor.
The Underwriters intend to make a market for the purchase and sale of the
offered certificates after their initial issuance but have no obligation to do
so. There is no assurance that such a secondary market will develop or, if it
develops, that it will continue.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Kirk Flores,
Counsel of the Depositor and by Mayer, Brown & Platt, New York, New York. Mayer,
Brown & Platt will also pass upon certain legal matters for ABN AMRO
Incorporated. Thacher Proffitt & Wood, New York, New York, will pass upon
certain legal matters on behalf of Lehman Brothers Inc.
CERTIFICATE RATINGS
It is a condition to the issuance of the offered certificates that the
Senior certificates each be rated 'AAA' (except for the Class A-6, Class A-8,
Class A-9, Class A-14, Class A-15, Class A-P and Class A-X certificates, which
will be rated 'AAAr') by Standard & Poor's, a division of the McGraw-Hill
Companies, Inc. ('S&P') and 'AAA' by Duff & Phelps Credit Rating Co. ('DCR'),
that the Class M certificates be rated not less than 'AA' by DCR, that the Class
B-1 certificates be rated not less than 'A' by DCR; and that the Class B-2
certificates be rated not less than 'BBB' by DCR.
S-70
<PAGE>
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of any other
security rating.
THE RATINGS BY DCR ASSIGNED TO THIS ISSUE DO NOT CONSTITUTE A
RECOMMENDATION TO PURCHASE OR SELL THESE SECURITIES. RATHER THEY ARE AN
INDICATION OF THE LIKELIHOOD OF THE PAYMENT OF PRINCIPAL AND INTEREST AS SET
FORTH IN THE TRANSACTION DOCUMENTATION. THE RATINGS ON THE CLASS A-X
CERTIFICATES DO NOT ADDRESS THE EFFECT ON THE CERTIFICATES' YIELD ATTRIBUTABLE
TO PREPAYMENTS OR RECOVERIES ON THE UNDERLYING LOANS. THE RATING ON THE CLASS
A-P CERTIFICATES ADDRESSES ONLY THE RETURN OF THE CERTIFICATE PRINCIPAL BALANCE
AND THE RATING ON THE CLASS R CERTIFICATE ADDRESSES ONLY THE RETURN OF THE
CERTIFICATE PRINCIPAL BALANCE AND INTEREST THEREON AT THE STATED RATE.
S&P'S RATINGS ON MORTGAGE PASS-THROUGH CERTIFICATES ADDRESS THE LIKELIHOOD
OF RECEIPT BY CERTIFICATEHOLDERS OF PAYMENTS REQUIRED UNDER THE OPERATIVE
AGREEMENTS. S&P ASSIGNS THE ADDITIONAL RATING OF 'R' TO HIGHLIGHT CLASSES OF
SECURITIES THAT S&P BELIEVES MAY EXPERIENCE HIGH VOLATILITY OR HIGH VARIABILITY
IN EXPECTED RETURNS DUE TO NON-CREDIT RISKS. S&P'S RATINGS TAKE INTO
CONSIDERATION THE CREDIT QUALITY OF THE MORTGAGE POOL, INCLUDING ANY CREDIT
SUPPORT PROVIDERS, STRUCTURAL AND LEGAL ASPECTS ASSOCIATED WITH THE
CERTIFICATES, AND THE EXTENT TO WHICH THE PAYMENT STREAM OF THE MORTGAGE POOL IS
ADEQUATE TO MAKE PAYMENT REQUIRED UNDER THE CERTIFICATES. S&P'S RATINGS ON
MORTGAGE PASS-THROUGH CERTIFICATES DO NOT, HOWEVER, CONSTITUTE A STATEMENT
REGARDING THE FREQUENCY OF PREPAYMENTS ON THE MORTGAGE LOANS. S&P'S RATINGS DO
NOT ADDRESS THE POSSIBILITY THAT INVESTORS MAY SUFFER A LOWER-THAN-ANTICIPATED
YIELD.
The ratings on the offered certificates address the likelihood of the
receipt by certificateholders of all distributions with respect to the
underlying Loans to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by
mortgagors might differ from those originally anticipated. As a result of such
differences in the rate of principal prepayments, certificateholders might
suffer a lower-than-anticipated yield to maturity. See 'Risk Factors' and
'Prepayment and Yield Considerations'.
The Depositor has not requested a rating on the offered certificates by any
rating agency other than S&P and DCR. However, there can be no assurance as to
whether any other rating agency will rate the offered certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the offered certificates by another rating agency, if assigned at all, may be
lower than the rating assigned to the offered certificates by S&P and DCR.
S-71
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of certain of the more significant terms used in
this prospectus supplement and the pages on which the definitions of such terms
may be found.
<TABLE>
<S> <C>
1998 Policy Statement....... S-66
AAMG........................ S-48
AANA........................ S-64
Accretion Directed.......... S-7
Accretion Directed
Certificates............. S-2
Accretion Directed
Component................ S-2
Accrual..................... S-7
Accrual Certificates........ S-2
Accrual Component........... S-2
Act......................... S-68
Adjustable Rate............. S-7
Adjustable Rate
Certificates............. S-2
Available Distribution
Amount................... S-5, S-27
Bankruptcy Coverage......... S-29
Bankruptcy Losses........... S-29
Book-Entry Certificates..... S-2
Cede........................ S-25
Certificate Account......... S-21
Class A Certificates........ S-2
Class A-13 Interest Rate.... S-29
Class A-14 Interest Rate.... S-29
Class A-14 Notional
Amount................... S-29
Class A-6 Interest Rate..... S-29
Class A-6 Notional Amount... S-29
Class A-7 Interest Rate..... S-29
Class A-8 Interest Rate..... S-29
Class A-X Notional Amount... S-29
Closing Date................ S-1
Code........................ S-60
Compensating Interest....... S-28
Component A-9-2 Notional
Amount................... S-29
Component A-9-3 Notional
Amount................... S-30
Credit Support Depletion
Date..................... S-30
Cut-Off Date................ S-1
DCR......................... S-24, S-70
Debt Service Reduction...... S-30
Deficient Valuation......... S-30
Definitive Certificates..... S-25
Depositor................... S-1
Determination Date.......... S-27
Discount Fraction........... S-30
Discount Fractional
Principal Amount......... S-30
Discount Fractional
Principal Shortfall...... S-30
Discount Loan............... S-31
Distribution Dates.......... S-1
Due Date.................... S-27
ERISA....................... S-67
Excess Liquidation
Proceeds................. S-28
FDIC........................ S-18
FHLMC....................... S-55
FICO Scores................. S-22
FNMA........................ S-55
Fraud Coverage.............. S-31
Fraud Losses................ S-31
GNMA........................ S-54
Interest Accrual Period..... S-31
Interest Only............... S-6
Interest Only Components.... S-2
Interest Only
Certificates............. S-2
IRS......................... S-60
Junior Subordinate
Certificates............. S-2
LIBOR....................... S-8, S-31
LIBOR Business Day.......... S-32
LIBOR Determination Date.... S-32
Liquidated Loan............. S-32
Liquidation Principal....... S-32
Liquidation Proceeds........ S-32
Loans....................... S-21
Major Obligor............... S-69
Modeling Assumptions........ S-54
Mortgage Pool............... S-21
NCUA........................ S-66
New Regulations............. S-61
OID......................... S-60
OID Regulations............. S-60
OTS......................... S-66
</TABLE>
S-72
<PAGE>
<TABLE>
<S> <C>
PAC......................... S-7
PAC Certificates............ S-2
PAC Components.............. S-2
Pass-Through Rate........... S-32
Pass-Through Rates.......... S-6
Plan........................ S-67
Premium Loan................ S-32
Prepayment Period........... S-32
Prepayment Speed
Assumption............... S-53
Principal Only.............. S-6
Principal Only
Certificates............. S-2
Principal Only Component.... S-2
Principal Payment Amount.... S-32
Principal Prepayment
Amount................... S-33
Pro Rata Allocation......... S-33
PSA......................... S-53
REITs....................... S-61
Residual Certificate........ S-2
Restricted Group............ S-69
S&P......................... S-24, S-70
Seller...................... S-1
Senior Certificates......... S-2
Senior Components........... S-2
Senior Liquidation Amount... S-33
Senior Percentage........... S-34
Senior Prepayment
Percentage............... S-34
Senior Principal Amount..... S-34
Senior Subordinate
Certificates............. S-2
Servicer.................... S-1
SMMEA....................... S-65
Special Hazard Coverage..... S-34
Special Hazard Losses....... S-34
Subordinate Certificates.... S-2
Subordinate Liquidation
Amount................... S-35
Subordinate Percentage...... S-35
Subordinate Prepayment
Percentage............... S-35
Subordinate Principal
Amount................... S-35
Subordinate Principal
Prepayment Amount........ S-35
Subordination Level......... S-35
TAC......................... S-7
TAC Certificates............ S-2
TAC Components.............. S-2
TB 13a...................... S-66
Trustee..................... S-1
Underwriters................ S-1
Underwriter's PTE........... S-67
</TABLE>
S-73
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
APPENDIX A
PLANNED PRINCIPAL BALANCE TABLE*
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2
CLASS A-3,
DISTRIBUTION DATES COMPONENT A-9-1
- ------------------ ---------------
<S> <C>
Initial Balance............................................. $124,380,000.00
December 25, 1999........................................... 124,380,000.00
January 25, 2000............................................ 124,380,000.00
February 25, 2000........................................... 124,380,000.00
March 25, 2000.............................................. 124,380,000.00
April 25, 2000.............................................. 124,380,000.00
May 25, 2000................................................ 124,380,000.00
June 25, 2000............................................... 124,380,000.00
July 25, 2000............................................... 124,380,000.00
August 25, 2000............................................. 124,380,000.00
September 25, 2000.......................................... 124,380,000.00
October 25, 2000............................................ 124,380,000.00
November 25, 2000........................................... 123,505,963.32
December 25, 2000........................................... 122,585,698.82
January 25, 2001............................................ 121,619,580.98
February 25, 2001........................................... 120,608,008.03
March 25, 2001.............................................. 119,551,401.71
April 25, 2001.............................................. 118,450,207.01
May 25, 2001................................................ 117,304,891.85
June 25, 2001............................................... 116,115,946.81
July 25, 2001............................................... 114,883,884.73
August 25, 2001............................................. 113,609,240.42
September 25, 2001.......................................... 112,292,570.25
October 25, 2001............................................ 110,934,498.74
November 25, 2001........................................... 109,535,674.74
December 25, 2001........................................... 108,097,199.63
January 25, 2002............................................ 106,621,473.08
February 25, 2002........................................... 105,111,402.02
March 25, 2002.............................................. 103,576,831.44
April 25, 2002.............................................. 102,040,877.49
May 25, 2002................................................ 100,512,325.64
June 25, 2002............................................... 98,991,468.96
July 25, 2002............................................... 97,478,268.33
August 25, 2002............................................. 95,972,684.82
September 25, 2002.......................................... 94,474,679.69
October 25, 2002............................................ 92,984,214.42
November 25, 2002........................................... 91,501,250.69
December 25, 2002........................................... 90,025,750.39
January 25, 2003............................................ 88,557,675.58
February 25, 2003........................................... 87,096,988.57
March 25, 2003.............................................. 85,643,651.83
April 25, 2003.............................................. 84,197,628.04
</TABLE>
- ------------
* The aggregate principal balances for the PAC certificates on each distribution
date were calculated assuming that (i) the Loans have the characteristics set
forth in the Modeling Assumptions described under the heading 'Prepayment and
Yield Considerations -- Prepayment Speed Assumption and Modeling Assumptions,'
and (ii) the Loans are prepaid at a constant rate within the range of 100% to
450% PSA.
A-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2
CLASS A-3,
DISTRIBUTION DATES COMPONENT A-9-1
- ------------------ ---------------
<S> <C>
May 25, 2003................................................ $ 82,758,880.08
June 25, 2003............................................... 81,327,371.03
July 25, 2003............................................... 79,903,064.14
August 25, 2003............................................. 78,485,922.90
September 25, 2003.......................................... 77,075,910.95
October 25, 2003............................................ 75,672,992.15
November 25, 2003........................................... 74,277,130.53
December 25, 2003........................................... 72,888,290.33
January 25, 2004............................................ 71,506,435.96
February 25, 2004........................................... 70,131,532.05
March 25, 2004.............................................. 68,763,543.38
April 25, 2004.............................................. 67,402,434.95
May 25, 2004................................................ 66,048,171.92
June 25, 2004............................................... 64,700,719.64
July 25, 2004............................................... 63,360,043.66
August 25, 2004............................................. 62,026,109.70
September 25, 2004.......................................... 60,698,883.66
October 25, 2004............................................ 59,378,331.64
November 25, 2004........................................... 58,064,419.89
December 25, 2004........................................... 56,776,493.22
January 25, 2005............................................ 55,495,067.16
February 25, 2005........................................... 54,220,108.23
March 25, 2005.............................................. 52,951,583.14
April 25, 2005.............................................. 51,689,458.77
May 25, 2005................................................ 50,433,702.17
June 25, 2005............................................... 49,184,280.55
July 25, 2005............................................... 47,941,161.31
August 25, 2005............................................. 46,704,312.02
September 25, 2005.......................................... 45,473,700.39
October 25, 2005............................................ 44,249,294.35
November 25, 2005........................................... 43,031,061.94
December 25, 2005........................................... 41,825,225.00
January 25, 2006............................................ 40,625,460.69
February 25, 2006........................................... 39,431,737.55
March 25, 2006.............................................. 38,244,024.31
April 25, 2006.............................................. 37,062,289.85
May 25, 2006................................................ 35,886,503.23
June 25, 2006............................................... 34,716,633.64
July 25, 2006............................................... 33,561,027.27
August 25, 2006............................................. 32,438,296.48
September 25, 2006.......................................... 31,347,548.06
October 25, 2006............................................ 30,287,912.56
November 25, 2006........................................... 29,258,543.69
December 25, 2006........................................... 28,309,386.19
January 25, 2007............................................ 27,387,422.25
February 25, 2007........................................... 26,491,901.15
March 25, 2007.............................................. 25,622,092.40
April 25, 2007.............................................. 24,777,285.24
May 25, 2007................................................ 23,956,788.12
June 25, 2007............................................... 23,159,928.15
July 25, 2007............................................... 22,386,050.64
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2
CLASS A-3,
DISTRIBUTION DATES COMPONENT A-9-1
- ------------------ ---------------
<S> <C>
August 25, 2007............................................. $ 21,634,518.60
September 25, 2007.......................................... 20,904,712.27
October 25, 2007............................................ 20,196,028.66
November 25, 2007........................................... 19,507,881.11
December 25, 2007........................................... 18,881,077.13
January 25, 2008............................................ 18,272,064.79
February 25, 2008........................................... 17,680,350.17
March 25, 2008.............................................. 17,105,452.87
April 25, 2008.............................................. 16,546,905.57
May 25, 2008................................................ 16,004,253.74
June 25, 2008............................................... 15,477,055.27
July 25, 2008............................................... 14,964,880.13
August 25, 2008............................................. 14,467,310.05
September 25, 2008.......................................... 13,983,938.21
October 25, 2008............................................ 13,514,368.93
November 25, 2008........................................... 13,058,217.35
December 25, 2008........................................... 12,646,713.40
January 25, 2009............................................ 12,246,316.82
February 25, 2009........................................... 11,856,731.21
March 25, 2009.............................................. 11,477,667.99
April 25, 2009.............................................. 11,108,846.25
May 25, 2009................................................ 10,749,992.49
June 25, 2009............................................... 10,400,840.47
July 25, 2009............................................... 10,061,131.00
August 25, 2009............................................. 9,730,611.76
September 25, 2009.......................................... 9,409,037.11
October 25, 2009............................................ 9,096,167.91
November 25, 2009........................................... 8,791,771.38
December 25, 2009........................................... 8,495,620.90
January 25, 2010............................................ 8,207,495.86
February 25, 2010........................................... 7,927,181.49
March 25, 2010.............................................. 7,654,468.74
April 25, 2010.............................................. 7,389,154.08
May 25, 2010................................................ 7,131,039.40
June 25, 2010............................................... 6,879,931.84
July 25, 2010............................................... 6,635,643.65
August 25, 2010............................................. 6,397,992.07
September 25, 2010.......................................... 6,166,799.21
October 25, 2010............................................ 5,941,891.89
November 25, 2010........................................... 5,723,101.51
December 25, 2010........................................... 5,510,263.98
January 25, 2011............................................ 5,303,219.56
February 25, 2011........................................... 5,101,812.75
March 25, 2011.............................................. 4,905,892.18
April 25, 2011.............................................. 4,715,310.53
May 25, 2011................................................ 4,529,924.36
June 25, 2011............................................... 4,349,594.08
July 25, 2011............................................... 4,174,183.78
August 25, 2011............................................. 4,003,561.19
September 25, 2011.......................................... 3,837,597.56
October 25, 2011............................................ 3,676,167.55
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2
CLASS A-3,
DISTRIBUTION DATES COMPONENT A-9-1
- ------------------ ---------------
<S> <C>
November 25, 2011........................................... $ 3,519,149.17
December 25, 2011........................................... 3,366,423.68
January 25, 2012............................................ 3,217,875.49
February 25, 2012........................................... 3,073,392.10
March 25, 2012.............................................. 2,932,864.01
April 25, 2012.............................................. 2,796,184.62
May 25, 2012................................................ 2,663,250.20
June 25, 2012............................................... 2,533,959.75
July 25, 2012............................................... 2,408,215.00
August 25, 2012............................................. 2,285,920.28
September 25, 2012.......................................... 2,166,982.47
October 25, 2012............................................ 2,051,310.94
November 25, 2012........................................... 1,938,817.49
December 25, 2012........................................... 1,829,416.25
January 25, 2013............................................ 1,723,023.68
February 25, 2013........................................... 1,619,558.42
March 25, 2013.............................................. 1,518,941.34
April 25, 2013.............................................. 1,421,095.38
May 25, 2013................................................ 1,325,945.55
June 25, 2013............................................... 1,233,418.89
July 25, 2013............................................... 1,143,444.35
August 25, 2013............................................. 1,055,952.82
September 25, 2013.......................................... 970,877.02
October 25, 2013............................................ 888,151.45
November 25, 2013........................................... 807,712.40
December 25, 2013........................................... 729,497.85
January 25, 2014............................................ 653,447.44
February 25, 2014........................................... 579,502.42
March 25, 2014.............................................. 507,605.62
April 25, 2014.............................................. 437,701.41
May 25, 2014................................................ 369,735.64
June 25, 2014............................................... 303,655.62
July 25, 2014............................................... 239,410.06
August 25, 2014............................................. 176,949.06
September 25, 2014.......................................... 116,224.06
October 25, 2014............................................ 57,187.78
November 25, 2014 and thereafter............................ 0.00
</TABLE>
A-4
<PAGE>
APPENDIX B
TARGETED PRINCIPAL BALANCES TABLE*
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-4,
CLASS A-5,
CLASS A-7,
CLASS A-8,
AGGREGATE CLASS A-13 AND COMPONENT
CLASS A-5 AND CLASS A-15 A-9-5
DISTRIBUTION DATES CLASS A-13 SCHEDULE #1 SCHEDULE #1
- ------------------ ---------- ----------- -----------
<S> <C> <C> <C>
Initial Balance.......................... $51,175,676.00 $100,500,000.00 $37,600,000.00
December 25, 1999........................ 50,537,882.42 99,651,016.49 37,842,833.33
January 25, 2000......................... 49,816,894.48 98,691,290.83 38,087,234.97
February 25, 2000........................ 49,012,969.71 97,621,165.81 38,333,215.02
March 25, 2000........................... 48,126,384.74 96,441,009.64 38,580,783.70
April 25, 2000........................... 47,157,509.93 95,151,315.37 38,829,951.27
May 25, 2000............................. 46,106,809.46 93,752,700.83 39,080,728.03
June 25, 2000............................ 44,974,841.04 92,245,908.43 39,333,124.40
July 25, 2000............................ 43,762,255.63 90,631,804.67 39,587,150.83
August 25, 2000.......................... 42,469,796.87 88,911,379.43 39,842,817.85
September 25, 2000....................... 41,098,300.34 87,085,744.99 40,100,136.05
October 25, 2000......................... 39,648,692.71 85,156,134.83 40,359,116.09
November 25, 2000........................ 38,778,605.24 83,997,938.92 40,619,768.72
December 25, 2000........................ 37,867,257.00 82,784,819.74 40,882,104.72
January 25, 2001......................... 36,915,559.30 81,517,990.36 41,146,134.98
February 25, 2001........................ 35,924,491.29 80,198,754.13 41,411,870.44
March 25, 2001........................... 34,895,098.30 78,828,502.53 41,679,322.10
April 25, 2001........................... 33,828,490.13 77,408,712.85 41,948,501.06
May 25, 2001............................. 32,725,839.15 75,940,945.65 42,219,418.46
June 25, 2001............................ 31,588,378.22 74,426,842.03 42,492,085.54
July 25, 2001............................ 30,417,398.54 72,868,120.73 42,766,513.59
August 25, 2001.......................... 29,214,247.25 71,266,574.97 43,042,713.99
September 25, 2001....................... 27,980,325.01 69,624,069.21 43,320,698.18
October 25, 2001......................... 26,717,126.04 67,942,592.44 43,600,477.69
November 25, 2001........................ 25,426,194.43 66,224,200.03 43,882,064.11
December 25, 2001........................ 24,109,508.01 64,471,524.73 44,165,469.11
January 25, 2002......................... 22,770,222.65 62,688,767.39 44,450,704.43
February 25, 2002........................ 21,411,915.26 60,880,689.35 44,737,781.90
March 25, 2002........................... 20,044,335.77 59,060,268.97 45,026,713.40
April 25, 2002........................... 18,688,857.48 57,255,956.80 45,317,510.93
May 25, 2002............................. 17,353,330.41 55,478,202.23 45,610,186.52
June 25, 2002............................ 16,037,742.06 53,726,988.60 45,904,752.31
July 25, 2002............................ 14,741,776.35 52,001,895.16 46,201,220.50
</TABLE>
- ------------
* The targeted principal balances for each class of TAC certificates on each
distribution date were calculated assuming that (i) the Loans have the
characteristics set forth in the Modeling Assumptions described under the
heading 'Prepayment and Yield Considerations -- Prepayment Speed Assumption
and Modeling Assumptions'; and (ii) the Loans, in the case of the aggregate
principal balance of the Class A-5 and Class A-13 certificates, are prepaid at
a constant rate of 225% PSA; and (iii) the Loans, in the case of the aggregate
principal balance of the Class A-4, Class A-5, Class A-7, Class A-8,
Class A-13 and Class A-15 certificates, are prepaid at a constant rate of
(a) 225% PSA in the case of the first targeted principal balances; and
(b) 475% PSA in the case of the second targeted principal balances; and
(iv) the Loans, in the case of Component A-9-5 of the Class A-9 certificates,
are prepaid at a constant rate of (a) 225% PSA in the case of the first
targeted principal balances; and (b) 750% PSA in the case of the second
targeted principal balances.
B-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-4,
CLASS A-5,
CLASS A-7,
CLASS A-8,
AGGREGATE CLASS A-13 AND COMPONENT
CLASS A-5 AND CLASS A-15 A-9-5
DISTRIBUTION DATES CLASS A-13 SCHEDULE #1 SCHEDULE #1
- ------------------ ---------- ----------- -----------
<S> <C> <C> <C>
August 25, 2002.......................... $13,465,120.99 $ 50,302,506.25 $46,499,603.38
September 25, 2002....................... 12,207,467.50 48,628,411.20 46,799,913.32
October 25, 2002......................... 10,968,511.07 46,979,204.30 47,102,162.76
November 25, 2002........................ 9,747,950.60 45,354,484.74 47,406,364.23
December 25, 2002........................ 8,545,488.60 43,753,856.51 47,712,530.33
January 25, 2003......................... 7,360,831.16 42,176,928.40 48,020,673.76
February 25, 2003........................ 6,193,687.90 40,623,313.86 48,330,807.27
March 25, 2003........................... 5,043,771.93 39,092,631.01 48,642,943.74
April 25, 2003........................... 3,910,799.81 37,584,502.56 48,957,096.08
May 25, 2003............................. 2,794,491.50 36,098,555.73 49,273,277.33
June 25, 2003............................ 1,694,570.29 34,634,422.20 49,591,500.58
July 25, 2003............................ 610,762.83 33,191,738.09 49,911,779.02
August 25, 2003.......................... 0.00 31,770,143.86 50,234,125.92
September 25, 2003....................... 0.00 30,369,284.24 50,558,554.65
October 25, 2003......................... 0.00 28,988,808.26 50,885,078.65
November 25, 2003........................ 0.00 27,628,369.09 51,213,711.45
December 25, 2003........................ 0.00 26,287,624.05 51,544,466.67
January 25, 2004......................... 0.00 24,966,234.56 51,877,358.02
February 25, 2004........................ 0.00 23,663,866.05 52,212,399.29
March 25, 2004........................... 0.00 22,380,187.92 52,549,604.37
April 25, 2004........................... 0.00 21,114,873.52 52,888,987.23
May 25, 2004............................. 0.00 19,867,600.05 53,230,561.94
June 25, 2004............................ 0.00 18,638,048.57 53,574,342.65
July 25, 2004............................ 0.00 17,425,903.88 53,920,343.62
August 25, 2004.......................... 0.00 16,230,854.53 54,268,579.17
September 25, 2004....................... 0.00 15,052,592.73 54,619,063.74
October 25, 2004......................... 0.00 13,890,814.34 54,971,811.86
November 25, 2004........................ 0.00 12,745,218.79 55,326,838.15
December 25, 2004........................ 0.00 11,641,394.13 55,684,157.31
January 25, 2005......................... 0.00 10,552,971.44 56,043,784.16
February 25, 2005........................ 0.00 9,479,661.04 56,405,733.60
March 25, 2005........................... 0.00 8,421,176.66 56,770,020.63
April 25, 2005........................... 0.00 7,377,235.40 57,136,660.34
May 25, 2005............................. 0.00 6,347,557.65 57,505,667.94
June 25, 2005............................ 0.00 5,331,867.07 57,877,058.71
July 25, 2005............................ 0.00 4,329,890.53 58,250,848.05
August 25, 2005.......................... 0.00 3,341,358.10 58,627,051.45
September 25, 2005....................... 0.00 2,366,002.98 59,005,684.49
October 25, 2005......................... 0.00 1,403,561.47 59,386,762.87
November 25, 2005........................ 0.00 453,772.92 59,770,302.38
December 25, 2005........................ 0.00 0.00 59,680,694.33
January 25, 2006......................... 0.00 0.00 59,151,830.49
February 25, 2006........................ 0.00 0.00 58,637,249.02
March 25, 2006........................... 0.00 0.00 58,136,718.17
April 25, 2006........................... 0.00 0.00 57,650,009.13
May 25, 2006............................. 0.00 0.00 57,176,896.03
June 25, 2006............................ 0.00 0.00 56,717,155.88
July 25, 2006............................ 0.00 0.00 56,262,191.73
August 25, 2006.......................... 0.00 0.00 55,793,143.40
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-4,
CLASS A-5,
CLASS A-7,
CLASS A-8,
AGGREGATE CLASS A-13 AND COMPONENT
CLASS A-5 AND CLASS A-15 A-9-5
DISTRIBUTION DATES CLASS A-13 SCHEDULE #1 SCHEDULE #1
- ------------------ ---------- ----------- -----------
<S> <C> <C> <C>
September 25, 2006....................... $ 0.00 $ 0.00 $55,310,659.24
October 25, 2006......................... 0.00 0.00 54,815,366.71
November 25, 2006........................ 0.00 0.00 54,307,873.02
December 25, 2006........................ 0.00 0.00 53,764,489.57
January 25, 2007......................... 0.00 0.00 53,211,119.90
February 25, 2007........................ 0.00 0.00 52,648,287.51
March 25, 2007........................... 0.00 0.00 52,076,498.34
April 25, 2007........................... 0.00 0.00 51,496,241.27
May 25, 2007............................. 0.00 0.00 50,907,988.60
June 25, 2007............................ 0.00 0.00 50,312,196.57
July 25, 2007............................ 0.00 0.00 49,709,305.79
August 25, 2007.......................... 0.00 0.00 49,099,741.70
September 25, 2007....................... 0.00 0.00 48,483,915.00
October 25, 2007......................... 0.00 0.00 47,862,222.12
November 25, 2007........................ 0.00 0.00 47,235,045.58
December 25, 2007........................ 0.00 0.00 46,585,263.75
January 25, 2008......................... 0.00 0.00 45,931,870.56
February 25, 2008........................ 0.00 0.00 45,275,169.12
March 25, 2008........................... 0.00 0.00 44,615,451.29
April 25, 2008........................... 0.00 0.00 43,952,998.05
May 25, 2008............................. 0.00 0.00 43,288,079.78
June 25, 2008............................ 0.00 0.00 42,620,956.64
July 25, 2008............................ 0.00 0.00 41,951,878.82
August 25, 2008.......................... 0.00 0.00 41,281,086.88
September 25, 2008....................... 0.00 0.00 40,608,812.03
October 25, 2008......................... 0.00 0.00 39,935,276.38
November 25, 2008........................ 0.00 0.00 39,260,693.28
December 25, 2008........................ 0.00 0.00 38,574,549.93
January 25, 2009......................... 0.00 0.00 37,888,814.20
February 25, 2009........................ 0.00 0.00 37,203,625.83
March 25, 2009........................... 0.00 0.00 36,519,118.49
April 25, 2009........................... 0.00 0.00 35,835,420.00
May 25, 2009............................. 0.00 0.00 35,152,652.52
June 25, 2009............................ 0.00 0.00 34,470,932.68
July 25, 2009............................ 0.00 0.00 33,790,371.80
August 25, 2009.......................... 0.00 0.00 33,111,076.02
September 25, 2009....................... 0.00 0.00 32,433,146.46
October 25, 2009......................... 0.00 0.00 31,756,679.39
November 25, 2009........................ 0.00 0.00 31,081,766.39
December 25, 2009........................ 0.00 0.00 30,408,494.46
January 25, 2010......................... 0.00 0.00 29,736,946.21
February 25, 2010........................ 0.00 0.00 29,067,199.94
March 25, 2010........................... 0.00 0.00 28,399,329.84
April 25, 2010........................... 0.00 0.00 27,733,406.08
May 25, 2010............................. 0.00 0.00 27,069,494.92
June 25, 2010............................ 0.00 0.00 26,407,658.89
July 25, 2010............................ 0.00 0.00 25,747,956.87
August 25, 2010.......................... 0.00 0.00 25,090,444.20
September 25, 2010....................... 0.00 0.00 24,435,172.83
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-4,
CLASS A-5,
CLASS A-7,
CLASS A-8,
AGGREGATE CLASS A-13 AND COMPONENT
CLASS A-5 AND CLASS A-15 A-9-5
DISTRIBUTION DATES CLASS A-13 SCHEDULE #1 SCHEDULE #1
- ------------------ ---------- ----------- -----------
<S> <C> <C> <C>
October 25, 2010......................... $ 0.00 $ 0.00 $23,782,191.40
November 25, 2010........................ 0.00 0.00 23,131,545.35
December 25, 2010........................ 0.00 0.00 22,483,277.02
January 25, 2011......................... 0.00 0.00 21,837,425.78
February 25, 2011........................ 0.00 0.00 21,194,028.09
March 25, 2011........................... 0.00 0.00 20,553,117.62
April 25, 2011........................... 0.00 0.00 19,914,725.34
May 25, 2011............................. 0.00 0.00 19,278,879.59
June 25, 2011............................ 0.00 0.00 18,645,606.19
July 25, 2011............................ 0.00 0.00 18,014,928.51
August 25, 2011.......................... 0.00 0.00 17,386,867.55
September 25, 2011....................... 0.00 0.00 16,761,442.05
October 25, 2011......................... 0.00 0.00 16,138,668.53
November 25, 2011........................ 0.00 0.00 15,518,561.36
December 25, 2011........................ 0.00 0.00 14,901,132.89
January 25, 2012......................... 0.00 0.00 14,286,393.46
February 25, 2012........................ 0.00 0.00 13,674,351.48
March 25, 2012........................... 0.00 0.00 13,065,013.54
April 25, 2012........................... 0.00 0.00 12,458,384.42
May 25, 2012............................. 0.00 0.00 11,854,467.18
June 25, 2012............................ 0.00 0.00 11,253,263.21
July 25, 2012............................ 0.00 0.00 10,654,772.30
August 25, 2012.......................... 0.00 0.00 10,058,992.70
September 25, 2012....................... 0.00 0.00 9,465,921.16
October 25, 2012......................... 0.00 0.00 8,875,553.00
November 25, 2012........................ 0.00 0.00 8,287,882.13
December 25, 2012........................ 0.00 0.00 7,702,901.16
January 25, 2013......................... 0.00 0.00 7,120,601.38
February 25, 2013........................ 0.00 0.00 6,540,972.87
March 25, 2013........................... 0.00 0.00 5,964,004.50
April 25, 2013........................... 0.00 0.00 5,389,684.00
May 25, 2013............................. 0.00 0.00 4,817,998.00
June 25, 2013............................ 0.00 0.00 4,248,932.06
July 25, 2013............................ 0.00 0.00 3,682,470.71
August 25, 2013.......................... 0.00 0.00 3,118,597.54
September 25, 2013....................... 0.00 0.00 2,557,295.14
October 25, 2013......................... 0.00 0.00 1,998,545.24
November 25, 2013........................ 0.00 0.00 1,442,328.68
December 25, 2013........................ 0.00 0.00 888,625.48
January 25, 2014......................... 0.00 0.00 337,414.83
February 25, 2014 and thereafter......... 0.00 0.00 0.00
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-4,
CLASS A-5,
CLASS A-7,
CLASS A-8,
CLASS A-13 COMPONENT
AND CLASS A-15 A-9-5
DISTRIBUTION DATES SCHEDULE #2 SCHEDULE #2
- ------------------ ----------- -----------
<S> <C> <C>
Initial Balance........... $100,500,000.00 $37,600,000.00
December 25, 1999......... 99,651,016.49 37,842,833.33
January 25, 2000.......... 98,691,290.83 38,087,234.97
February 25, 2000......... 97,621,165.81 38,333,215.02
March 25, 2000............ 96,441,009.64 38,580,783.70
April 25, 2000............ 95,151,315.37 38,829,951.27
May 25, 2000.............. 93,752,700.83 39,080,728.03
June 25, 2000............. 92,245,908.43 38,114,154.03
July 25, 2000............. 90,631,804.67 35,833,946.11
August 25, 2000........... 88,911,379.43 33,328,650.16
September 25, 2000........ 87,085,744.99 30,608,103.46
October 25, 2000.......... 84,598,153.79 28,241,371.26
November 25, 2000......... 81,857,854.54 26,706,885.03
December 25, 2000......... 78,968,656.63 25,087,943.87
January 25, 2001.......... 75,936,772.53 23,394,090.73
February 25, 2001......... 72,768,872.40 21,635,528.96
March 25, 2001............ 69,472,063.87 19,823,063.15
April 25, 2001............ 66,053,869.75 17,968,033.52
May 25, 2001.............. 62,522,203.54 16,082,244.21
June 25, 2001............. 58,885,343.18 14,177,885.93
July 25, 2001............. 55,151,902.84 12,267,453.58
August 25, 2001........... 51,330,803.03 10,363,659.37
September 25, 2001........ 47,431,239.10 8,479,342.07
October 25, 2001.......... 43,462,813.21 6,627,488.28
November 25, 2001......... 39,435,334.02 4,821,004.12
December 25, 2001......... 35,360,266.37 3,073,633.41
January 25, 2002.......... 31,253,485.83 1,401,600.96
February 25, 2002......... 27,132,155.62 0.00
March 25, 2002............ 23,036,579.78 0.00
April 25, 2002............ 19,049,888.34 0.00
May 25, 2002.............. 15,200,316.86 0.00
June 25, 2002............. 11,484,965.40 0.00
July 25, 2002............. 7,899,830.47 0.00
August 25, 2002........... 4,441,020.86 0.00
September 25, 2002........ 1,104,754.53 0.00
October 25, 2002 and
thereafter.............. 0.00 0.00
</TABLE>
B-5
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
APPENDIX C
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 100 99 99 99 99 100 100 100 100 100
November, 2001...... 96 77 77 77 77 100 100 100 100 100
November, 2002...... 91 49 49 49 49 100 100 100 100 100
November, 2003...... 87 22 22 22 22 100 100 100 100 100
November, 2004...... 82 0 0 0 0 100 93 93 93 93
November, 2005...... 76 0 0 0 0 100 48 48 48 48
November, 2006...... 70 0 0 0 0 100 6 6 6 6
November, 2007...... 64 0 0 0 0 100 0 0 0 0
November, 2008...... 57 0 0 0 0 100 0 0 0 0
November, 2009...... 49 0 0 0 0 100 0 0 0 0
November, 2010...... 41 0 0 0 0 100 0 0 0 0
November, 2011...... 32 0 0 0 0 100 0 0 0 0
November, 2012...... 23 0 0 0 0 100 0 0 0 0
November, 2013...... 12 0 0 0 0 100 0 0 0 0
November, 2014...... 1 0 0 0 0 100 0 0 0 0
November, 2015...... 0 0 0 0 0 79 0 0 0 0
November, 2016...... 0 0 0 0 0 54 0 0 0 0
November, 2017...... 0 0 0 0 0 27 0 0 0 0
November, 2018...... 0 0 0 0 0 0 0 0 0 0
November, 2019...... 0 0 0 0 0 0 0 0 0 0
November, 2020...... 0 0 0 0 0 0 0 0 0 0
November, 2021...... 0 0 0 0 0 0 0 0 0 0
November, 2022...... 0 0 0 0 0 0 0 0 0 0
November, 2023...... 0 0 0 0 0 0 0 0 0 0
November, 2024...... 0 0 0 0 0 0 0 0 0 0
November, 2025...... 0 0 0 0 0 0 0 0 0 0
November, 2026...... 0 0 0 0 0 0 0 0 0 0
November, 2027...... 0 0 0 0 0 0 0 0 0 0
November, 2028...... 0 0 0 0 0 0 0 0 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 9.4 3.0 3.0 3.0 3.0 17.2 6.0 6.0 6.0 6.0
<CAPTION>
CLASS A-3
DISTRIBUTION -----------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
November, 2000...... 100 100 100 100 100
November, 2001...... 100 100 100 100 100
November, 2002...... 100 100 100 100 100
November, 2003...... 100 100 100 100 100
November, 2004...... 100 100 100 100 100
November, 2005...... 100 100 100 100 100
November, 2006...... 100 100 100 100 100
November, 2007...... 100 59 59 59 59
November, 2008...... 100 24 24 24 24
November, 2009...... 100 2 2 2 2
November, 2010...... 100 0 0 0 0
November, 2011...... 100 0 0 0 0
November, 2012...... 100 0 0 0 0
November, 2013...... 100 0 0 0 0
November, 2014...... 100 0 0 0 0
November, 2015...... 100 0 0 0 0
November, 2016...... 100 0 0 0 0
November, 2017...... 100 0 0 0 0
November, 2018...... 95 0 0 0 0
November, 2019...... 39 0 0 0 0
November, 2020...... 0 0 0 0 0
November, 2021...... 0 0 0 0 0
November, 2022...... 0 0 0 0 0
November, 2023...... 0 0 0 0 0
November, 2024...... 0 0 0 0 0
November, 2025...... 0 0 0 0 0
November, 2026...... 0 0 0 0 0
November, 2027...... 0 0 0 0 0
November, 2028...... 0 0 0 0 0
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 19.9 8.4 8.4 8.4 8.4
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
C-1
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-4 CLASS A-5
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 94 90 84 84 83 91 85 76 76 76
November, 2001...... 90 86 66 58 43 85 79 50 50 50
November, 2002...... 86 81 45 24 * 79 72 19 19 1
November, 2003...... 81 77 27 0 0 72 65 0 0 0
November, 2004...... 76 71 13 0 0 64 58 0 0 0
November, 2005...... 70 66 * 0 0 56 50 0 0 0
November, 2006...... 64 60 0 0 0 47 40 0 0 0
November, 2007...... 58 50 0 0 0 38 26 0 0 0
November, 2008...... 51 37 0 0 0 27 7 0 0 0
November, 2009...... 43 22 0 0 0 16 0 0 0 0
November, 2010...... 35 6 0 0 0 4 0 0 0 0
November, 2011...... 26 0 0 0 0 0 0 0 0 0
November, 2012...... 17 0 0 0 0 0 0 0 0 0
November, 2013...... 6 0 0 0 0 0 0 0 0 0
November, 2014...... 0 0 0 0 0 0 0 0 0 0
November, 2015...... 0 0 0 0 0 0 0 0 0 0
November, 2016...... 0 0 0 0 0 0 0 0 0 0
November, 2017...... 0 0 0 0 0 0 0 0 0 0
November, 2018...... 0 0 0 0 0 0 0 0 0 0
November, 2019...... 0 0 0 0 0 0 0 0 0 0
November, 2020...... 0 0 0 0 0 0 0 0 0 0
November, 2021...... 0 0 0 0 0 0 0 0 0 0
November, 2022...... 0 0 0 0 0 0 0 0 0 0
November, 2023...... 0 0 0 0 0 0 0 0 0 0
November, 2024...... 0 0 0 0 0 0 0 0 0 0
November, 2025...... 0 0 0 0 0 0 0 0 0 0
November, 2026...... 0 0 0 0 0 0 0 0 0 0
November, 2027...... 0 0 0 0 0 0 0 0 0 0
November, 2028...... 0 0 0 0 0 0 0 0 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 8.5 7.0 2.9 2.2 1.8 6.3 5.4 2.0 2.0 1.9
<CAPTION>
CLASS A-6
DISTRIBUTION -----------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
November, 2000...... 100 100 100 100 97
November, 2001...... 100 100 100 75 29
November, 2002...... 100 100 100 36 0
November, 2003...... 100 100 85 0 0
November, 2004...... 100 100 39 0 0
November, 2005...... 100 100 1 0 0
November, 2006...... 100 100 0 0 0
November, 2007...... 100 100 0 0 0
November, 2008...... 100 100 0 0 0
November, 2009...... 100 69 0 0 0
November, 2010...... 100 20 0 0 0
November, 2011...... 81 0 0 0 0
November, 2012...... 51 0 0 0 0
November, 2013...... 19 0 0 0 0
November, 2014...... 0 0 0 0 0
November, 2015...... 0 0 0 0 0
November, 2016...... 0 0 0 0 0
November, 2017...... 0 0 0 0 0
November, 2018...... 0 0 0 0 0
November, 2019...... 0 0 0 0 0
November, 2020...... 0 0 0 0 0
November, 2021...... 0 0 0 0 0
November, 2022...... 0 0 0 0 0
November, 2023...... 0 0 0 0 0
November, 2024...... 0 0 0 0 0
November, 2025...... 0 0 0 0 0
November, 2026...... 0 0 0 0 0
November, 2027...... 0 0 0 0 0
November, 2028...... 0 0 0 0 0
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 13.1 10.4 4.8 2.7 1.7
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-2
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-7 CLASS A-8
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 100 100 100 100 97 100 100 100 100 97
November, 2001...... 100 100 100 75 29 100 100 100 75 29
November, 2002...... 100 100 100 36 0 100 100 100 36 0
November, 2003...... 100 100 85 0 0 100 100 85 0 0
November, 2004...... 100 100 39 0 0 100 100 39 0 0
November, 2005...... 100 100 1 0 0 100 100 1 0 0
November, 2006...... 100 100 0 0 0 100 100 0 0 0
November, 2007...... 100 100 0 0 0 100 100 0 0 0
November, 2008...... 100 100 0 0 0 100 100 0 0 0
November, 2009...... 100 69 0 0 0 100 69 0 0 0
November, 2010...... 100 20 0 0 0 100 20 0 0 0
November, 2011...... 81 0 0 0 0 81 0 0 0 0
November, 2012...... 51 0 0 0 0 51 0 0 0 0
November, 2013...... 19 0 0 0 0 19 0 0 0 0
November, 2014...... 0 0 0 0 0 0 0 0 0 0
November, 2015...... 0 0 0 0 0 0 0 0 0 0
November, 2016...... 0 0 0 0 0 0 0 0 0 0
November, 2017...... 0 0 0 0 0 0 0 0 0 0
November, 2018...... 0 0 0 0 0 0 0 0 0 0
November, 2019...... 0 0 0 0 0 0 0 0 0 0
November, 2020...... 0 0 0 0 0 0 0 0 0 0
November, 2021...... 0 0 0 0 0 0 0 0 0 0
November, 2022...... 0 0 0 0 0 0 0 0 0 0
November, 2023...... 0 0 0 0 0 0 0 0 0 0
November, 2024...... 0 0 0 0 0 0 0 0 0 0
November, 2025...... 0 0 0 0 0 0 0 0 0 0
November, 2026...... 0 0 0 0 0 0 0 0 0 0
November, 2027...... 0 0 0 0 0 0 0 0 0 0
November, 2028...... 0 0 0 0 0 0 0 0 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 13.1 10.4 4.8 2.7 1.7 13.1 10.4 4.8 2.7 1.7
<CAPTION>
CLASS A-9
DISTRIBUTION -----------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
November, 2000...... 106 106 106 106 106
November, 2001...... 113 112 112 111 111
November, 2002...... 120 119 118 118 117
November, 2003...... 127 126 125 123 66
November, 2004...... 136 134 133 94 36
November, 2005...... 145 143 142 78 24
November, 2006...... 154 153 130 71 22
November, 2007...... 165 163 115 64 22
November, 2008...... 176 174 99 57 22
November, 2009...... 188 186 82 51 22
November, 2010...... 202 194 60 40 16
November, 2011...... 216 182 40 30 11
November, 2012...... 231 158 22 23 8
November, 2013...... 248 136 5 18 6
November, 2014...... 256 113 1 14 4
November, 2015...... 251 92 * 10 3
November, 2016...... 245 70 * 8 2
November, 2017...... 239 50 * 6 1
November, 2018...... 232 29 * 4 1
November, 2019...... 225 9 * 3 1
November, 2020...... 210 1 * 2 *
November, 2021...... 176 1 * 2 *
November, 2022...... 140 1 * 1 *
November, 2023...... 101 1 * 1 *
November, 2024...... 59 * * 1 *
November, 2025...... 14 * * * *
November, 2026...... 1 * * * *
November, 2027...... 1 * * * *
November, 2028...... * * * * *
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 22.9 15.8 10.5 9.2 5.8
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-3
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-10 CLASS A-11
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 108 108 108 0 0 108 108 108 68 0
November, 2001...... 117 117 117 0 0 117 117 117 0 0
November, 2002...... 126 126 126 0 0 126 126 126 0 0
November, 2003...... 136 136 136 0 0 136 136 136 0 0
November, 2004...... 147 147 147 0 0 147 147 147 0 0
November, 2005...... 159 159 159 0 0 159 159 159 0 0
November, 2006...... 172 172 172 0 0 172 172 172 0 0
November, 2007...... 186 186 186 0 0 186 186 186 0 0
November, 2008...... 200 200 200 0 0 200 200 200 0 0
November, 2009...... 217 217 217 0 0 217 217 217 0 0
November, 2010...... 234 234 234 0 0 234 234 234 0 0
November, 2011...... 253 253 253 0 0 253 253 253 0 0
November, 2012...... 273 273 273 0 0 273 273 273 0 0
November, 2013...... 295 295 295 0 0 295 295 295 0 0
November, 2014...... 319 319 175 0 0 319 319 319 0 0
November, 2015...... 344 344 9 0 0 344 344 344 0 0
November, 2016...... 372 372 0 0 0 372 372 290 0 0
November, 2017...... 402 402 0 0 0 402 402 239 0 0
November, 2018...... 434 434 0 0 0 434 434 195 0 0
November, 2019...... 469 469 0 0 0 469 469 159 0 0
November, 2020...... 506 336 0 0 0 506 506 128 0 0
November, 2021...... 547 99 0 0 0 547 547 101 0 0
November, 2022...... 591 0 0 0 0 591 513 79 0 0
November, 2023...... 639 0 0 0 0 639 427 61 0 0
November, 2024...... 690 0 0 0 0 690 344 45 0 0
November, 2025...... 745 0 0 0 0 745 266 32 0 0
November, 2026...... 295 0 0 0 0 805 192 21 0 0
November, 2027...... 0 0 0 0 0 653 121 12 0 0
November, 2028...... 0 0 0 0 0 304 53 5 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 26.9 21.5 15.2 0.5 0.3 28.7 25.9 20.5 1.1 0.8
<CAPTION>
CLASS A-12
DISTRIBUTION -----------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
November, 2000...... 99 97 95 93 91
November, 2001...... 98 92 85 78 72
November, 2002...... 97 86 72 60 51
November, 2003...... 96 79 61 46 36
November, 2004...... 95 73 52 35 24
November, 2005...... 94 68 44 27 17
November, 2006...... 92 63 37 20 11
November, 2007...... 91 58 31 15 8
November, 2008...... 89 53 26 12 6
November, 2009...... 87 49 22 9 4
November, 2010...... 85 45 19 7 3
November, 2011...... 83 41 16 5 2
November, 2012...... 81 38 13 4 1
November, 2013...... 79 35 11 3 1
November, 2014...... 76 31 9 2 1
November, 2015...... 73 28 8 2 1
November, 2016...... 70 26 6 1 *
November, 2017...... 67 23 5 1 *
November, 2018...... 63 20 4 1 *
November, 2019...... 59 18 4 1 *
November, 2020...... 55 16 3 * *
November, 2021...... 51 14 2 * *
November, 2022...... 46 12 2 * *
November, 2023...... 40 10 1 * *
November, 2024...... 35 8 1 * *
November, 2025...... 29 6 1 * *
November, 2026...... 22 4 * * *
November, 2027...... 15 3 * * *
November, 2028...... 7 1 * * *
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 20.3 11.5 6.9 4.8 3.8
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-4
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-13 CLASS A-14
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 91 85 76 76 76 91 85 76 76 76
November, 2001...... 85 79 50 50 50 85 79 50 50 50
November, 2002...... 79 72 19 19 1 79 72 19 19 1
November, 2003...... 72 65 0 0 0 72 65 0 0 0
November, 2004...... 64 58 0 0 0 64 58 0 0 0
November, 2005...... 56 50 0 0 0 56 50 0 0 0
November, 2006...... 47 40 0 0 0 47 40 0 0 0
November, 2007...... 38 26 0 0 0 38 26 0 0 0
November, 2008...... 27 7 0 0 0 27 7 0 0 0
November, 2009...... 16 0 0 0 0 16 0 0 0 0
November, 2010...... 4 0 0 0 0 4 0 0 0 0
November, 2011...... 0 0 0 0 0 0 0 0 0 0
November, 2012...... 0 0 0 0 0 0 0 0 0 0
November, 2013...... 0 0 0 0 0 0 0 0 0 0
November, 2014...... 0 0 0 0 0 0 0 0 0 0
November, 2015...... 0 0 0 0 0 0 0 0 0 0
November, 2016...... 0 0 0 0 0 0 0 0 0 0
November, 2017...... 0 0 0 0 0 0 0 0 0 0
November, 2018...... 0 0 0 0 0 0 0 0 0 0
November, 2019...... 0 0 0 0 0 0 0 0 0 0
November, 2020...... 0 0 0 0 0 0 0 0 0 0
November, 2021...... 0 0 0 0 0 0 0 0 0 0
November, 2022...... 0 0 0 0 0 0 0 0 0 0
November, 2023...... 0 0 0 0 0 0 0 0 0 0
November, 2024...... 0 0 0 0 0 0 0 0 0 0
November, 2025...... 0 0 0 0 0 0 0 0 0 0
November, 2026...... 0 0 0 0 0 0 0 0 0 0
November, 2027...... 0 0 0 0 0 0 0 0 0 0
November, 2028...... 0 0 0 0 0 0 0 0 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 6.3 5.4 2.0 2.0 1.9 6.3 5.4 2.0 2.0 1.9
<CAPTION>
CLASS A-15
DISTRIBUTION -----------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
November, 2000...... 100 100 100 100 97
November, 2001...... 100 100 100 75 29
November, 2002...... 100 100 100 36 0
November, 2003...... 100 100 85 0 0
November, 2004...... 100 100 39 0 0
November, 2005...... 100 100 1 0 0
November, 2006...... 100 100 0 0 0
November, 2007...... 100 100 0 0 0
November, 2008...... 100 100 0 0 0
November, 2009...... 100 69 0 0 0
November, 2010...... 100 20 0 0 0
November, 2011...... 81 0 0 0 0
November, 2012...... 51 0 0 0 0
November, 2013...... 19 0 0 0 0
November, 2014...... 0 0 0 0 0
November, 2015...... 0 0 0 0 0
November, 2016...... 0 0 0 0 0
November, 2017...... 0 0 0 0 0
November, 2018...... 0 0 0 0 0
November, 2019...... 0 0 0 0 0
November, 2020...... 0 0 0 0 0
November, 2021...... 0 0 0 0 0
November, 2022...... 0 0 0 0 0
November, 2023...... 0 0 0 0 0
November, 2024...... 0 0 0 0 0
November, 2025...... 0 0 0 0 0
November, 2026...... 0 0 0 0 0
November, 2027...... 0 0 0 0 0
November, 2028...... 0 0 0 0 0
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 13.1 10.4 4.8 2.7 1.7
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-5
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-P CLASS R
DISTRIBUTION ----------------------------- ----------------------------
DATE 0% 100% 225% 350% 450% 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
November, 2000...... 99 97 95 92 90 0 0 0 0 0
November, 2001...... 98 92 85 78 72 0 0 0 0 0
November, 2002...... 97 86 72 61 52 0 0 0 0 0
November, 2003...... 96 79 62 47 38 0 0 0 0 0
November, 2004...... 94 74 53 37 27 0 0 0 0 0
November, 2005...... 93 68 45 29 19 0 0 0 0 0
November, 2006...... 91 63 38 22 14 0 0 0 0 0
November, 2007...... 90 58 33 17 10 0 0 0 0 0
November, 2008...... 88 54 28 13 7 0 0 0 0 0
November, 2009...... 86 49 23 10 5 0 0 0 0 0
November, 2010...... 84 45 20 8 4 0 0 0 0 0
November, 2011...... 82 42 17 6 3 0 0 0 0 0
November, 2012...... 80 38 14 5 2 0 0 0 0 0
November, 2013...... 77 35 12 4 1 0 0 0 0 0
November, 2014...... 75 31 10 3 1 0 0 0 0 0
November, 2015...... 72 28 8 2 1 0 0 0 0 0
November, 2016...... 69 25 7 2 * 0 0 0 0 0
November, 2017...... 65 23 6 1 * 0 0 0 0 0
November, 2018...... 62 20 5 1 * 0 0 0 0 0
November, 2019...... 58 18 4 1 * 0 0 0 0 0
November, 2020...... 53 15 3 * * 0 0 0 0 0
November, 2021...... 49 13 2 * * 0 0 0 0 0
November, 2022...... 44 11 2 * * 0 0 0 0 0
November, 2023...... 39 9 1 * * 0 0 0 0 0
November, 2024...... 33 8 1 * * 0 0 0 0 0
November, 2025...... 27 6 1 * * 0 0 0 0 0
November, 2026...... 21 4 * * * 0 0 0 0 0
November, 2027...... 14 3 * * * 0 0 0 0 0
November, 2028...... 6 1 * * * 0 0 0 0 0
November, 2029...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life.............. 20.0 11.5 7.0 4.9 4.0 0.1 0.1 0.1 0.1 0.1
<CAPTION>
CLASS M, CLASS B-1 AND CLASS B-2
DISTRIBUTION ----------------------------------
DATE 0% 100% 225% 350% 450%
- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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...... 96 96 96 96 96
November, 2004...... 95 95 95 95 95
November, 2005...... 94 92 90 87 85
November, 2006...... 92 88 83 78 74
November, 2007...... 91 84 75 67 60
November, 2008...... 89 78 66 54 46
November, 2009...... 87 72 56 42 33
November, 2010...... 85 66 47 33 24
November, 2011...... 83 61 40 25 17
November, 2012...... 81 56 33 19 12
November, 2013...... 79 51 28 15 8
November, 2014...... 76 46 23 11 6
November, 2015...... 73 42 20 9 4
November, 2016...... 70 38 16 6 3
November, 2017...... 67 34 13 5 2
November, 2018...... 63 30 11 4 1
November, 2019...... 59 26 9 3 1
November, 2020...... 55 23 7 2 1
November, 2021...... 51 20 6 1 *
November, 2022...... 46 17 4 1 *
November, 2023...... 40 14 3 1 *
November, 2024...... 35 11 3 * *
November, 2025...... 29 9 2 * *
November, 2026...... 22 6 1 * *
November, 2027...... 15 4 1 * *
November, 2028...... 7 2 * * *
November, 2029...... 0 0 0 0 0
Weighted Average
Life.............. 20.3 15.1 11.8 10.0 9.2
</TABLE>
- ------------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-6
<PAGE>
APPENDIX D
<TABLE>
<CAPTION>
YEAR OF FIRST PAYMENT(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
YEAR OF FIRST PAYMENT LOANS OUTSTANDING OUTSTANDING
- ---------------------- ----- ----------- -----------
<S> <C> <C> <C>
1999.................. 848 $297,084,786 100.00%
--- ------------ ------
Total.............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) As of the Cut-off Date, the weighted average seasoning of the Loans is
expected to be approximately 2 months.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
- -------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF ORIGINAL MORTGAGE BALANCE BALANCE
LOAN-TO-VALUE RATIOS (%) LOANS OUTSTANDING OUTSTANDING
- ------------------------ ----- ----------- -----------
<S> <C> <C> <C>
50.00 or less........... 18 $ 6,911,343 2.33%
50.01 - 55.00........... 13 4,510,108 1.52
55.01 - 60.00........... 21 7,462,068 2.51
60.01 - 65.00........... 41 15,021,567 5.06
65.01 - 70.00........... 44 20,326,656 6.84
70.01 - 75.00........... 87 33,896,274 11.41
75.01 - 80.00........... 440 154,775,167 52.10
80.01 - 85.00........... 17 5,137,266 1.73
85.01 - 90.00........... 104 31,899,906 10.74
90.01 - 95.00........... 63 17,144,433 5.77
--- ------------ ------
Total................ 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) The weighted average original Loan-to-Value Ratio of the Loans is expected
to be approximately 77.40%.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
ORIGINAL TERM TO MORTGAGE BALANCE BALANCE
MATURITY LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
360 Months........... 848 $297,084,786 100.00%
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Loans is expected to be approximately 358 months.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
MORTGAGE RATE (%) LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
6.750 or less........ 7 $ 2,345,194 0.79%
6.751 - 7.000........ 36 15,050,061 5.07
7.001 - 7.250........ 34 12,353,432 4.16
7.251 - 7.500........ 91 33,527,896 11.29
7.501 - 7.750........ 184 62,724,144 21.11
7.751 - 8.000........ 255 89,864,467 30.25
8.001 - 8.250........ 155 51,213,343 17.24
8.251 - 8.500........ 73 24,798,750 8.35
8.501 - 8.750........ 13 5,207,499 1.75
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Loans is
expected to be approximately 7.833%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE OF AGGREGATE
RANGE OF CURRENT NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE LOAN MORTGAGE BALANCE BALANCE
PRINCIPAL BALANCES LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
$300,000 or less....... 371 $102,102,286 34.37%
$300,001 - $ 400,000... 305 105,180,611 35.40
$400,001 - $ 500,000... 95 42,391,438 14.27
$500,001 - $ 600,000... 51 28,437,953 9.57
$600,001 - $ 700,000... 17 10,817,695 3.64
$700,001 - $ 800,000... 2 1,532,828 0.52
$800,001 - $ 900,000... 2 1,693,282 0.57
$900,001 - $1,000,000.. 5 4,928,693 1.66
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) As of the Cut - off Date, the average current Loan principal balance is
expected to be approximately $350,336.
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
- -------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
LOAN PURPOSE LOANS OUTSTANDING OUTSTANDING
- ------------------------ ----- ----------- -----------
<S> <C> <C> <C>
Purchase................ 683 $237,764,739 80.03%
Rate or Term
Refinance.............. 97 33,951,310 11.43
Equity - Out
Refinance.............. 57 21,610,447 7.27
Construction/Perm....... 11 3,758,291 1.27
--- ------------ ------
Total................ 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
D-1
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
DOCUMENTATION TYPE LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
Full................. 848 $297,084,786 100.00%
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
OCCUPANCY TYPE LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
Primary Residence.... 825 $289,269,961 97.37%
Second Home.......... 23 7,814,826 2.63
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
TYPES OF AGGREGATE PRINCIPAL BALANCE OUTSTANDING
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
PROPERTY TYPE LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
Single Family........ 719 $250,805,274 84.42%
Detached Planned Unit
Development......... 79 29,225,331 9.84
Attached Planned Unit
Development......... 1 271,943 0.09
Condominium.......... 28 9,562,738 3.22
High - Rise
Condominium......... 5 2,050,637 0.69
Townhouse............ 12 3,599,423 1.21
Two - Four Family.... 4 1,569,441 0.53
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF THE MORTGAGED PROPERTIES(1)
- ----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
STATE LOANS OUTSTANDING OUTSTANDING
- --------------------- ----- ----------- -----------
<S> <C> <C> <C>
Alabama.............. 1 $ 293,194 0.10%
Arizona.............. 21 7,295,573 2.46
Alaska............... 1 291,892 0.10
California........... 348 124,231,785 41.82
Colorado............. 35 11,873,908 4.00
Connecticut.......... 11 4,372,025 1.47
District of
Columbia............ 1 255,646 0.09
Florida.............. 22 7,754,086 2.61
Georgia.............. 16 5,116,148 1.72
Idaho................ 4 1,221,078 0.41
Illinois............. 52 19,109,398 6.43
Indiana.............. 3 971,397 0.33
Iowa................. 2 698,903 0.24
Kansas............... 2 565,751 0.19
Kentucky............. 3 1,196,035 0.40
Louisiana............ 4 1,243,051 0.42
Maryland............. 9 3,041,164 1.02
Massachusetts........ 28 9,384,704 3.16
Michigan............. 15 5,162,352 1.74
Minnesota............ 11 3,612,359 1.22
Mississippi.......... 1 298,607 0.10
Missouri............. 5 2,151,366 0.72
Montana.............. 1 283,809 0.10
Nevada............... 1 283,301 0.10
New Hampshire........ 1 260,699 0.09
New Jersey........... 15 5,042,467 1.70
New Mexico........... 4 1,416,487 0.48
New York............. 72 26,727,090 9.00
North Carolina....... 14 4,712,307 1.59
North Dakota......... 1 283,109 0.10
Ohio................. 15 4,608,200 1.55
Oklahoma............. 4 1,273,492 0.43
Oregon............... 6 2,041,690 0.69
Pennsylvania......... 11 3,809,106 1.28
South Carolina....... 6 2,428,018 0.82
Tennessee............ 8 2,778,263 0.94
Texas................ 49 16,907,350 5.69
Utah................. 6 2,159,718 0.73
Virginia............. 14 4,275,478 1.44
Washington........... 21 6,563,484 2.21
Wisconsin............ 3 794,683 0.27
Wyoming.............. 1 295,611 0.10
--- ------------ ------
Total............. 848 $297,084,786 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------------
(1) No more than approximately 1.09% of the Loans will be secured by properties
located in any one postal zip code area.
D-2
<PAGE>
ABN AMRO MORTGAGE CORPORATION, DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
ISSUABLE IN SERIES BY SEPARATE TRUSTS
------------------
EACH SERIES OF CERTIFICATES:
will consist of one or more classes of mortgage pass-through certificates
representing interests in the assets of a trust;
will receive principal and interest only from payments collected on the
assets of the related trust; and
will not be insured or guaranteed by any government agency or instrumentality
and will not be obligations of ABN AMRO Mortgage Corporation or any related
companies.
EACH TRUST:
will own a pool of mortgage assets sold to the trust by ABN AMRO Mortgage
Corporation that may include:
-- mortgage loans;
-- certificates backed by mortgage loans;
-- principal and interest payments due on these mortgage assets
will include mortgage loans secured by first liens on:
-- one- to four-family residential properties; and
-- rights to own and occupy apartments in cooperative buildings.
------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 12, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of the Certificates........ 1
Source of Funds for Payment....... 1
Form of Certificates.............. 2
Classes of Certificates........... 3
Distributions of Principal and
Interest........................ 6
General...................... 6
Distributions of Interest.... 8
Distributions of Principal... 8
Example of Distributions.......... 9
Optional Termination of a Trust or
Underlying Trust................ 11
The Trusts............................. 12
General........................... 12
The Loans......................... 14
Description of the Loans..... 14
Payment Provisions of the
Loans...................... 14
Loan Underwriting Policies... 17
Mortgage Certificates............. 19
Description of the Mortgage
Certificates............... 19
Substitution of Mortgage
Certificates............... 25
The Depositor.......................... 25
Generally......................... 25
Year 2000 Project................. 26
State of Readiness........... 26
Risks........................ 27
Use of Proceeds........................ 27
Credit Enhancement..................... 28
Types of Enhancements............. 28
Subordination..................... 28
Shifting Interest Credit
Enhancement..................... 29
Cross-Support..................... 30
Pool Insurance.................... 30
Special Hazard Insurance.......... 31
Bankruptcy Bond................... 32
Reserve Fund...................... 32
Overcollateralization............. 33
Letter of Credit.................. 33
Surety Bond....................... 33
Other Insurance, Guarantees and
Similar Instruments or
Agreements...................... 33
Prepayment, Yield and Maturity
Considerations....................... 34
General........................... 34
Determination of Pass-Through
Rates...................... 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Determination of Remittance
Rate....................... 34
Yield............................. 35
Price........................ 35
Effective Pass-Through
Rate....................... 36
Other Yield Considerations... 37
Prepayment Considerations......... 38
General...................... 38
Substitutions................ 40
Loan Assumptions............. 40
ARMs......................... 40
Foreclosures................. 41
Pre-Funding.................. 42
Prepayment Assumptions....... 42
Optional Termination......... 43
Distributions on the Certificates...... 43
Servicing of the Loans................. 45
Collection and Other Servicing
Procedures...................... 45
Primary Mortgage Insurance........ 48
Hazard Insurance.................. 49
Unanticipated Recoveries of Losses
on the Loans.................... 50
Advances.......................... 51
Payments on Mortgage Assets....... 52
Administration Fees, Compensation
and Payment of Expenses......... 52
Resignation of the Master
Servicer; Scope of
Indemnities..................... 53
Back-Up Master Servicer........... 54
Special Servicing Agreements...... 54
Servicing of the Underlying
Loans........................... 54
The Pooling and Servicing Agreement.... 55
Assignment of Loans............... 55
Representations and Warranties.... 57
Repurchase or Substitution........ 59
Forward Commitments: Pre-Funding
Account......................... 60
Adjustment to Administration Fees
in Connection with Prepayment
Interest Shortfall.............. 61
Book-Entry Registration........... 61
Global Clearance, Settlement and
Tax Documentation Procedures.... 65
Initial Settlement........... 66
Secondary Market Trading..... 66
U.S. Federal Income Tax
Documentation
Requirements............... 68
Definitive Certificates........... 70
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Evidence as to Compliance......... 70
Reports to Certificateholders..... 71
Reports to the Trustee............ 72
Events of Default................. 72
Rights Upon Event of Default...... 73
Amendment......................... 74
Termination....................... 75
Governing Law..................... 75
Legal Aspects of the Loans............. 75
General........................... 75
Foreclosure....................... 76
Rights of Redemption.............. 77
Anti-Deficiency Legislation and
Other Limitations on Lenders.... 78
Junior Liens; Rights of Senior
Lienholders..................... 79
'Due-on-Sale' Clauses............. 81
Environmental Legislation......... 82
Subordinate Financing............. 82
Applicability of Usury Laws....... 83
Enforceability of Some
Provisions...................... 83
Legal Aspects of the Loans Under
California Law.................. 84
Co-op Loans....................... 84
Legal Investment Matters............... 85
ERISA Considerations................... 87
Federal Income Tax Consequences........ 92
General........................... 92
REMIC............................. 93
Classification of REMICs..... 93
Qualification as a REMIC.......... 93
Characterization of
Investments in
Certificates............... 95
Taxation of Owners of Regular
Certificates............... 96
Constant Yield Election...... 99
Effects of Defaults and
Delinquencies.............. 100
Taxation of Owners of
Residual Certificates...... 100
Pass-Through of Miscellaneous
Itemized Deductions........ 103
Sales of Certificates........ 104
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prohibited Transactions and
Other REMIC-Level Taxes.... 105
Tax on Transfers of Residual
Certificates to Certain
Organizations.............. 106
Disregard of Some Types of
Transfers.................. 107
Termination.................. 107
Reporting and Other
Administrative Matters..... 108
Backup Withholding........... 109
Foreign Investors............ 109
Purchase of Both Regular and
Residual Certificates...... 110
Trusts With Negatively Amortizing
ARMs............................ 110
Investment in Certificates Not
Representing Interests in a
REMIC........................... 110
Classification of Trust and
Characterization of
Investment in
Certificates............... 110
Taxation of Owners of P&I
Certificates............... 111
Taxation of Owners of IO
Certificates............... 115
Administration Fee, Voluntary
Advances and Subordinated
Amount..................... 117
Sales of Certificates........ 117
Reporting.................... 118
Backup Withholding........... 119
Foreign Investors............ 119
State Tax Considerations............... 120
Plan of Distribution................... 120
Legal Matters.......................... 122
Rating................................. 122
Where You Can Find More Information.... 123
ABN AMRO Mortgage Corporation..... 123
Additional Information Relating to
the Mortgage Certificates....... 123
Index to the Prospectus Definitions.... 124
</TABLE>
<PAGE>
------------------------------------------------------------
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We describe the offered certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to all series of certificates; and (2)
the prospectus supplement for a series of certificates, which describes the
specific terms of that series of securities and may be different from the
information in the prospectus. Neither this prospectus nor any prospectus
supplement will contain all the information included in the registration
statement. The registration statement also includes copies of the various
contracts and documents referred to in this prospectus and any prospectus
supplement. You may obtain copies of these documents for review. See 'Where You
Can Find More Information.'
IF THE DESCRIPTION OF THE TERMS OF THE CERTIFICATES VARIES BETWEEN THE
PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
We include cross-references in each prospectus supplement and in this
prospectus to captions in these materials where you can find further related
discussions. The Table of Contents which appears before this page and the Table
of Contents included in each 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' in
this prospectus and in the prospectus supplement for each series.
-----------------------------------------------------------------
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The certificates comprising each series will represent the entire
beneficial ownership interest in a distinct trust (the 'TRUST') that will issue
those certificates. The Trust will be comprised primarily of mortgage assets
(the 'MORTGAGE ASSETS') consisting of:
mortgage loans (the 'LOANS') secured by first liens on one- to
four-family residential properties and rights to own and occupy
apartments in cooperative buildings,
mortgage certificates (the 'MORTGAGE CERTIFICATES') secured by mortgage
loans (the 'UNDERLYING LOANS'), and
the principal and interest payments due on the Mortgage Assets.
One or more entities, which may include an affiliate of ABN AMRO Mortgage
Corporation (the 'DEPOSITOR'), will be specified in the prospectus supplement as
the master servicer (the 'MASTER SERVICER') for a series of certificates. Each
series of certificates will be issued under a separate pooling and servicing
agreement (the 'POOLING AND SERVICING AGREEMENT') entered into among ABN AMRO
Mortgage Corporation, as Depositor, the Master Servicer, and a commercial bank
or trust company acting as trustee (the 'TRUSTEE') for the benefit of
certificateholders of the related series.
The provisions of each Pooling and Servicing Agreement will vary depending
upon the nature of the certificates to be issued and the nature of the related
Trust. This prospectus summarizes the material provisions which may appear in
each Pooling and Servicing Agreement. The prospectus supplement for a series of
certificates will describe any other material provisions of the Pooling and
Servicing Agreement relating to that series. On written request, the Depositor
will provide certificateholders with a copy of the Pooling and Servicing
Agreement for any series without charge. You should send your request to ABN
AMRO Mortgage Corporation, 181 West Madison Street, Suite 3250, Chicago,
Illinois 60602-4510, Attention: Maria Fregosi-Director-ABN AMRO Mortgage
Operations. The Depositor will file the Pooling and Servicing Agreement relating
to a series of certificates with the SEC within 15 days after the date of
issuance of a series of certificates. See 'The Trusts -- General.'
SOURCE OF FUNDS FOR PAYMENT
The certificates of a series will be entitled to payment only from the
proceeds from the Mortgage Assets included in the Trust issuing that series. You
will not be entitled to payments from the Mortgage Assets included in any other
Trust established by the Depositor. The certificates are not obligations of ABN
AMRO Mortgage Corporation or any of its affiliates. The certificates will not be
guaranteed by any governmental agency or any other entity.
The Depositor and the Master Servicer of the Mortgage Assets for a Trust
will each have limited obligations to the Trust.
1
<PAGE>
The Depositor's obligations will be limited to repurchasing Mortgage
Assets in the Trust or substituting different Mortgage Assets into the
Trust if the Depositor breaches its representations and warranties
concerning the Mortgage Assets.
The only obligations of the Master Servicer for the Trust will be its
contractual servicing and/or master servicing obligations. This may
include an obligation to make advances of delinquent installments of
principal, interest or both under limited circumstances.
The prospectus supplement may describe additional obligations of the
Depositor and the Master Servicer to the Trust. You should refer to 'The Pooling
and Servicing Agreement -- Repurchase or Substitution' and 'Servicing of the
Loans -- Advances' in this prospectus.
The Mortgage Assets in the Trust will not be insured or guaranteed by any
governmental agency or any other entity. You may experience delays in
distributions on your certificates or losses on your certificates if:
delinquent payments or losses on defaulted Loans are not advanced by the
Master Servicer or another person or paid from any credit enhancement
arrangement in your Trust;
payments on Mortgage Certificates are delayed or the Mortgage
Certificates experience losses.
FORM OF CERTIFICATES
The certificates of each series will be issued in fully registered
certificated or book-entry form only. The minimum original principal balance or
notional balance that may be represented by a certificate is referred to as its
denomination. Each prospectus supplement will specify the minimum denominations
for that series. The original principal balance of each certificate will equal
the aggregate distributions of principal to which that certificate is entitled.
Unless otherwise stated in the prospectus supplement, interest distributions on
each certificate that is not entitled to distributions of principal will be
calculated based on the notional balance of the certificate. The notional
balance will not evidence an interest in or entitlement to distributions of
principal. It will be used solely for convenience in determining the interest
payable on the certificate, the denomination of the certificate and the voting
rights of its holder. You will not receive payment of the notional balance of
your certificate.
When we refer to interests in the certificates, we sometimes reference two
different types of interests. The first is a 'FRACTIONAL UNDIVIDED INTEREST'
which means the percentage of the principal portion of a Trust evidenced by a
certificate. The second term is 'PERCENTAGE INTEREST' which means the percentage
that a certificate represents of a particular class of certificates. When we
refer to a 'RESIDUAL HOLDER,' we are referring to a certificateholder entitled
to receive the 'residual interest' in the REMIC as defined in Section 860G(a)(2)
of the Internal Revenue Code of 1986, as amended (the 'CODE').
2
<PAGE>
Except for global certificates described in the next paragraph, you may
transfer and exchange your certificates on a certificate register to be
maintained at the corporate trust office of the Trustee or an office or agency
maintained by the Trustee for that purpose. Unless otherwise stated in the
prospectus supplement, the Trustee will not charge a fee for any registration of
transfer or exchange of certificates, but may require you to pay an amount
sufficient to cover any tax or other governmental charge. Before a certificate
is properly presented for transfer, the Master Servicer, the Trustee, the
certificate registrar and any of their agents may treat the person in whose name
a certificate is registered as the owner of the certificate for the purpose of
receiving distributions of principal and interest and for all other purposes
under the Pooling and Servicing Agreement.
For the classes of certificates specified in the applicable prospectus
supplement, investors will not have the right to receive physical certificates
evidencing their ownership except under limited circumstances. Instead, the
Trust will issue the certificates in the form of global certificates, which will
be held by The Depository Trust Company, known as DTC, or its nominee or a
similar institution. Financial institutions that are direct or indirect
participants in DTC will record beneficial ownership of a certificate by
individual investors in the authorized denominations.
CLASSES OF CERTIFICATES
Each series of certificates will be issued in one or more classes. Each
class of certificates may have multiple components and may be entitled to
receive all amounts payable on a specific group of assets in the related Trust.
The certificates of each class will be entitled to receive:
any distributions from the Mortgage Assets of the Trust that are
allocable to principal, in the aggregate amount of the original
principal balance, if any, of that class of certificates; and
any distributions from the Mortgage Assets of the Trust that are
allocable to interest on the principal balance or notional balance of
the certificates at the interest rate, if any, payable on that class of
certificates.
If stated in the prospectus supplement, the certificates will have an
aggregate original principal balance equal to the aggregate unpaid principal
balance of the Loans and Mortgage Certificates as of the close of business on
the first day of the month of creation of the Trust (the 'CUT-OFF DATE') after
deducting payments of principal due on or before, and prepayments of principal
received before, the Cut-off Date. The principal balance of a Loan refers to the
scheduled principal balance remaining to be paid at the close of business on the
Cut-Off Date:
reduced by all amounts collected by the Master Servicer and allocable to
principal of that Loan;
plus for any Loan which is not payable in self amortizing payments, the
shortfall, if any, in interest that is added to the principal balance of
the Loan.
3
<PAGE>
The principal balance of a Mortgage Certificate refers to the principal
balance remaining to be paid at the close of business on the Cut-Off Date;
reduced by distributions of principal made after the Cut-Off Date and
any allocation of losses;
plus, any interest not distributed that may be added to the principal
balance of the Mortgage Certificate.
If a Trust or underlying trust includes Loans or Underlying Loans with payments
due on a day other than on the first day of each month, the prospectus
supplement will more fully describe any resulting effect on certificateholders.
Each class of certificates may bear interest at a different Remittance
Rate. The 'REMITTANCE RATE' will equal the rate of interest payable on each
Mortgage Asset in the Trust minus the Master Servicer's administration fee, the
servicing fee of any third party servicer of the Loans and any other amounts
stated in the prospectus supplement. If stated in the prospectus supplement, the
original principal balance of the certificates and the interest rate on the
classes of certificates will be determined based on the cash flows on the
Mortgage Assets.
In addition, the related prospectus supplement will specify whether the
Pooling and Servicing Agreement will provide that all or a portion of principal
collected on the Mortgage Assets may be retained by the Trustee and held in
temporary investments, including mortgage loans, for a specified period prior to
being used to distribute payments of principal to certificateholders.
The result of any retention and temporary investment of principal by the
Trustee would be to slow the repayment rate of the related certificates relative
to the repayment rate of the related Mortgage Assets, or to attempt to match the
repayment rate of the related certificates to a repayment schedule established
at the time the certificates are issued. Any feature of this type applicable to
any certificates may terminate, resulting in the current funding of principal
payments to the related certificateholders and an acceleration of the repayment
of those certificates upon the occurrence of specified events described in the
related prospectus supplement.
Each series of certificates may include different classes of certificates
that have different rights to receive or not receive distributions of principal
and interest on each 'DISTRIBUTION DATE' as specified in the prospectus
supplement. The prospectus supplement for each series will outline these classes
and their rights. A summary of some of the possible categories of certificates
and their rights are described below:
Senior and Subordinated Certificates. The rights of a 'SENIOR' certificate
to receive any or a specified portion of distributions will be superior to the
rights of a 'SUBORDINATE' certificate up to an amount specified in the related
prospectus supplement (the 'SUBORDINATED AMOUNT'). See 'Credit
Enhancements -- Subordination.'
Accrual Certificates. Interest will accrue at the applicable Remittance
Rate on 'ACCRUAL' certificates, but the Trustee will not distribute interest
until the termination of
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the accrual period specified in the prospectus supplement. Instead, the amount
of interest accrued during the accrual period will be added to the principal
balance of the certificate.
Accretion Directed Certificates. In addition to receiving distributions of
principal on the Mortgage Assets, 'ACCRETION DIRECTED' certificates are entitled
to receive principal distributions from the interest accrued but not paid to the
Accrual certificates.
Principal Only Certificates. 'PRINCIPAL ONLY' certificates are entitled to
receive distributions of principal on Mortgage Assets, but not to receive
distributions of interest.
Interest Only Certificates. 'INTEREST ONLY' certificates are entitled to
receive distributions of interest on the Mortgage Assets, but not distributions
of principal. These certificates will be denominated in notional balances. The
notional balance is the amount specified on the certificate, reduced by
distributions allocable to principal on the corresponding class or classes, all
as described in the prospectus supplement. The Trustee will calculate each
Interest Only Certificate's pro rata share of the interest distributions on the
Mortgage Assets by multiplying the amount of interest by the following fraction:
notional balance of the Interest Only certificate
---------------------------------------------------------------------
notional balance of all Interest Only certificates of its class
Stripped Certificates. 'STRIPPED' certificates may consist of the
following:
Principal Only certificates;
Interest Only certificates;
certificates entitled to distributions of principal with
disproportionate or nominal interest distributions; or
certificates entitled to distributions of interest with disproportionate
or nominal principal distributions.
Sequential Pay Certificates. 'SEQUENTIAL PAY' certificates receive
distributions of principal in order so that no class will receive a principal
distribution until classes having earlier scheduled maturity dates or prior
designations have been fully repaid.
Prepayment Certificates. 'PREPAYMENT' certificates are entitled to minimum
distributions of principal based on the assumption that the Loans in the related
Trust or the Underlying Loans related to the Mortgage Certificates in the
related Trust prepay at a rate specified in the prospectus supplement.
Distributions of principal to these certificates will commence on the
Distribution Date specified in the prospectus supplement.
Residual Certificates. A series of REMIC certificates will include a class
of 'RESIDUAL' certificates representing the right to receive, in addition to any
other distributions to which they are entitled in accordance with their terms,
distributions of all of the Surplus, if any, for each Distribution Date. The
'SURPLUS' for a series of REMIC certificates as of any Distribution Date equals
the amount by which the sum of distributions, payments and other amounts
received exceeds the sum of (1) the amount required to be distributed to
certificateholders on that Distribution Date and (2) expenses described in the
prospectus supplement. In addition, after the aggregate principal balances
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of all of the certificates other than the Residual certificates have been fully
repaid, the holders of the Residual certificates will be the sole owners of the
related Trust and will have sole rights to the Loans and/or Mortgage
Certificates and other assets remaining in the Trust. Some or all of the
Residual certificates of a series may be offered by the related prospectus
supplement; if so, the terms of the Residual certificates will be described in
the prospectus supplement. Any qualifications on direct or indirect ownership of
Residual certificates offered by a prospectus supplement, as well as
restrictions on the transfer of the Residual certificates, will be described in
the related prospectus supplement. If the Residual certificates are not so
offered, the Depositor may, but need not, sell some or all of the Residual
certificates on or after the date of original issuance of a series in
transactions exempt from registration under the Securities Act of 1933 and
otherwise under circumstances that will not adversely affect the REMIC status of
the Trust. If Residual certificates offered by this prospectus and the related
prospectus supplement have a certificate balance or a Remittance Rate,
references in this prospectus to distributions on certificates and related
matters should be interpreted to include Residual certificates, as appropriate.
Non-Accelerated Certificates. 'NON-ACCELERATED' certificates are entitled
to distributions of principal according to a repayment schedule established at
the time the certificates are issued. The scheduled repayment rate of the
certificates is intended to be slower than the repayment rate of the related
Mortgage Assets.
Each class of certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that may change from time
to time:
in accordance with a schedule;
in reference to a widely published interest rate index like the London
Interbank Offered Rate (LIBOR); or
as otherwise specified in the prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
GENERAL
The Trustee will distribute principal and interest at the applicable
Remittance Rate, if any, on the certificates out of funds available on the
Distribution Dates specified in the prospectus supplement. Distribution Dates
may be monthly, quarterly, semiannually or at another interval specified in the
prospectus supplement. The Trustee will make distributions to the persons in
whose names the certificates are registered at the close of business on the last
business day of the month before the Distribution Date (each, a 'RECORD DATE').
Unless otherwise specified in the prospectus supplement, distributions will
begin in the month after the month in which the Cut-off Date occurs. The Trustee
will distribute funds by check or money order mailed to the person entitled to
receive them at the address appearing in the certificate register. The
prospectus supplement may also specify that in the case of certificates that are
of a specified minimum denomination, upon written request by
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the certificateholder, the Trustee will remit funds by wire transfer or by other
means agreed upon. The Trustee will make the final distribution in retirement of
the certificates only upon presentation and surrender of the certificates at the
office or agency of the Trustee specified in the final distribution notice to
certificateholders. The Trustee will make all distributions on global
certificates held by DTC to DTC, which will credit the accounts of its direct
participants. If you hold an interest in a global certificate, you will have to
rely on your financial intermediary to forward you payments. The Pooling and
Servicing Agreement may permit the Trustee to appoint a paying agent for
purposes of remitting distributions.
The Trustee will make distributions on the certificates out of, and only to
the extent of, funds in a separate account established and maintained under the
Pooling and Servicing Agreement for the benefit of holders of the certificates
of the related series (the 'CERTIFICATE ACCOUNT'). The Trustee will distribute
principal, principal prepayments, scheduled payments of principal and interest
in the manner specified in the prospectus supplement. Unless otherwise stated in
the prospectus supplement, distributions to any class of certificates will be
made pro rata to all certificateholders of that class.
Unless otherwise specified in the related prospectus supplement, the
Pooling and Servicing Agreement will provide that amounts deposited in the
Certificate Account may be invested in the following 'ELIGIBLE INVESTMENTS':
direct obligations of, or guaranteed as to full and timely payment of
principal and interest by, the United States or any United States agency
or instrumentality;
direct obligations of, or guaranteed as to timely payment of principal
and interest by, FHLMC, FNMA or the Federal Farm Credit System,
qualified by a rating agency as investment grade;
demand and time deposits in or certificates of deposit of, or bankers'
acceptances issued by, a qualified bank or trust company, savings and
loan association or savings bank;
general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia with an investment grade
rating;
investment grade commercial or finance company paper;
guaranteed reinvestment agreements issued by any bank, insurance company
or other corporation rated in one of the two highest rating levels
available to the issuers by each rating agency at the time of the
investment; and
other obligations that are acceptable as Eligible Investments to each of
the rating agencies rating then rating the certificate series as
provided in the related Pooling and Servicing Agreement.
Eligible Investments made by the Trustee must mature no later than the business
day before the next Distribution Date. If a REMIC election (see 'Federal Income
Tax Consequences') is made for a series of certificates, then:
earnings on those Eligible Investments will belong to the Depositor
unless otherwise specified in the related prospectus supplement; and
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investments will be so that they qualify as 'permitted investments' (as
defined in Section 860G(a)(5) of the Code) and the Trustee will not sell
these investments if the sale would cause any part of the proceeds to be
subject to the 100 Percent Tax on Prohibited Transactions imposed by
Section 860F(a)(1) of the Code or would be to cause a loss of REMIC
status.
DISTRIBUTIONS OF INTEREST
Each class of certificates of a series will accrue interest from the date
and at the fixed or adjustable Remittance Rate described in the prospectus
supplement. For each Distribution Date, unless described differently in the
prospectus supplement, interest will accrue on each class of certificates
entitled to interest from the first day to the last day of the month before the
month in which the distribution occurs (each, an 'ACCRUAL PERIOD'). Interest
will accrue on the aggregate principal balance of your certificate, or if your
certificate is an Interest Only class, interest will accrue on its notional
balance. To the extent funds are available, the Trustee will distribute interest
accrued during each Accrual Period on the Distribution Dates specified in the
prospectus supplement. The Trustee will distribute interest until the aggregate
principal balance of a class of certificates is reduced to zero or, in the case
of Interest Only classes, until the aggregate notional balance of the
certificates is reduced to zero. Distributions of interest on each class of
Accrual certificates will commence only after the occurrence of the events
specified in the prospectus supplement. Before any of the specified events
occur, the aggregate principal balance of any class of Accrual certificates will
increase on each Distribution Date by the amount of interest that would have
been distributed to that class. Any class of Accrual certificates will
thereafter accrue interest on its outstanding principal balance. Interest
accrued but not paid to the Accrual certificates may be distributed as principal
to some classes of Accretion Directed certificates. Each prospectus supplement
may provide for interest to accrue and/or to be distributed differently from the
description in this paragraph.
DISTRIBUTIONS OF PRINCIPAL
Unless otherwise stated in the prospectus supplement, the outstanding
principal balance of any class of certificates at any point in time will be:
the original principal balance of that class of certificates; minus
all distributions of principal made on those certificates; minus
all realized losses allocated to that class; plus
in the case of Accrual certificates, all interest accrued, but not then
paid less its allocable share of shortfalls.
The aggregate amount of principal distributable for a certificate series
will generally be equal to the amount of principal received on the Mortgage
Assets in the related Trust. The prospectus supplement will specify the method
by which the Master Servicer will calculate principal distributions and the
manner in which that amount will be allocated among the classes of certificates
entitled to distributions of principal. The Trustee will
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distribute principal on a pro rata basis among certificates of the same class
entitled to receive distributions. The certificate balance of a class or classes
of certificates may increase in accordance with any negative amortization
experienced by the Mortgage Assets in the related Trust.
The 'DUE DATE' related to each Distribution Date is the first day of the
month in which that Distribution Date occurs. The 'DETERMINATION DATE' is a day
not later than the 10th day before the related Distribution Date in the month in
which the Distribution Date occurs.
If stated in the prospectus supplement, one or more classes of Senior
certificates may be entitled to receive all or a disproportionate percentage of
Principal Prepayments. 'PRINCIPAL PREPAYMENTS' consist of the payments or other
recoveries of principal on a Loan that are received in advance of their
scheduled Due Dates and not accompanied by amounts of interest representing
scheduled interest due after the month in which the payment was received. The
allocation of Principal Prepayments to the Senior classes will accelerate the
reduction of the principal balance of the relevant Senior class while
simultaneously increasing the interests in the Trust held by the Subordinate
classes. Increasing the interests of the Subordinate certificates relative to
that of the Senior certificates is intended to preserve the benefits to the
Senior certificates of the subordination provided by the Subordinate
certificates. See 'Credit Enhancement -- Subordination.'
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of hypothetical distributions on
a series of certificates. The chart assumes the certificates are issued in
October 1999, are paid monthly and relate to a Trust comprised of Mortgage
Assets. All references to the Trust, certificateholders, Mortgage Assets and
Certificate Account refer to those related to a series of certificates. We have
assumed that all dates are business days.
<TABLE>
<S> <C>
October 1............ Cut-off Date. The Trust will include the aggregate unpaid
principal balance of the Mortgage Assets, after deducting
principal payments due and payable on or before October 1,
and Principal Prepayments received before October 1. These
deducted principal payments, interest payments and Principal
Prepayments will not be included in the Trust or passed
through to certificateholders. They will be paid to the
Depositor when received.
</TABLE>
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<TABLE>
<S> <C>
October 1-31......... Principal Prepayments received by the Master Servicer
during this period would be credited to the Certificate
Account for distribution to certificateholders on the
November 25 Distribution Date. When a Loan is prepaid in
full or liquidated, interest on the amount prepaid or
liquidated is collected only to the date of prepayment or
liquidation. Unless otherwise specified in the prospectus
supplement, to the extent funds are available from the
current administration fees, and in order to minimize a
shortfall in interest payable to Certificateholders, the
Master Servicer will make an additional payment to
certificateholders on any Loan that is prepaid or
liquidated by October 31. The payment may be in an amount
up to the amount necessary to assure that on the related
Distribution Date the funds available for distribution will
include one month's interest at the Pass-Through Rate for
each prepaid or liquidated Loan. For example, assume a
mortgagor prepays a mortgage in full on October 10. The
prepayment includes interest from October 1 to October 10.
The Master Servicer will make an additional payment to
certificateholders to minimize the interest shortfall from
October 11 to October 31.
October 31........... Record Date. Distributions on November 25 will be made to
certificateholders of record at the close of business on
the last business day of October.
November 1-15........ The Master Servicer receives scheduled payments of
principal and interest due November 1, and deposits these
amounts in a custodial account as they are received. Under
the terms of the related mortgage, the Master Servicer may
collect a late charge on payments received after their due
date and any applicable grace period. The Master Servicer,
or servicer, will retain these late charges as additional
servicing compensation.
November 15.......... Determination Date. On November 15, the Master Servicer
determines the aggregate amount of collections available
for distribution to certificateholders on the Distribution
Date and provides the Trustee with a report outlining these
amounts and the Trustee will determine amounts payable on
the certificates. These amounts will include:
scheduled principal payments and principal prepayments that
are distributable on the November Distribution Date,
the amount of funds the Master Servicer is required to
advance for scheduled payments due on November 1 but not
received by the close of business on the Determination
Date, and
</TABLE>
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<TABLE>
<S> <C>
the portion of current administrative fees that it will
distribute in order to minimize prepayment interest
shortfalls on any Loan that is prepaid by October 31.
November 24.......... Withdrawal date. On the business day before the
Distribution Date, the Master Servicer transfers amounts to
be distributed to certificateholders to the Certificate
Account.
November 25.......... Distribution Date. The Trustee will distribute to
certificateholders the aggregate amounts described in the
notice it received from the Master Servicer, unless
provided otherwise in the prospectus supplement.
</TABLE>
OPTIONAL TERMINATION OF A TRUST OR UNDERLYING TRUST
Unless otherwise specified in the prospectus supplement, the Depositor, the
Master Servicer or the Residual Holder may, at its option, effect early
termination of the Trust, by purchasing all of the Mortgage Assets in the Trust.
The Depositor or the Master Servicer may exercise this option on any
Distribution Date after the aggregate outstanding principal balance of the
Mortgage Assets is less than a specified percentage of the aggregate outstanding
principal balance of the Mortgage Assets as of the Cut-off Date as specified in
the prospectus supplement. The Trustee will apply the proceeds of this sale on
that Distribution Date to each certificate entitled to distributions. The
proceeds realized upon an early termination may be less than the total principal
balance of all outstanding certificates plus accrued and unpaid interest. In
this case, the resulting shortfall will be allocated among the certificates as
described in the prospectus supplement.
We anticipate that the Depositor or the Master Servicer will buy the assets
in the Trust for a price equal to the sum of the following:
the principal balance of each Mortgage Asset, plus accrued interest
thereon at the applicable Pass-Through Rate; plus
the fair market value of all acquired property in respect of any
Mortgage Assets; minus
unreimbursed monthly advances of principal or interest by the Master
Servicer.
The Trust will sell the Mortgage Assets in connection with any early
termination without representation or warranty, except as to the Trust's title,
and without recourse. No holder of any class of certificates will be entitled to
any share of unanticipated recoveries received after the termination of the
Trust. See 'Servicing of the Loans -- Unanticipated Recoveries of Losses on the
Mortgage Assets' in this prospectus.
The Master Servicer of the Underlying Loans held in an underlying trust
which secures the Mortgage Certificates or another party may have the ability to
terminate the underlying trust on any Distribution Date after the aggregate
outstanding principal balance of the Underlying Loans is less than a specified
percentage of the aggregate outstanding principal balance of the Underlying
Loans as of a specified date. The proceeds realized
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upon an early termination of the Underlying Loans may be less than the total
principal balance of the Mortgage Certificates secured by those loans plus
accrued and unpaid interest.
THE TRUSTS
GENERAL
The Trust issuing a series of certificates may include the following
assets:
the Mortgage Assets consisting of Loans and Mortgage Certificates backed
by Underlying Loans;
amounts held from time to time in the Certificate Account and any
segregated account established by the Master Servicer in connection with
a particular form of credit enhancement for a particular series (the
'PRE-FUNDING ACCOUNT');
all payments, except for any exclusions identified in the prospectus
supplement, in respect of the Mortgage Assets, adjusted for the
applicable Pass-Through Rates;
all property acquired by foreclosure or deed in lieu of foreclosure for
any property that secured a Loan;
all rights of the Depositor under any primary mortgage insurance
policies and any other insurance policies required to be maintained in
respect of the Loans;
the Depositor's rights and remedies under any purchase agreement by
which it acquires the Mortgage Assets; and
rights under any form of credit enhancement specified in the prospectus
supplement.
The Depositor will purchase or acquire each Loan from a qualified lender or
mortgage asset seller pursuant to a mortgage loan purchase agreement. Qualified
lenders and mortgage asset sellers may be affiliates of the Depositor. Each Loan
will have been originated or purchased by a qualified lender. All qualified
lenders will be or will have been at the time of the origination of the Loans
either:
(1) mortgagees approved by the Secretary of Housing and Urban
Development ('HUD'), the Federal Home Loan Mortgage Corporation
('FHLMC'), or the Federal National Mortgage Association ('FNMA'), or
state-chartered or federally-chartered savings and loan
associations, banks or similar financial institutions whose deposits
or accounts are insured by either the Savings Association Insurance
Fund (the 'SAIF') or the Bank Insurance Fund (the 'BIF')
administered by the Federal Deposit Insurance Corporation (the
'FDIC'); or
(2) originated or underwritten by an entity employing underwriting
standards consistent with the underwriting standards of an
institution described in subclause (1) above.
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The Depositor has approved, or will approve, individual institutions as
eligible qualified lenders by applying specific criteria, including the
qualified lender's depth of mortgage origination experience, servicing
experience and financial stability. In general, each qualified lender must have
experience in originating residential mortgages and net worth acceptable to the
Depositor and must use the services of qualified underwriters, appraisers and
attorneys. However, from time to time, the Depositor may purchase Loans for
inclusion in a Trust from lenders not meeting the generally applicable criteria
described above. In each of these cases, the Depositor must review the lender
and find it acceptable. In connection with these types of purchases by the
Depositor, the Depositor will reunderwrite the applicable Loans. See ' -- Loan
Underwriting Policies' below.
The prospectus supplement for each certificate series will include
information describing the Mortgage Assets. If definitive information respecting
the final pool of Mortgage Assets is not known at the time the related series of
certificates initially is offered, information of the nature described below for
the anticipated pool will be provided in the prospectus supplement. Definitive
information for the final pool will be described in a report on Form 8-K and
filed with the Securities and Exchange Commission within fifteen days after the
initial issuance of the certificates. The definitive description of the mortgage
asset pool will specify:
the range of the aggregate outstanding scheduled principal balance of
the Mortgage Assets at origination and as of the Cut-off Date;
any special payment features of the Mortgage Assets;
years of origination of the Loans;
insurance policies, letters of credit or other terms of credit
enhancement, if any, applicable to any Mortgage Asset;
the original maturities of the Loans and the last maturity date of the
latest maturing in the Trust;
mortgage interest rates borne by the Loans and for adjustable rate
Loans:
the initial and current mortgage interest rates;
the index or formula used to calculate the adjustable mortgage
interest rate;
the weighted average minimum and maximum rates and maximum
adjustment; and
the frequency of interest rate adjustments;
original loan-to-value ratios;
distribution by number and aggregate unpaid principal balance of the
types of properties securing the Loans; and
geographical distribution of the Loans by state.
The definitive description of the pool of Mortgage Assets comprising a
Trust will also specify the original principal balance, or, in the case of
Interest Only certificates, the notional balance, of each class of certificates
on the date of issuance of the certificates, and information regarding the exact
amount of any forms of credit enhancement, if applicable.
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THE LOANS
DESCRIPTION OF THE LOANS
The Loans will be evidenced by promissory notes secured by mortgages or
deeds of Trust. The mortgages create first liens on one- to four-unit
residential properties, condominium units, townhouses and units located within
planned unit developments ('PUDS') and that are secured by shares of cooperative
corporations ('CO-OP LOANS').
The Loans will be 'conventional' Loans which means they will not be insured
or guaranteed by any governmental agency. The mortgaged properties securing the
Loans may be located in any jurisdiction within the United States and many
include investment properties and vacation and second homes. Unless otherwise
stated in the prospectus supplement, the Loans will have the following
characteristics:
initial principal balances at origination of not more than $2,000,000;
monthly payments due on the first day of each month;
5- to 40-year term at origination;
adjustable or fixed rates of interest;
level or variable monthly payments over the term of the Loan; and
secured by a lien on the underlying mortgaged property or by a leasehold
interest in the property.
Unless otherwise stated in the prospectus supplement, the loan-to-value
ratio of any Loan will be determined by dividing (1) the original principal
balance of the Loan by (2) the original value of the related mortgaged property.
The principal balance of the Loan, for purposes of computation of the
loan-to-value ratio of any Loan, will include any part of an origination fee or
closing costs that have been financed. The original value of a mortgaged
property is:
in the case of a purchase money Loan, the lesser of the appraised value
of the mortgaged property and the selling price; and
in the case of any non-purchase money Loan, the value of the mortgaged
property, based on the appraised value determined in an appraisal
obtained at the time of refinancing or origination of the loan or the
sales price, if the mortgaged property was purchased within the previous
twelve months.
PAYMENT PROVISIONS OF THE LOANS
Each Loan may be fully amortizing or may be a balloon loan. A 'BALLOON
LOAN' is a Loan that requires the borrower to make a substantial payment on the
Loan's stated maturity date. The ability of a borrower to make a balloon payment
will frequently depend upon the borrower's ability to refinance the Loan. Each
Balloon Loan may require payment of a premium or a yield maintenance penalty in
connection with a prepayment. The prospectus supplement will describe any
balloon loans, any applicable prepayment premiums or yield maintenance penalties
and the allocation of any premiums or penalties.
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<PAGE>
A Trust may contain buydown loans. A 'BUYDOWN LOAN' is a Loan that includes
a provision whereby the originator or a third party partially subsidizes the
monthly payments of the mortgagor during the early years of the Loan. At the
time of origination of the Loan, the originator or a third party establishes a
buydown fund from which the difference in the amount of principal and interest
due on the Loan and the payment due from the mortgagor will be made. A buydown
fund will be in an amount equal either to the discounted value or full aggregate
amount of future payment subsidies. The underlying assumption of buydown plans
is that the income of the mortgagor will increase during the buydown period as a
result of normal increases in compensation and of inflation. As a result, the
mortgagor should be able to meet the full mortgage payments at the end of the
buydown period. To the extent that a mortgagor does not experience an increase
in income, the possibility of defaults on buydown loans is increased. The
prospectus supplement will contain information for any buydown loan concerning
limitations on the interest rate paid by the mortgagor initially, on annual
increases in the interest rate and on the length of the buydown period.
The Loans in any Trust may include loans that bear simple interest at fixed
annual rates (the 'FIXED-RATE LOANS') and have original terms up to 40 years.
These Loans provide for monthly payments of principal and interest in
substantially equal installments for the contractual term of the mortgage note
in sufficient amounts to fully repay the principal amount of the note by
maturity.
The Loans may include fully or negatively amortizing adjustable rate loans
('ARMS'). Unless otherwise specified in the related prospectus supplement, ARMs
eligible for inclusion in a Trust provide for a fixed initial mortgage interest
rate for an initial period of time ranging from 1 month to 120 months.
Thereafter, the mortgage interest rates are subject to periodic adjustment based
on changes in a formula or index (the 'INDEX'). The Index applicable as of any
interest adjustment date will be the most recent index figure available during a
period specified in the prospectus supplement. A lender may set the initial
mortgage interest rate independently of the Index otherwise applicable at the
time of origination. The initial mortgage interest rate is based on competitive
factors and on other various factors including the lender's:
lending policy at the time of origination;
availability of funds for lending purposes;
rate of return obtainable on other investments; and
cost of doing business.
The initial mortgage interest rate may be higher for mortgage loans with a
relatively higher loan-to-value ratio. After the initial period, the mortgage
interest rates are adjusted periodically to a rate equal to the Index plus a
fixed percentage spread over the Index established contractually for each ARM at
the time of its origination (the 'GROSS MARGIN'). Some ARMs can be converted
into Fixed-Rate Loans at the option of the mortgagor subject to any maximum
rate, minimum rate and maximum adjustment. The mortgagor's option to convert is
usually limited to a set period after origination and the fulfillment of
specific conditions described in the related mortgage note. To the extent
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specified in the related prospectus supplement, any ARM converted to a
fixed-rate mortgage may be subject to repurchase by the Depositor.
Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, many ARMs provide that the mortgage
interest rate may not be adjusted to a rate above a lifetime maximum rate or
below a lifetime minimum rate. In addition, some ARMs provide for limitations on
the maximum amount by which mortgage interest rates may adjust for any single
adjustment period. These limits are established at the time of origination of
the ARM and are based on a variety of factors, including competitive conditions
at the time of origination in the area in which the mortgaged property is
located. Because of the maximum rate, minimum rate and, if applicable, the
periodic maximum adjustment, the mortgage interest rate in effect from time to
time on an ARM may not be equal to the applicable Index plus the Gross Margin.
The mortgage interest rates on ARMs that do not provide for negative
amortization adjust at specified intervals which will be specified in the
prospectus supplement. To accommodate changes in the adjustable mortgage
interest rate, the monthly payment for an ARM which does not provide for
negative amortization will be adjusted at the time the rate adjustment occurs to
an amount that would fully repay the Loan over its remaining term at the
mortgage interest rate in effect as of the adjustment date. The Loans which
comprise any Trust may have been originated at different times, and therefore
the monthly payments on these Loans will adjust periodically in different
months.
Some ARMs are payable in self amortizing payments of principal and
interest. Other ARMs ('NEGATIVELY AMORTIZING ARMS') instead provide for
limitations on changes in the monthly payment on the ARMs ('PAYMENT CAPS').
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to repay the Loan by its maturity at the
mortgage interest rate in effect in any particular month. If a monthly payment
is not sufficient to pay the interest accruing on a Negatively Amortizing ARM,
the amount of the shortfall in interest ('DEFERRED INTEREST') is added to the
principal balance of the Loans, causing negative amortization of the Loan, and
will be repaid through future monthly payments. If a monthly payment exceeds the
sum of the interest accrued at the applicable mortgage interest rate and the
principal payment which would have been necessary to repay the outstanding
principal balance over the remaining term of the loan, the excess reduces the
principal balance of the ARM. See 'Prepayment, Yield and Maturity
Considerations -- Prepayment Considerations.' Negatively Amortizing ARMs do not
provide for the extension of their original maturity to accommodate changes in
their mortgage interest rate. All of the limitations on periodic increases in
interest rates and on changes in monthly payments protect borrowers from
unlimited interest rate and payment increases. For any Trust that includes ARMs,
the related prospectus supplement will specify whether the Trust includes
Negatively Amortizing ARMs.
The Loans included in a Trust are by their terms assumable under limited
conditions. However, they also contain 'due-on-sale' provisions under which the
Loans become due and payable, at the option of the mortgage holder, upon the
sale of the related mortgaged property. We expect that the Master Servicer will
enforce 'due-on-sale' provisions on most
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Fixed-Rate Loans and some ARMs. In instances where the Master Servicer does not
enforce these provisions, the prospective purchaser must meet the Master
Servicer's creditworthiness standards or the Master Servicer must reasonably
believe that it may be restricted by law from enforcing a due-on-sale clause. In
addition, applicable law at the time of transfer must not limit the Master
Servicer's ability to make the interest rate and payment adjustments permitted
by the related mortgage note. Upon any assumption, the Master Servicer may enter
into an assumption and modification agreement with the person to whom the
property has been or is about to be conveyed, pursuant to which that person
becomes liable under the promissory note evidencing the Loan. If a REMIC
election is made for the related Trust, in connection with any assumption or
substitution agreement, the Master Servicer may not change the interest rate of
the related mortgage note. The person assuming the Loan will generally pay a fee
based on a percentage of the outstanding principal balance of the Loan. The
Master Servicer will retain this fee as additional servicing compensation. In
some cases the maximum rate or minimum rate applicable to ARMs may change upon
assumption. Upon assumption, the terms of Fixed-Rate Loans generally are not
modified to current market rates, unless the loan bears a higher interest rate
than the prevailing market rate. For a description of circumstances in which the
Master Servicer may be unable to enforce due-on-sale clauses, see 'Legal Aspects
of the Loans -- `Due on Sale' Clauses.'
LOAN UNDERWRITING POLICIES
The Loans to be included in each Trust will be subject to the various
credit, appraisal and underwriting standards described in this section. The
Depositor's credit, appraisal and underwriting standards for the Loans will
generally conform to those published in the Depositor's selling guide. We refer
to the Depositor's selling guide, together with the Depositor's servicing guide,
as modified from time to time, as the 'GUIDE.' The credit, appraisal and
underwriting standards in the Guide are continuously revised based on
opportunities and prevailing conditions in the residential mortgage market and
the market for the Depositor's mortgage pass-through certificates. The Loans may
be underwritten by the Depositor or by designated third parties.
In addition, the Depositor may purchase Loans which do not conform to the
underwriting standards described in the Guide. The Depositor may purchase these
Loans from qualified lenders and mortgage asset sellers who will represent that
the Loans have been originated in accordance with credit, appraisal and
underwriting standards agreed to by the Depositor. The Depositor will generally
review only a limited portion of these Loans for conformity with the applicable
credit, appraisal and underwriting standards. The Depositor may also purchase
Loans from qualified lenders and mortgage asset sellers who will represent that
the Loans were originated pursuant to credit, appraisal and underwriting
standards determined by a mortgage insurance company acceptable to the
Depositor. The Depositor will accept a certification from the insurance company
as to a Loan's insurability in a mortgage pool as evidence that the Loan
conforms to applicable underwriting standards. The certificates will likely have
been issued before the purchase of the Loans by
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the Depositor. The Depositor will perform only random quality assurance reviews
on Loans delivered with this certification.
The credit, appraisal and underwriting standards utilized in negotiated
transactions and the credit, appraisal and underwriting standards of insurance
companies issuing certificates may vary substantially from the credit, appraisal
and underwriting standards described in the Guide. All of the credit, appraisal
and underwriting standards will provide an underwriter with sufficient
information to evaluate the borrower's repayment ability and the adequacy of the
mortgaged property as collateral. Due to the variety of underwriting standards
and review procedures that may be applicable to the Loans included in any Trust,
the prospectus supplement will not distinguish among the various credit,
appraisal and underwriting standards applicable to the Loans nor describe any
review for compliance with applicable credit, appraisal and underwriting
standards performed by the Depositor. Moreover, we cannot assure you that every
Loan was originated in conformity with the applicable credit, appraisal and
underwriting standards in all material respects, or that the quality or
performance of Loans underwritten pursuant to varying standards as described
above will be equivalent under all circumstances.
The Depositor's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed mortgaged property as collateral. The Depositor expects
that each prospective mortgagor will be required to complete an application
which will include information about the applicant's assets, liabilities,
income, credit history, employment history and other related items, and furnish
an authorization to apply for a credit report which summarizes the mortgagor's
credit history. In order to establish the prospective mortgagor's ability to
make timely payments, the Depositor will require evidence regarding the
mortgagor's employment and income, and of the amount of deposits made to
financial institutions where the mortgagor maintains demand or savings accounts.
The Depositor may purchase Loans which were originated under a limited mortgage
documentation program. However, the mortgagors on these types of loans must have
a good credit history and be financially capable of making a larger cash down
payment in a purchase, or be willing to finance less of the appraised value, in
a refinancing, than would otherwise be required by the Depositor. Currently, the
Depositor's underwriting standards provide that under this type of program, only
Loans with specified loan-to-value ratios will qualify for purchase. If the Loan
qualifies, the Depositor waives some of its documentation requirements and
eliminates verification of income and employment for the prospective mortgagor.
The Depositor's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC. In determining the adequacy of the property as
collateral, an independent appraisal is generally made of each property
considered for financing. The appraiser may be required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. Alternatively, the appraisal may be conducted by comparing values of
similar properties in an automated system or electronic data base, inspecting
the exterior of the property or another method described in the Guide. The
appraisal is based on the appraiser's judgment of values, giving appropriate
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weight to both the market value of comparable homes and the cost of replacing
the property. The Depositor expects that the underwriting standards will require
that the underwriters be satisfied that the value of the property being financed
supports, and will continue to support, the outstanding Loan balance, and
provides sufficient value to mitigate the effects of adverse shifts in real
estate values.
Some states where the mortgaged properties may be located are
'anti-deficiency' states where, in general, lenders providing credit on one- to
four-family properties look solely to the property for repayment in the event of
foreclosure. See 'Legal Aspects of the Mortgage Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders.' The Depositor expects that the
underwriting standards applied to the Loans will require that the underwriters
be satisfied that the value of the property being financed, as indicated by the
appraisal, currently supports and is anticipated to support in the future the
outstanding loan balance, and provides sufficient value to mitigate the effects
of adverse shifts in real estate values. The general appreciation of real estate
values experienced in the past has been a factor in limiting the general loss
experience on conventional one- to-four-unit residential first mortgage loans.
We cannot assure you, however, that the past pattern of appreciation in value of
the real property securing these loans will continue.
The Depositor will obtain representations and warranties from the
applicable qualified lender that the Loan was originated in accordance with the
underwriting guidelines described above or other policies that the Depositor may
require or approve from time to time. The qualified lender providing this
representation may or may not be the party that originated the Loan. The
Depositor will review, or cause to be reviewed, all or a representative sample
of the Loans, and perform other reviews that it deems appropriate to determine
compliance with these standards. The Depositor will have 90 days following
delivery of a certificate series to complete its review. If the Depositor finds
any Loan fails to comply with these standards, the mortgage asset seller must
repurchase the defective Loan or provide a substitute Loan. However, the
mortgage asset seller will not be obligated to make a repurchase or substitution
if it can demonstrate to the satisfaction of the Depositor that the defective
Loan is includible in the pool. See 'The Pooling and Servicing
Agreement -- Repurchase or Substitution.'
The underwriting policies described in this section may be varied for
particular certificate series to the extent described in the prospectus
supplement.
MORTGAGE CERTIFICATES
DESCRIPTION OF THE MORTGAGE CERTIFICATES
All of the Mortgage Certificates will be registered in the name of the
Trustee or its nominee or, in the case of Mortgage Certificates issued only in
book-entry form, a financial intermediary that is a member of the Federal
Reserve System or of a clearing corporation on the books of which the security
is held. In some cases the financial intermediary may be the Trustee. Each
Mortgage Certificate will evidence an interest in a
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Trust consisting of a pool of Mortgage Assets and/or in principal distributions
and interest distributions thereon.
The descriptions of Government National Mortgage Association ('GNMA'),
FHLMC, FNMA and Private certificates in this section are descriptions of
certificates representing proportionate interests in a pool of mortgage loans
and in the payments of principal and interest thereon. These issuers may also
issue asset-backed securities that represent a right to receive distributions
of:
interest only; or
principal only; or
disproportionate distributions of principal or interest; or
principal and/or interest prior or subsequent to distributions on other
certificates representing interests in the same pool of mortgage loans.
In addition, any of these issuers may issue certificates representing
interests in mortgage loans having characteristics that are different from the
types of mortgage loans described below. The terms of any Mortgage Certificates
to be included in a Trust and the Underlying Loans will be described in the
prospectus supplement. The descriptions that follow are subject to modification
in each prospectus supplement as appropriate to reflect the terms of the
Mortgage Certificates that are actually included in a Trust.
GNMA. GNMA is a wholly owned corporate instrumentality of the United States
within HUD. Section 306(g) of Title III of the National Housing Act of 1934, as
amended (the 'HOUSING ACT'), authorizes GNMA to guarantee the timely payment of
the principal of and interest on certificates that are based on and backed by a
pool of loans. The pool will consist of:
loans insured by the United States Federal Housing Administration (the
'FHA') under the Housing Act or Title V of the Housing Act of 1949 ('FHA
LOANS');
loans guaranteed by the United States Department of Veteran Affairs (the
'VA') under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38, United States Code; or
other eligible loans.
Section 306(g) of the Housing Act provides that 'the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection.' In order to meet
its obligations under a guaranty, GNMA is authorized, under Section 306(d) of
the Housing Act, to borrow from the United States Treasury with no limitations
as to amount.
GNMA Certificates. All of the GNMA certificates will be mortgage-backed
certificates issued and serviced by GNMA- or FNMA-approved mortgage servicers.
The mortgage loans underlying GNMA certificates may consist of:
FHA Loans secured by mortgages on one- to four-family residential
properties or multi-family residential properties,
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loans secured by mortgages on one- to four-family residential properties
or multi-family residential properties,
mortgage loans which are partially guaranteed by the VA, and
other mortgage loans eligible for inclusion in mortgage pools underlying
GNMA certificates.
Each GNMA certificate provides for the payment by or on behalf of the
issuer of the GNMA certificate to the registered certificateholder of monthly
payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of:
the monthly scheduled principal and interest payments on each underlying
eligible mortgage loan, less
servicing and guaranty fees aggregating the excess of the interest on
each underlying mortgage loan over the GNMA certificate pass-through
rate.
In addition, each payment to a GNMA certificateholder will include
proportionate pass-through payments of any prepayments of principal on the
underlying loans, and the holder's proportionate interest in the remaining
principal balance in the event of a foreclosure or other disposition of any
underlying loan.
Unless otherwise specified in the related prospectus supplement, the GNMA
certificates included in a Trust may be issued under either or both of the
GNMA I program and the GNMA II program. All mortgages underlying a particular
GNMA I certificate must be of the same type. An example of type would be
'single-family level payment mortgage loans.' The mortgages must also have the
same annual interest rate, except for pools of mortgage loans secured by mobile
homes. The annual interest rate on each GNMA I certificate is one-half
percentage point less than the annual interest rate on the mortgage loans
included in the pool of mortgages backing the GNMA I certificate. Mortgages
underlying a particular GNMA II certificate must also be of the same type, but
may have annual interest rates that vary from each other by up to one percentage
point. The annual interest rate on each GNMA II certificate will be between
one-half percentage point and one and one-half percentage points less than the
highest annual interest rate on any mortgage loan included in the pool of
mortgages backing the GNMA II certificate.
GNMA will have approved the issuance of each of the GNMA certificates in
accordance with a guaranty agreement between GNMA and the Master Servicer of the
mortgage loans underlying the GNMA certificate. Pursuant to the guaranty
agreement, the servicer is required to advance its own funds in order to make
timely payments of all amounts due on the GNMA certificate, even if the payments
received by the servicer on the mortgage loans backing the GNMA certificate are
less than the amounts due on the GNMA certificate. If a servicer is unable to
make payments on a GNMA certificate as it becomes due, it must promptly notify
GNMA and request GNMA to make the payment. Upon notification and request, GNMA
will make the payments directly to the registered holder of the GNMA
certificate. If no payment is made by the servicer and it fails to notify and
request GNMA to make the payment, the registered holder of the GNMA certificate
has recourse only against GNMA to obtain the payment. The registered holder is
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entitled to proceed directly against GNMA under the terms of each GNMA
certificate or the guaranty agreement or contract relating to the GNMA
certificate for any amounts that are not paid when due under the GNMA
certificate.
FHLMC. FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
'FHLMC ACT'). FHLMC is a stockholder-owned corporation. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional one-to-four-unit residential
first mortgages. The principal activity of FHLMC currently consists of:
the purchase of first lien conventional one- to four-unit residential
mortgage loans,
the purchase of participation interests in these types of loans, and
the resale of the purchased mortgage loans in the form of mortgage
securities.
FHLMC is confined to purchasing, so far as practicable, conventional
one-to-four-unit residential first mortgage loans and participation interests in
conventional one-to-four-unit residential first mortgage loans which it deems to
be of the quality, type and class as to generally meet the purchase standards
imposed by private institutional mortgage investors.
FHLMC Certificates. FHLMC certificates represent an undivided interest in a
group of mortgage loans purchased by FHLMC. Mortgage loans underlying the FHLMC
certificates included in a Trust will consist principally of fixed or
adjustable-rate mortgage loans with original terms to maturity of approximately
5, 7, 15, 20 and 30 years. First liens on one-to four-family residential
properties secure these loans.
FHLMC certificates are issued and maintained and may be transferred only on
the book-entry system of a Federal Reserve Bank and may only be held of record
by entities eligible to maintain book-entry accounts at a Federal Reserve Bank.
Beneficial owners will hold FHLMC certificates ordinarily through one or more
financial intermediaries. The rights of a beneficial owner of a FHLMC
certificate against FHLMC or a Federal Reserve Bank may be exercised only
through the Federal Reserve Bank on whose book-entry system the certificate is
held.
Under its cash and guarantor programs, FHLMC guarantees to each registered
holder of a FHLMC certificate the timely payment of interest at the rate
provided for by the FHLMC certificate on the registered holder's pro rata share
of the outstanding unpaid principal balance of the related mortgage loans,
whether or not received. FHLMC also guarantees to each registered holder
ultimate collection of all principal of the related mortgage loans, without any
offset or deduction, to the extent of the holder's pro rata share. It does not
guarantee the timely payment of scheduled principal. Pursuant to its guarantees,
FHLMC generally indemnifies holders of FHLMC certificates against any diminution
in principal by reason of charges for property repairs, maintenance and
foreclosure. FHLMC may remit the amount due on account of its guarantee of
ultimate
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collection of principal at any time after default on an underlying mortgage
loan, but not later than 30 days following the latest to occur of:
foreclosure sale,
payment of a claim by any mortgage insurer, or
the expiration of any right of redemption.
In any event, FHLMC shall remit the guaranteed amount no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal or for payment of principal due on the maturity of the mortgage. In
taking actions regarding the collection of principal after default on the
mortgage loans underlying FHLMC certificates, including the timing of demand for
acceleration, FHLMC reserves the right to exercise its servicing judgment on the
mortgages in the same manner as for mortgages that it has purchased but not
sold. In lieu of guaranteeing only the ultimate collection of principal payments
in the manner described above, FHLMC may, but will not be obligated to, enter
into one or more agreements with the issuer and the Trustee of the FHLMC
certificates pursuant to which FHLMC will agree to guarantee the timely receipt
of scheduled principal payments. If this type of agreement is entered into and
is applicable to all or any part of the FHLMC certificates included in a Trust,
its existence will be disclosed in the prospectus supplement.
Under its Gold PC Program, FHLMC guarantees to each registered holder of a
FHLMC certificate the timely payment of interest calculated in the same manner
as described above. In addition, it guarantees timely installments of scheduled
principal calculated on the basis of the weighted average remaining term to
maturity of the mortgage loans in the pool underlying the related FHLMC
certificate.
FHLMC certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States.
FNMA. FNMA is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. FNMA was originally established in 1938 as a United States
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas. In addition, FNMA issues mortgage-backed securities
primarily in exchange for pools of mortgage loans from lenders.
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FNMA Certificates. FNMA certificates represent fractional interests in a
pool of mortgage loans formed by FNMA.
FNMA guarantees to each registered holder of a FNMA certificate that it
will distribute amounts representing scheduled principal and interest at the
applicable pass-through rate on the underlying loans, whether or not received.
It also guarantees each holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not the full principal amount is actually recovered. If FNMA were unable to
perform its obligations, distributions on FNMA certificates would consist solely
of payments and other recoveries on the underlying mortgage loans. Accordingly,
delinquencies and defaults would affect monthly distributions to holders of FNMA
certificates. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. The FNMA certificates are not guaranteed by the United
States and do not constitute debts or obligations of the United States.
Private Certificates. Each 'PRIVATE' certificate will evidence an undivided
interest in a pool of:
FNMA certificates,
FHLMC certificates,
GNMA certificates,
mortgage loans, or
any combination of FNMA, FHLMC and GNMA certificates and mortgage loans.
We expect that Private certificates will be issued pursuant to participation or
agreements entered into from time to time between the related seller and the
related trustee or custodian for the certificates. In addition, an affiliate of
the seller or of the Depositor under the agreement may be a Master Servicer for
these certificates or for the mortgage loans in which the Mortgage Certificates
represent a beneficial interest. The mortgage loans underlying the Private
certificates may be subserviced by one or more loan servicing institutions under
the supervision of the Master Servicer. Each Private certificate will have been
acquired in a secondary transaction and not from the issuer or any affiliate of
the issuer of the Private certificate. Unless otherwise specified in the related
prospectus supplement, each Private certificate will evidence an interest in, or
will be secured by a pledge of mortgage loans that conform to the descriptions
of Loans in this prospectus. Each Private certificate included in any Trust that
is not a FNMA, FHLMC or GNMA certificate must either: (1) have been previously
registered under the Securities Act of 1933 or (2) if not registered, be
eligible for sale under Rule 144(k) under the Securities Act of 1933.
We expect that all collections received by the servicers on the mortgage
loans securing the Private Certificates will be deposited with the trustee for
the Private certificates. However, the Master Servicer will be entitled to
retain servicing fees and other amounts specified in the related Pooling and
Servicing Agreement from collections. Monthly distributions of the principal and
interest components of the collections will be
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made to the Trustee for the certificates of the related series for deposit into
the Certificate Account for that series.
More specific information concerning the Private certificates underlying a
particular series of certificates, the mortgage loans underlying those Private
certificates, and related servicing and insurance, subordination or other credit
support arrangements will be described in the prospectus supplement.
SUBSTITUTION OF MORTGAGE CERTIFICATES
The Pooling and Servicing Agreement for a series that includes Mortgage
Certificates may permit substitution of Mortgage Certificates if the seller of
the Mortgage Certificates breaches a representation or warranty, or the
documentation related to any Mortgage Certificate is incomplete. The prospectus
supplement for each series will further describe the conditions under which a
substitution may occur.
THE DEPOSITOR
GENERALLY
The Depositor was incorporated in Delaware in 1991 and is a wholly owned
limited purpose indirect subsidiary of ABN AMRO Bank N.V. The limited purposes
of the Depositor are, in general:
to acquire, own, pledge and sell mortgage loans and certificates
representing proportionate interests in pools of mortgage loans;
to issue, acquire, own, pledge and sell mortgage pass-through securities
which represent ownership interests in mortgage loans and certificates
representing proportionate interests in pools of 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.
We do not expect that the Depositor will have any business operations other than
offering series of certificates and related activities. The principal executive
offices of the Depositor are located at 181 West Madison Street, Suite 3250,
Chicago, Illinois 60602-4510, and its telephone number is (312) 904-0800.
Unless otherwise specified in the related prospectus supplement, neither
the Depositor, its parents nor any of the Depositor's affiliates will insure or
guarantee distributions on the certificates of any series. As described in this
prospectus, the only obligations of the Depositor will be pursuant to
representations and warranties related to the Mortgage Assets. See 'Pooling and
Servicing Agreement -- Representations and Warranties.' The Depositor will have
no ongoing servicing responsibilities or other responsibilities for any Mortgage
Asset. The Depositor does not have nor is it expected in the future to have any
significant assets with which to meet any obligations with respect to any Trust.
If the
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Depositor were required to repurchase or substitute a Mortgage Asset, its only
source of funds to make the required payment would be funds obtained from the
related Mortgage Asset seller or, if applicable, the Master Servicer or the
servicer.
YEAR 2000 PROJECT
STATE OF READINESS
The Depositor is part of ABN AMRO Bank N.V.'s U.S. operations, which are
managed by ABN AMRO North America, Inc. ('AANA'). AANA began addressing the year
2000 problem in 1996 by assembling a corporate project team to develop a year
2000 readiness program for ABN AMRO entities within North America. The project
team is comprised of AANA business leaders and representatives from the
Information Technology Division and is assisted by outside consulting firms and
contract personnel who are experts in the area of year 2000 readiness.
The project team's efforts are generally divided into four phases:
awareness, assessment, renovation and validation. The project team has completed
the initial awareness phase. At present, all AANA staff are aware of the year
2000 problem and its potential impact to their business units and the
organization as a whole. The effort to improve management and staff
understanding of the problem will continue throughout the life of the project.
In addition, the project team has initiated efforts to continue to improve
awareness of the year 2000 problem among all of AANA's customers and business
partners by coordinating mass mailings and responding to customer requests for
information.
The assessment phase of the year 2000 project is complete. The project team
has surveyed and documented its year 2000 readiness requirements, and has
prepared a project plan that addresses remediation, renovation, replacement,
upgrade or obsolescence of current systems. At present, the project team has
estimated and scheduled all efforts of renovation, testing, certification and
implementation.
The renovation phase of the year 2000 project is substantially complete.
All internal 'mission critical' systems and applications are in place and fully
tested.
The project team has also launched the validation phase of the year 2000
project. It developed a comprehensive plan to validate the readiness of all of
the systems utilized by ABN AMRO entities in North America for the year 2000.
In addition, to address potential disruptions in business due to year 2000
issues, AANA has developed a general year 2000 business continuity planning
process for all ABN AMRO entities in North America. The project team will
complete specific business unit year 2000 contingency plans for all ABN AMRO
entities in North America by December 31, 1999.
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RISKS
Although the project team for the ABN AMRO entities in North America
expects its year 2000 remediation efforts to be fully completed, validated and
implemented well before the year 2000, there can be no assurance that these
efforts will be completed on time, or that they will fully remediate all
problems associated with the year 2000. In addition, there can be no assurance
that the Trustee, or unaffiliated businesses and entities who provide services
to the Depositor, the Servicer or the Trustee, will adequately address year 2000
issues.
If the Servicer, the Trustee or any of their respective vendors or third
party service providers are not year 2000 ready, the ability of the Servicer to
service the Loans, and the ability of the Trustee to make timely distributions
and required reports to certificateholders, may be materially and adversely
affected.
Some of the statements made in this section regarding the likelihood of the
Depositor successfully addressing problems associated with the year 2000
constitute forward-looking statements as defined in Section 27A(i)(1) of the
Securities Act. Generally, all statements in this section that are not
statements of historical fact are forward-looking statements. Because
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by forward-looking statements. These factors include the
ability of the Depositor to successfully identify systems and components that
may pose year 2000 issues, the nature and the amount of programming required to
correct these systems and components, the ability of third party consultants and
service providers to timely complete portions of the Depositor's year 2000
remediation plans, and the ability of the business partners of the Trustee, the
Depositor and the Servicer to successfully address their year 2000 issues.
USE OF PROCEEDS
Unless otherwise stated in the prospectus supplement, the Depositor will
use substantially all of the net proceeds from sales of certificates to purchase
Mortgage Assets or to reimburse itself for previous purchases of Mortgage
Assets. Reimbursement amounts to the Depositor may include the following:
amounts sufficient to repay any loans made to the Depositor to
facilitate mortgage asset purchases;
the costs of carrying the Mortgage Assets until the sale of the
certificates; and
expenses connected with pooling the Mortgage Assets and issuing the
certificates.
Any remaining proceeds will be used by the Depositor for its general
corporate purposes which are related to the activities described above.
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CREDIT ENHANCEMENT
TYPES OF ENHANCEMENTS
Credit enhancement may be provided for one or more classes of a series of
certificates or for the Mortgage Assets in the related Trust. Credit enhancement
may be in one or more of the following forms:
the subordination of one or more classes of the certificates of the
series;
the use of a cross-support feature;
a pool insurance policy;
a special hazard insurance policy;
a bankruptcy bond;
the establishment of one or more reserve funds;
shifting interest credit enhancement;
overcollateralization;
letters of credit;
surety bond; or
another method of credit enhancement described in the related prospectus
supplement.
Unless otherwise stated in the prospectus supplement, any credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the certificates and
interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement,
certificateholders will bear their allocable share of deficiencies.
SUBORDINATION
If so stated in the prospectus supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination of these
items that otherwise would have been payable to one or more classes of
Subordinate certificates of a series will instead be payable to holders of one
or more classes of Senior certificates of that series under the circumstances
and to the extent specified in the prospectus supplement. If stated in the
prospectus supplement, delays in receipt of scheduled payments on the Loans and
losses on defaulted Loans will be borne first by the various classes of
Subordinate certificates and thereafter by the various classes of Senior
certificates, in each case under the circumstances and subject to the
limitations specified in the prospectus supplement. The prospectus supplement
may limit the subordination of payments to Subordinate certificateholders that
the Trustee will distribute to Senior certificateholders as follows:
limiting the aggregate distributions from delinquent payments on the
Loans over the lives of the certificates or at any time,
limiting the aggregate losses in respect of defaulted Loans which must
be borne by the Subordinate certificates by virtue of subordination.
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If aggregate distributions in respect of delinquent payments on the Loans or
aggregate losses in respect of these Loans were to exceed the total amounts
payable and available for distribution to holders of Subordinate certificates
or, if applicable, were to exceed the specified maximum amount, holders of
Senior certificates could experience losses on the certificates.
In addition to or in lieu of the foregoing, if so stated in the prospectus
supplement, the Trustee may deposit all or any portion of distributions
otherwise payable to holders of Subordinate certificates on any Distribution
Date into one or more reserve funds established by the Trustee. See ' -- Reserve
Fund.'
The prospectus supplement may specify that one or more classes of
certificates will bear the risk of specified losses on defaulted Loans not
covered by other forms of credit enhancement prior to other classes of
certificates. This subordination might be effected by reducing the principal
balance of the Subordinate certificates on account of losses, thereby decreasing
the proportionate share of distributions allocable to the Subordinate
certificates, or by another means specified in the prospectus supplement.
If stated in the prospectus supplement, various classes of Senior
certificates and Subordinate certificates may themselves be subordinate in their
right to receive distributions to other classes of Senior and Subordinate
certificates, respectively, through a cross-support mechanism or otherwise.
Unless otherwise stated in the prospectus supplement, the Pooling and
Servicing Agreement may permit the Master Servicer, at its option, to grant to
the holders of some classes of Subordinate certificates particular rights in
connection with the foreclosure of defaulted Loans in the related Trust. See
'Servicing of the Loans -- Collection and Other Servicing Procedures.'
SHIFTING INTEREST CREDIT ENHANCEMENT
The protection afforded to the Senior certificateholders of a series of
certificates by the subordination feature described above under 'Subordination'
will be effected by the preferential right of the Senior certificateholders to
receive current distributions from the Trust. Also, if specified in the related
prospectus supplement, the subordination feature will be enhanced by
distributing to one or more classes of Senior certificates on specified
Distribution Dates, as payments of principal, specified Principal Prepayments in
the pool of Mortgage Assets under the circumstances and for the period of time
set forth in the prospectus supplement ('SHIFTING INTEREST CREDIT ENHANCEMENT').
Shifting Interest Credit Enhancement will have the effect of accelerating the
repayment of the Senior certificates while increasing the respective interest
evidenced by the Subordinate certificates in the related Trust. Increasing the
respective interest of the Subordinate certificates relative to that of the
Senior certificates is intended to preserve the availability of the
subordination provided by the Subordinate certificates.
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CROSS-SUPPORT
If stated in the prospectus supplement, the Trustee may issue different
classes of certificates of the series that evidence a beneficial ownership in
separate groups of assets included in a Trust. In this case, credit enhancement
may be provided by a cross-support feature which may require the Trustee to make
distributions on certificates evidencing beneficial ownership of one or more
asset groups prior to distributions to certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust. The prospectus
supplement for a series which includes a cross-support feature will describe the
manner and conditions for applying the cross-support feature.
If stated in the prospectus supplement, the coverage provided by one or
more forms of credit enhancement may apply concurrently to two or more separate
Trusts. If applicable, the prospectus supplement will identify the Trusts to
which the credit enhancement relates and the manner of determining the amount of
the coverage provided and the application of coverage to the identified Trusts.
POOL INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the Mortgage Assets, if stated in the prospectus
supplement, the Depositor will obtain one or more pool insurance policies. The
pool insurance policy will, subject to the limitations described in the
prospectus supplement, cover loss by reason of default in payments on the Loans
up to the amounts specified in the prospectus supplement and for the periods
specified in the prospectus supplement. The Master Servicer will agree to use
its best reasonable efforts to maintain in effect any pool insurance policy and
to present claims thereunder to the pool insurer on behalf of itself, the
Trustee and the certificateholders. The pool insurance policy, however, is not a
blanket policy against loss. Claims under a pool insurance policy may only be
made respecting particular defaulted Loans and only upon satisfaction of
specific conditions precedent described below. The pool insurance policy, if
any, will not cover losses due to a failure to pay or denial of a claim under a
primary mortgage insurance policy, irrespective of the reason therefore.
Unless otherwise stated in the prospectus supplement, the original amount
of coverage under any pool insurance policy will be reduced over the life of the
related series of certificates by the aggregate dollar amount of claims paid
less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
expenses incurred by the Master Servicer on the foreclosed properties for the
following:
hazard insurance premiums;
amounts paid for property taxes that have been approved by the pool
insurer;
the discharge of liens;
expenses required to preserve and repair the properties;
foreclosure costs; and
accrued interest on delinquent Loans to the date of payment of the
claim.
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See 'Legal Aspects of the Loans -- Foreclosure.' Accordingly, if aggregate net
claims paid under any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and any further
losses will be borne by one or more classes of certificateholders.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted Loan be restored to its original condition prior to
claiming against the pool insurer, the policy may not provide coverage against
hazard losses. As described under 'Servicing of the Loans -- Hazard Insurance,'
the hazard policies concerning the Loans typically exclude from coverage
physical damage resulting from a number of causes. Even when the damage is
covered, the hazard policies may afford recoveries which are significantly less
than the full replacement cost of losses. Even if special hazard insurance is
applicable as specified in the prospectus supplement, no coverage in respect of
special hazard losses will cover all risks, and the amount of any coverage will
be limited. See 'Special Hazard Insurance' below. As a result, some hazard risks
will not be insured against and will therefore be borne by certificateholders.
SPECIAL HAZARD INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the Loans, if specified in the prospectus supplement, the
Depositor will obtain one or more special hazard insurance policies on the
Loans. The special hazard insurance policy will, subject to limitations
described below and in the prospectus supplement, protect holders of
certificates from loss by reason of damage to mortgaged properties caused by
specified hazards (including earthquakes and, to a limited extent, tidal waves
and related water damage) not covered in the standard form of hazard insurance
policy for the respective states in which the mortgaged properties are located
or under flood insurance policies, if any, covering the mortgaged properties. It
also protects holders from loss from partial damage caused by reason of the
application of the co-insurance clause contained in hazard insurance policies.
Any special hazard insurance policy may not cover losses occasioned by war,
civil insurrection, specified governmental actions, errors in design, faulty
workmanship or materials (except under specific circumstances), nuclear
reaction, flood (if the mortgaged property is located in a federally designated
flood area), chemical contamination and other risks. Aggregate claims under each
special hazard insurance policy may be limited to a specified percentage of the
aggregate principal balance as of the Cut-off Date of the Loans. Any special
hazard insurance policy may also provide that no claim may be paid unless hazard
and, if applicable, flood insurance on the mortgaged property has been kept in
force and other protection and preservation expenses have been paid by the
Master Servicer. The terms of any special hazard insurance policy will be more
fully described in the prospectus supplement.
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BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the mortgaged property securing the related Loan at an
amount less than the then outstanding principal balance of the Loan secured by
the mortgaged property and could reduce the secured debt to that value. In this
case, the holder of the Loan would become an unsecured creditor to the extent of
the difference between the outstanding principal balance of the Loan and the
reduced secured debt. In addition, the bankruptcy court can make other
modifications of the terms of a Loan, including reducing the monthly payments
required to be made by the borrower. See 'Legal Aspects of the
Loans -- Enforceability of Some Provisions.' If so stated in the related
prospectus supplement, the Depositor will obtain a bankruptcy bond or similar
insurance contract for proceedings of borrowers under the Bankruptcy Code. The
bankruptcy bond will cover specified losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a Loan or
a reduction by the court of the principal amount of a Loan. It will also cover
some amounts of unpaid interest on the amount of a principal reduction from the
date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related prospectus supplement. Payments made under the bankruptcy bond
will reduce the coverage amounts unless otherwise stated in the related
prospectus supplement, and will not be restored.
In lieu of a bankruptcy bond, the Depositor may obtain a limited guarantee
to cover bankruptcy-related losses.
RESERVE FUND
If in the related prospectus supplement the Master Servicer will establish
and maintain a reserve fund (the 'RESERVE FUND') with the Trustee. The
prospectus supplement will state whether or not the Reserve Fund will be part of
the Trust assets. Unless otherwise specified in the related prospectus
supplement, the Depositor will make an initial cash deposit to the Reserve Fund
equal to the amount specified in the related prospectus supplement. Following
the initial issuance of the certificates and until the balance of the Reserve
Fund equals the amount specified in the prospectus supplement (the 'SPECIFIED
RESERVE FUND BALANCE'), the Trustee or the applicable paying agent will withhold
distributions of principal and interest otherwise available to the Subordinate
certificateholders and deposit those amounts in the Reserve Fund. After the
Specified Reserve Fund Balance is attained, the Trustee or the applicable paying
agent will withhold distributions of principal only from the Subordinate
certificateholders and deposit those amounts in the Reserve Fund as necessary to
maintain the Specified Reserve Fund Balance applicable at the time. Amounts in
the Reserve Fund, if any, will be transferred to the Certificate Account for
distribution to Senior certificateholders to the extent required to make full
distributions to them on a particular Distribution Date. The related prospectus
supplement will set forth when and to what extent the Specified Reserve Fund
Balance
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may be reduced. The Prospectus Supplement will further specify how any funds
remaining in the Reserve Fund will be distributed after termination of the Trust
or reduction of the Subordinated Amount to zero.
OVERCOLLATERALIZATION
Credit enhancement for a series of Certificates may be provided by
overcollateralization. Principal and/or interest collections on the Mortgage
Assets may exceed principal and/or interest payments on the certificates for the
related Distribution Date. These excess amounts may be deposited into the
Reserve Fund or applied as a payment of principal on the certificates. To the
extent these amounts are applied as principal payments on the certificates, the
effect will be to reduce the principal balance of the certificates relative to
the outstanding balance of the Mortgage Assets.
LETTER OF CREDIT
Credit enhancement for a series of certificates may be provided by the
issuance of a letter of credit by a bank or financial institution specified in
the prospectus supplement. The maximum obligation of the issuer of the letter of
credit will be to honor requests for payment in an aggregate fixed dollar
amount, net of unreimbursed payments under the letter of credit, equal to the
percentage described in the prospectus supplement of the aggregate principal
balance on the related Cut-off Date of the Mortgage Assets evidenced by each
series. The duration of coverage and the amount and frequency and circumstances
of any reduction in coverage provided by the letter of credit for a series of
certificates will be in compliance with the requirements established by the
rating agency or agencies rating the series, and will be described in the
prospectus supplement.
SURETY BOND
If so specified in the related prospectus supplement for a series of
certificates, credit enhancement may be provided in the form of a surety bond
issued by an insurer named in the prospectus supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If stated in the prospectus supplement, the related Trust may also include
insurance, guarantees or similar arrangements for the purpose of:
maintaining timely payments or providing protection against losses on
the assets included in a Trust;
paying administrative expenses; or
establishing a minimum reinvestment rate on the payments made in respect
of the assets or principal payment rate on the assets.
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These arrangements may include agreements under which certificateholders
are entitled to receive amounts deposited in various accounts held by the
Trustee based on the terms specified in the prospectus supplement. In addition,
unless otherwise provided in the prospectus supplement, at any time a surety
bond, letter of credit or other form of credit enhancement may be substituted
for the credit support arrangement in effect initially for the series to the
extent permitted by the rating agency or agencies rating the certificate series,
without resulting in a downgrading of the current rating of the certificates of
that series.
PREPAYMENT, YIELD AND MATURITY CONSIDERATIONS
GENERAL
DETERMINATION OF PASS-THROUGH RATES
Unless otherwise specified in the related prospectus supplement, the
'PASS-THROUGH RATE' for each Loan will equal the mortgage interest rate on the
Loan less the servicing fee due to the Master Servicer for that Loan (the
'ADMINISTRATION FEE') and for each Mortgage Certificate will equal the interest
rate on the Mortgage Certificate less the Administration Fee. The Administration
Fee will be specified in the Pooling and Servicing Agreement. It may be uniform
for all Loans in a pool or may vary on a loan-by-loan basis. For ARMs, the
Administration Fee will generally vary on a loan-by-loan basis to produce a
uniform margin (the 'NET MARGIN') by which the Pass-Through Rate for each Loan
in a Trust will exceed the applicable Index for the loan. For example, if the
Net Margin for a class or series of certificates were established to be 125
basis points over the Index applicable to the ARMs included in the Trust for
that class or series, an individual Loan whose terms provide for a mortgage
interest rate of 200 basis points over the applicable Index would be assigned an
Administration Fee totaling 75 basis points. Similarly, a Loan whose mortgage
interest rate is 175 basis points over the Index would be assigned an
Administration Fee totaling 50 basis points. The prospectus supplement will
specify whether the Administration Fee assigned to a Loan at the time of
formation of a Trust will be fixed throughout the term of the related Pooling
and Servicing Agreement or will vary. If the lifetime maximum rate or the
periodic maximum adjustment applicable to a Loan prevents its mortgage interest
rate from adjusting at any adjustment date to the full extent of the Index plus
the Gross Margin applicable to that loan, the Pass-Through Rate for the loan may
be less than the Index plus the Net Margin. Similarly, if the lifetime minimum
rate or, if applicable, the periodic maximum adjustment prevents the mortgage
interest rate from fully adjusting, the Pass-Through Rate for the loan may
exceed the Index plus the Net Margin.
DETERMINATION OF REMITTANCE RATE
Unless otherwise specified in the related prospectus supplement, the
Remittance Rate for each class of certificates of a series will, for Trusts
consisting of ARMs, and may, for
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Trusts consisting of Fixed-Rate Loans, be all, or a portion specified in the
related prospectus supplement, of the weighted average of the Pass-Through Rates
of the Loans included in the Trust. The weighted average Pass-Through Rate for
Trusts comprised of ARMs generally will change with any changes in the
adjustable mortgage interest rates borne by or accruing on the underlying ARMs
and may change with principal prepayments, negative amortization or accelerated
repayment of the ARMs. The weighted average Pass-Through Rate for a Trust
consisting of Fixed-Rate Loans with different Pass-Through Rates may change due
to differing prepayment rates and differing repayment rates of the Loans
included in the Trust.
YIELD
The following discussions of yield considerations is intended to be general
in nature and reference is made to the discussion in each prospectus supplement
regarding yield and prepayment considerations and other risks.
The yield on any certificate will depend on, among other things, the price
paid by the certificateholder, the Remittance Rate of the certificate, the
weighted average life and the prepayment experience of the Mortgage Assets
represented by the certificate. The actual yield to maturity realized on the
certificates listed below may be dramatically affected by the prepayment
experience or repurchases of the Mortgage Assets comprising the related Trust:
certificates offered at a discount from or premium over its original
principal amount,
Interest Only certificates, or
certificates offered with a lower proportionate share of the principal
amount of the Mortgage Assets.
In extreme cases, holders of some certificates could fail to recoup their
investment.
PRICE
Prepayments of principal in whole or in part or accelerated repayment, if
any, on the Mortgage Assets comprising a Trust will:
increase the yield to maturity on a certificate purchased at a price
less than the aggregate principal balance of the Mortgage Assets
represented by that certificate, and
decrease the yield to maturity on a certificate purchased at a price
equal to, slightly less than (due to effects of payment delays), or
greater than the aggregate principal balance of the Mortgage Assets
represented by that certificate. However, the amount of interest payable
in connection with prepayments as described in the prospectus supplement
may alter the effect on the price of certificates.
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Additionally, and as more fully described in the prospectus supplement, if
any certificate is offered without any principal amount or with a lower
disproportionate share of the principal amount of the underlying Mortgage
Assets, the yield realized on the certificate will be extremely sensitive to
levels of prepayments of the Mortgage Assets represented by that certificate. In
extreme cases, holders of these certificates could fail to recoup their original
investment.
EFFECTIVE PASS-THROUGH RATE
Each monthly interest payment on a Loan is calculated as 1/12 of the
applicable mortgage interest rate times the outstanding principal balance of the
Loan on the first day of the month. The Pass-Through Rate for each Loan will be
similarly calculated on a loan-by-loan basis, after subtracting the
Administration Fee applicable to each Loan from the applicable mortgage interest
rate, unless otherwise specified in the related prospectus supplement. In the
case of a Trust with a range of Pass-Through Rates, disproportionate prepayments
of Loans with higher Pass-Through Rates will result in a lower effective
Remittance Rate to certificateholders.
Except as otherwise specified in the prospectus supplement, the interest
accrual period for your certificates will be from the first day of each month
through the end of the month, but the Trustee will not distribute that interest
until a later date which is the Distribution Date occurring in the following
month. As a result, the effective yield to maturity on certificates entitled to
interest distributions will be slightly lower than the yield otherwise produced
by the applicable Remittance Rate and the applicable purchase prices of
certificates.
When a mortgagor prepays the entire Loan prior to the next scheduled Due
Date, the mortgagor pays interest on the amount prepaid only to the date of
prepayment. In addition, a mortgagor may make a partial prepayment that reduces
the principal balance of the related Loan as of a date prior to the Due Date of
the payment. In this case, on the next Due Date, the mortgagor would not pay
interest on the amount of the partial prepayment. The difference between one
full month's interest at the applicable Pass-Through Rate and the amount of
interest actually paid by the mortgagor is referred to as 'PREPAYMENT INTEREST
SHORTFALL'. Unless otherwise specified in the related prospectus supplement, in
order to prevent certificateholders from being adversely affected by a
Prepayment Interest Shortfall, the Master Servicer may forego all or a portion
of the current Administration Fees as compensating interest, so that up to a
full month's interest payment will be passed through to the certificateholders.
To the extent sufficient current Administration Fees due to the Master Servicer
are not available to cover compensating interest, the yield to
certificateholders will be slightly less than it would be if the current
administration fees were adequate to cover compensating interest. See
'Description of the Certificates -- Example of Distributions.' The occurrence of
any of the following events may also reduce the amount of interest passed
through to certificateholders and any resulting shortfall will be borne by
certificateholders:
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the payment of a claim under insurance policies or the purchase of a
defaulted Loan by a private mortgage insurer, or
a reduction in the interest rate of any Loan due to the application of
the Soldiers' and Sailors' Civil Relief Act of 1940.
OTHER YIELD CONSIDERATIONS
Mortgage Interest Rates on Negatively Amortizing ARMs. Since a portion of
the interest accrued on Negatively Amortizing ARMs may be deferred and payable
at a future time, the interest paid by a mortgagor on this type of Loan on a
given Due Date (the 'INTEREST REMITTANCE AMOUNT') may not be equal to interest
at the applicable Pass-Through Rate on the Loan. During periods of negative
amortization, any Deferred Interest that is added to the principal balance of a
Loan bears interest at the applicable mortgage interest rate. The distribution
to certificateholders of the Interest Remittance Amount, rather than interest
calculated at the applicable Pass-Through Rate, will not materially affect the
yield to certificateholders if the certificates are purchased at or near par.
Negative Amortization will lengthen the average life of the certificates, and if
the certificates are purchased at a discount or premium, a yield effect can
occur. See ' -- Price' and ' -- Prepayment Considerations.' Any Deferred
Interest will be includible in taxable income of classes entitled thereto as it
accrues, rather than when it is received. See 'Federal Income Tax Consequences.'
Mortgage Interest Rates on Non Negatively Amortizing ARMs. The mortgage
interest rates on ARMs adjust periodically in response to movements in the
applicable Index. In addition, because ARMs included in a Trust may have
different origination dates, the mortgage interest rates on the ARMs comprising
a Trust will not necessarily adjust on the same dates. Accordingly, the yield to
certificateholders on Trusts comprised of ARMs will be adjusted on a delayed
basis relative to movements in the applicable Index.
ARMs. In the case of a Trust containing ARMs, the readjustment mechanics of
the ARM could affect the yield on the related series of certificates. In the
event that despite prevailing market interest rates the mortgage interest rate
on an ARM cannot increase due to the maximum rate or, if applicable, the maximum
adjustment, the yield on the related certificates could be impacted adversely.
Conversely, should the mortgage interest rate on an ARM not be able to decrease
due to the minimum rate or, if applicable, the maximum adjustment at a time when
market interest rates are below that level, the yield on the related
certificates could be higher than that which would otherwise be the case. In
that event, the mortgagor may be more likely to prepay the Loan in full and
obtain financing at a lower rate. In addition, to the extent that a Payment Cap
on a Negatively Amortizing ARM restricts an increase in the related mortgagor's
monthly payment or because the adjustable mortgage interest rate changes more
frequently than the adjustments in a monthly payment, Deferred Interest could
result and impact the yield on the related certificates.
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Distribution Shortfalls. The Trustee will use the following funds to make
distributions to certificateholders:
the aggregate amount of payments received from mortgagors on the Loans;
any servicing advances;
funds otherwise payable to the Subordinate certificateholders; and
monies available in the Reserve Fund.
If these amounts are insufficient to make full distributions to the Senior
certificateholders, unless otherwise specified in the related prospectus
supplement, the amount of the shortfall together with interest at the related
applicable Remittance Rates, will be added to the amount the Senior
certificateholders are entitled to receive on the next Distribution Date. The
allocation of any shortfall and shortfall recoveries between the classes of
Senior certificates, and the effect of any shortfall on yield will be discussed
in the prospectus supplement relating to those certificates.
Classes of Certificates. The certificates of a series may consist of one or
more classes, in which each class will evidence interests in specified
allocations of the principal payments only, or of the interest payments only, or
both principal and interest payments in respect of the Mortgage Assets in the
related Trust. If certificates are subdivided, the yield of any class evidencing
interest payments only will be adversely impacted by prepayments in full and
partial prepayments. If appropriate, the prospectus supplement for that series
will offer examples of cash flows on the certificates, based on specified
mortgage interest rates.
PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the Mortgage Assets included in the related Trust. The yields
to investors will be sensitive in varying degrees to the rate of prepayments on
the Mortgage Assets. The extent to which the yield to maturity of a certificate
is sensitive to prepayments will depend upon the degree to which it is purchased
at a discount or premium. In the case of certificates purchased at a premium,
faster than anticipated rates of principal payments on the Mortgage Assets could
result in actual yields to investors that are lower than the anticipated yields.
In the case of some classes of these certificates, investors could fail to
recover their investments. In the case of certificates purchased at a discount,
slower than anticipated rates of principal payments on the Mortgage Assets could
result in actual yields to investors that are lower than the anticipated yields.
This could result in an extension of the weighted average lives of these
certificates. Principal payments will include:
scheduled payments;
Principal Prepayments;
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prepayments resulting from foreclosure, condemnation and other
dispositions of the mortgaged properties and include amounts paid by
insurers under insurance policies;
repurchases by the Depositor of any Loan as to which there has been a
material breach of warranty or defect in documentation or deposit of
additional amounts in respect of delivery of a substitute loan; and
repurchases by the Depositor or the Master Servicer of all of the
certificates or all of the Mortgage Assets resulting from an optional
termination of a Trust.
The yield to maturity and weighted average lives of the certificates may
also be affected by the amount and timing of delinquencies and losses on the
Mortgage Assets.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments, delinquencies and losses on the Mortgage
Assets. These factors may include:
the age of the Loans and/or Underlying Loans;
the geographic distribution of mortgaged properties;
the terms of the mortgages;
the characteristics of the mortgagors;
homeowner mobility;
economic conditions generally and in the geographic area in which the
mortgaged properties are located;
enforceability of due-on-sale clauses;
servicing decisions;
prevailing mortgage market interest rates in relation to the interest
rates on the Loans and/or the Underlying Loans;
the availability of mortgage funds;
the use of second or home equity loans by mortgagors;
the availability of refinancing opportunities; and
the use of the properties as second or vacation homes.
The rate of principal prepayments on pools of conventional housing loans
has fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Loans and/or
Underlying Loans, the Loans and/or Underlying Loans would be expected to prepay
at higher rates than if prevailing rates were to remain at or above the interest
rates on the Loans and/or Underlying Loans. During these periods, the yields at
which an investor in the certificates may be able to reinvest amounts received
as payments on the investor's certificates may be lower than the yield on those
certificates. Conversely, if interest rates were to rise above the interest
rates on the Loans and/or Underlying Loans, the Loans and/or Underlying Loans
would be expected to prepay at lower rates than if prevailing rates were to
remain at or below interest rates on the Loans and/or Underlying Loans. During
these periods, the amount of payments available to an investor for reinvestment
at these high rates may be relatively low. The Loans and/or Underlying Loans
will not prepay at any constant rate, nor will all of the Loans and/or
Underlying Loans prepay at the same rate at any one time. The
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timing of changes in the rate of prepayments may significantly affect a
certificateholder's actual yield to maturity, even if the average rate of
principal payments is consistent with a certificateholder's expectation. In
general, the earlier a prepayment of principal the greater the effect on the
certificateholder's yield to maturity. As a result, the effect on a
certificateholder's yield of principal payments occurring at a rate higher or
lower than the rate anticipated by the investor during the period immediately
following the issuance of the related series of certificates will not be offset
by a subsequent like reduction or increase in the rate of principal payments.
SUBSTITUTIONS
Substitutions of Loans by the Depositor under the conditions in the Pooling
and Servicing Agreement may also be treated as partial prepayments. If the
principal balance of the substituted loan is less than the principal balance of
the Loan replaced, the Depositor must pay the Trust the difference. The Trustee
will pass this amount through to the certificateholders as a prepayment.
LOAN ASSUMPTIONS
The Loans may allow the mortgagor to sell the mortgaged property and have
the purchaser assume the mortgagor's obligations under the mortgage. Assumptions
of the Loans will reduce the level of principal prepayments in the related Trust
that would otherwise occur if the Loans had been accelerated. To the extent it
has knowledge of any conveyance or prospective conveyance by any mortgagor of
the related mortgaged property, the Master Servicer will retain the right to
accelerate the maturity of the Loan under any applicable 'due-on-sale' clause if
credit or other factors warrant enforcement. However, the Loans provide for
assumption by qualifying buyers, and the Master Servicer may in some cases
encourage the assumption of Loans by persons meeting relevant underwriting
standards. In no event will the Master Servicer exercise any right of
acceleration if prohibited by law. If the Master Servicer determines not to
enforce a 'due-on-sale' clause, it will enter into an assumption and
modification agreement with the person to whom the property has been conveyed or
is proposed to be conveyed, pursuant to which that person becomes liable under
the Loan. Any fees collected by the Master Servicer in connection with the
execution of an assumption agreement may be retained by the Master Servicer or
the applicable Servicer as additional servicing compensation. See 'Servicing of
the Loans -- Collection and Other Servicing Procedures.'
ARMS
The maximum and minimum rates, maximum adjustments, Gross Margins, Payment
Caps and other features of the ARM programs of mortgage lenders during recent
years have significantly varied in response to market conditions like interest
rates, consumer demand and regulatory restrictions. The lack of uniformity of
the terms and provisions of ARM programs have made it impractical to compile
meaningful comparative data on
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prepayment rates of ARMs and accordingly, there can be no certainty as to the
rate of prepayments on ARMs in either stable or changing interest rate
environments. The ARMs comprising a Trust or underlying the Mortgage
Certificates comprising a Trust may experience a rate of principal prepayments
which is different from the principal prepayment rate for ARMs included in any
other Trust for other adjustable rate mortgages having different or similar
characteristics and for fixed-rate mortgages. In addition, we cannot assure you
that any Trust will conform to past prepayment experience or any published
prepayment forecast.
As described under 'The Trusts -- The Loans -- Payment Provisions of the
Loans' if interest rates rise without a simultaneous increase in the related
monthly payments, Deferred Interest and negative amortization may result in the
case of Negatively Amortizing ARMs. However, borrowers may pay amounts in
addition to their monthly payments in order to avoid negative amortization. In
the case of Negatively Amortizing ARMs, borrowers may pay amounts in addition to
their monthly payments in order to avoid negative amortization or they may incur
negative amortization. To the extent that any of the Loans or any Underlying
Loans negatively amortize, the amount of the negative amortization is added to
the outstanding principal balance and future interest accruals are computed on
the higher outstanding principal balance and a smaller portion of the monthly
payment is applied to principal than is necessary to repay the unpaid principal
over its remaining term. Accordingly, the weighted average life of these Loans
will be increased beyond that which would otherwise be the case. During a period
of declining interest rates, the portion of each monthly payment in excess of
scheduled interest and principal will be applied to reduce the outstanding
principal balance on the related Negatively Amortizing ARM, thereby resulting in
accelerated repayment of the Loan. This will shorten the weighted average life
of the Negatively Amortizing ARMs. The application of partial prepayments to
reduce the principal amount of a Negatively Amortizing ARM will tend to reduce
the weighted average life of the Loan and may adversely affect the yield to
(1) holders of certificates which purchased their certificates at a premium,
(2) holders of classes with lower proportionate shares of the principal amount
in the underlying Mortgage Assets, and (3) holders of Interest Only
certificates.
The pooling of Negatively Amortizing ARMs having monthly payment adjustment
dates in different months, together with different initial mortgage rates,
maximum rates, minimum rates and stated maturity dates, could result in some
Negatively Amortizing ARMs experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs is accelerated. The weighted
average life of certificates of a series will reflect a composite of the
repayment and prepayment characteristics of the Mortgage Assets in the related
Trust.
FORECLOSURES
The number of foreclosures and the principal amount of the Loans and
Underlying Loans foreclosed in relation to Loans and Underlying Loans which are
repaid in accordance with their terms will affect the weighted average life of
the Mortgage Assets in
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the Trust and that of the related series of certificates. Servicing decisions
made regarding the Loans and Underlying Loan, may also have an impact upon the
payment behavior of particular Trusts. See 'Servicing of the Loans -- Collection
and Other Servicing Procedures' and 'Servicing of the Underlying Loans.' These
servicing decisions may include:
the use of payment plans prior to demand for acceleration,
the restructuring of Loans or Underlying Loans in bankruptcy
proceedings,
the Master Servicer's servicing policy to generally not accept payment
from the mortgagor of less than the total scheduled monthly payment due
on a Loan.
Servicing policies and decisions that result in foreclosures may adversely
affect the return:
to holders of certificates which purchased their certificates at a
premium, if any,
the return on classes with lower proportionate shares of the principal
amount of the interest in the underlying Loans, if any, and
the return on Interest Only classes, if any.
PRE-FUNDING
As may be described in the prospectus supplement relating to any series,
the related Pooling and Servicing Agreement may provide for a pre-funding
period. During this period, all or a portion of the principal collected on the
Mortgage Assets may be applied by the Trustee to the acquisition of additional
Mortgage Assets during a specified period rather than used to fund payments of
principal to certificateholders during that period. This will result in the
related certificates possessing an interest-only period, also commonly referred
to as a revolving period, which will be followed by a repayment period. Any
interest-only or revolving period may, upon the occurrence of specified events
to be described in the related prospectus supplement, terminate prior to the end
of the specified period and result in the earlier than expected repayment of the
related certificates.
PREPAYMENT ASSUMPTIONS
The prospectus supplement for a series of Sequential Pay certificates may
contain a table setting forth percentages of the initial certificate balance of
each class expected to be outstanding after each of the dates shown in the
table. The table will be based upon a number of assumptions stated in the
prospectus supplement, including assumptions that prepayments on the Underlying
Loans or on the Loans are made at rates corresponding to various percentages of
the prepayment model specified in the prospectus supplement. It is unlikely,
however, that the prepayment of the Underlying Loans, or of the Loans underlying
any series will conform to any of the percentages of the prepayment model
described in the table.
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OPTIONAL TERMINATION
The Depositor, Master Servicer, or another third party may have the option
to repurchase the Mortgage Assets comprising part of a Trust when the aggregate
outstanding principal balance of the Mortgage Assets is less than a specified
percentage of the aggregate outstanding principal balance of the Mortgage Assets
as of the related Cut-off Date. See 'Description of the Certificates -- Optional
Termination of a Trust, -- Optional Termination of an Underlying Trust' in this
prospectus and 'Description of the Certificates -- Optional Termination' in the
prospectus supplement. The Depositor or a mortgage asset seller may also be
required to repurchase Mortgage Assets from any pool because of breaches in its
representations and warranties to the Trustee. Any repurchases will shorten the
weighted average lives of the certificates.
The prospectus supplement relating to a series of certificates will discuss
in greater detail the effect of the rate and timing of principal payments,
prepayments, delinquencies and losses on the yield, weighted average lives and
maturities of the certificates.
DISTRIBUTIONS ON THE CERTIFICATES
Unless otherwise specified in the prospectus supplement, on each applicable
Distribution Date the Trustee will distribute the Available Distribution Amount
from the Certificate Account to certificateholders, in most cases, through DTC
and its participants.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date, as more
fully described in the Pooling and Servicing Agreement, will equal the sum of
the following amounts:
(1) the total amount of all cash received by or on behalf of the Master
Servicer for the Mortgage Assets by the Determination Date and not
previously distributed, including amounts received in connection
with the liquidation of defaulted Loans whether through trustee's
sale, foreclosure sale, proceeds of insurance policies, condemnation
proceeds or otherwise ('LIQUIDATION PROCEEDS') except:
all scheduled payments of principal and interest collected but
due on a date after the related Due Date;
all partial principal prepayments received after the previous
calendar month, together with any interest payment received with
the prepayments to the extent that it represents the payment of
interest accrued on the Loans for the period after the previous
calendar month;
all prepayments in full received after the applicable calendar
month immediately before the Determination Date, together with
any interest payment received with the prepayments in full to the
extent that it represents the payment of interest accrued on the
Loans for the period after the previous calendar month;
Liquidation Proceeds received on the Loans after the previous
calendar month;
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all amounts in the separate account established and maintained by
the Master Servicer for collection purposes (the 'CUSTODIAL
ACCOUNT FOR P&I') which are due and reimbursable to the Master
Servicer pursuant to the terms of the Pooling and Servicing
Agreement;
the Administration Fee for each Loan; and
the excess, if any, of the total amount received in connection
with the liquidation of defaulted Loans received during the
previous calendar month over the amount that would have been
received if prepayments in full had been made on these Loans on
the date that the liquidation proceeds were received ('EXCESS
LIQUIDATION PROCEEDS');
(2) all advances made by the Master Servicer to the Trustee on that
Distribution Date;
(3) any amounts payable as compensating interest by the Master Servicer
on that Distribution Date; and
(4) the total amount of any cash received by the Trustee or the Master
Servicer in respect of the obligation of the Depositor or the seller
to repurchase any Mortgage Assets.
Unless otherwise provided in the applicable prospectus supplement, the term
'PREPAYMENT PERIOD' shall refer to the calendar month before the Distribution
Date.
Distributions on the certificates on each Distribution Date will generally
be allocated to each certificate entitled to receive a distribution on the basis
of the Percentage Interest of the Trust which each certificate represents or
their outstanding principal amounts or notional amounts.
However, a prospectus supplement may alter these general distribution
methods by providing for the subordination of the rights of any classes of
Subordinate certificates to receive current distributions. If the Mortgage
Assets for a series have adjustable or variable interest rates, then the
Remittance Rate of the Certificates for that series will also vary, due to
changes in those rates and due to prepayments of Loans and/or Underlying Loans
comprising the related Mortgage Assets. If the Mortgage Assets for a series have
fixed interest rates, then the Remittance Rate on Certificates of the related
series may be fixed, or may vary, to the extent prepayments cause changes in the
weighted average interest rate of the Mortgage Assets. If the Mortgage Assets
have lifetime or periodic adjustment caps on their respective interest rates,
then the Remittance Rate on the Certificates of the related series may also
reflect these caps.
Distributions of interest on certificates which receive interest will be
made periodically at the intervals and at the Remittance Rate specified or
determined in the manner described in the related prospectus supplement.
Interest on the certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months unless otherwise specified in the related
prospectus supplement.
Funds available in the Certificate Account together with any amounts
transferred from any Reserve Fund or applicable credit enhancement may not
always be sufficient to make
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the full distribution to certificateholders on any Distribution Date. In this
case, the Trustee will distribute available funds to the certificateholders of
each class in accordance with their respective interests. The subordinate
certificateholders, if any, will not, subject to the limitations described in
the related prospectus supplement, receive any amount of distributions until
senior certificateholders receive the amount of present distributions due them
and the amount of distributions owed them which were not timely distributed and
to which they are entitled. If specified in the related prospectus supplement,
the difference between the amount which certificateholders would have received
if there had been sufficient eligible funds available for distribution and the
amount actually distributed will be included in the calculation of the amount
which the certificateholders are entitled to receive on the next Distribution
Date.
SERVICING OF THE LOANS
One or more entities, which may include an affiliate of the Depositor, will
be named in the related prospectus supplement as the Master Servicer. The Master
Servicer will be responsible for the servicing and administration of the Loans
as described in the related prospectus supplement. Any Master Servicer or any
successor Master Servicer may contract with Master Servicers, who also may be
qualified lenders or mortgage asset sellers, to perform all or a portion of the
servicing functions on behalf of the Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Loans and any applicable credit enhancement. It will also
follow collection procedures that are consistent with the Pooling and Servicing
Agreement and as it follows on its own conventional one- to-four-unit
residential first Loans. Consistent with the above, the Master Servicer may, in
its discretion, (1) waive any assumption fee, late payment charge or other
charge in connection with a Loan; and (2) arrange a schedule, running for no
more than 180 days after the Due Date for payment of any installment on any
mortgage note, for the liquidation of delinquent items.
Some of the Loans may provide for payment by the mortgagor to the Master
Servicer of amounts to be used for payment of taxes, assessments, hazard
insurance premiums or comparable items for the account of the mortgagor. These
amounts, if any, will not become part of the Trust assets and certificateholders
will possess no interest in them. The Master Servicer may deal with these
amounts in accordance with its normal servicing procedures.
The Master Servicer will be responsible for servicing and administering the
Loans, but will be permitted to enter into a servicing agreement with a
qualified lender or another eligible institution to perform all or part of its
functions under its supervision that it would otherwise be required to perform.
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The Master Servicer or the servicer will diligently perform all services
and duties specified in the Pooling and Servicing Agreement, or servicing
agreement, in the same manner as prudent mortgage lending institutions would
perform for mortgages of the same type as the Loans in those jurisdictions where
the related mortgaged properties are located. The Master Servicer will monitor
the performance of the servicer and will have the right to remove any servicer
at any time if it considers removal to be in the best interest of the
certificateholders. The duties to be performed by the Master Servicer, directly
or through the servicer, will include collection and remittance of principal and
interest payments, collection of insurance claims and, if necessary,
foreclosure. If the Master Servicer terminates a servicing agreement, it shall
either perform the servicing function itself or transfer it to a substitute
servicer. The Master Servicer will be entitled to retain the portion of the
servicing fee paid to the servicer under a terminated servicing agreement if the
Master Servicer elects to perform the servicing functions itself.
The Master Servicer will be paid an Administration Fee for the performance
of its services and duties under the Pooling and Servicing Agreement as
specified in the related prospectus supplement. Additionally, the Master
Servicer or the servicer may be entitled to retain late charges, assumption fees
and similar charges to the extent collected from mortgagors.
In servicing ARMs, the Master Servicer will on occasion accommodate
borrower inquiries regarding the notice of interest rate adjustments by
deferring the effective date of the adjustment and requesting the borrower to
agree to reduce the notice period provided in the related mortgage note. The
result of any deferrals of the effective date of rate adjustments to Loans
included in a Trust, during periods of rising interest rates, may be to reduce
the yield to investors in certificates evidencing interests in that Trust.
The Master Servicer will be obligated to follow the practices and
procedures as it deems necessary or advisable and as are normal and usual in its
general mortgage servicing activities to realize upon defaulted Loans. However,
in the case of damage to a mortgaged property, the Master Servicer is not
required to expend its own funds in connection with foreclosure or to restore
any damaged property unless it reasonably determines (1) that foreclosure and/or
restoration will increase the liquidation proceeds to certificateholders after
reimbursement to the Master Servicer for its expenses and (2) that the expenses
will be recoverable to it through liquidation proceeds of the sale of the
mortgaged property. If the Master Servicer has expended its own funds to restore
damaged property, it will be entitled to charge the Certificate Account, out of
the related liquidation proceeds, an amount equal to expenses incurred by it.
In realizing upon a defaulted Loan, the Master Servicer may:
directly or through a local assignee, sell the property at a foreclosure
or trustee's sale;
negotiate with the mortgagor for a deed in lieu of foreclosure; or
if a deficiency judgment is available against the mortgagor or other
person, foreclose against the property and proceed for the deficiency
against the appropriate person.
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We anticipate that in most cases the Master Servicer will not seek deficiency
judgments against defaulting mortgagors. See 'Legal Aspects of the
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders' for a
description of the limited availability of deficiency judgments.
The Depositor and/or the Master Servicer will be entitled to elect to
purchase defaulted Loans or Loans as to which the related mortgagor has tendered
a deed in lieu of foreclosure from the Trust for a purchase price equal to the
principal balance plus accrued and unpaid interest on the loan. If the Master
Servicer purchases a Loan, any gain realized in a liquidation proceeding on the
Loan will not be paid to the Trust. If the Master Servicer does not purchase the
Loan, any gain realized in a liquidation proceeding on the Loan will be paid to
the Trust for distribution to the certificate holders, less reasonable
reimbursement to the Master Servicer for its expenses. If the Trust elects to be
treated as a REMIC, the gain would become an asset of the REMIC Residual Holders
to the extent the gain is not necessary to make payments due to the holders of
regular interests. Often, the holder of property acquired through foreclosure
maximizes recovery by providing financing to a new purchaser. The Trustee will
not be empowered to provide this financing and the Master Servicer may, but will
not be obligated to do so. This may result in a Trust experiencing greater
losses on defaulted Loans than might otherwise be the case.
For a series of certificates for which a REMIC election is made, if the
Trustee acquires ownership of any mortgaged property as a result of a default or
imminent default of any Loan secured by that mortgaged property, the Trustee
will be required to dispose of the property within two years after the date on
which it acquired ownership of the property.
The Master Servicer will not be obligated to foreclose on any mortgaged
property which it believes may be contaminated with or affected by hazardous or
toxic wastes, materials or substances. See 'Legal Aspects of the
Loans -- Environmental Legislation.' The Master Servicer will not be liable to
the certificateholders of a series if it fails to foreclose on a mortgaged
property securing a Loan in the related Trust which it believes may be
contaminated or affected, even if the mortgaged property is, in fact, not
contaminated or affected. If the Master Servicer does not foreclose on the
mortgaged property in this instance, the certificateholders of the related
series may experience a loss on the related Loan. In addition, the Master
Servicer will not be liable to the certificateholders if, based on its belief
that no contamination or effect exists, it forecloses on a mortgaged property
and takes title to the mortgaged property on behalf of the related Trustee, and
thereafter the mortgaged property is determined to be contaminated or affected.
Unless otherwise stated in the prospectus supplement relating to a series
of certificates, if the Master Servicer determines that all amounts which it
expects to recover from or on account of a Loan have been recovered, its
obligation, if any, to advance delinquent installments of principal, interest or
both on that Loan will cease. The principal balance of the Loan will then be
allocated in reduction of the principal balance of the certificates of the
related series in the manner in which losses are allocated as specified in the
prospectus supplement.
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For a series of certificates that includes subordination as a form of
credit enhancement, until the Subordinated Amount is reduced to zero, and
provided any special loss limitation has not been exceeded, Senior
certificateholders will not realize a loss on a defaulted Loan if Liquidation
Proceeds are less than the sum of the principal balance of the defaulted Loan
and the Master Servicer's expenses.
The Master Servicer will maintain with one or more depository institutions
one or more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. The Master Servicer may withdraw amounts from these accounts only to
effect the following:
payment of taxes, insurance premiums, assessments or comparable items;
reimbursement to itself, or the applicable Master Servicer, out of
related collections for any cost incurred in paying taxes, insurance
premiums and assessments or comparable items;
refunds to mortgagors for any amounts determined to be overages;
payment of interest to mortgagors on balances in these accounts to the
extent required by law;
withdraw interest or other income which may lawfully be retained by the
Trust for deposit into the Certificate Account; and
clear and terminate the accounts at termination of the Trust.
PRIMARY MORTGAGE INSURANCE
The Loans in a Trust will not have loan-to-value ratios in excess of 100%
of the original value of the mortgaged property unless otherwise specified in
the prospectus supplement. Generally, Loans that the Depositor acquires do not
have loan-to-value ratios in excess of 95% of the original value of the
mortgaged property. The prospectus supplement for a series will describe the
extent to which a Trust includes Loans with loan-to-value ratios exceeding 95%.
Unless otherwise stated in the prospectus supplement, each Loan will have
primary mortgage insurance if the original principal amount of the loan exceeds
80% of the original value of the mortgaged property. The mortgagor is generally
required to continue this coverage until the outstanding principal amount of the
loan equals or is less than 80% of the greater of the original value of the
mortgaged property and, if permitted under any pool insurance policy obtained
for a series, the then current value of the property as evidenced by an
appraisal. A primary mortgage insurance policy may provide that, as an
alternative to paying a claim thereunder, the mortgage insurer will have the
right to purchase the Loan following the receipt of a notice of default. The
mortgage insurer may have a purchase right after the borrower has failed to make
three scheduled monthly payments, or one payment if it is the first payment due
on the Loan, or after any foreclosure or other proceeding affecting the Loan or
the mortgaged property has been commenced. The proceeds of any purchase will be
distributed to certificateholders on the applicable Distribution Date. A
mortgage insurer may be more likely to exercise its purchase option when
prevailing interest rates are low relative to the interest rate borne by
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the defaulted Loan, in order to reduce the aggregate amount of accrued interest
that the insurer would be obligated to pay upon payment of a claim.
HAZARD INSURANCE
The Master Servicer will cause to be maintained for each Loan a hazard
insurance policy providing for no less than the coverage of the standard form of
fire insurance policy with extended coverage in the applicable state. The
coverage will be in an amount equal to the lesser of (1) the principal balance
of the Loan; and (2) the replacement cost of the improvements securing the Loan.
All amounts collected by the Master Servicer under any hazard policy will be
credited to the Custodial Account for P&I except for amounts to be applied to
the restoration or repair of the mortgaged property or released to the mortgagor
in accordance with the Master Servicer's normal servicing procedures. The Master
Servicer may satisfy its obligation relating to the maintenance of hazard
insurance by maintaining a blanket policy insuring against hazard losses on all
the Loans. The Master Servicer will pay the premium amount for any blanket
policy it maintains. The blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to credit to the Custodial
Account for P&I the amounts which would have been payable by the insurer but for
the deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightening, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans will be underwritten by
different insurers and therefore do not contain identical terms and conditions,
the basic terms are dictated by applicable law. Most policies typically do not
cover any physical damages resulting from the following: war, revolution,
governmental actions, flood and other water-related causes, earth movement,
including earthquakes, landslides and mud flows, nuclear reactions, hurricanes,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in some
cases, vandalism. The foregoing list is merely indicative of some kinds of
uninsured risks and is not intended to be all-inclusive. If any mortgaged
property was located in a federally designated special flood hazard area at the
time of origination, the Master Servicer will cause to be maintained a flood
insurance policy on the mortgaged property up to the maximum amount available or
to the full amount of the related Loan. The Depositor may also purchase special
hazard insurance against some or all of the uninsured risks described in this
paragraph. See 'Credit Enhancement -- Special Hazard Insurance.'
Most of the properties securing the Loans in a Trust will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for other types of risks. These
homeowners' policies typically contain a coinsurance clause which in effect
requires the insured at all times to carry insurance of a specified percentage,
generally 80% to 90%, of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability in
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the event of partial loss will not exceed the greater of (1) the actual cash
value (generally defined as replacement cost at the time and place of loss, less
physical depreciation) of the improvements damaged or destroyed, or (2) a
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of the improvements.
Since the amount of hazard insurance the Master Servicer is required to
cause to be maintained on the improvements securing the Loans declines as the
principal balances owing on the Loans decrease, if the residential properties
securing the Loans appreciate in value over time, the effect of coinsurance in
the event of partial loss may be that hazard insurance proceeds will be
insufficient to restore fully the damaged property. However, for a series of
certificates that includes subordination as a form of credit enhancement, Senior
certificates may not realize a loss resulting from uninsured hazard losses or
the application of coinsurance provisions. The Trustee will distribute the full
distribution amounts due on the Senior certificates until the Subordinated
Amount is reduced to zero, so long as the following conditions are met:
any applicable special loss limitation described in the related
prospectus supplement has not been exceeded, and
there are sufficient funds otherwise due on the Subordinate certificates
or held in the Reserve Fund, if any, to pay the distribution amount due
to the Senior certificates.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative apartment relating to any
Co-op Loan. Generally, the cooperative itself is responsible for maintenance of
hazard insurance for the property owned by the cooperative and the
tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a Co-op Loan do not maintain this insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative apartment or the
cooperative building could significantly reduce the value of the collateral
securing that Co-op Loan.
UNANTICIPATED RECOVERIES OF LOSSES ON THE LOANS
To the extent and in the manner specified in the prospectus supplement, the
principal balance of classes of certificates may be reduced by allocating losses
of principal to them that occur in connection with liquidation on the Loans in
the related Trust (a 'REALIZED LOSS'). Unless otherwise stated in the prospectus
supplement, holders of certificates that had previously been allocated a
Realized Loss may receive distributions if the Master Servicer subsequently
recovers an amount (an 'UNANTICIPATED RECOVERY') in respect of that Loan.
Unanticipated Recoveries may result from events like an unanticipated insurance
settlement, tax refund or mortgagor bankruptcy distribution. To the extent a
certificate has been transferred, the holder that receives an Unanticipated
Recovery may be different from the holder who was allocated a Realized Loss. The
Trustee will distribute to the holders of
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each outstanding class to which the Realized Loss had previously been allocated,
its share of the Unanticipated Recovery up to the amount of the loss previously
allocated to that class. The Trustee will make this distribution on the
Distribution Date in the calendar month following receipt of the Unanticipated
Recovery. Any distributions of Unanticipated Recoveries will not reduce the
principal balances of the class of certificates receiving the recoveries.
However, no certificateholder will be entitled to receive any share of an
Unanticipated Recovery following the Distribution Date on which the principal
balance of its certificate has been reduced to zero, including following the
termination of the Trust. See 'The Pooling and Servicing
Agreement -- Termination' in this prospectus.
ADVANCES
Unless otherwise stated in the prospectus supplement, if any borrower fails
to make any payment of principal or interest required under the terms of a Loan,
the Master Servicer will be obligated to advance the entire amount of that
payment net of the applicable Administration Fee. This obligation to advance
will be limited to amounts which the Master Servicer reasonably believes will be
recoverable by it out of liquidation proceeds or otherwise in respect of the
Loan. In addition, the Master Servicer may make advances from funds on deposit
in the Certificate Account.
The Master Servicer will make advances in order to maintain a regular flow
of scheduled interest and principal payments to holders of the relevant classes
of certificates. These advances do not represent an obligation of any Master
Servicer to guarantee or insure against losses.
The Master Servicer may recover advances without interest from amounts
which represent late recoveries of principal and/or interest on, or liquidation
proceeds or insurance proceeds from, the Loan as to which the advance was made.
If these amounts are insufficient to reimburse the Master Servicer, the amount
of the deficiency will be characterized as a non-recoverable advance. The Master
Servicer may reimburse itself for non-recoverable advances out of any funds in
the Custodial Account for P&I or the Certificate Account. If the Master Servicer
makes an advance on any Distribution Date, it will be included with the
distribution to the certificateholders on that Distribution Date. If the Trustee
purchases any foreclosed property and the property becomes part of the Trust,
the Master Servicer will continue to make advances on the property as if the
Loan were still outstanding in the manner described above. At the time the
Trustee sells the property, the Master Servicer may reimburse itself for these
advances in an amount not to exceed the sale price. Additionally, if specified
in the related prospectus supplement, the Trustee, on behalf of the Master
Servicer, may make advances.
Any obligation to make advances may be limited to amounts due holders of
Senior certificates of the related series or may be limited to specified periods
or otherwise as specified in the prospectus supplement.
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PAYMENTS ON MORTGAGE ASSETS
The Pooling and Servicing Agreement for each Trust will require that the
Master Servicer establish and maintain a Custodial Account for P&I. The Master
Servicer will credit to the Custodial Account for P&I on a daily basis the
collections received by it after the Cut-off Date, as well as scheduled payments
of principal and interest due after the Cut-off Date, but received before the
Cut-off Date. These amounts include:
all mortgagor payments on account of principal, including principal
prepayments by mortgagors, on the Loans and payments on account of
principal on the Mortgage Certificates;
all mortgagor payments on account of interest on the Loans and payments
on account of interest on the Mortgage Certificates, which may be net of
administration fees the Master Servicer is entitled to retain;
all liquidation proceeds net of unpaid administration fees;
all proceeds received by the Master Servicer under any title, hazard or
other insurance policy covering any Loan or the related mortgaged
property, 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 Master Servicer's normal servicing
procedures;
all repurchase proceeds of Loans;
Unanticipated Recoveries; and
all other amounts required to be deposited in the Custodial Account for
P&I pursuant to the Pooling and Servicing Agreement.
The Master Servicer is authorized to make withdrawals from the Custodial
Account for P&I for various purposes outlined in the Pooling and Servicing
Agreement. The Master Servicer may invest funds held in the Custodial Account
for P&I in Eligible Investments.
On the business day before each Distribution Date, the Master Servicer will
transfer amounts to be distributed to certificateholders from the Custodial
Account for P&I and any amounts required to be transferred from the Reserve Fund
to the Certificate Account.
ADMINISTRATION FEES, COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, the Master
Servicer is entitled to receive an Administration Fee for each Loan, which may
be variable, as described in the Pooling and Servicing Agreement. The Master
Servicer's aggregate Administration Fee for any month may be reduced to cover a
Prepayment Interest Shortfall. The Master Servicer may either retain the
Administration Fees to which it is entitled before making required deposits to
the Certificate Account or may withdraw them from the Certificate Account.
Since the Administration Fee is a percentage of the then outstanding
principal balance of each Loan each month, the Master Servicer's aggregate
compensation will decrease as the Loans are repaid. In addition to the
Administration Fees, the Master Servicer will
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retain all assumption fees, late payment charges and other charges, to the
extent collected from mortgagors.
The Master Servicer will pay some of the expenses incurred in connection
with its servicing of the Loans, including, without limitation, payment of the
fees and disbursements of the Trustee and independent accountants, and payment
of expenses incurred in connection with distributions and reports to
certificateholders.
The Master Servicer is entitled to reimbursement for some types of expenses
incurred by it in connection with the liquidation of defaulted Loans, including
under some circumstances reimbursement of expenditures incurred by it in
connection with the restoration of mortgaged properties. The Master Servicer's
right of reimbursement for these amounts is senior to the rights of
certificateholders to receive any related amounts resulting from the liquidation
of a defaulted loan. The Master Servicer is also entitled to reimbursement from
the Certificate Account for advances.
RESIGNATION OF THE MASTER SERVICER; SCOPE OF INDEMNITIES
Unless otherwise specified in the applicable prospectus supplement, a
Master Servicer may not resign from its duties unless performance of its duties
is no longer permissible under applicable law or is in material conflict by
reason of applicable law with any other activities of a type and nature
presently carried on by it. No resignation will become effective until the
Trustee or a successor Master Servicer has assumed the Master Servicer's duties
under the Pooling and Servicing Agreement. If a Master Servicer resigns for any
of these reasons, it is possible that the Trustee would be unable or unwilling
to assume responsibility for servicing the Loans under the Pooling and Servicing
Agreement and would seek to appoint another institution as servicer. The Master
Servicer may arrange for its duties under the Pooling and Servicing Agreement to
be performed by a sub-servicer, so long as the Master Servicer remains
responsible for the performance of its duties.
The Pooling and Servicing Agreement for each Trust will also provide that
neither the Master Servicer nor any director, officer, employee or agent of the
Master Servicer will be under any liability to the Trust or the
certificateholders for any action taken or for refraining from the taking of any
action in good faith and without gross negligence or willful misconduct or for
errors in judgment. The Pooling and Servicing Agreement will further provide
that the Master Servicer and any director, officer, employee or agent of any
Master Servicer is entitled to indemnification by the related Trust 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, except for any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence of the Master Servicer in the
performance of its duties or by reason of reckless disregard of its duties. In
addition, the Pooling and Servicing Agreement provides that the Master Servicer
is not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the agreement
and which in
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its opinion may involve it in any expense or liability. Any Master Servicer may,
however, in its discretion, subject to the terms and conditions of the Pooling
and Servicing Agreement, undertake any action which it may deem necessary or
desirable in respect of the agreement and the rights and duties of the parties
thereto and the interests of the certificateholders thereunder. In this event,
the legal expenses and costs of this action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust and the Master
Servicer and the other Master Servicer, if any, will be entitled to be
reimbursed therefor and charge the Certificate Account for the reimbursement,
the right of reimbursement being prior to the rights of certificateholders to
receive any amounts in the Certificate Account.
If the Master Servicer reorganizes, including as a result of a merger,
consolidation or transfer of its assets, any person succeeding to the business
of the Master Servicer will be the Master Servicer's successor under the Pooling
and Servicing Agreement.
BACK-UP MASTER SERVICER
If so specified in the related prospectus supplement, pursuant to the
Pooling and Servicing Agreement relating to any series, the Trustee or another
successor Master Servicer appointed pursuant to the agreement will serve as
back-up Master Servicer (the 'BACK-UP MASTER SERVICER') and assume the duties of
the Master Servicer after a notice of termination of the Master Servicer or if
the Master Servicer fails to perform its duties. The back-up Master Servicer
shall have no liability for any act of the Master Servicer prior to its
assumption of duties.
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 subordinated
mortgage pass-through certificates. Pursuant to the agreement, the holder may
instruct the Master Servicer and if applicable, any sub-servicer, to commence or
delay foreclosure proceedings on delinquent Loans.
SERVICING OF THE UNDERLYING LOANS
The Mortgage Certificates will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement. Unless otherwise
specified in the related prospectus supplement, the seller/servicer of the
Underlying Loans will have entered into the agreement with a trustee and a
servicer. The servicer named in the agreement, along with any subservicers, as
applicable, will service the Underlying Loans in accordance with the terms of
the agreement.
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THE POOLING AND SERVICING AGREEMENT
The following, together with the description of the Pooling and Servicing
Agreement in the prospectus supplement, describes the material provisions of the
Pooling and Servicing Agreement relating to a series of certificates. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Pooling and Servicing
Agreements. Where particular provisions or terms used in the Pooling and
Servicing Agreements are referred to, these provisions or terms are as specified
in the Pooling and Servicing Agreements.
ASSIGNMENT OF LOANS
At the time of issuance of each series of certificates, the Depositor will
cause the Loans, including loans underlying Mortgage Certificates, comprising
the Trust to be assigned to the Trustee for that series, together with all
principal and interest due on the Loans subsequent to the Cut-off Date. The
Trustee will, in exchange for the Trust and concurrently with the assignment,
execute and deliver the certificates to a certificate registrar appointed
pursuant to the Pooling and Servicing Agreement for authentication and delivery
to the Depositor or its designee. Each Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement. The schedule
will include information about each Loan including the following:
principal balance as of the Cut-off Date;
current mortgage interest rate and Pass-Through Rate;
current scheduled monthly payment of principal and interest;
stated maturity;
Administration Fee;
original Loan-to-Value Ratio; and
if the Loan is an ARM, its applicable Index, its Gross Margin, its
lifetime minimum rate (if any), its lifetime maximum rate, its periodic
maximum adjustment, the frequency of its interest rate adjustment and
its first monthly payment adjustment date.
The Trustee for a series of certificates will be authorized to appoint one
or more custodians, which may include affiliates of the Depositor or the Trustee
(together, the 'CUSTODIANS'), under a custodial agreement to maintain possession
of and review the documents for the Loans, as the agent of the Trustee. Any
custodial agreement will be on terms to which the Depositor, the Trustee and
each custodian shall agree.
In addition, the Depositor will deliver to the Trustee for each Loan the
following documents:
the mortgage note endorsed without recourse in blank or to the order of
the Trustee,
the original mortgage with evidence of recording,
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an Officer's certificate to the effect that a title insurance policy was
issued and remains in full force and effect or the original title
insurance policy or in the event the original title policy is not
available, any one of an original title binder, an original preliminary
title report or an original title commitment or a copy certified by the
title company with the original policy to follow within 180 days, and
an assignment of the mortgage in recordable form unless otherwise
described in the related prospectus supplement.
The Pooling and Servicing Agreement will generally require that the
assignment of each mortgage be properly recorded and delivered to the Trustee
within one year following the issuance of the certificates; provided that
assignments of mortgages need not be recorded in any state for which the
Depositor delivers to the Trustee an opinion of counsel to the effect that
recordation of the assignments is not necessary to secure or perfect the
interest in the mortgaged properties in the name of the Trustee.
Because assignments by the Depositor to the Trustee of the Loans secured by
mortgaged properties located in some states may not be recorded, it might be
possible for the Depositor to transfer the Loans to bona fide purchasers for
value without notice, notwithstanding the Trustee's rights. However, in most
instances the Depositor would not be able to deliver the original documents
evidencing the mortgage notes or the mortgages because under the terms of the
mortgage loan purchase agreement and any custodial agreement, these documents
are to be retained in the possession of the Trustee or the specified Custodian,
except when released to the Depositor in connection with its servicing
activities. Moreover, under the law of California and some other states, a
subsequent transferee who failed to obtain delivery of the original evidence of
indebtedness would not, in the absence of special facts, be able to defeat the
Trustee's interest in a Loan so long as evidence of indebtedness remained in the
possession of the Trustee.
Unless otherwise specified in the related prospectus supplement, the
Trustee or specified Custodian will review and hold the documents relating to
the Loans in Trust for the benefit of the certificateholders. If any document is
found by the Trustee or specified Custodian (within 45 days or within a longer
specified period for assignments that must be recorded) to be defective in any
material respect and the Depositor does not cure the defect within 90 days after
notice by the Trustee has been given to the Depositor within the relevant
period, the Depositor will either:
within the three month period commencing on the closing date of the sale
of the related series of certificates repurchase the related Loan at a
price, unless otherwise specified in the related prospectus supplement,
equal to the principal balance of the Loan, plus accrued interest on the
principal balance at the mortgage interest rate to the next scheduled
Due Date, or
within the three month period commencing on the closing date of the sale
of the related series of certificates (or within the two year period
commencing on the closing date if the related Loan is a 'defective
obligation' within the meaning of the Code) unless otherwise provided in
the related prospectus supplement,
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substitute a different Loan upon satisfaction of the conditions
described in the agreement.
Except as otherwise specified in the related prospectus supplement, this
repurchase or substitution obligation constitutes the sole remedy available to
the certificateholders or the Trustee for a material defect in a constituent
document. The related prospectus supplement will specify any restrictions for
repurchases, substitutions and any alternative arrangements.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related prospectus supplement, the
Depositor will represent and warrant to the Trustee in the Pooling and Servicing
Agreement, or will assign the representations and warranties of the mortgage
asset seller related to the Loans comprising the Mortgage Assets in a Trust,
upon delivery of the Loans to the Trustee hereunder, among other things:
that the information described in the schedule of Loans appearing as an
exhibit to the Pooling and Servicing Agreement is correct in all
material respects at the date or dates respecting which the information
is furnished;
that as of the date of the transfer of the Loans to the Trustee, the
Depositor is the sole owner and holder of each Loan free and clear of
all liens, pledges, charges or security interests of any nature and has
full right and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same;
that as of the date of initial issuance of the certificates, no payment
of principal of or interest on or in respect of any Loan is more than 89
days past due;
that to the best of the Depositor's knowledge, as of the date of the
transfer of the Loans to the Trustee there is no valid offset, defense
or counterclaim to any mortgage note or mortgage;
that as of the date of the initial issuance of the certificates, there
is no proceeding pending, or to the best of the Depositor's knowledge,
no proceeding threatened for the total or partial condemnation of any of
the mortgaged property and the mortgaged property is free of material
damage and in good repair and neither the mortgaged property nor any
improvement located on or being part of the mortgaged property is in
violation of any applicable zoning law or regulation;
that each Loan complies in all material respects with applicable state
or federal laws, regulations and other requirements, pertaining to
usury, equal credit opportunity and disclosure laws and each Loan was
not usurious at the time of origination;
that to the best of the Depositor's knowledge, as of the date of the
initial issuance of the certificates, all insurance premiums previously
due and owing on the mortgaged properties have been paid and all taxes
and government assessments previously due and owing, and which may
become a lien against the mortgaged property have been paid;
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that each mortgage note and the related mortgage are genuine and each is
a legal, valid and binding obligation, enforceable in accordance with
its terms except as enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equity
principles (regardless of whether enforcement is considered in a
proceeding in equity or at law);
all parties to the mortgage note and the mortgagor had legal capacity to
execute the mortgage note and the mortgage and each mortgage note and
mortgage have been duly and properly executed by the mortgagor;
that each mortgage is a valid and enforceable first lien on the property
securing the related mortgage note, which may arise thereunder and that
each Loan is covered by an ALTA mortgagee title insurance policy or
other form of policy or insurance generally acceptable to FNMA or FHLMC,
issued by, and is a valid and binding obligation of, a title insurer
acceptable to FNMA or FHLMC insuring the originator, its successors and
assigns, as to the lien of the mortgage in the original principal amount
of the Loan subject only to:
the lien of current real property taxes and assessments not yet due
and payable;
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of the
mortgage acceptable to mortgage lending institutions in the area in
which the mortgaged property is located or specifically referred to
in the appraisal performed in connection with the origination of the
related Loan; and
other matters to which like properties are commonly subject which do
not individually, or in the aggregate, materially interfere with the
benefits of the security intended to be provided by the mortgage;
that as of the initial issuance of the certificates, neither the
Depositor nor any prior holder of any mortgage has, except as the
mortgage file may reflect, modified the mortgage in any material
respect; satisfied, canceled or subordinated the mortgage in whole or in
part; released the mortgaged property in whole or in part from the lien
of the mortgage; or executed any instrument of release, cancellation,
modification or satisfaction;
that each mortgaged property consists of a fee simple estate, a
leasehold estate, or condominium form of ownership in real property, or
a share interest in a cooperative corporation in the case of a Co-op
Loan;
the condominium projects that include the condominiums that are the
subject of any Co-op Loan are generally acceptable to FNMA and FHLMC;
no foreclosure action is threatened or has been commenced (except for
the filing of any notice of default) on any Loan; and except for payment
delinquencies not in excess of 91 days, to the best of the Depositor's
knowledge, there is no default, breach, violation or event of
acceleration existing under any mortgage or the related mortgage note
and no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach,
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violation or event of acceleration; and the Depositor has not waived any
default, breach, violation or event of acceleration;
that each Loan was originated on FNMA or FHLMC uniform instruments for
the state in which the mortgaged property is located;
that based upon a representation by each mortgagor at the time of
origination or assumption of the applicable Loan, the percentage of the
Loans measured by principal balance secured by owner-occupied residences
and by non-owner-occupied residences do not exceed specified
percentages;
that an appraisal of each mortgaged property was conducted at the time
of origination of the related Loan;
that no Loan had a loan-to-value ratio at origination in excess of 100%;
that the Loans were not selected in a manner to adversely affect the
interests of the certificateholders and the Depositor knows of no
conditions which reasonably would cause it to expect any Loan to become
delinquent or otherwise lose value;
each Loan was either (1) originated directly by or closed in the name of
either: (a) a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution which is
supervised and examined by a federal or state authority or (b) a
mortgagee approved by the Secretary of Housing and Urban Development
pursuant to Sections 203 and 211 of the National Housing Act or (2)
originated or underwritten by an entity employing underwriting standards
consistent with the underwriting standards of an institution as
described in subclause (1)(a) or (1)(b) above;
each Loan is a 'qualified mortgage' within the meaning of Section 860G
of the Code without regard to 'SS' 1.860G-2(f) of the REMIC Provisions
or any similar rule; and
each Loan that has a Loan-to-Value Ratio in excess of 80% is covered by
a primary mortgage insurance policy.
REPURCHASE OR SUBSTITUTION
Unless otherwise specified in the related prospectus statement, within 90
days of the discovery by the Depositor or the applicable mortgage asset seller
of a breach of any representation or warranty which materially and adversely
affects the interests of the certificateholders, or the Depositor's or the
mortgage asset seller's receipt of a notice from the Trustee or a Custodian, and
without regard to any limitation contained in the representation or warranty
concerning the knowledge of the Depositor as to facts stated in the
representation or warranty, the Depositor or the applicable mortgage asset
seller will cure the breach or either (1) repurchase the Loan at a price equal
to the principal balance of the Loan plus accrued interest on the principal
balance at the mortgage interest rate to the next scheduled Due Date of or
(2) within the three month period commencing on the closing date of the sale of
the related series of certificates (or within the two year period commencing on
the closing date if the related Loan is a 'defective obligation' within the
meaning of the Code) unless otherwise provided in the related prospectus
supplement, substitute a different Loan upon satisfaction of the conditions
described in the Pooling and
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Servicing Agreement. Except as otherwise specified in the related prospectus
supplement, this repurchase and substitution obligation constitutes the sole
remedy available to the certificateholders or the Trustee for this type of
breach. The related prospectus supplement will specify any restrictions for
repurchases, substitution and any alternative arrangements.
FORWARD COMMITMENTS: PRE-FUNDING ACCOUNT
If specified in the prospectus supplement relating to any series, the
Trustee or the Master Servicer may, on behalf of the related Trust, enter into
an agreement (each, a 'FORWARD PURCHASE AGREEMENT') with the Depositor whereby
the Depositor will agree to transfer additional Loans to the Trust following the
date on which the Trust is established and the related certificates are issued.
The Trust may enter into Forward Purchase Agreements to permit the acquisition
of additional Loans that could not be delivered by the Depositor or have not
formally completed the origination process, in each case prior to the date on
which the certificates are delivered to the certificateholders (the 'CLOSING
DATE'). Any Forward Purchase Agreement will require that any Loans transferred
to a Trust conform to the requirements specified in the Forward Purchase
Agreement. If a Forward Purchase Agreement is to be utilized, and unless
otherwise specified in the related prospectus supplement, the Trustee will be
required to deposit in the Pre-Funding Account all or a portion of the proceeds
received by the Trustee in connection with the sale of one or more classes of
certificates of the related series.
The additional Loans will be transferred to the related Trust in exchange
for money released to the Depositor from the related Pre-Funding Account. Each
Forward Purchase Agreement will set a specified period during which any
transfers must occur. The Forward Purchase Agreement or the related Pooling and
Servicing Agreement will require that, if all moneys originally deposited to the
Pre-Funding Account are not used by the end of the specified period, then any
remaining moneys will be applied as a mandatory prepayment of the related class
or classes of certificates as specified in the related prospectus supplement.
The reinvestment risk associated with this type of prepayment will be borne by
the holders of the certificates issued by the applicable Trust.
Unless otherwise specified in the related prospectus supplement, the
specified period for the acquisition by a Trust of additional Loans will not
exceed three months from the date the Trust is established. The amount that may
be initially deposited into a Pre-Funding Account may be up to 25% of the
principal amount of the certificates issued by the related Trust. The amounts on
deposit in any Pre-Funding Account may be invested only in investments deemed
acceptable by the rating agencies as consistent with the applicable ratings on
the certificates. The underwriting standards for additional Loans that will be
acquired with amounts from the Pre-Funding Account will be in accordance with
the standards set forth under 'The Trusts -- Loan Underwriting Policies.'
In addition, following the transfer of additional Loans to the applicable
Trust, the characteristics of the entire pool of Loans included in the Trust may
vary significantly from those of the initial Loans transferred to the Trust.
Accordingly, it is possible that the
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credit quality of the pool, as a whole, may differ due to the transfer of
additional Loans to the Trust. In no event will any Loans be transferred to the
Trust if the transfer would cause a downgrade of the ratings of the related
certificates. The transfer of additional Loans to the Trust may also result in
an accelerated rate of payment to the applicable certificateholders caused by an
increased level of defaults on the Loans. Certificateholders will bear all
reinvestment risk associated with a higher than expected rate of payment of the
certificates. In addition, if the certificates were purchased at a premium, a
higher than expected rate of payment would result in a reduction in the yield to
maturity of any class of certificates to which these payments are distributed.
ADJUSTMENT TO ADMINISTRATION FEES IN CONNECTION WITH PREPAYMENT INTEREST
SHORTFALL
Unless otherwise stated in the prospectus supplement, the Master Servicer
may forego all or a portion of its Administration Fee to minimize the adverse
effect of Prepayment Interest Shortfall to certificateholders. See 'Prepayment,
Yield and Maturity Considerations -- Yield -- Effective Pass-Through Rate.'
BOOK-ENTRY REGISTRATION
Certificate owners may hold their interests in the offered certificates
through DTC, in the United States, or Cedel Bank or the Euroclear System, in
Europe, if they are participants in those systems, or indirectly through
organizations that are participants in those systems. Cede & Co., as nominee for
DTC, will hold the offered certificates. Cedel and Euroclear will hold omnibus
positions on behalf of their respective participants, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries. The depositaries in turn will hold the positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC has advised us and the underwriters that it is:
a limited-purpose trust company organized under the New York
Banking Law;
a 'banking organization' within the meaning of the New York
Banking Law;
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 under the provisions of Section
17A of the Securities Exchange Act of 1934.
DTC holds securities for its participants and facilitates the clearance and
settlement among its participants of securities transactions, including
transfers and pledges, in deposited securities through electronic book-entry
changes in its participants' accounts. This eliminates the need for physical
movement of securities certificates. DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and
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other organizations. Indirect access to the DTC system is also available to
others including securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
Transfers between participants on the DTC system will occur under DTC
rules. Transfers between participants on the Cedel system and participants on
the Euroclear system will occur under their rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
participants or Euroclear participants, on the other, will be effected by DTC
under DTC rules on behalf of the relevant European international clearing system
by that system's depositary. However, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system under its rules and procedures and
within its established deadlines, European time. The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment under normal procedures for same-day funds
settlement applicable to DTC. Cedel participants and Euroclear participants may
not deliver instructions directly to their system's depositary.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date. The credits for any transactions in these
securities settled during this processing will be reported to the relevant Cedel
participant or Euroclear participant on that business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
participant or a Euroclear participant to a DTC participant will be received and
available on the DTC settlement date. However, it will not be available in the
relevant Cedel or Euroclear cash account until the business day following
settlement in DTC.
Purchases of offered certificates under the DTC system must be made by or
through DTC participants, which will receive a credit for the offered
certificates on DTC's records. The ownership interest of each actual certificate
owner is in turn to be recorded on the DTC participants' and indirect
participants' records. certificate owners will not receive written confirmation
from DTC of their purchase. However, certificate owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC participant or indirect participant
through which the certificate owner entered into the transaction. Transfers of
ownership interests in the offered certificates are to be accomplished by
entries made on the books of DTC participants acting on behalf of certificate
owners. Certificate owners will not receive certificates representing their
ownership interest in offered certificates unless use of the book-entry system
for the offered certificates is discontinued.
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To facilitate subsequent transfers, all securities deposited by DTC
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of securities with DTC and their registration in the name of Cede &
Co. does not change beneficial ownership. DTC has no knowledge of the actual
certificate owners of the offered certificates. DTC's records reflect only the
identity of the DTC participants to whose accounts the offered certificates are
credited, which may or may not be the actual beneficial owners of the
certificates. The DTC participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants,
by DTC participants to indirect participants, and by DTC participants and
indirect participants to certificate owners will be governed by arrangements
among them and by any statutory or regulatory requirements in effect from time
to time.
Neither DTC nor Cede & Co. will consent or vote on behalf of the offered
certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC participants to whose accounts the
offered certificates are credited on the record date, identified in a listing
attached to the proxy.
Principal and interest payments on the offered certificates will be made to
DTC. DTC's practice is to credit its participants' accounts on the applicable
Distribution Date according to their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on that
Distribution Date. Payments by DTC participants to certificate owners will be
governed by standing instructions, customary practices, and any statutory or
regulatory requirements as may be in effect from time to time. These payments
will be the responsibility of the DTC participant and not of DTC, the Trustee or
the Depositor. Payment of principal and interest to DTC is the responsibility of
the Trustee. DTC is responsible for disbursing payments made to it to DTC
participants. Disbursement of these payments to certificate owners is the
responsibility of DTC participants and indirect participants.
DTC may discontinue providing its services as securities Depository for the
offered certificates at any time by giving reasonable notice to the Depositor or
the Trustee. Under these circumstances, if a successor securities Depository is
not obtained, definitive certificates are required to be printed and delivered.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter Year 2000 problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems relating to the
timely payment of distributions to securityholders, book-entry deliveries, and
settlement of trades within DTC will continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's program includes a testing phase, which it expects
to complete within appropriate time frames.
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DTC's ability to perform properly its services is also dependent upon other
parties. Third parties include issuers and their agents, DTC's direct and
indirect participants, vendors from whom DTC licenses software and hardware, and
vendors on whom DTC relies for information or services, including
telecommunication and electrical utility service providers. DTC has informed us
that it is contacting, and will continue to contact, third party vendors from
whom DTC acquires services to: (1) impress upon them the importance of these
services being Year 2000 compliant; and (2) determine the extent of their
efforts for Year 2000 remediation and testing of their services. Additionally,
DTC is in the process of developing contingency plans as it deems appropriate.
According to DTC, the foregoing information about DTC has been provided to
us for informational purposes only and is not a representation, warranty, or
contract modification of any kind.
Cedel is incorporated under the laws of Luxembourg as a professional
Depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 32 currencies,
including United States dollars.
Cedel participants are financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, and
clearing corporations. Indirect access to Cedel is also available to others,
including banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for its
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment. This
eliminates the need for physical movement of certificates. Transactions may be
settled in any of 32 currencies, including United States dollars.
The Euroclear System is operated by Morgan Guaranty Trust Company of New
York, Brussels, Belgium office, the Euroclear operator, under contract with
Euroclear Clearance System, Societe Cooperative, a Belgium cooperative
corporation, the Euroclear cooperative. All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
Euroclear cooperative. The board of the Euroclear cooperative establishes policy
for the Euroclear System.
Euroclear participants include banks -- including central
banks -- securities brokers and dealers and other professional financial
intermediaries. Indirect access to the Euroclear System is also available to
other firms that maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
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Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System. These terms and conditions
govern transfers of securities and cash within the Euroclear System, withdrawal
of securities and cash from the Euroclear System, and receipts of payments for
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear operator acts under these
terms and conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
Distributions on the offered certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel participants or Euroclear
participants according to the relevant system's rules and procedures, to the
extent received by its depositary. These distributions must be reported for tax
purposes under United States tax laws and regulations. Cedel or the Euroclear
operator, as the case may be, will take any other action permitted to be taken
by a certificateholder on behalf of its participants only as permitted by its
rules and procedures, and only if its depositary is able to take these actions
on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to these procedures to
facilitate transfers of offered certificates among participants of DTC, Cedel
and Euroclear, they are not obligated to perform these procedures. Additionally,
these procedures may be discontinued at any time.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
In most circumstances, the certificates offered by this prospectus will be
issued only as global certificates which are registered and held by a
depository. Certificate owners of the global certificates may hold their global
certificates through any of DTC, Cedel or Euroclear. The global certificates
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding global certificates
through Cedel and Euroclear will be conducted in the ordinary way under their
normal rules and operating procedures and under conventional eurobond practice,
which is seven calendar day settlement.
Secondary market trading between investors holding global certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding global certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Cedel and
Euroclear and the DTC participants.
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Non-U.S. holders of global certificates may have to pay U.S. withholding
taxes unless the holders meet the requirements for exemption from the tax and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All global certificates will be held in book-entry form by DTC in the name
of Cede & Co., as nominee of DTC. Certificate owners' interests in the global
certificates will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold their positions in accounts as
DTC participants.
Certificate owners electing to hold their global certificates through DTC
will follow the settlement practices applicable to U.S. corporate debt
obligations. Certificate owner securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Certificate owners electing to hold their global certificates through Cedel
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global certificates will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When global
certificates are to be transferred from the account of a DTC participant to the
account of a Cedel participant or a Euroclear participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day before settlement. Cedel or Euroclear will
instruct the respective Depositary, as the case may be, to receive the global
certificates against payment. Payment will include interest accrued on the
global certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to
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the DTC participant's account against delivery of the global certificates. After
settlement has been completed, the global certificates will be credited to the
respective clearing system and by the clearing system, under its usual
procedures, to the Cedel participant's or Euroclear participant's account. The
global certificates credit will appear the next day accounting to European time,
and the cash debit will be back-valued to, and interest on the global
certificates will accrue from, the value date. The value date would be the day
before the day that settlement occurred in New York. If the trade fails and
settlement is not completed on the intended value date, the Cedel or Euroclear
cash debit will be valued instead on the actual settlement date.
Cedel participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the global
certificates are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel participants or Euroclear participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel participants or Euroclear participants purchasing global
certificates wold incur overdraft charges for one day, assuming they cleared the
overdraft when the global certificates were credited to their accounts. However,
interest on the global certificates would accrue from the value date. Therefore,
in many cases the investment income on the global certificates earned during
that one-day period may substantially reduce or offset the amount of the
overdraft charges, although this result will depend on each Cedel participant's
or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global certificates
to the respective Depositary for the benefit of Cedel participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel participants and Euroclear participants
may employ their customary procedures for transactions in which global
certificates are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC participant. The seller will send
instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day before settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds to the DTC participant's account against payment. Payment will include
interest accrued on the global certificates from and including the last coupon
payment date to and excluding the settlement date. The payment will then be
reflected in the account of the Cedel participant or Euroclear participant the
following day, and receipt of the cash proceeds in the Cedel
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participant's or Euroclear participant's account would be back-valued to the
value date. The value date would be the day before the day that settlement
occurred in New York. Should the Cedel participant or Euroclear participant have
a line of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If the
trade fails and settlement is not completed on the intended value date, receipt
of the cash proceeds in the Cedel participant's or Euroclear participant's
account would instead be valued on the actual settlement date. Finally, day
traders that use Cedel or Euroclear and that purchase global certificates from
DTC participants for delivery to Cedel participants or Euroclear participants
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day, until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts, under
the clearing system's customary procedures;
(b) borrowing the global certificates in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the global
certificates sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at least one
day before the value date for the sale to the Cedel participant or Euroclear
participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global certificates holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be required to pay the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) that beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8 or new Form W-8BEN). Beneficial
owners of global certificates that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status) or new Form W-8BEN (Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding). If the information shown on Form W-8
changes (or new Form W-8BEN), a new Form W-8 (or new Form W-8BEN) must be filed
within 30 days of that change.
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Exemption for non-U.S. Persons with effectively connected income
(Form 4224 or new Form W-8ECI). A non-U.S. Person, including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) or New Form W-8ECI
(Certificate of Foreign Persons Claim for Exemption from Withholding on Income
Effectively Connected with the Conduct or Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001 or new Form W-8BEN). Non-U.S. Persons that are beneficial owners of
global certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate) or
new Form W-8BEN. If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8 or
new Form W-8BEN. Form 1001 may be filed by the certificate owner or his agent
whereas new Form W-8BEN must be filed by the beneficial owner.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Certificate or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year, but Forms W-8, 1001 and
4224 will not be effective after December 31, 2000.
A new Form W-8BEN, if furnished with a taxpayer identification number,
('TIN'), will remain in effect until the status of the beneficial owner changes,
or a change in circumstances makes any information on the form incorrect. A new
Form W-8BEN, if furnished without a TIN, and a new Form W-8ECI will remain in
effect for a period starting on the date the form is signed and ending on the
last day of the third succeeding calendar year, unless a change in circumstances
makes any information on the form incorrect.
The term 'U.S. Person' means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision of the United States, (iii) an
estate, the income of which is includible in gross income for United States tax
purposes, regardless of its source, or (iv) a trust if a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust. This summary does not deal with all aspects of U.S. Federal income tax
withholding
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that may be relevant to foreign holders of the global certificates. Certificate
owners are advised to consult their own tax advisers for specific tax advice
concerning their holding and disposing of the global certificates.
In 1997, final Treasury regulations were issued that modify the filing
requirements with which non-U.S. persons must comply in order to be entitled to
an exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. Those persons currently required to file Form W-8 or
Form 1001 will be required to file new Form W-8BEN, while those persons
currently required to file Form 4224 will be required to file new Form W-8ECI.
These new withholding regulations generally are effective for payments of
interest due after December 31, 2000, but Forms W-8, 1001 and 4224 filed before
that date will continue to be effective until the earlier of December 31, 2000
or the current expiration date of those forms. Prospective investors are urged
to consult their tax advisors about the effect of these new withholding
regulations.
DEFINITIVE CERTIFICATES
We refer to certificates issued in fully registered, certificated form as
'DEFINITIVE CERTIFICATES.' The certificates for any series will be issued as
Definitive Certificates, rather than in book entry form to DTC or its nominees,
only under the circumstances described in the related prospectus supplement.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that a firm of independent
public accountants will furnish a statement to the Trustee on or before
April 30 of each year, beginning with April 30 in the year which begins not less
than six months after the date of the initial issue of certificates. The
statement will state that the firm has examined specific documents and records
relating to the servicing of the Loans of each series and that, either:
on the basis of its examination conducted substantially in compliance
with the audit program for mortgages serviced for FHLMC, the firm is of
the opinion that servicing has been conducted in compliance with the
manner of servicing described in the Pooling and Servicing Agreement
except for exceptions as the firm believes to be immaterial and other
exceptions as are described in the statement; or
that their examination conducted substantially in compliance with the
uniform single audit program for mortgage bankers disclosed no
exceptions or errors in the records relating to Loans serviced for
others that in their opinion are material and that the program requires
them to report.
The Pooling and Servicing Agreement will also require each Master Servicer to
provide the Trustee with an annual statement signed by an officer to the effect
that the Master
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Servicer has fulfilled its obligations under the Pooling and Servicing Agreement
throughout the preceding calendar year.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, the Master
Servicer will cause the Trustee to forward with each distribution to each
certificateholder of record a statement setting forth the following information
as to each class of certificates to the extent applicable:
1. the amount, if any, of the distribution allocable to principal on
the Loans and Mortgage Certificates, separately identifying the
aggregate amount of any Principal Prepayments included in the
distribution;
2. the amount of the distribution allocable to interest on the Loans
and Mortgage Certificates;
3. the amount of Deferred Interest, if any, added to the aggregate
principal balance of the Loans and Mortgage Certificates during that
month;
4. the aggregate amount, by class, of any advances included in the
amounts actually distributed;
5. the aggregate principal balance of the Loans as of the close of
business on the last day of the Prepayment Period prior to the
immediately preceding Due Date, after giving effect to payments
allocated to principal reported under clause (1) above and to
amounts of Deferred Interest, if any, added to principal under
clause (3) above;
6. the related amount of Administration Fees, as adjusted, pursuant to
the Pooling and Servicing Agreement, retained or withdrawn from the
Certificate Account by the Master Servicer and the amount of
additional servicing compensation received by the Master Servicer
attributable to penalties, fees, Excess Liquidation Proceeds and
other items;
7. the number and aggregate principal balances of Loans delinquent for
(a) one monthly payment, and (b) two monthly payments or (c) three
or more monthly payments, as of the close of business on the day
prior to the immediately preceding Due Date;
8. the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure in respect of any Loan as of
the close of business on the day prior to the immediately preceding
Due Date;
9. the amount remaining in the Reserve Fund, if any, on the
Distribution Date after any withdrawal reported under clause (6)
above;
10. the weighted average Pass-Through Rate as of the first day of the
month immediately preceding the month of the Distribution Date; and
11. all advances recovered during the related Prepayment Period.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will cause the Trustee to furnish customary
information as the Master Servicer deems necessary or desirable for
certificateholders to prepare their tax returns.
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Information in the monthly and annual reports provided to the certificateholders
will not have been examined and reported upon by an independent public
accountant. However, the Master Servicer will provide to the Trustee annually a
report by independent public accountants regarding the Master Servicer's
servicing of the Loans. See ' -- Evidence as to Compliance.'
So long as the certificates remain outstanding in book-entry form issued to
DTC, the Trustee will provide to DTC, its nominee and its participants, periodic
and annual reports regarding any Trust. DTC, its nominee and its participants,
may provide these reports to the beneficial owners of the certificates. The
reports will be prepared in accordance with generally accepted accounting
principles, but will not be examined and reported on by an independent public
accountant.
REPORTS TO THE TRUSTEE
No later than 25 days after each Distribution Date, the Master Servicer
will provide the Trustee with a report, certified by a officer of the Master
Servicer. The report will set forth the status of the Certificate Account as of
the close of business on that Distribution Date, and should state that all
distributions required to be made by the Master Servicer under the Pooling and
Servicing Agreement have been made. If any required distribution has not been
made, the Master Servicer will specify in the report the nature and status of
the distribution and showing, for the period covered by the statement, the
aggregate of deposits into and withdrawals from the Certificate Account for each
category of deposits and withdrawals specified in the Pooling and Servicing
Agreement. The report will include information as to the aggregate unpaid
principal balances of all the Loans and Mortgage Certificates as of the day
prior to the immediately preceding applicable Due Date. Copies of the reports
may be obtained by certificateholders upon request in writing from the Trustee
or from the Master Servicer that is identified in the related prospectus
supplement.
EVENTS OF DEFAULT
Events of default under the Pooling and Servicing Agreement will consist
of:
any failure by the Master Servicer to distribute or cause to be
distributed to certificateholders any required payment which continues
unremedied for five days after the giving of written notice of the
failure to the Master Servicer by the Trustee, or to the Master Servicer
and the Trustee by certificateholders holding certificates evidencing
Fractional Undivided Interests aggregating not less than 25% of the
Trust or 51% of the Percentage Interest of any class of certificates;
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 after the
giving of written notice of the failure to the Master Servicer by the
Trustee, or to the Master Servicer and the Trustee by certificateholders
holding certificates evidencing
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Fractional Undivided Interests aggregating not less than 25% of the
Trust or 51% of the Percentage Interest of any class of certificates;
and
decrees or orders in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings and actions by the Master
Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an event of default under the Pooling and Servicing Agreement
remains unremedied, the Trustee or certificateholders holding certificates
evidencing Fractional Undivided Interests aggregating not less than 25% of the
Trust or 51% of the Percentage Interest of any class of certificates may
terminate all of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement. In this case, the Trustee will succeed to all
of the Master Servicer's responsibilities, duties and liabilities under the
Pooling and Servicing Agreement and will be entitled to monthly servicing
compensation not to exceed the Administration Fees. If the Trustee is unwilling
or unable to so act, it may select, pursuant to the public bid or another
procedure described in the 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 $15,000,000
to act as successor to the Master Servicer under the Pooling and Servicing
Agreement. If the public bid procedure is used, the successor Master Servicer
would be entitled to servicing compensation in amounts, up to the servicing
compensation provided in the Pooling and Servicing Agreement, as may be agreed
by the Trustee, and the Depositor, or if the Trust elects REMIC status, the
Residual certificateholder. The Trust would be entitled to receive the net
profits, if any, realized from the sale of the servicing rights and obligations
under the Pooling and Servicing Agreement.
During the continuance of any Event of Default, the Trustee 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. Certificateholders
holding certificates evidencing Fractional Undivided Interests, aggregating not
less than 25% of the Trust or 51% of the Percentage Interest of each class of
certificates, 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 remedy or to exercise any of the trusts or powers
unless the certificateholders have offered the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee. Also, the Trustee may decline to follow any 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, solely by virtue of its status as a
certificateholder, will have any right under the Pooling and Servicing Agreement
to institute any proceeding related to the Pooling and Servicing Agreement,
unless the certificateholder previously has given to the Trustee written notice
of default and unless certificateholders holding certificates evidencing
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Percentage Interests aggregating not less than 25% of each class of certificates
have made written request upon the Trustee to institute the proceeding in its
own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 60 days thereafter has neglected or refused to
institute any proceeding.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of any of the
certificateholders:
to cure any ambiguity;
to correct or supplement any provision in the Pooling and Servicing
Agreement which may be inconsistent with any other provision of the
agreement;
to permit the Trust to be subject to the REMIC Provisions under the
Code; and
to conform the terms of the Pooling and Servicing Agreement to the terms
described in the prospectus and the related prospectus supplement.
The Pooling and Servicing Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with the consent of certificateholders holding
certificates evidencing Percentage Interests aggregating not less than 50% of
the Trust for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Pooling and Servicing Agreement or
of modifying in any manner the rights of certificateholders; but no amendment
may:
reduce in any manner the amount of, or delay the timing of, payments
received on Loans which are required to be distributed on any
certificate without the consent of these certificateholders;
adversely affect in any material respect the interest of
certificateholders holding Senior certificates in a manner other than as
described in clause (1) above without the consent of certificateholders
holding Senior certificates aggregating not less than 66 2/3% of the
aggregate Percentage Interest evidenced by all Senior certificates;
adversely affect in any material respect the interest of
certificateholders holding Subordinate certificates in a manner other
than as described in clause (1) above without the consent of
certificateholders holding Subordinate certificates aggregating not less
than 66 2/3% of the aggregate Percentage Interest evidenced by all
Subordinate certificates;
adversely affect in any material respect the interest of
certificateholders holding Residual Certificates without the consent of
all holders of Residual Certificates; or
reduce the percentages of certificates the certificateholders of which
are required to consent to this amendment without the consent of all the
certificateholders of the class or classes affected then outstanding.
For purposes of giving any consent (other than a consent to an action which
would adversely affect in any material respect the interests of the subordinate
certificateholders while the Depositor or the Master Servicer or any affiliate
is a subordinate certificateholder
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holding certificates aggregating not less than 66 2/3% of the Fractional
Undivided Interests evidenced by all of the subordinate certificateholders), any
certificates registered in the name of the Master Servicer or any of its
affiliates shall be deemed not to be outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon the payment to certificateholders of all amounts held by the
Master Servicer and required to be paid to them pursuant to the Pooling and
Servicing Agreement after the earlier of:
1. the final payment or other liquidation (or any advance made with
respect thereto) of the last mortgage asset subject thereto and the
disposition of all property acquired upon foreclosure or deed in lieu
of foreclosure of any mortgage asset; or
2. any optional termination of a trust as described in 'Description of
the Certificates -- Optional Termination of a Trust or Underlying
Trust.'
In no event, however, will the Trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 60 years from the date of execution
and delivery of the Pooling and Servicing Agreement. The Master Servicer 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 non book-entry certificates at an office or agency
of the Master Servicer specified in the notice of termination.
GOVERNING LAW
The Pooling and Servicing Agreement provides that it shall be construed in
accordance with the laws of the State of New York, and the obligations, rights
and remedies of the parties to the Pooling and Servicing Agreement will be
determined in accordance with these laws.
LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries of some of the legal aspects of
Loans which are general in nature. Because the legal aspects are governed
primarily by applicable state law, which may differ substantially from state to
state, the summaries do not purport to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Loans.
GENERAL
The Loans and the Loans underlying the Mortgage Certificates (other than
Co-op Loans) will be secured by either deeds of trust or mortgages, depending
upon the
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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. 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, for the deed of trust,
the directions of the beneficiary. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner; and the mortgagee, who is the
lender. In a mortgage state instrument, the mortgagor delivers to the mortgagee
a note or bond evidencing the loan and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties; the borrower-homeowner
called the trustor (similar to a mortgagor), a lender called the beneficiary
(similar to a mortgagee), and a third-party grantee called the trustee. The lien
created by the mortgage or deed of trust is not prior to the lien for real
estate taxes and assessments and other charges imposed under governmental police
powers. Priority between mortgages or deeds of trust depends on their terms or
the terms of separate subordination or inter-creditor agreements, the knowledge
of the parties in some cases and generally on the order of recordation of the
mortgage in the appropriate recording office.
FORECLOSURE
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 some states,
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 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. State laws control the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender.
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
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from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the 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.
In case of foreclosure under either a deed of trust or a mortgage, 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
maintaining hazard insurance and making necessary repairs at its own expense 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. Courts have applied equitable principles to a lender's utilization of
the foreclosure process in order to avert a mortgagor's loss of his residence
for technical or trivial defaults. Some courts have been faced with the issue of
whether the particular foreclosure statutes in their states meet federal or
state constitutional requirements for fair and adequate notice. In most
instances, these courts have upheld theses notice provisions as being reasonable
or as not involving sufficient state action to invoke constitutional provisions.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and some foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale pursuant to a non-judicial power of sale. In most
states where the right of redemption is available, statutory redemption may
occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
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lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Some states have imposed statutory restrictions that limit the remedies of
a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting the underlying security;
however, in some of these states, the lender, following judgment on the personal
action, may be deemed to have elected a remedy and may be precluded from
exercising remedies for the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of the sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided in
specific instances where the value of the lender's security has been impaired by
acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 case under the federal Bankruptcy Code, if a court determines that the value
of a debtor's principal residence is less than the principal balance of the
loan, the court may, as part of the rehabilitation plan, unless the home is the
sole collateral for the mortgage loan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the case,
leaving the lender as a general unsecured creditor for the difference between
the amount of outstanding indebtedness and the adjusted value of the home. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under the mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule.
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Regardless of whether a mortgage loan is secured by the debtor's principal
residence, the rehabilitation plan may provide for the reinstatement of any
payment defaults over a period of up to 5 years. In addition, the federal
Soldiers' and Sailors' Civil Relief Act of 1940 may reduce the rate of interest
payable on any mortgage loan as to which the mortgagor is a military reservist
called to active duty, and may interfere with the lender's right to foreclose
upon the related mortgage or deed of trust. In a Chapter 7, Chapter 11 or
Chapter 13 case under the federal Bankruptcy Code, the lender is precluded from
foreclosing without authorization from the bankruptcy court. If the debtor's
principal residence is not the only security for the mortgage loan, the lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates in confirmed Chapter 11 and Chapter 13 plans and the priority of
the loan may be subordinated to bankruptcy court-approved financing. The
bankruptcy court can, in effect, invalidate due-on-sale clauses through
confirmed Chapter 11 and Chapter 13 plans of reorganization. The laws of some
states provide priority to some types of tax liens over the lien of the mortgage
or deed of trust.
Numerous federal and some state consumer protection laws and environmental
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of Loans. The consumer protection
laws include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, and related statutes and regulations. These federal laws and
state laws impose specified statutory liability upon lenders who originate or
service Loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the Loans.
JUNIOR LIENS; RIGHTS OF SENIOR LIENHOLDERS
The rights of the Trust (and therefore the certificateholders) as
beneficiary under a junior deed of trust or as mortgagee under a junior mortgage
are subordinate to those of the mortgagee or beneficiary under the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the junior mortgage loan to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the lien holders assert their subordinate interest in
a property in foreclosure litigation or satisfy the defaulted senior loan. As
discussed more fully below, in many states a junior mortgagee or beneficiary may
satisfy a defaulted senior loan in full, or may cure the default and bring the
senior loan current, in either event adding the amounts expended to the balance
due on the junior loan.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply the proceeds
and awards to any indebtedness secured by the mortgage or deed of trust, in the
order as the mortgagee or beneficiary
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may determine. Thus, if improvements on the property are damaged or destroyed by
fire or other casualty, or if the property is taken by condemnation, the
mortgagee or beneficiary under the underlying first mortgage or deed of trust
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional lenders
typically contains a 'future advance' clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While this type of clause is valid under the laws of most states, the priority
of any advance made under the clause depends, in some states, on whether the
advance was an 'obligatory' or 'optional' advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially made under the
mortgage or deed of trust, notwithstanding that there may be intervening junior
mortgages or deeds of trust and other liens between the date of recording of the
mortgage or deed of trust and the date of the future advance, and
notwithstanding that the mortgagee or beneficiary had actual knowledge of these
intervening junior mortgages or deeds of trust and other liens at the time of
the advance. Where the mortgagee or beneficiary is not obligated to advance the
additional amounts and has actual knowledge of the intervening junior mortgages
or deeds of trust and other liens, the advance will be subordinate to any
intervening junior mortgages or deeds of trust and other liens. Priority of
advances under the clause rests, in many other states, on state statutes giving
priority to all advances made under the loan agreement to a 'credit limit'
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay when due all taxes and assessments on the property and all encumbrances,
charges and liens on the property which appear prior to the mortgage or deed of
trust, to provide and maintain fire insurance on the property, to maintain and
repair the property and not to commit or permit any waste of the property, and
to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee or beneficiary under the mortgage or
deed of trust. Upon a failure of the mortgagor or trustor to perform any of
these obligations, the mortgagee or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the trustor.
All sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage or deed of trust.
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'DUE-ON-SALE' CLAUSES
The Pooling and Servicing Agreement will provide that, when any mortgaged
property underlying a mortgage loan is about to be conveyed by the mortgagor,
the Master Servicer will, to the extent it has knowledge of a prospective
conveyance, exercise its rights to accelerate the maturity of the mortgage loan
under the 'due-on-sale' clause applicable thereto, if any, unless it is not
exercisable under applicable law or if its exercise would result in loss of
insurance coverage on the mortgage loan or would, in the Master Servicer's
judgment, be reasonably likely to result in litigation by the mortgagor. In
either case, the Master Servicer is authorized to take or enter into an
assumption and modification agreement from or with the person to whom the
mortgaged property has been or is about to be conveyed, pursuant to which that
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 related primary mortgage
insurance policy and the mortgage interest rate and the payment terms shall
remain unchanged. The Master Servicer will also be authorized, with the prior
approval of any primary mortgage insurer (unless approval is precluded by the
terms of the mortgage loan) to enter into, on behalf of the Trustee, a
substitution of liability agreement with that person, pursuant to which the
original mortgagor is released from liability and that person is substituted as
mortgagor and becomes liable under the mortgage note.
By virtue of the Garn-St Germain Depository Institutions Act of 1982 (the
'ACT'), a Servicer or the Master Servicer may generally be permitted to
accelerate any mortgage loan which contains a 'due-on-sale' clause upon transfer
of an interest in the property subject to the deed of trust or mortgage. For any
mortgage loan secured by a residence occupied or to be occupied by the borrower,
this ability to accelerate will not apply to some types of transfers, including:
the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase,
a transfer to a relative resulting from the death of a borrower, or a
transfer where the spouse or child(ren) becomes an owner of the property
in each case where the transferee(s) will occupy the property,
a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement agreement
by which the spouse becomes an owner of the property,
the creation of a lien or other encumbrance subordinate to the lender's
security instrument which does not relate to a transfer of rights of
occupancy in the property (provided that the lien or encumbrance is not
created pursuant to a contract for deed),
a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety, and
other transfers as described in the Act and the regulations thereunder.
As a result, a lesser number of Loans which contain 'due-on-sale' clauses
may extend to full maturity than recent experience on single-family loans would
indicate. The
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extent of the effect of the Act on the average lives and delinquency rates of
the Loans, however, cannot be predicted. See 'Prepayment, Yield and Maturity
Considerations -- Prepayment Considerations.'
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ('CERCLA') and under state law in some states, a secured
party which takes a deed in lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale or operates a mortgaged property may become liable in some
circumstances for the cleanup costs of remedial action if hazardous wastes or
hazardous substances have been released or disposed of on the property. Cleanup
costs may be substantial. For any particular series of certificates, it is
possible that cleanup costs could become a liability of the related Trust and
reduce the amounts otherwise distributable to the related certificateholders if
cleanup costs are incurred in connection with a mortgaged property held by that
Trust. Moreover, some states by statute impose a lien for any cleanup costs
incurred by the state on the property that is the subject of cleanup costs (a
'SUPERLIEN'). All subsequent liens on that property are subordinated to the
Superlien and, in some states, even prior recorded liens are subordinated to
Superliens. In the latter states, the security interest of the Trustee in a
property that is subject to this type of a Superlien could be adversely
affected.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present on any
mortgaged property prior to the origination of the mortgage loan or prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly, unless
otherwise specified in the prospectus supplement, the qualified lenders will not
have made this type of evaluation prior to the origination of the Loans nor will
the mortgage asset seller or the Depositor have required that this type of
evaluation be made by the originators who have sold the Loans to them. Neither
the applicable Servicer nor the Master Servicer will be required to undertake
any evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure.
Neither the Depositor, the Trustee nor the Master Servicer makes any
representations or warranties or assumes any liability with respect to the
absence or effect of hazardous wastes or hazardous substances on any mortgaged
property or any casualty resulting from the presence or effect of hazardous
wastes or hazardous substances. See 'Servicing of the Loans -- Collection and
Other Servicing Procedures.'
SUBORDINATE FINANCING
Some of the Loans may not restrict the ability of the borrower to use the
mortgaged property as security for one or more additional loans. Where a
borrower encumbers a mortgage property with one or more junior liens, the senior
lender is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to
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repay sums due on the subordinate loan. Second, acts of the senior lender that
prejudice the junior lender or impair the junior lender's security may create a
superior equity in favor of the junior lender. For example, if the borrower and
the senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan and/or
any junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may stay foreclosure or similar proceedings by the
senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ('TITLE V'), provides that state usury limitations shall not apply
to some types of residential first loans originated by specific lenders after
March 31, 1980. The Office of Thrift Supervision 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 other types of loan charges.
The Depositor will represent and warrant for the benefit of
certificateholders that the Loans were originated in full compliance with
applicable state laws, including usury laws.
ENFORCEABILITY OF SOME PROVISIONS
Standard forms of note, deed of trust and mortgage 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 some states, there are
or may be specific limitations upon late charges which a lender may collect from
a borrower for delinquent payments. Some 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 Master Servicer or
the Servicers) will be retained by the Master Servicer or the Servicers 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
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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, like 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.
LEGAL ASPECTS OF THE LOANS UNDER CALIFORNIA LAW
Mortgage loans in California are generally secured by deeds of trust.
Provided the deed of trust contains a private power of sale, a lender may
foreclose either non-judicially or judicially. Most lenders choose non-judicial
foreclosure because the process typically may be completed within a much shorter
time frame; however, a lender is barred from obtaining a deficiency judgment
after a non-judicial foreclosure. If the lender opts for judicial foreclosure,
an application for a deficiency judgment must be filed with the court within
three months of the foreclosure sale. A deficiency judgment may not exceed the
difference between the indebtedness and the fair value of the property, as
determined by the court. Unless the lender waives the right to a deficiency
judgment, the borrower has a right to redeem the property following a judicial
foreclosure sale for a period of three months from the date of sale if the
proceeds from the sale were sufficient to satisfy the debt, or for a period of
one year if the proceeds were insufficient to satisfy the debt. Junior
lienholders do not have a right to redeem the property following a judicial
foreclosure sale unless the junior lien was created before July 1, 1983.
California's form of the 'one action rule' requires the lender to look first to
the property for satisfaction of the debt if the lender wants to pursue a
deficiency judgment. In general, a lender who takes any action to enforce the
debt other than judicial or non-judicial foreclosure violates the one-action
rule and may be deemed to have waived its security for the indebtedness and, in
some cases, may be prevented from collecting the indebtedness altogether. The
prospectus supplement for each series will specify the percentage of Loans by
initial principal balance that are secured by liens on mortgaged properties
located in California.
CO-OP LOANS
To the extent described in the prospectus supplement, some of the Loans may
have been made in connection with a purchase or refinance of cooperative
apartments. These Co-op Loans are not secured by liens on real estate. The
'owner' of a cooperative apartment does not own the real estate constituting the
apartment but owns shares of stock
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in a corporation which holds title to the building in which the apartment is
located, and by virtue of owning the stock is entitled to a proprietary lease to
occupy the specific apartment (the 'LEASE'). Thus, a Co-op Loan is a personal
loan secured by a lien on the shares and an assignment of the Lease. If the
borrower defaults on a Co-op Loan, the lender's remedies are similar to the
remedies which apply to a foreclosure of a mortgage or deed of trust, in that
the lender can foreclose the loan and assume 'ownership' of the apartment.
There are some risks which arise as a result of the cooperative form of
ownership which differentiate Co-op Loans from other types of Loans. For
example, the power of the board of directors of most cooperative corporations to
reject a proposed purchaser of a unit owner's shares (and prevent the sale of an
apartment) for any reason (other than reasons based upon unlawful
discrimination) or for no reason, significantly reduces the universe of
potential purchasers in the event of a foreclosure. Moreover, cooperative
apartment owners run a special risk in buildings where the 'sponsor' (i.e., the
owner of the unsold shares in the corporation) holds a significant number of
unsold apartments if the sponsor were to go into default on a loan which is
secured by a mortgage on the building. In this event the unit owners would be
forced by special assessment to make the payments on the delinquent loan or risk
losing their apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the right to
occupy a particular apartment be adversely affected by the special assessment,
but the foreclosure of a mortgage on the building in which the apartment is
located could result in a total loss of the shareholder's equity in the building
(and a corresponding loss of the lender's security for its Co-op Loan).
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the prospectus supplement for a series, the
certificates rated in one of the two highest rating categories by one or more
rating agencies will constitute 'mortgage-related securities' for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA'). As a result,
they will be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including Depository
institutions, life insurance companies and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent as, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
other state entities. Under SMMEA, if a state enacted legislation prior to
October 4, 1991 specifically limiting the legal investment authority of any of
these types of entities to invest in 'mortgage-related securities' the
certificates will constitute legal investments for entities subject to the
legislation only to the extent provided therein. SMMEA provides, however, that
in no event will the enactment of this type of legislation affect the validity
of any contractual commitment to purchase, hold or invest in certificates, or
require the sale or other disposition of certificates, so long as the
contractual commitment was made or the
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certificates were acquired prior to the enactment of the legislation. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for the enactments, limiting to varying extents the ability of some
entities to invest in 'mortgage-related securities,' in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Accordingly, the investors affected by this legislation will be authorized to
invest in the Securities only to the extent provided in this 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 certificates without limitation as
to the percentage of their assets represented thereby;
federal credit unions may invest in the certificates; and
national banks may purchase certificates for their own account without
regard to the limitations generally applicable to investment securities
described in 12 U.S.C. 'SS' 24 (Seventh), subject in each case to those
regulations as the applicable federal authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination Counsel
issued a revised supervisory policy statement (the '1998 POLICY STATEMENT')
applicable to all Depository institutions, setting forth guidelines for
investments in 'high-risk mortgage securities.' The 1998 Policy Statement has
been adopted by the Federal Reserve Board, the Office of the Comptroller of the
Currency, the FDIC, the National Credit Union Administration (the 'NCUA') and
the Office of Thrift Supervision (the 'OTS') with an effective date of May 26,
1998. The 1998 Policy Statement rescinds a 1992 policy statement that had
required, prior to purchase, a Depository institution to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and,
if so, that the proposed acquisition would reduce the institution's overall
interest rate risk. The 1998 Policy Statement eliminates former constraints on
investing in some types of 'high-risk' mortgage derivative products and
substitutes broader guidelines for evaluating and monitoring investment risk.
On January 1, 1999, OTS Thrift Bulletin 13a, entitled 'Management of
Interest Rate Risk, Investment Securities, and Derivatives Activities'
('TB 13A'), which is applicable to thrift institutions regulated by the OTS
became effective. One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (i) conduct a
pre-purchase portfolio sensitivity analysis for any 'significant transaction'
involving securities or financial derivatives, and (ii) conduct a pre-purchase
price sensitivity analysis of any 'complex security' or financial derivative.
For the purposes of TB 13a, a 'complex security' includes among other things any
collateralized mortgage obligation or real estate mortgage investment conduit
security, other than any 'plain vanilla' mortgage pass-through security (that
is, securities that are part of a single class of securities in the related pool
that are non-callable and do not have any special features). Accordingly, all
classes of the offered certificates would likely be viewed as 'complex
securities'. The OTS recommends that while a thrift institution should conduct
its own in-house pre-acquisition
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analysis, it may rely on an analysis conducted by an independent third-party so
long as management understands the analysis and its key assumptions. Further, TB
13a recommends that the use of 'complex securities with high price sensitivity'
be limited to transactions and strategies that lower a thrift institution's
portfolio interest rate risk. TB 13a warns that investment in complex securities
by thrift institutions that do not have adequate risk measurement, monitoring
and control systems may by viewed by OTS examiners as an unsafe and unsound
practice.
In addition, the NCUA has issued regulations governing federal credit union
investments which prohibit investment in specified types of securities, which
may include some classes of certificates.
In addition, several states have adopted or are considering regulations
that would prohibit regulated institutions subject to their jurisdiction from
holding mortgage-backed securities like the offered certificates, including
securities previously purchased. You should consult your own legal advisors in
determining whether and to what extent the offered certificates constitute legal
investments for you.
There may be other restrictions on the ability of some investors, including
Depository institutions, either to purchase certificates or to purchase
certificates representing more than a specified percentage of the investor's
assets. Investors should review any applicable or proposed rules, regulations
and guidelines and consult their own legal advisors in determining whether and
to what extent the certificates constitute legal investments for these
investors.
Securities that do not constitute 'mortgage-related securities' under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws to meet requirements for legal investments.
You should consult your own legal advisors in determining whether and to
what extent the certificates constitute legal investments for you.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
imposes requirements on employee benefit plans (and on some other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate accounts in which
plans, accounts or arrangements are invested) (collectively 'PLANS') subject to
ERISA and on persons who are fiduciaries for these Plans. Generally, ERISA
applies to investments made by Plans. Among other things, ERISA requires that
the assets of Plans be held in trust and that the trustee, or other duly
authorized fiduciary, have exclusive authority and discretion to manage and
control the assets of these Plans. ERISA also imposes specific duties on persons
who are fiduciaries of Plans. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of a
Plan is considered to be a fiduciary of the Plan (subject to specific exceptions
not relevant here). Some employee
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benefit plans, like governmental plans (as defined in ERISA Section 3(32)) and,
if no election has been made under Section 410(d) of the Code, church plans (as
defined in ERISA Section 3(33)), are not subject to ERISA requirements.
Accordingly, assets of these plans may be invested in certificates without
regard to the ERISA considerations described in this prospectus, subject to the
provisions of applicable state law. Any plan which is qualified and exempt from
taxation under Code Sections 401(a) and 501(a), however, is subject to the
prohibited transaction rules contained in Code Section 503.
On November 13, 1986, the United States Department of Labor (the 'DOL')
issued a final regulation concerning the definition of what constitutes the
assets of a Plan. (29 C.F.R. 'SS' 2510.3- 101.) Under this regulation, the
underlying assets and properties of corporations, partnerships and other
entities in which a Plan makes an 'equity' investment could be deemed for
purposes of ERISA to be assets of the investing Plan in some circumstances.
However, the regulation provides that, generally, the assets of an entity in
which a Plan invests will not be deemed for purposes of ERISA to be assets of
the Plan if the equity interest acquired by the investing Plan is a
publicly-offered security. A publicly-offered security, as defined in the
regulation, is a security that is widely held, freely transferable and
registered under the Securities Exchange Act of 1934. The related prospectus
supplement will indicate whether the certificates constitute publicly-offered
securities for the purpose of this exception.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ('PARTIES IN INTEREST') having specified
relationships to a Plan and imposes additional prohibitions where Parties in
Interest are fiduciaries of the Plan. For example, an investment in the
certificates by a Plan to which the Depositor, the Master Servicer or Trustee is
a Party in Interest would constitute a prohibited transaction unless an
exemption is available. In addition, because the Loans may be deemed Plan assets
of each Plan that purchases certificates, an investment in the certificates by a
Plan might be a prohibited transaction if any of the mortgagors is a Party in
Interest to the Plan unless an exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules specific transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' (as defined below) in the initial issuance of
these certificates. PTE 83-1 permits, subject to specific conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest under those Plans related to the origination, maintenance and
termination of mortgage pools consisting of loans secured by first or second
mortgages or deeds of trust on 'single-family residential property' (as defined
below), and the acquisition and holding of mortgage pool pass-through
certificates representing an interest in mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan in
certificates will be exempt from the prohibitions of ERISA Sections 406(a) and
407 (relating generally to transactions with Parties in Interest who are not
fiduciaries) if
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the Plan purchases the certificates at no more than fair market value, and will
be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2) (relating
generally to transactions with fiduciaries) if, in addition, the purchase is
approved by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25% of all certificates, and at
least 50% of the certificates are purchased by persons independent of the pool
sponsor or pool trustee.
A 'mortgage pool pass-through certificate' for the purpose of PTE 83-1 is
defined as a certificate representing a beneficial undivided fractional interest
in a mortgage pool and entitling the holder of the certificate to pass-through
payments of principal and interest from the pooled loans, less any fees retained
by the pool sponsor. Some classes of certificates may, if specified in the
related prospectus supplement, not qualify as mortgage pool pass-through
certificates as so defined, and therefore PTE 83-1 may not be applicable to
these classes of certificates, including:
classes of certificates entitled to receive payments of interest and
principal on the loans only after payments to other classes or after the
occurrence of specified events;
classes of certificates that evidence the beneficial ownership in a
Trust divided into mortgage loan groups;
classes of certificates that evidence beneficial ownership of a
specified percentage of interest payments only or principal payments
only, or a notional amount of either principal or interest payments; and
classes of certificates that evidence an interest in a pool organized as
a REMIC.
In addition, PTE 83-1 applies only where the mortgage pool is limited to
single-family residential property. PTE 83-1 defines 'single-family residential
property' as non-farm property comprising one to four dwelling units, and
condominiums. Therefore, PTE 83-1 may not be available for classes of
certificates representing a beneficial interest in a mortgage pool which
includes: (1) multifamily Loans; or (2) loans secured by shares issued by a
cooperative housing association.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled Loans and property securing the
loans, and for indemnifying certificateholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled Loans or the principal balance of the largest
covered pooled mortgage loan; (2) the existence of a pool trustee who is not an
affiliate of the pool sponsor; and (3) a limitation on the amount of the payment
retained by the pool sponsor, together with other funds inuring to its benefit,
to not more than adequate consideration for selling the Loans plus reasonable
compensation for services provided by the pool sponsor to the pool. Some series
or classes of certificates may be protected though a subordination of other
classes of certificates, a subordination by shifting of interests, a Reserve
Fund or other form of credit enhancement described in the related prospectus
supplement. In the absence of a ruling that the system of insurance or other
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protection for a series or class of certificates satisfies the first general
condition referred to above, there can be no assurance that these features will
be so viewed by the DOL. In addition, subordination or another form of credit
enhancement maintained for a series or class of certificates will not satisfy
the first general condition referred to above unless it is maintained in an
amount not less than the greater of one percent of the aggregate principal
balance of the Loans or the principal balance of the largest mortgage loan. For
the second general condition referred to above, the trustee will not be
affiliated with the Depositor. There can be no assurance that the third general
condition will be satisfied for the certificates.
One or more exemptions may be available, however, for transactions to which
PTE 83-1 is not applicable, depending in part upon the type of Plan fiduciary
making the decision to acquire a certificate and the circumstances under which
the decision is made, including but not limited to:
Prohibited Transaction Exemption 90-1, regarding investments by
insurance company pooled separate accounts;
Prohibited Transaction Exemption 91-38, regarding investments by bank
collective investment funds;
Prohibited Transaction Exemption 84-14, regarding transactions effected
by a 'qualified professional asset manager,' or
Prohibited Transaction Exemption 95-60, regarding investments by
insurance company general account.
However, even if the conditions specified in one or more of these exemptions are
met, the scope of the relief provided by these exemptions might not cover all of
the transactions involved.
The DOL has issued individual exemptions to a number of firms that may
serve as underwriter for a particular series of certificates (collectively
referred to as the 'UNDERWRITER EXEMPTION') which apply to some sales and
servicing of 'certificates' that are obligations of a 'trust' with respect to
which the firm is the placement agent or underwriter, manager or co-manager of
an underwriting syndicate. The Underwriter Exemption provides relief which is
generally similar to that provided by PTE 83-1, but is broader in several
respects. The related prospectus supplement will indicate whether the particular
underwriter has been granted an Underwriter Exemption.
The Underwriter Exemption contains several requirements, some which differ
from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of 'certificate' which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments and a
certificate denominated as debt that represents an interest in a REMIC. The
Underwriter Exemption contains an expanded definition of 'trust', which may
include obligations secured by shares issued by a cooperative housing
association and loans secured by multi-family residential and commercial real
property, as well as loans secured by single-family residential real property.
In addition, the Underwriter Exemption does not require the loans, the property
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securing the loans or the certificateholders to be covered by a system of
insurance. The definition of 'trust,' however, does not include any investment
pool unless, inter alia, (1) the investment pool consists only of assets of the
type which have been included in other investment pools, (2) certificates
evidencing interests in other investment pools that have been purchased by
investors other than Plans for at least one year prior to the Plan's acquisition
of certificates pursuant to the Underwriter Exemption, and (3) certificates in
other investment pools that have been rated in one of the three highest generic
rating categories of the four credit rating agencies noted below. The general
conditions applicable to the Underwriter Exemption include:
the acquisition of the certificates by a Plan must be on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
the rights and interests evidenced by the certificates must not be
'subordinated' to the rights and interests evidenced by other
certificates of the same trust;
certificates acquired by a Plan must have received a rating at the time
of their acquisition that it is in one of the three highest generic
rating categories of Standard & Poor's, a division of the McGraw-Hill
Companies, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. or Fitch IBCA, Inc.;
the pool trustee must not be an affiliate of the pool sponsor, nor an
affiliate of the underwriter, the pool servicer, any obligor on the
Loans included in the trust constituting more than five percent of the
aggregate unpaid principal balance of the assets in the trust, or any
affiliate of any of these entities; and
any Plan investing in the certificates must be an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act.
It is not clear whether the exemptions referenced above apply to
participant directed plans as described in Section 404(c) of ERISA or plans that
are subject to Section 4975 of the Code but that are not subject to Title I of
ERISA, like some Keogh plans and individual retirement accounts.
Any Plan fiduciary which proposes to cause a Plan to purchase certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of an exemption, and the potential consequences in the specific
circumstances, prior to making an investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure and diversification an investment in the certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
Any Plan proposing to invest in certificates should consult with its
counsel to confirm that the investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Federal income tax consequences of an investment in a certificate of a
series or a class of a series will vary depending on the characteristics of the
certificate. The following is a general discussion of the anticipated material
Federal income tax consequences of the purchase, ownership and disposition of
the certificates offered under this prospectus. The discussion is based upon the
Code, its legislative history, existing and proposed regulations thereunder,
including regulations promulgated under the real estate mortgage investment
conduit ('REMIC') and original issue discount, called 'OID' provisions of the
Code, called the 'REMIC REGULATIONS' and the 'OID REGULATIONS,' published
rulings and court decisions, all as in effect and existing on the date of this
prospectus and all of which are subject to change at any time, possibly on a
retroactive basis, and to differing interpretations. The OID Regulations do not
provide guidance on the computation of the accrual of OID under section
1272(a)(6) of the Code for regular interests in a REMIC.
The following discussion applies only to those persons who are the original
holders of the certificates and who hold certificates as capital assets, and
does not address the tax consequences to taxpayers who are subject to special
rules or aspects of Federal income taxation that may be relevant to a
prospective investor based upon the investor's particular tax situation. For
example, the discussion would not apply to:
banks,
insurance companies,
tax-exempt organizations,
electing large partnerships,
dealers in securities or currencies,
mutual funds,
REITs,
RICs,
S corporations,
estates and trusts,
investors that hold the certificates as part of a hedge, straddle,
integrated or conversion transaction, or
holders whose 'functional currency' is not the United States dollar.
This discussion generally does not address the state, local or foreign tax
consequences of the purchase, ownership and disposition of the certificates.
Investors should consult their tax advisors in determining the Federal, state,
local, foreign or other tax consequences to them of the purchase, ownership and
disposition of the certificates offered hereunder. The following discussion
addresses securities of two general types: (1) certificates representing
interests in a trust, or a portion of a trust, which the Master Servicer will
covenant to elect to have treated as a REMIC under Code Sections 860A through
860G and (2) certificates representing interests in a trust for which an
election to be treated as a REMIC will not be made. The prospectus supplement
for each series of certificates will indicate
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whether a REMIC election will be made for the related trust and, if the election
is made for the trust, will designate the related series of certificates as
either 'regular interests' or 'residual interests' in the REMIC. For purposes of
this tax discussion, references to a 'certificateholder' are references to the
beneficial owner of a certificate.
REMIC
CLASSIFICATION OF REMICS
An election to be treated as a REMIC for federal income tax purposes may be
made for a Trust relating to a series of certificates. An election will
generally be made if the related Trust would not qualify as a grantor Trust
under subpart E, Part I of Subchapter J of the Code. Upon issuance of each
series of certificates for which an election to be treated as a REMIC is made,
Mayer, Brown & Platt, counsel to the Depositor, is of the opinion that, assuming
(1) ongoing compliance with all provisions of the Pooling and Servicing
Agreement which include requirements, among other things, that a REMIC election
be made timely in the required form, the representations described in the
Pooling and Servicing Agreement be true, and there be continued compliance with
the applicable provisions of the Code, as it may be amended from time to time,
and the applicable Treasury Regulations issued under the Code, and (2) the
accuracy of information contained in other related documents, the Trust issuing
a series of certificates, under current Federal income tax law, will qualify as
a REMIC (and will not be treated as an association or publicly traded
partnership taxable as a corporation) for Federal income tax purposes, and the
certificates offered thereby will be considered to be 'regular interests'
('REGULAR CERTIFICATES') or 'residual interests' ('RESIDUAL CERTIFICATES') in a
REMIC. This opinion will be filed prior to issuance of a series of certificates
as an exhibit to a post-effective amendment or in a Current Report on Form 8-K.
QUALIFICATION AS A REMIC
In order for the Trust to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust with requirements contained in the Code.
First, the Trust must fulfill an asset test, which requires that no more than a
de minimis amount of the assets of the Trust, as of the close of the third
calendar month beginning after the date of issuance of the certificates, called
the 'STARTUP DAY,' 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 is met at any time
when the aggregate adjusted basis of the nonqualified assets is less than 1% of
the aggregate adjusted basis of all the Trust'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 qualified mortgage is any obligation, including any participation or
certificate of beneficial ownership in a qualified mortgage, that is principally
secured by an interest in real property and, generally, that is (1) transferred
to the Trust on the Startup Day, (2)
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purchased by the Trust within a three-month period thereafter pursuant to a
fixed price contract in effect on the Startup Day or (3) received by the REMIC
within the three-month period in replacement of an obligation transferred to the
REMIC on the Startup Day. Qualified mortgages also include a regular interest in
another REMIC if the interest is transferred to the Trust on the start-up day in
exchange for regular or residual interests in the Trust. An obligation is
'principally secured by an interest in real property' if (1) the fair market
value of the real property security is at least 80% of the principal amount of
the related Loan either at origination or as of the Startup Day (an original
loan-to-value ratio of not more than 125% of the real property security) or (2)
substantially all the proceeds of the Loan were used to acquire, improve or
protect an interest in real property that, at the origination date, was the only
security for the Loan. In rendering its opinion on the classification of the
Trust as a REMIC, Mayer, Brown & Platt will rely on the representations in the
Pooling and Servicing Agreement and other documents regarding qualification of
the Loans as 'qualified mortgages.'
Permitted investments include cash flow investments, qualified reserve
assets and foreclosure property. A cash flow investment is generally an
investment of amounts received on qualified mortgages for a temporary period,
not exceeding thirteen months, which investment must earn a return in the nature
of interest. A qualified reserve asset is any intangible property held for
investment that is part of any reserve reasonably required to be maintained to
provide for payments of expenses or to provide security for payments due on
regular or residual interests that otherwise may be delayed or defaulted upon
because of default (including delinquencies) on the qualified mortgages or lower
than expected reinvestment returns. Foreclosure property is real property
acquired in connection with the default or imminent default of a qualified
mortgage and generally held for not more than two years, plus extensions
permitted by the Code.
In addition to the requirements discussed above, the various interests in
the Trust also must meet other requirements. A REMIC meets the interests test if
all of the interests in the REMIC are either regular interests or residual
interests, and there is one, and only one, class of residual interests, and all
distributions on the residual interests are made pro rata. A regular interest is
an interest in a REMIC that is issued on the Startup Day with fixed terms, is
designated as a regular interest, 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. The REMIC Regulations provide that an interest in a REMIC may be
treated as a regular interest even if payments on the interest are subordinated
to payments on other interests in the REMIC, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, or expenses incurred
by the REMIC. A residual interest is an interest in a REMIC other than a regular
interest that is issued on the Startup Day and that is designated as a residual
interest. The Trust must also adopt reasonable arrangements designed to ensure
that 'disqualified organizations' do
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not hold residual interests and that tax information is furnished if this
restriction is violated.
The following discussion assumes that all requirements for REMIC
qualification will be satisfied by the Trust while there are any Regular
Certificates outstanding. If a Trust for which a REMIC election is made fails to
comply with one or more of the ongoing requirements of the Code for REMIC status
during any taxable year, the Code provides that the Trust will not be treated as
a REMIC for that year and thereafter. In that event, the Trust may be taxable as
a separate corporation, and the related certificates would not be accorded the
status or given the tax treatment described below. The Code provides that if (1)
an entity ceases to be a REMIC, (2) the Secretary of the Treasury determines
that the cessation was inadvertent, (3) no later than a reasonable time after
the discovery of the event resulting in the cessation, steps are taken so that
the entity is once more a REMIC, and (4) the entity, and each person holding an
interest in the entity at any time during a period specified, agrees to make
those adjustments as may be required by the Secretary of the Treasury for that
period, then, notwithstanding a terminating event, the entity will be treated as
continuing to be a REMIC or the cessation will be disregarded, whichever the
Secretary of the Treasury determines to be appropriate. While the Code
authorizes the Treasury Department to issue Treasury Regulations providing
relief in the event of an inadvertent termination of the status as a REMIC, no
Treasury Regulations of this type have been issued. Any relief, moreover, may be
accompanied by sanctions, like the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for REMIC
status are not satisfied.
CHARACTERIZATION OF INVESTMENTS IN CERTIFICATES
In general, (1) subject to the satisfaction of either the applicable
holding period or the bona fide business purpose requirement of Code Section
593(d)(1)(D), certificates owned by a 'domestic building and loan association,'
a 'mutual savings bank,' or 'any cooperative bank without capital stock
organized and operated for mutual purposes and without profit' within the
meaning of Code Section 593(a) will be treated as 'qualifying real property
loans' within the meaning of Code Section 593(d), in the same proportion that
the assets of the pool underlying the certificates, called the 'ASSETS' would be
so treated; (2) certificates held by a domestic building and loan association
will, under Code Section 7701(a)(19)(C)(xi), count toward satisfying the 60%
asset test applicable to those institutions under Code Section 7701(a)(19)(C) in
the same proportion that the Assets would be treated as falling within one of
the classes enumerated in Code Section 7701(a)(19)(C)(i)-(x), including without
limitation 'loans secured by an interest in real property' within the meaning of
Code Section 7701(a)(19)(C)(v); and (3) certificates held by a real estate
investment trust will constitute 'real estate assets' within the meaning of Code
Section 856(c)(5)(B), and interest on the REMIC 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 the Assets would be so treated. Moreover, if 95% or more of the
Assets qualify for any of the
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foregoing treatments at all times during the calendar year, the certificates
will qualify for the corresponding status in their entirety for that calendar
year. Certificates held by some financial institutions will constitute an
'evidence of indebtedness' within the meaning of Code Section 582(c)(1).
Certificateholders should be aware that (1) certificates held by a real
estate investment trust will not constitute 'government securities' within the
meaning of Code Section 856(c)(5)(A) and (2) certificates held by a regulated
investment company will not constitute 'government securities' within the
meaning of Code Section 851(b)(4)(A)(i).
TAXATION OF OWNERS OF REGULAR CERTIFICATES
For Federal income tax purposes, a Regular Certificate will be treated as a
debt instrument issued by the REMIC and not as an ownership interest in the
REMIC or the assets of the REMIC. The amounts includible in the income of a
holder of a Regular certificate (a 'REGULAR CERTIFICATEHOLDER') will be
determined under the accrual method.
Original Issue Discount. The Regular Certificates may be issued with OID
within the meaning of Code Section 1273(a). Holders of any class of Regular
Certificates issued with OID will be required to include the OID in gross income
for Federal income tax purposes as it is deemed to accrue, in advance of the
receipt of the cash attributable to that income.
Rules governing OID are set forth generally in Code Sections 1272, 1273 and
1275, and the OID Regulations. Code Section 1272(a)(6) provides special OID
rules that apply to regular interests in a REMIC, like Regular Certificates.
However, as discussed above, no Treasury Regulations have as yet been proposed
or adopted regarding the computation of the accrual of OID under Code Section
1272(a)(6). Further, the application of the OID Regulations to the Regular
Certificates remains unclear in other respects because the OID Regulations
either do not address, or are subject to varying interpretations with regard to,
several relevant issues.
Under the Code, the total amount of OID on a Regular Certificate is the
excess of the 'stated redemption price at maturity' of the Regular Certificate
over its 'issue price.' Except as discussed in the following paragraph, in
general, the issue price of a Regular Certificate offered hereunder will be
determined by the first price at which a substantial amount of the certificates
is sold for money, other than to bond houses or brokers. The stated redemption
price at maturity of a Regular Certificate will be the sum of all payments to be
made on the Regular Certificate other than 'qualified stated interest payments.'
Qualified stated interest is stated interest that is unconditionally payable at
least annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. Qualified stated interest also includes
stated interest on 'variable rate debt instruments' if the interest is
unconditionally payable at least annually. The requirements for qualification of
a debt instrument bearing a rate of interest other than a fixed rate as a
'variable rate debt instrument' and for qualification of stated interest on a
variable rate debt instrument as 'qualified stated interest' are complex, and no
assurance can be given that all stated interest on Regular Certificates will
constitute qualified stated
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interest. For a general discussion of the treatment of variable rate interest,
see 'Investment in Certificates Not Representing Interests in a
REMIC -- Taxation of Owners of P&I Certificates -- Variable Rate Certificates,'
below. Generally, the stated redemption price at maturity of a Regular
Certificate will be its initial certificate balance. Under the OID Regulations,
if any portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date of the Regular
Certificates, and if the pre-issuance accrued interest will be paid on the first
payment date within one year of the issue date, the issue price of the Regular
Certificate may be computed by subtracting from the issue price, as otherwise
determined, any pre-issuance accrued interest. If the issue price is so
computed, the actual payment of any pre-issuance accrued interest will be
treated as a return of the excluded pre-issuance accrued interest, rather than
as an amount payable on the debt instrument.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
OID on a Regular Certificate will be considered to be zero, and all stated
interest will be treated as qualified stated interest includible under the
accrual method of accounting, if the OID is less than 0.25% of the stated
redemption price at maturity of the Regular Certificates multiplied by the
weighted average life of the Regular Certificates. However, under the OID
Regulations, the holder of a Regular Certificate that has de minimis OID would
be required to include any de minimis OID in income as principal payments are
made in proportion to the ratio that each principal payment bears to the stated
principal amount of the Regular Certificates. For this purpose, the weighted
average life of the Regular Certificates is computed as the sum of the amounts
determined by multiplying (1) the number of complete years (rounding down for
partial years) until each payment included in the stated redemption price at
maturity is expected to be made by (2) a fraction, the numerator of which is the
amount of the payment and the denominator of which is the total amount of
payments included in the stated redemption price at maturity of the Regular
Certificates. The Internal Revenue Service may take the position that this rule
should be applied taking into account the Prepayment Assumption (described
below) and the effect of any anticipated investment income.
For purposes of computing the accrual of OID on the Regular Certificates
issued by a REMIC, Code Section 1272(a)(6) requires that a reasonable assumed
prepayment rate, called the 'PREPAYMENT ASSUMPTION', be used for Loans held by a
REMIC, and that adjustments be made in the amount and rate of accrual of the
discount to reflect differences between the actual prepayment rate and the
Prepayment Assumption. Code Section 1272(a)(6) provides that the Prepayment
Assumption is to be determined in the manner prescribed in Treasury Regulations.
As noted above, those Treasury Regulations have not been issued. The Conference
Committee Report discussing Code Section 1272(a)(6), called the 'COMMITTEE
REPORT,' indicates that the Treasury Regulations will provide that the
Prepayment Assumption used in determining the amount and rate of accrual of
discount on a Regular Certificate must be the same as that used in pricing the
initial offering of the Regular Certificates. The Prepayment Assumption used by
the Master Servicer in reporting OID for each series will be consistent with
this standard and will be disclosed in the related prospectus supplement.
However, neither the Master Servicer nor
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the Trustee will make any representation that the Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate. Each investor
must make its own decision as to the appropriate Prepayment Assumption to be
used in deciding whether or not to purchase any of the Regular Certificates.
OID is accrued by a Regular Certificateholder by including in its gross
income the sum of the 'daily portions' of OID, if any, on its Regular
Certificate for each day during its taxable year on which it held the Regular
Certificates. In general, in the case of an original holder of a Regular
Certificate, the daily portions of OID will be determined based on the excess,
if any, of (1) the sum of (A) the present value, as of the end of the accrual
period, of all of the distributions remaining to be made on the Regular
Certificate in future periods and (B) the distributions made on the Regular
Certificate during the accrual period of amounts included in the stated
redemption price at maturity, over (2) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. The excess will then be
allocated ratably to each day during the period to determine the daily portion
of OID for that day. Although the OID Regulations allow certificateholders to
use interest accrual periods of any length as long as each Distribution Date
falls on either the first day or final day of an accrual period, a Trust for
which a REMIC election is made will report original issue discount to
certificateholders based on the assumption that each accrual period ends on a
date that corresponds to a Distribution Date and begins on the first day
following the immediately preceding accrual period, or in the case of the first
period, begins on the Closing Date. The present value of the remaining
distributions will be calculated (1) assuming that distributions on the Regular
Certificate will be received in future periods based on the Loans being prepaid
at a rate equal to the Prepayment Assumption, (2) using a discount rate equal to
the original yield to maturity of the Regular Certificate and (3) taking into
account events, including actual prepayments, that have occurred before the
close of the accrual period. The original yield to maturity of the Regular
Certificate will be calculated based on its issue price and the assumption that
distributions on the Regular Certificate will be made in all periods as if the
Loans prepaid at a rate equal to the Prepayment Assumption. The adjusted issue
price of a Regular Certificate at the beginning of any accrual period will equal
the issue price of the certificate, increased by the aggregate amount of the
daily portions on the Regular Certificate that accrued in prior accrual periods,
and reduced by the amount of any distributions made on the Regular Certificate
in prior accrual periods of amounts included in the stated redemption price at
maturity.
A subsequent purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost less than its remaining stated redemption price at
maturity will also be required to include in gross income the daily portions of
any OID on the Regular Certificate. However, if the cost of the Regular
Certificate to the subsequent purchaser is in excess of its 'adjusted issue
price,' each daily portion will be reduced in proportion to the ratio the excess
bears to the aggregate OID remaining to be accrued on the Regular Certificate.
The adjusted issue price of a Regular Certificate on any given day equals the
issue price, increased by the amount of OID previously includible in the gross
income of any holder,
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and decreased by the amount of any payment previously made other than a payment
of qualified stated interest.
VARIABLE RATE CERTIFICATES. A Regular Certificate may provide for payments
of interest based on a variable interest rate formula, and may provide for
minimum or maximum rates or other adjustments. For a general discussion of the
treatment of variable rate interest, see 'Investment in Certificates Not
Representing Interests in a REMIC -- Taxation of Owners of P&I
Certificates -- Variable Rate Certificates.'
MARKET DISCOUNT. A certificateholder that purchases a Regular Certificate
at a market discount, that is, at a purchase price less than its remaining
stated principal amount, or in the case of a Regular Certificate issued with
OID, less than its 'revised issued price,' which generally has the same meaning
as 'adjusted issue price,' as defined above, will recognize market discount
income upon receipt of each principal distribution. See 'Investment in
Certificates Not Representing Interests in a REMIC -- Taxation of Owners of P&I
Certificates -- If Stripped Bond Rules Do Not Apply' and ' -- Premium and Market
Discount' below, for a general discussion of market discount. Treasury
regulations implementing the market discount rules have not yet been issued.
Investors should consult their own tax advisors regarding the application of the
market discount rules and the advisability of making any of the elections
provided by the Code relating to the timing of recognition of market discount.
The market discount rules will not be applicable to a Regular Certificate so
long as it is held by its initial purchaser.
PREMIUM. A Regular Certificateholder that purchased its Regular Certificate
at a premium may elect under Code Section 171 to amortize that premium under a
constant yield method over the life of the certificate as an offset to interest
income, rather than as a separate deduction item. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of the
Regular Certificate for this purpose. However, the Committee Report states that
the same rules that apply to accrual of market discount, which rules will
require use of a Prepayment Assumption in accruing market discount on Regular
Certificates without regard to whether those certificates have original issue
discount, will also apply in amortizing bond premium under Code Section 171. If
made, the election will apply to all debt instruments having amortizable bond
premium that the holder owns or subsequently acquires. See 'Constant Yield
Election' below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
CONSTANT YIELD ELECTION
The OID Regulations permit certificateholders to elect to include all
interest that accrues on a debt instrument by using a constant yield method. For
this purpose, 'interest' includes stated interest, acquisition discount, OID, de
minimis OID, market discount, de minimis market discount, and unstated interest,
as adjusted by any amortizable bond premium or acquisition premium. This
election would, in some cases, simplify the calculation of interest income for
certificateholders to whom it is available. However, if the
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holder makes the election for a debt instrument with amortizable bond premium or
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 debt instruments acquired by the
holder in the same taxable year or thereafter. The election is irrevocable
except with approval of the Internal Revenue Service. Investors should consult
their own tax advisors regarding the advisability of making this election.
EFFECTS OF DEFAULTS AND DELINQUENCIES
Some series of certificates may contain one or more classes of Subordinate
certificates, and if there are defaults or delinquencies on the Loans, amounts
that would otherwise be distributed on the Subordinate certificates may instead
be distributed on the Senior certificates. Holders of Subordinate certificates
nevertheless will be required to report income on these certificates under an
accrual method without giving effect to delays and reductions in distributions
on the Subordinate certificates attributable to defaults and delinquencies on
the Loans, except to the extent that it can be established that those amounts
are uncollectible. As a result, the amount of income reported by a holder of a
Subordinate certificate in any period could significantly exceed the amount of
cash distributed to the holder in that period. The holder will eventually be
allowed a loss, or will be allowed to report a lesser amount of income, to the
extent that the aggregate amount of distributions on the Subordinate certificate
is reduced as a result of defaults and delinquencies on the Loans. However, the
timing and character of losses or reductions in income are uncertain, and,
accordingly, holders of Subordinate certificates should consult their own tax
advisors on this point.
TAXATION OF OWNERS OF RESIDUAL CERTIFICATES
DAILY PORTIONS. A Residual Certificateholder generally will be required to
report its daily portion of the taxable income or, subject to the limitation
described in ' -- Basis Rules and Distributions' below, the net loss of the
REMIC for each day during a calendar quarter that the Residual Certificateholder
owned the Residual Certificate. For this purpose, the daily portion will be
determined by allocating to each day in the calendar quarter its ratable portion
of the taxable income or net loss of the REMIC for that quarter and then by
allocating the amount so allocated among the Residual Certificateholders in
accordance with their percentage of ownership interests on that day. Any amount
included in the gross income of or allowed as a loss to any Residual
Certificateholder by virtue of the rules described in this paragraph will be
treated as ordinary income or loss. Each Residual Certificateholder should be
aware that taxable income on its Residual Certificate may exceed cash
distributions attributable to that income in any taxable year.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will reflect a
netting of (1) the income from the Loans and other assets of the REMIC and (2)
the deductions allowed to the REMIC for interest, including OID, on the Regular
Certificates,
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and any other class of certificates constituting 'regular interests' in the
REMIC not offered by this prospectus, and, except as described below, for
servicing, administrative and other expenses. The limitation on miscellaneous
itemized deductions imposed on individuals by Code Section 67 will not be
applied at the pool level to these expenses. See ' -- Pass-Through of
Miscellaneous Itemized Deductions' below.
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual using the accrual method of
accounting, with some modifications. The first modification is that a deduction
will be allowed for accruals of interest, including original issue discount, on
the 'regular interests' in the REMIC. If a Regular Certificate is issued at a
price in excess of its aggregate principal amount, the net amount of interest
deductions that are allowed the REMIC in each taxable year for the Regular
Certificate will be reduced by an amount equal to the portion of the excess that
is considered to be amortized or prepaid in that year. Although the matter is
not entirely certain, it is likely that any excess would be amortized under a
constant yield method in a manner analogous to the method for accruing OID
described under 'Taxation of Owners of Regular Certificates -- Original Issue
Discount' above.
The second modification relates to the accrual of income on a Loan deemed
to have been acquired with market discount or premium. Any market discount will
be includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to that income, under a method similar to the method
described above for accruing OID on the Regular Certificates. If the REMIC
elects under Code Section 171 to amortize any premium on the Loans, the premium
may be amortized under a constant yield method. See ' -- Taxation of Owners of
Regular Certificates -- Market Discount' and ' -- Premium' above.
The third modification is that no item of income, gain, loss or deduction
allocable to a prohibited transaction (see ' -- Prohibited Transactions and
other REMIC -- Level Taxes,' below) will be taken into account.
The fourth modification is that the REMIC generally may not deduct any item
that would be disallowed in calculating the taxable income of a partnership by
virtue of Code Section 703(a)(2).
The fifth modification is that the amount of the net income from
'foreclosure property', if any, must be reduced by the amount of tax imposed
under Code Section 860G(c) on 'foreclosure property.'
The REMIC will have an initial aggregate basis in its assets equal to the
aggregate issue price of the 'regular interests' and 'residual interests' in the
REMIC. The aggregate basis will be allocated among the individual Loans and
other assets of the REMIC in proportion to their respective fair market values.
Accordingly, the Master Servicer will be required to estimate the fair market
value of these interests in order to determine the basis of the REMIC in the
Loans and other property held by the REMIC. Generally for any certificate
offered by this prospectus, its fair market value will be its issue price as
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determined in the manner described above under 'Taxation of Owners of Regular
Certificates -- Original Issue Discount.'
BASIS RULES AND DISTRIBUTIONS. Any distribution by a REMIC to a Residual
Certificate holder will not be included in the gross income of the Residual
Certificateholder to the extent it does not exceed the adjusted basis of the
Residual Certificateholder's interest in a Residual Certificate. The
distribution will reduce the adjusted basis of the interest, but not below zero.
To the extent a distribution exceeds the adjusted basis of the Residual
Certificate, it will be treated as gain from the sale of the Residual
Certificate. See ' -- Sales of Certificates,' below. The adjusted basis of a
Residual Certificate is equal to the amount paid for that Residual Certificate,
increased by amounts included in the income of the Residual Certificateholder
(see ' -- Taxation of Owners of Residual Certificates -- Daily Portions,' above)
and decreased by distributions and by net losses taken into account for the
interest.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent the net loss exceeds the Residual
Certificateholder's adjusted basis in its Residual Certificate as of the close
of the calendar quarter, determined without regard to any net loss. Any loss
allowed will reduce the adjusted basis of the interest, but not below zero. Any
loss disallowed because of this limitation may be carried forward indefinitely
to future calendar quarters and, subject to the same limitation, may be used
only to offset income from the Residual Certificate. The effect of these basis
and distribution rules is that a Residual Certificateholder may not amortize its
basis in a Residual Certificate, but may only recover its basis through
distributions, and through the deduction of any net losses of the REMIC or upon
the sale of its Residual Certificate. See ' -- Sales of Certificates' below.
EXCESS INCLUSIONS. Any 'excess inclusion' for a Residual Certificate is
subject to special tax rules. For a Residual Certificateholder, the excess
inclusion for any calendar quarter is defined as the excess, if any, of the
daily portions of taxable income over the sum of the 'daily accruals' for each
day during the quarter that the Residual Certificate was held by the Residual
Certificateholder. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the 'adjusted
issue price' of the Residual Certificate at the beginning of the calendar
quarter and 120 percent of the long-term 'applicable Federal rate,' generally,
an average of current yields on Treasury securities of comparable maturity, in
effect at the time of issuance of the Residual Certificate. For this purpose,
the adjusted issue price of a Residual Certificate offered by this prospectus,
if any, as of the beginning of any calendar quarter is the issue price of the
Residual Certificate (see ' -- Taxable Income of the REMIC' above) increased by
the amount of daily portions of income for all prior quarters and decreased, but
not below zero, by any distributions made on the Residual Certificate and any
net losses taken into account on the Residual Certificates before the beginning
of that quarter.
As an exception to the general rules described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a Residual Certificate as an excess inclusion if the
aggregate Residual Certificates in the
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REMIC did not have 'significant value.' The REMIC Regulations do not provide for
this type of an exception.
For Residual Certificateholders, other than thrift institutions described
in Code Section 593, an excess inclusion cannot be offset by losses from other
sources. For Residual Certificateholders that are subject to tax on unrelated
business taxable income, as defined in Code Section 511, an excess inclusion is
treated as unrelated business taxable income. For Residual Certificateholders
that are nonresident alien individuals or foreign corporations generally subject
to United States 30% withholding tax, an excess inclusion will be subject to
this tax and no tax treaty rate reduction or exemption may be claimed for this
tax. See ' -- Foreign Investors' below.
If a thrift institution described in Code Section 593 holds a Residual
Certificate that has 'significant value,' the thrift institution may offset its
losses against its excess inclusion income. In general, a Residual Certificate
has significant value if (1) the aggregate of the issue prices of the Residual
Certificates in the REMIC is at least equal to 2 percent of the aggregate of the
issue prices of all Regular Certificates and Residual Certificates in the REMIC,
and (2) the anticipated weighted average life of the Residual Certificates is at
least 20 percent of the anticipated weighted average life of the REMIC. However,
a net operating loss of any other member of an affiliated group of which the
thrift institution is a member may not be used to offset an excess inclusion
attributable to the thrift institution. In addition, a thrift institution may
not offset its losses against an excess inclusion attributable to a Residual
Certificate held by any other member of an affiliated group of which the thrift
institution is a member.
In the case of any Residual Certificate held by a real estate investment
trust, the aggregate excess inclusions for the Residual Certificate, reduced,
but not below zero, by the real estate investment trust's taxable income, within
the meaning of Code Section 857(b)(2), excluding any net capital gain, will be
allocated among the shareholders of the trust in proportion to the dividends
received by those shareholders from the trust, and any amount so allocated will
be treated as an excess inclusion for the Residual Certificate as if held
directly by those shareholders.
PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Under temporary Treasury regulations, if the REMIC is considered to be a
'single-class REMIC,' a portion of the REMIC's servicing, administrative and
other non-interest expenses will be allocated as a separate item to those
Regular Certificateholders that are 'pass-through interest holders.' Generally,
a single class REMIC is defined as (1) a REMIC that is substantially similar to
an investment trust under Treasury regulations but for its qualification as a
REMIC, or (2) a REMIC that is substantially similar to an investment trust but
is structured with the principal purpose of avoiding this allocation requirement
imposed by the temporary regulations. A pass-through interest holder would be
required to add its allocable share, if any, of the expenses to its gross income
and to treat the same amount as an item of investment expense. An individual
generally would be
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allowed a deduction for the expenses only as a miscellaneous itemized deduction
subject to the limitations under Code Section 67, which allows these deductions
only to the extent that in the aggregate the expenses exceed two percent of the
holder's adjusted gross income. In addition, Code Section 68 provides that the
amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount (the 'APPLICABLE AMOUNT') will
be reduced by the lesser of (1) 3% of the excess of the individual's adjusted
gross income over the Applicable Amount or (2) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income recognized by Regular Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial. The
REMIC is required to report to each pass-through interest holder and to the IRS
each holder's allocable share, if any, of the REMIC's non-interest expenses. The
term 'pass-through interest holder' generally refers to individuals, entities
taxed as individuals and other pass-through entities including regulated
investment companies, but does not include real estate investment trusts.
Certificateholders that are 'pass-through interest holders' should consult their
own tax advisors about the impact of these rules on an investment in the Regular
Certificates.
In addition, in a REMIC that is not considered to be a 'single-class REMIC'
as well as a REMIC that is considered to be a 'single-class REMIC,' all or a
portion of the REMIC's servicing, administrative and other non-interest expenses
will be allocated as a separate item to Residual Certificateholders that are
'pass-through interest holders.' This type of holder would be required to add
its allocable share, if any, of the expenses to its gross income and to treat
the same amount as an item of investment expense and an individual Residual
Certificateholder would be subject to the same limitations and adjustments as
described above for Regular Certificateholders.
SALES OF CERTIFICATES
If a certificate is sold, the selling certificateholder will recognize gain
or loss equal to the difference between the amount realized on the sale and its
adjusted basis in the certificate. The adjusted basis of a Regular Certificate
generally will equal the cost of the Regular Certificate to the
certificateholder, increased by income reported by the certificateholder on the
Regular Certificate and reduced, but not below zero, by distributions on the
Regular Certificate received by the certificateholder and by any amortized
premium. The adjusted basis of a Residual Certificate will be determined as
described under 'Taxation of Owners of Residual Certificates -- Basis Rules and
Distributions,' above. Except as provided in the following two paragraphs, any
gain or loss will be capital gain or loss, provided the certificate is held as a
capital asset (generally, property held for investment) within the meaning of
Code Section 1221. The Federal income tax rates applicable to capital gains for
taxpayers other than individuals, estates, and trusts are currently the same as
those applicable to ordinary income. However, the maximum ordinary income tax
rate for individuals, estates, and trusts is generally 39.6%, whereas the
maximum long-term capital gains rate for these taxpayers is 20% for capital
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assets held for more than 12 months. Capital losses generally may be used by a
corporate taxpayer only to offset capital gains, and by an individual taxpayer
only to the extent of capital gains plus $3,000 of other income.
Gain from the sale of a Regular Certificate that might otherwise be capital
gain will be treated as ordinary income to the extent the gain does not exceed
the excess, if any, of (1) the amount that would have been includible in the
seller's income on the Regular Certificate assuming that income had accrued
thereon at a rate equal to 110% of the applicable Federal rate determined as of
the date of purchase of the Regular Certificate, over (2) the amount of ordinary
income actually includible in the seller's income prior to the sale.
Certificates will be 'evidences of indebtedness' within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a certificate by a bank or thrift institution to which this section applies will
be ordinary income or loss.
Except as provided in Treasury regulations, if the seller of a Residual
Certificate reacquires a Residual Certificate, any other residual interest in a
REMIC or any similar interest in a 'taxable mortgage pool', as defined in Code
Section 7701(i), during the period beginning six months before, and ending six
months after, the date of the sale, the sale will be subject to the 'wash sale'
rules of Code Section 1091. In that event, any loss realized by the Residual
Certificateholder on the sale will not be deductible, but instead will be added
to the Residual Certificateholder's adjusted basis in the newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER REMIC-LEVEL TAXES
A REMIC is subject to a tax at a rate equal to 100 percent of the net
income derived from 'prohibited transactions.' In general, a prohibited
transaction means (1) the disposition of a Loan other than pursuant to specified
exceptions, (2) the receipt of investment income from a source other than a Loan
or other permitted investments, (3) the receipt of compensation for services, or
(4) gain from the disposition of an asset purchased with the payments on the
Loans for temporary investment pending distribution on the certificates. It is
not anticipated that a Trust that makes an election to be taxed as a REMIC will
engage in any prohibited transactions. In addition, under the Code, a REMIC
generally will be taxed at a 100% rate on any contribution made to the REMIC
after the Start-Up Date unless the contribution is a cash contribution that (1)
takes place within the three-month period beginning on the closing date, (2) is
made to facilitate a clean-up call or a qualified liquidation, (3) is a payment
in the nature of a guarantee, or (4) constitutes a contribution by the holder of
the Residual Certificates in the REMIC to a qualified reserve fund. The
structure and operation of a Trust that makes an election to be taxed as a REMIC
will be designed to avoid the imposition of the 100% tax on contributions.
To the extent that a REMIC derives specific types of income from
foreclosure property (generally, income relating to dealer activities of the
REMIC), it will be taxed on that income at the highest corporate income tax
rate. It is not anticipated that a Trust that makes an election to be taxed as a
REMIC will receive significant amounts of this income.
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TAX ON TRANSFERS OF RESIDUAL CERTIFICATES TO CERTAIN ORGANIZATIONS
If a Residual Certificate is transferred to a 'disqualified organization',
as defined below, a tax would be imposed in an amount, determined under the
REMIC Regulations, generally equal to the product of (1) the present value of
the total anticipated excess inclusions for the Residual Certificate for periods
after the transfer, determined by discounting the anticipated excess inclusions
from the end of each remaining calendar quarter in which those excess inclusions
are expected to accrue at the applicable Federal rate based on the date on which
the transfer occurs to the date the disqualified organization acquires the
residual interest, and (2) the highest marginal federal income tax rate
applicable to corporations. This tax would generally be imposed on the
transferor of the Residual Certificate, except that where the transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on the agent. However, a transferor of a Residual Certificate would in
no event be liable for the tax on a transfer if the transferee furnished to the
transferor an affidavit stating the transferee's social security number and that
the transferee is not a disqualified organization, and as of the time of the
transfer, the transferor does not have actual knowledge that the affidavit is
false. An entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that residual interests in the entity are not
held by disqualified organizations and that information needed for the
application of the tax described in this prospectus will be made available.
Restrictions on the transfer of the Residual Certificate and other provisions
that are intended to meet these requirements are contained in the Pooling and
Servicing Agreement. Certificateholders should consult their advisors regarding
the potential impact on them of these restrictions.
For these purposes, a 'disqualified organization' means (1) the United
States, any State or political subdivision of the United States, any foreign
government, any international organization, or any agency or instrumentality of
the foregoing, but would not include instrumentalities described in Code Section
168(h)(2)(D), (2) any organization, other than a cooperative described in Code
Section 521, which is exempt from tax unless the organization is subject to the
tax imposed by Code Section 511 or (3) any organization described in Code
Section 1381(a)(2)(C).
In addition, if a 'pass-through entity', as defined below, includes in
income excess inclusions on a Residual Certificate, and a disqualified
organization is the record holder of an interest in a pass-through entity, then
a tax will be imposed on the pass-through entity equal to the product of (1) the
amount of excess inclusions on the Residual Certificate that are allocable to
the interest in the pass-through entity held by the disqualified organization
and (2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
the record holder of the interest furnishes to the pass-through entity an
affidavit that the record holder is not a disqualified organization and, during
that period, the pass-through entity does not have actual knowledge that the
affidavit is false. For these purposes, a 'pass-through entity' means any
regulated investment company, real estate investment trust, trust, partnership
or other entities described in Code Section 860E(e)(6).
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DISREGARD OF SOME TYPES OF TRANSFERS
The REMIC Regulations provide that the transfer of a 'non-economic residual
interest' to a United States Person will be disregarded for tax purposes if a
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate will constitute a noneconomic residual interest
unless, at the time the interest is transferred, (1) the present value of the
expected future distributions on the Residual Certificate equals or exceeds the
product of the present value of the anticipated excess inclusion income and the
highest corporate tax rate for the year in which the transfer occurs, and (2)
the transferor reasonably expects that the transferee will receive distributions
from the REMIC in amounts sufficient to satisfy the taxes on excess inclusion
income as they accrue. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer, either
knew or should have known that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. A transferor is
presumed not to have knowledge if (1) the transferor conducted, at the time of
the transfer, a reasonable investigation of the financial condition of the
transferee and, as a result of the investigation, the transferor found that the
transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to pay
its debts as they come due in the future; and (2) the transferee represents to
the transferor that it understands that, as the holder of the noneconomic
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.
A transfer of a Residual Certificate to a foreign person will be
disregarded if the Residual Certificate has tax avoidance potential. A Residual
Certificate will have tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects that, for each excess inclusion, the
REMIC will distribute to the transferee Residual Certificateholder an amount
that will equal at least 30 percent of the excess inclusion at or after the time
at which the excess inclusion accrues and not later than the close of the
calendar year following the calendar year of accrual. Under the REMIC
Regulations a safe harbor is provided under which a transferor is treated as
having a reasonable expectation if the 30 percent test would be satisfied were
the mortgages held by a REMIC to prepay at each rate within a range of rates
from 50 percent to 200 percent of the rate assumed under Code Section 1272(a)(6)
on the qualified mortgages, or the rate that would have been assumed had the
mortgages been issued with OID. If a transfer of a residual interest is
disregarded, the transferor would be liable for any Federal income tax imposed
upon taxable income that otherwise would be derived by the transferee from the
REMIC.
TERMINATION
A REMIC will terminate shortly following receipt by the REMIC of the final
payment on the Loans or upon a sale of the REMIC's assets following the adoption
by the REMIC of a plan of complete liquidation. The last distribution on a
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a Residual
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Certificate, if the last distribution on that certificate is less than the
Residual Certificateholder's adjusted basis in the Residual Certificate, the
Residual Certificateholder should be allowed a loss equal to the amount of the
difference.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and Residual Certificateholders will be treated
as partners. Unless otherwise stated in the related prospectus supplement, the
Residual Certificateholders holding the greatest percentage interst in the
Residual Certificates will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the 'tax matters
person' on the REMIC.
As the tax matters person, the Master Servicer will, subject to specific
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the Residual Certificateholders in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's classification.
Residual Certificateholders will generally be required to report the REMIC items
consistent with their treatment on the REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
tax matters person, and the Internal Revenue Service concerning any REMIC item.
Any person that holds a Residual Certificate as a nominee for another person may
be required to furnish the REMIC, in a manner to be provided in Treasury
Regulations, with the name and address of that person and other information.
Reporting of interest income, including any OID, on Regular Certificates is
required annually, and may be required more frequently under Treasury
Regulations. This requirement extends to some types of holders of Regular
Certificates who are generally exempt from information reporting on debt
instruments. The REMIC also must comply with rules requiring a Regular
Certificate issued with OID to disclose on its face the amount of OID and the
issue date and requiring this information to be reported to the Internal Revenue
Service.
Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the OID rules is uncertain. Additional guidance is
required from the Internal Revenue Service or other legal authority before it is
possible to determine definitely the proper methods for accruing income on the
certificates. In the absence of additional guidance from the Internal Revenue
Service or other legal authority, the Master Servicer intends to compute and
report accrued income on the certificates for tax purposes in a manner that it
believes to be consistent with the principles of the Code and the OID
Regulations described above. Because of the uncertainties discussed above, there
can be no assurance that the method adopted by the Master Servicer for reporting
to holders of certificates will coincide with that ultimately adopted in final
Treasury Regulations. Accordingly, holders of certificates
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should consult their tax advisors regarding the method for reporting the amounts
received or accrued on the certificates. As long as the only 'certificateholder'
of record is CEDE & Co., as nominee for DTC, certificateholders and the IRS will
receive tax and other information from DTC Participants and indirect
participants of DTC rather than from the Master Servicer. (The Master Servicer,
however, will respond to requests for necessary information to enable DTC
Participants, indirect participants and other persons to complete their
reports.)
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
certificateholder's purchase price which the REMIC may not have, it appears that
only information pertaining to the appropriate proportionate method of accruing
market discount should be required to be reported.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments of proceeds from
the sale of certificates, may be subject to 'backup withholding' under Code
Section 3406 at a rate of 31% if recipients of these payments fail to furnish to
the payor necessary information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from backup withholding.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against the recipient's Federal income tax. Furthermore,
penalties may be imposed by the Internal Revenue Service on a recipient of
payments that is required to supply information to the payor but that does not
do so in the proper manner.
FOREIGN INVESTORS
A Regular Certificateholder that is not a 'United States Person', as
defined below, and is not subject to Federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a Regular Certificate may be eligible for an exception to United States
Federal income or withholding tax on a distribution on a Regular Certificate,
provided that the certificateholder complies to the extent necessary with
identification requirements, including delivery of a statement, signed by the
certificateholder under penalties of perjury, certifying that the
certificateholder is not a United States Person and providing the name and
address of the certificateholder, and provided that the certificateholder 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). The
application of these requirements in the REMIC context is not entirely clear,
and foreign investors seeking to qualify for this exemption should consult their
own tax advisors. While the matter is not free from doubt, the foregoing tax
exemption may not
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apply to a Regular Certificate held by a Residual Certificateholder, or by a
certificateholder that owns directly or indirectly a 10% or greater interest in,
or is a 'controlled foreign corporation' as defined under the Code related to, a
Residual Certificateholder. If the certificateholder does not qualify for
exemption, distributions of interest, including distributions of accrued OID, to
the certificateholder may be subject to a tax rate of 30%, subject to reduction
under any applicable tax treaty. For these purposes, 'UNITED STATES PERSON'
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision of the United States, or an estate or trust whose
income is subject to United States Federal income taxation regardless of its
source.
Unless otherwise stated in the related prospectus supplement, Residual
Certificateholders that are not United States Persons should assume that
distributions of income on their Residual Certificates will be subject to a 30%
withholding tax, or a lesser rate as may be provided under any applicable tax
treaty. In the case of any income on a Residual Certificate that is an excess
inclusion, however, the rate of withholding will not be subject to reduction
under any applicable tax treaties. (See ' -- Taxation of Owners of Residual
Certificates -- Excess Inclusions' above.)
PURCHASE OF BOTH REGULAR AND RESIDUAL CERTIFICATES
Any certificateholder holding a 'regular interest' in the REMIC and persons
related to these certificateholders should not acquire any interest identified
as a 'residual interest' in the REMIC and any certificateholders holding a
'residual interest' in the REMIC and persons related to these certificateholders
should not acquire any interest identified as a 'regular interest' in the REMIC,
without consulting their tax advisors as to any possible adverse tax
consequences.
TRUSTS WITH NEGATIVELY AMORTIZING ARMS
In the event that a Trust contains Negatively Amortizing ARMs, the
discussion of the federal income tax implications of the Negatively Amortizing
ARMs to a holder of an interest in the Trust, including the treatment of
Deferred Interest, will be contained in the related prospectus supplement.
INVESTMENT IN CERTIFICATES NOT REPRESENTING INTERESTS IN A REMIC
CLASSIFICATION OF TRUST AND CHARACTERIZATION OF INVESTMENT IN CERTIFICATES
For purposes of the following discussion, certificates of a series
evidencing undivided ownership interests in a notional amount of principal of
each Loan in a related Trust together with interest thereon are referred to as
'P&I CERTIFICATES.' Certificates of a series evidencing an undivided ownership
interest in a portion of the interest payable on a Notional Amount of the Loans
in the related Trust are referred to as 'IO CERTIFICATES.'
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Upon issuance of each series of certificates, unless a REMIC election is
made for that series, Mayer, Brown & Platt, counsel to the Depositor, is of the
opinion that the related Trust 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. The opinion will be filed prior to issuance of any series of
certificates to which a REMIC election is not made, as an exhibit to a
post-effective amendment or in a Current Report on Form 8-K. Moreover, each
certificateholder of a series will be treated as the owner of the undivided
interest specified in its certificate in each of the Loans in the related Trust
for each series. Accordingly, in the case of P&I Certificates, counsel to the
Depositor will deliver its opinion that, to the extent that the Trust holds
assets described in the Code sections set forth below, (1) subject to the
satisfaction of either the applicable holding period or the bona fide business
requirement of Code Section 593(d)(1)(D), P&I Certificates owned by a 'domestic
building and loan association,' a 'mutual savings bank,' or 'any cooperative
bank without capital stock organized and operated for mutual purposes and
without profit' within the meaning of Code Section 593(a) will represent an
interest in 'qualifying real property loans' within the meaning of Code Section
593(d); (2) P&I Certificates owned by a 'domestic building and loan association'
will represent 'loans . . . secured by an interest in real property' within the
meaning of Code Section 7701(a)(19)(C)(v); (3) P&I Certificates owned by a real
estate investment trust will represent 'real estate assets' within the meaning
of Code Sections 856(c)(5)(A) and 856(c)(6)(B) and interest in respect of P&I
Certificates will represent 'interest on obligations secured by mortgages on
real property or on interests in real property' within the meaning of Code
Section 856(c)(3)(B); and (4) P&I Certificates owned by a REMIC will represent
an interest in 'obligation[s] (including any participation or certificate of
beneficial ownership therein) which [are] principally secured by an interest in
real property' within the meaning of Code Section 860G(a)(3). It is unclear,
however, to what extent, if any, an IO Certificate will be considered to
represent these interests. Prospective purchasers should consult their tax
advisors regarding whether an IO Certificate will be characterized as
representing these assets and whether the income from the IO Certificate will be
characterized as derived from these assets.
TAXATION OF OWNERS OF P&I CERTIFICATES
TREATMENT AS STRIPPED BONDS. The rate at which a certificateholder will be
required to recognize income on its certificate may be affected by a separation
of the right to receive a portion of the interest on each Loan in the Trust from
the right to receive a portion of the principal. This type of separation will
occur on each Loan having a Trust issuing IO Certificates. It also will occur if
the amount of the Administration Fee exceeds reasonable compensation so that the
Master Servicer is treated as the owner of a portion of the interest payments on
the Loans. There are no authoritative guidelines for Federal income tax purposes
regarding the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions. However, the Service
has issued guidance establishing an elective 'safe harbor' for determining the
extent to which amounts that a taxpayer is entitled to receive under mortgage
servicing contracts represent reasonable compensation. If the safe harbor is
potentially applicable in
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a particular situation, the mortgage servicer will disclose in the prospectus
supplement relating to each series of certificates whether it will elect to
limit its compensation to an amount that will qualify as reasonable compensation
under the safe harbor. A separation also may occur upon the issuance of a
certificate that represents an interest in principal payments to be made on
Loans together with interest payable on the certificate at a rate in excess of
the rate at which interest is payable on the Loans. These certificateholders may
be treated as having purchased two separate instruments: first, a P&I
Certificate representing their undivided interests in payments of principal on
the Loans together with interest payments at a rate at or below the rate at
which interest is payable on the Loans; and, second, an IO Certificate
representing their undivided interests in the remainder of the payments of
interest to be made on the Loans to which their certificate entitles them.
Each certificateholder will be subject to the 'stripped debt' rules of Code
Section 1286. As a result, the market discount rules generally would not be
applicable to the initial certificateholders. However, the Service has recently
provided guidance under which some Loans that are stripped bonds may be treated
as market discount bonds governed by Code Section 1278. This treatment is
available only if the amount of the OID on the stripped bond is determined to be
de minimis (see ' -- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount') or the annual stated rate of interest
payable on the stripped bond is no more than 100 basis points lower than the
annual stated rate of interest payable on the original bond from which it, and
any other stripped bonds or coupons, were stripped. If these requirements are
met, and if the stripped bond has market discount (see ' -- Qualification as a
REMIC -- Taxation of Owners of Regular Certificates -- Market Discount'), the
certificateholder may include the market discount as principal is repaid or upon
disposition of the certificate at a gain or may elect to include this income
currently on the basis of either ratable accrual or a constant instant rate
method. If the market discount rules do not apply, each certificateholder in
this type of Trust, whether a cash or accrual method taxpayer, will be required
to report the income, including interest that is added to principal as Deferred
Interest resulting from negative amortization, that is deemed to accrue for each
day on the certificate under a constant yield to maturity method, in accordance
with the OID rules of the Code.
In general, the amount of this income that accrues for each day would equal
the product of the certificateholder's adjusted issue price of the P&I
Certificate at the beginning of an accrual period and the yield of the P&I
Certificate to that holder allocated ratably to each day in the accrual period.
See ' -- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount' above. The yield would be computed as
the rate, assuming monthly compounding, that, if used to discount the
certificateholder's share of future payments on the Loans, would cause the
present value of those future payments to equal the price at which the
certificateholder purchased that certificate. In computing accrued income under
the stripped debt rules, a certificateholder's share of future payments on the
Loans will not include any payments made on any ownership interest in the Loans
retained by the Depositor or its affiliates, but will include the
certificateholder's share of any reasonable servicing fees and other expenses.
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There is considerable uncertainty, however, concerning the application of
Code Section 1272(a)(6) and the OID Regulations to instruments like the P&I
Certificates. Among other things, it is unclear whether provisions of the Tax
Reform Act of 1986 (the '1986 ACT') requiring use of a prepayment assumption in
accruing OID would be applicable to the P&I Certificates in the absence of
Treasury Regulations or whether use of a prepayment assumption may be permitted
without reliance on these rules. It also is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments. Certificateholders are
advised to consult their tax advisors concerning whether a prepayment assumption
should be used in reporting OID on P&I Certificates.
In the case of a P&I Certificate acquired at a price approximately equal to
the principal amount of the Loans allocable to the certificate, the use or
non-use of a reasonable prepayment assumption would not cause the income
required to be reported under the stripped debt rules to differ materially from
the income the certificateholder would be required to report under an accrual
method of accounting if the stripped debt rules did not apply. In the case,
however, of a P&I Certificate acquired at a discount from, or premium over, the
principal amount, the use of a reasonable prepayment assumption would increase
or decrease the yield used in calculating accruals of income, and thus
accelerate or decelerate, respectively, the reporting of income.
If no prepayment assumption is used, then when a Loan prepays in full, the
holder of a P&I Certificate acquired at a discount generally will recognize
ordinary income equal to the difference between the portion of the prepaid
principal amount of the Loan that is allocable to that certificate and the
portion of the adjusted basis of that certificate that is allocable to the
certificateholder's interests in the Loan. If a prepayment assumption is used,
it appears that no income or loss should be recognized upon a prepayment unless
prepayments have occurred at a rate different than the assumed prepayment rate.
VARIABLE RATE CERTIFICATES. Although the OID Regulations are subject to a
different interpretation, in the absence of substantial legal authority to the
contrary the Master Servicer intends to treat Loans subject to the stripped debt
rules and bearing a variable rate of interest as subject to the provisions of
the OID Regulations governing variable rate debt instruments. In computing the
accrual or OID, the Master Servicer may be required to use the methods described
in Code Section 1272(a)(6). For the application of Code Section 1272(a)(6) to
the accrual of OID, see generally ' -- Qualification as a REMIC -- Taxation of
Owners of Regular Certificates -- Original Issue Discount' above. Under the OID
Regulations, interest payments on a variable rate debt instrument may be
characterized as qualified stated interest includible in income when accrued,
OID includible in income when accrued under the OID rules, or contingent
interest payments generally includible in income in the taxable year in which
the payments become fixed. Although the OID Regulations generally permit a
variety of interest rate adjustment mechanisms to produce 'qualified stated
interest' (e.g., one or more 'qualified floating rates,' 'qualified inverse
floating rates,' or 'objective rates') where each qualified floating rate or
objective rate in effect during an accrual period is set at a current value of
that rate, the use of these
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formulas may in some cases produce accelerated or deferred interest which must
be accrued under a constant yield method, which could require accrual in advance
of the receipt of a corresponding payment of cash. Moreover, prospective
purchasers of P&I Certificates bearing a variable rate of interest should be
aware that the provisions in the OID Regulations applicable to variable rate
instruments may not apply to the particular rate adjustment mechanisms for the
Loans or Mortgage Certificates. If variable rate P&I Certificates are not
governed by the provisions applicable to variable rate debt instruments, the OID
Regulations provide that the certificates would be subject to the provisions
applicable to instruments having contingent payments. See ' -- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules' below. The application of those provisions to instruments like the P&I
Certificates is subject to differing interpretations. Prospective purchasers of
variable rate P&I Certificates are advised to consult their tax advisors
concerning the tax treatment of these certificates.
IF STRIPPED BOND RULES DO NOT APPLY. If the stripped bond rules do not
apply to a P&I Certificate, the certificateholder will be required to report its
pro rata share of the interest income on the Loans in accordance with the
certificateholder's normal method of accounting. However, if the rules relating
to market discount, OID, or premium are applicable, the amount includible in
income on account of a P&I Certificate may differ significantly from the amount
payable thereon from payments of interest on the Loans.
The OID rules will apply to a P&I Certificate to the extent it evidences an
interest in Loans or Mortgage Certificates issued with OID. Under the OID
Regulations a Loan would have OID if the points charged at origination, or other
loan discount, exceeded a specified de minimis amount, generally, the greater of
one-sixth of one percent times the number of full years to final maturity or
one-fourth of one percent times the weighted average maturity. The OID
Regulations also treat some types of variable rate Loans as having OID if the
loans have an initial rate of interest that differs from that determined by the
formula for setting the interest rate during the remainder of the loans or if
the loans use an index that does not vary in a manner approved in the OID
Regulations. For a general discussion of the treatment of variable rate
interest, see ' -- Taxation of Owners of P&I Certificates -- Variable Rate
Certificates' above. Generally, OID would be accrued on the basis of a constant
yield to maturity. However, the application of the original issue discount rules
to the Loans is unclear in all cases. See ' -- Treatment as Stripped Bonds,'
above.
PREMIUM AND MARKET DISCOUNT. Determination of adjustments to a
certificateholder's income based on premium or market discount on a certificate
requires that the purchase price of the certificate be allocated among the Loans
constituting the Trust. Generally, this allocation will provide a tax basis for
the certificateholder's undivided interest in each Loan and will be made on the
basis of the relative fair market values of the certificateholder's undivided
interest in the Loans.
A certificateholder that acquires an interest in a Loan at a premium may
elect under Code Section 171 to amortize the premium under a constant yield to
maturity method over the life of the Loan. Certificateholders should consult
their tax advisors concerning whether
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a prepayment assumption should be used in calculating yield and concerning
possible alternative methods for amortizing premium.
An investor also should be aware that the Internal Revenue Service may take
the position that the method described below for accruing income under the
current proposed Treasury Regulations applicable to debt instruments providing
for contingent payments applies to a P&I Certificate purchased at a premium
because all or a portion of its issue price, called the 'CONTINGENT PRINCIPAL',
may not be recovered if the related Loans were prepaid. See ' -- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules' below. The method of accruing income under the contingent payment rules
may be more likely to be applied if the difference between the issue price of
the certificate and the amount of Contingent Principal is substantial.
If the portion of a P&I Certificate's purchase price allocable to a Loan in
the Trust is less than the certificateholder's undivided interest in the Loan's
'revised issue price' (the sum of the issue price and the previously accrued OID
reduced by the sum of all prior payments of the stated redemption price at
maturity), the excess is 'market discount.' A certificateholder that acquires an
interest in a Loan with market discount generally will be required under Code
Section 1276 to include accrued and previously unrecognized market discount in
income as ordinary income to the extent of payments of the stated redemption
price at maturity received on the Loan at the time that each payment is
received. In addition, on a sale or other disposition of the P&I Certificate, a
certificateholder will be required to include as ordinary income any gain to the
extent of accrued and previously unrecognized market discount. Pending the
issuance of Treasury Regulations, market discount may be treated as accruing
either (1) under a constant yield to maturity method, (2) in proportion to the
OID accruing on a Loan, or (3) in proportion to the stated interest in the
absence of OID. Alternatively, a certificateholder may elect to include accrued
market discount in income currently on all market discount obligations acquired
by the certificateholder during the taxable year in which an election is made
and thereafter. A certificateholder should be aware that Code Section 1277 may
limit the deductibility of interest paid or accrued to purchase or carry a Loan
that is acquired at a market discount unless the election is made to include
accrued market discount in income currently. Certificateholders should consult
their tax advisors as to the application of this rule and the advisability of
making any elections under the market discount rules in their particular
circumstances.
TAXATION OF OWNERS OF IO CERTIFICATES
Because the 'stripped debt' rules of Code Section 1286 will apply to the IO
Certificates, income on the IO Certificates must be accrued under the OID
provisions of the Code. The regulations that have been issued to date under Code
Section 1286 do not address the treatment of stripped coupons, and it is
uncertain how the section will be applied to securities like the IO
Certificates. The OID Regulations do not include rules relating specifically to
'stripped coupons,' although they provide guidance as to how the OID sections of
the Code will generally be applied. The discussion below assumes that a
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holder of an IO Certificate will not own any P&I Certificates. Holders of IO
Certificates should consult their tax advisors concerning the method to be used
in reporting income or loss on the IO Certificates.
Under the stripped coupon rules, it appears that OID will be required to be
accrued for each day on the IO Certificates based on a constant yield to
maturity method. See ' -- Taxation of Owners of P&I Certificates -- Treatment as
Stripped Bonds,' above. It is unclear in the absence of Treasury Regulations
whether a reasonable prepayment assumption is required or permitted to be
applied to calculate the yield to maturity under a provision of the 1986 Act.
The accrual of income on the IO Certificates will be significantly slower if a
reasonable prepayment assumption is permitted to be made than if yield is
computed assuming no prepayments.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. Under the OID
Regulations, debt instruments providing for contingent payments are subject to
different rules than debt instruments providing for non-contingent payments. To
the extent that all or a portion of the issue price, or the Contingent
Principal, of the IO Certificates would not be recovered if the related Loans
were prepaid, the IO Certificates could be considered to be debt instruments
providing for contingent payments within the meaning of the current Treasury
Regulations dealing with debt instruments that provide for contingent payments.
Treasury Regulations concerning the treatment of debt instruments providing
for one or more contingent payments became effective on June 14, 1996, called
the 'CONTINGENT PAYMENT REGULATIONS', for debt instruments issued on or after
August 13, 1996. Although the assets may include debt instruments issued before
August 13, 1996, and thus not technically subject to the Contingent Payment
Regulations, the issuer expects to treat any contingent payments on both sets of
instruments in accordance with the Contingent Payment Regulations.
The Contingent Payment Regulations establish a 'noncontingent bond method'
for the treatment of debt instruments providing for contingent payments that are
issued for money or other publicly traded property. Under this method, the
holder of a contingent payment debt instrument will generally be required to
accrue interest on the debt instrument on the basis of a projected schedule of
the contingent and noncontingent payments to be made on the debt instrument
prepared by the issuer. These interest accruals will be required to be
calculated on an economic accrual basis applying rules similar to those
applicable to noncontingent debt instruments issued with OID treating none of
the payments on the debt instrument as 'qualified stated interest.' In
formulating the projected payment schedule, the issuer will be required to take
into account the noncontingent payments provided by the debt instrument, any
readily available forward price quotes for property rights that are
substantially similar to the right to any contingent payments on the debt
instrument and any readily available spot price quotes for an option or
combination of options that are substantially similar to the right to any
contingent payments on the debt instrument. If the debt instrument contains
contingent payments for which forward or spot quotes are not readily available,
the payment schedule will be required to result in a reasonable yield for
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the debt instrument that reflects any quotable contingent payments and the
relative expected values of any nonquotable contingent payments.
If the amount of a contingent payment varies from its projected amount, the
holder will generally be required to include the variance as a positive or
negative adjustment to income in the year in which the payment is made. Positive
adjustments will be treated as ordinary interest income while negative
adjustments will result in ordinary loss. The amount of the ordinary loss
allowable for the year will be limited to the excess of the total interest
accrued to date on the debt instrument over the total amount of any negative
adjustments included as ordinary loss in previous years.
The Contingent Payment Regulations generally treat any gain on sale of a
contingent payment debt instrument as ordinary interest income. Loss realized on
sale of a contingent payment debt instrument is treated as ordinary loss to the
extent of the excess of the total interest accrued on the debt instrument to the
date of sale over the total amount of any negative adjustments previously
included in income. Any remaining loss is treated as capital loss.
Under these provisions, each holder of an IO Certificate which has
Contingent Principal will generally be required to accrue interest under the
'noncontingent bond method.' Although the issuer intends to provide to holders a
projected schedule under the 'noncontingent bond method,' holders should consult
their own tax advisors regarding the application of the Contingent Payment
Regulations.
ADMINISTRATION FEE, VOLUNTARY ADVANCES AND SUBORDINATED AMOUNT
The income received on a certificate generally includes amounts not paid to
the certificateholder because they are used to pay the Administration Fee.
Subject to limitations on the deductibility by individual certificateholders of
some categories of expenses under Code Section 67 and the reduction of some
deductible expenses for individual certificateholders under Code Section 68 (see
' -- Qualification as a REMIC -- Pass-Through of Miscellaneous Itemized
Deductions' above), each certificateholder may deduct its allocable share of the
Administration Fee paid to or retained by the Master Servicer, to the extent the
fee constitutes reasonable compensation for the services rendered by the Master
Servicer, at the times and in the manner as it would have been deducted under
the certificateholder's tax accounting method had it actually received those
amounts and paid them to the Master Servicer. Payments of voluntary servicing
advances and payments in respect of the Subordinated Amount, if any, to
certificateholders should be treated as having the same character as the
payments they replace.
SALES OF CERTIFICATES
Except as provided above for accrued market discount under ' -- Taxation of
Owners of P&I Certificates -- If Stripped Bond Rules Do Not Apply,' and, in the
case of banks and other financial institutions, except as provided under Code
Section 582(c), any gain or
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loss, equal to the difference between the amount realized on the sale and the
adjusted basis of the certificate, recognized on the sale or exchange of a
certificate by an investor who holds the certificate as a capital asset, will be
capital gain or loss. The Federal income tax rates applicable to capital gains
for taxpayers other than individuals, estates, and trusts are currently the same
as those applicable to ordinary income. However, the maximum ordinary income tax
rate for individuals, estates, and trusts is generally 39.6%, whereas the
maximum long-term capital gains rate for these taxpayers is 20% for capital
assets held for more than 12 months. Capital losses generally may be used by a
corporate taxpayer only to offset capital gains, and by an individual taxpayer
only to the extent of capital gains plus $3,000 of other income.
The adjusted basis of a certificate will generally equal its cost,
increased by any income reported by the seller and reduced, but not below zero,
by any previously reported losses and by any distributions on the certificate.
Purchasers of certificates should be aware that, if income must be accrued
on a certificate as if it were a separate instrument, it may not be possible to
determine whether the adjusted tax basis of the certificate will be recovered in
full until all of the Loans in the related Trust have been paid or otherwise
discharged. Conversely, if income must be accrued on each certificateholder's
undivided interest in each Loan in the related Trust, it is likely that a
portion of each certificateholder's adjusted tax basis will have to be allocated
to each undivided interest. It then should be possible to determine whether the
adjusted tax basis allocable to an undivided interest in a Loan in the related
Trust has been recovered at the time the Loan is paid or discharged. This
approach may result in the earlier recognition of any losses attributable to a
certificateholder's unrecovered adjusted tax basis than if the certificate were
treated as a separate instrument. However, because of the uncertainties involved
and in the absence of substantial legal authority to the contrary, the Master
Servicer does not intend to allocate the adjusted tax basis of a
certificateholder in its certificate to the undivided interest in each Loan
represented by the certificate nor to determine and report whether any allocable
adjusted tax basis has been recovered at the time a Loan in the related Trust is
paid or discharged. Due to the existence of the Subordinated Amount, the effect
of this treatment by the Master Servicer is not expected to be significant on a
P&I certificateholder.
REPORTING
On each Distribution Date, the Master Servicer will cause the Trustee to
furnish to each certificateholder a statement setting forth the amount of the
distribution allocable to principal on the Loans and to interest on the Loans at
the related Pass-Through Rate. In addition, the Master Servicer will furnish,
within a reasonable time after the end of each calendar year, to each holder of
a certificate who was a holder at any time during that year, information
regarding the amount of servicing compensation received by the Master Servicer
and sub-servicers, if any, and other customary factual information as the Master
Servicer deems necessary or is required by law to enable holders of certificates
to prepare their tax returns. However, as long as the only 'certificateholder'
of record is CEDE &
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Co., as nominee for DTC, certificateholders and the IRS will receive tax and
other information from DTC Participants and indirect participants rather than
the Master Servicer. (The Master Servicer, however, will respond to requests for
necessary information to enable DTC Participants, indirect participants and
other persons to complete their reports.)
Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the OID rules is uncertain. Additional guidance is
required from the Internal Revenue Service or other legal authority before it is
possible to determine definitely the proper methods for accruing income on the
certificates. In the absence of additional guidance from the Internal Revenue
Service or other legal authority, the Master Servicer intends to compute and
report accrued income on the certificates for tax purposes in a manner that it
believes to be consistent with the principles of the Code and the OID
Regulations described above. Because of the uncertainties discussed above, there
can be no assurance that the method adopted by the Master Servicer for reporting
to holders of certificates will coincide with that ultimately adopted in final
Treasury Regulations. Accordingly, holders of certificates should consult their
tax advisors regarding the method for reporting the amounts received or accrued
on the certificates. The Trustee intends in reporting information relating to
OID to certificateholders of record, which, in the case of certificates
registered to CEDE & Co., as nominee of DTC, shall be distributed to certificate
owners by DTC Participants and indirect participants of DTC, to provide this
information on an aggregate pool-wide basis. Although there are provisions in
the OID Regulations that suggest that the computation of OID on this basis is
either appropriate or required, it is possible that investors may be required to
compute OID on a Loan by Loan basis taking account of an allocation of their
basis in the certificates among the interests in the various Loans represented
by the certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient Loan by Loan information should the Internal Revenue Service require
computation on that basis. See ' -- Sales of Certificates' above.
BACKUP WITHHOLDING
In general, the rules described in ' -- Qualification as a REMIC -- Backup
Withholding' above, will also apply to certificates.
FOREIGN INVESTORS
In general, the discussion on Regular Certificates in ' -- Qualification as
a REMIC -- Foreign Investors' above, applies to certificates.
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STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in 'Federal
Income Tax Consequences' above, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not describe any aspect of
the income tax laws of any state. Therefore, potential investors should consult
their own tax advisors about the various tax consequences of investments in the
certificates.
PLAN OF DISTRIBUTION
The Depositor may sell the certificates in any of three ways:
through underwriters or dealers;
directly to a limited number of purchasers or to a single purchaser; or
through agents.
The prospectus supplement will set forth the terms of the offering of each
series of certificates including:
the name or names of any underwriters, dealers or agents;
the purchase price of the certificates and the proceeds to the Depositor
from the sale;
any underwriting discounts and other items constituting underwriters'
compensation; and
any discounts and commissions allowed or paid to dealers.
Any initial public offering prices and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If so specified in the prospectus supplement, the Depositor or any of its
affiliates may purchase or retain some or all of one or more classes of
certificates of the series. The purchaser may thereafter from time to time offer
and sell, pursuant to this prospectus, some or all of the certificates so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the certificates or through broker-dealers acting as
agent and/or principal. The offering may be restricted in the manner specified
in the related prospectus supplement. The transactions may be effected at market
prices prevailing at the time of sale, at negotiated prices or at fixed prices.
In addition, the Depositor or an affiliate of the Depositor may pledge
certificates retained or purchased by the Depositor in connection with
borrowings or use them in repurchase transactions.
If any certificates of any series are sold through underwriters, the
related prospectus supplement will describe the nature of the obligation of the
underwriters to purchase the certificates. The certificates may be offered to
the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more underwriting firms acting
alone. The underwriter or underwriters for a particular
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underwritten offering of certificates will be named in the prospectus supplement
relating to that offering, and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover of the
related prospectus supplement. Unless otherwise described in a prospectus
supplement, the obligation of the underwriters to purchase any certificates of
the related series will be subject to various conditions precedent, and the
underwriters will be obligated to purchase all of the certificates if any are
purchased.
Underwriters and agents who participate in the distribution of a series of
certificates may be entitled under agreements which may be entered into by the
Depositor to indemnification by the Depositor against specific liabilities,
including liabilities under the Securities Act, as amended, or to contribution
for payments which the underwriters or agents may be required to make under the
terms of the agreements.
The prospectus supplement for any series of certificates offered other than
through underwriters will contain information regarding the nature of the
offering and any agreements to be entered into between the Depositor and dealers
for the certificates of that series.
Affiliates of the Depositor, including ABN AMRO Incorporated ('AAI'), may
act as agents or underwriters in connection with the sale of a series of
certificates. AAI is a separately incorporated, wholly-owned indirect non-bank
subsidiary of ABN AMRO Bank N.V. AAI is not a bank. Securities sold, offered or
recommended by AAI are not deposits, are not insured by the Federal Deposit
Insurance Corporation, are not guaranteed by, and are not otherwise obligations
of, any bank or thrift affiliate of AAI and involve investment risks, including
the possible loss of principal.
Any affiliate of the Depositor acting as agent or underwriter in connection
with the sale of a series of certificates will be named, and its affiliation
with the Depositor described, in the related prospectus supplement. For
underwritten offerings, any of these affiliates not named in the prospectus
supplement will not be parties to the related underwriting agreement, will not
be purchasing the related certificates from the Depositor and will have no
direct or indirect participation in the underwriting of the certificates,
although the affiliates may participate in the distribution of the certificates
under circumstances entitling it to a dealer's commission. An affiliate of the
Depositor may act as a placement agent for certificates not offered through
underwriters. If an affiliate does act as placement agent on behalf of the
Depositor in the sale of certificates, it will receive a selling commission
which will be disclosed in the related prospectus supplement. To the extent
permitted by law, affiliates of the Depositor, including AAI, may purchase
certificates acting as principal.
The Depositor anticipates that the certificates will be sold to
institutional and retail investors. Purchasers of certificates, including
dealers, may, depending on the facts and circumstances of the purchases, be
deemed to be 'underwriters' within the meaning of the Securities Act in
connection with re-offers and sales by them of certificates.
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Certificateholders should consult with their legal advisors in this regard prior
to any re-offer or sale.
There is currently no secondary market for the certificates. The Depositor
does not intend to make a secondary market for the certificates. There can be no
assurance that a secondary market for the certificates will develop or, if it
does develop, that it will continue. Unless otherwise stated in the prospectus
supplement, the certificates will not be listed on any securities exchange.
LEGAL MATTERS
The legality of the certificates of each series and the federal income tax
consequences will be passed upon for the Depositor by Mayer, Brown & Platt,
Chicago, Illinois. Matters relating to corporate law will be passed upon for the
Depositor by Kirk P. Flores, Esq., in-house counsel to the Depositor.
RATING
Any class of certificates of a series offered by this prospectus and the
related prospectus supplement will be:
rated by at least one nationally recognized statistical rating agency or
organization that initially rates the series at the request of the
depositor and
is identified in the related prospectus supplement in one of the rating
agency's four highest rating categories which are referred to as
investment grade.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions of payments required pursuant
to the Pooling and Servicing Agreement pursuant to which the certificates are
issued on the Underlying Loans. These ratings address the structural, legal and
issuer tax-related aspects associated with the certificates, the nature of the
Underlying Loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A 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 rating should be evaluated independently of similar ratings on different
securities.
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WHERE YOU CAN FIND MORE INFORMATION
ABN AMRO MORTGAGE CORPORATION
We will file reports and other information with the SEC about the Trust
issuing your certificates. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on their public reference rooms.
The SEC allows us to incorporate by reference the information we file with
them about the Trust issuing your certificates. This means that we can disclose
important information to you by referring you to these documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the SEC about the Trust issuing your
certificates will automatically update and supersede this information. You may
request a copy of our filings at no cost by writing or telephoning at the
following address:
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602-4510
Attention: Maria Fregosi -- Director -- ABN AMRO Mortgage
Operations
Telephone: 312-904-8507
In addition, we will provide you with reports annually and monthly on each
Distribution Date containing information about the Trust and your certificates.
ADDITIONAL INFORMATION RELATING TO THE MORTGAGE CERTIFICATES
Copies of the most recent prospectus for certificates issued by FNMA and
FNMA's annual report and other quarterly financial statements as well as other
financial information may be obtained from FNMA by writing or calling its MBS
Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016,
telephone 1-800-BEST-MBS or 202-752-6547. Neither the Depositor nor any of the
underwriters which might be designated to offer the certificates participated in
the preparation of any of these documents, and has not conducted any independent
inquiry to verify the accuracy or completeness of the information described in
FNMA's prospectus, annual report or other reports or statements.
Copies of the most recent Offering Circular for certificates issued by
FHLMC as well as FHLMC's most recent Information Statement and Information
Statement Supplement can be obtained by writing or calling the Investor Inquiry
Department of FHLMC at 8200 Jones Branch Drive, McLean, Virginia 22102
(telephone 1-800-336-FMPC). Neither the Depositor nor any of the underwriters
which might be designated to offer the certificates participated in the
preparation of any of these documents and has not conducted any independent
inquiry to verify the accuracy or completeness of the information contained in
FHLMC's Offering Circular, Information Statement or Information Statement
Supplement.
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Index to Prospectus Definitions
<TABLE>
<S> <C>
1986 Act...................... 113
1998 Policy Statement......... 86
AAI........................... 121
AANA.......................... 26
Accretion Directed............ 5
Accrual....................... 4
Accrual Period................ 8
Act........................... 81
Administration Fee............ 34
Applicable Amount............. 104
ARMs.......................... 15
Assets........................ 95
Available Distribution
Amount..................... 43
Back-Up Master Servicer....... 54
Balloon Loan.................. 14
BIF........................... 12
Buydown Loan.................. 15
CERCLA........................ 82
Certificate Account........... 7
Closing Date.................. 60
Co-op Loans................... 14
Code.......................... 2
Committee Report.............. 97
Contingent Payment
Regulations................ 116
Contingent Principal.......... 115
Custodial Account for P&I..... 44
Custodians.................... 55
Cut-off Date.................. 3
Deferred Interest............. 16
Definitive Certificates....... 70
Depositor..................... 1
Determination Date............ 9
Distribution Date............. 4
DOL........................... 88
Due Date...................... 9
Eligible Investments.......... 7
ERISA......................... 87
Excess Liquidation Proceeds... 44
FDIC.......................... 12
FHA........................... 20
FHA Loans..................... 20
FHLMC......................... 12
FHLMC Act..................... 22
Fixed-Rate Loans.............. 15
FNMA.......................... 12
Forward Purchase Agreement.... 60
Fractional Undivided
Interest................... 2
GNMA.......................... 20
Gross Margin.................. 15
Guide......................... 17
Housing Act................... 20
HUD........................... 12
Index......................... 15
Interest Only................. 5
Interest Remittance Amount.... 37
IO Certificates............... 110
Lease......................... 85
Liquidation Proceeds.......... 43
Loans......................... 1
Master Servicer............... 1
Mortgage Assets............... 1
Mortgage Certificates......... 1
NCUA.......................... 86
Negatively Amortizing ARMs.... 16
Net Margin.................... 34
Non-Accelerated............... 6
OID........................... 92
OID Regulations............... 92
OTS........................... 86
P&I Certificates.............. 110
Parties in Interest........... 88
Pass-Through Rate............. 34
Payment Caps.................. 16
Percentage Interest........... 2
Plans......................... 87
Pooling and Servicing
Agreement.................. 1
Pre-Funding Account........... 12
Prepayment.................... 5
Prepayment Assumption......... 97
</TABLE>
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<TABLE>
<S> <C>
Prepayment Interest
Shortfall.................. 36
Prepayment Period............. 44
Principal Only................ 5
Principal Prepayments......... 9
Private....................... 24
PTE 83-1...................... 88
PUDs.......................... 14
Realized Loss................. 50
Record Date................... 6
Regular Certificateholder..... 96
Regular Certificates.......... 93
REMIC......................... 92
REMIC Regulations............. 92
Remittance Rate............... 4, 34
Reserve Fund.................. 32
Residual...................... 5
Residual Certificates......... 93
Residual Holder............... 2
SAIF.......................... 12
Senior........................ 4
Sequential Pay................ 5
Shifting Interest Credit
Enhancement ............... 29
SMMEA......................... 85
Specified Reserve Fund
Balance.................... 32
Startup Day................... 93
Stripped...................... 5
Subordinate................... 4
Subordinated Amount........... 4
Superlien..................... 82
Surplus....................... 5
TB 13a........................ 86
Title V....................... 83
Trust......................... 1
Trustee....................... 1
Unanticipated Recovery........ 50
Underlying Loans.............. 1
Underwriter Exemption......... 90
United States person.......... 110
VA............................ 20
</TABLE>
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<PAGE>
ABN AMRO MORTGAGE CORPORATION
$294,856,541
MULTI-CLASS MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1999-8
[ABN AMRO LOGO]
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
UNDERWRITERS
LEHMAN BROTHERS INC.
ABN AMRO INCORPORATED
November 22, 1999
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the offered certificates in any state where the offer is not
permitted.
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
February 20, 2000.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ............................. 'SS'
